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What We Read Today 11 August 2014

Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries (and sometimes longer ones) of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number included.

  • UPDATE 1-Support for Scottish independence drops after TV debate - poll (Costas Pitas, Reuters) A televised debate between leaders of the separatist movement and supporters or remaining in the UK has shifted opinion away from separation of Scotland. For the first time 50% want to vote "No" (on independence while support for separation has fallen to 37%. The remaining 13% are undecided. The vote takes place in five weeks.

  • Tick Seen on Long Island Can Trigger Allergy to Red Meat (Marilynne Marchione, The New York Times) The Lone Star tick is found widely across the central, southern and eastern U.S. A bite from one of these little critters has produced severe meat allergies with life threatening reactions in some cases. Since this tick is not a vector for Lyme Disease some have felt it to be less dangerous, although the Lone Star tick does transmit Rocky Mountain Spotted Fever.

lone-star-tick
Lone star ticks, female left and male right.

  • ‘Hobbit’ more likely had Down Syndrome than a new species (Maciej Henneberg and Robert Eckhardt, The Conversation) All of the evidence examined to date is consistent with the discovery of small stature human remains in a cave on an island in Indonesia in 2004 being from a modern human afflicted with a genetic condition such as Down Syndrome or something similar. . The remains dated about 18,000 years old and have been designated as a new hominin sub-species, homo floresiensis. Research published by these authors suggest that the designation of a new sub-species may have been premature. It has been difficult for scientists to locate the "hobbit" with respect to other homonin species as evidenced by the following graphic from GEI News:

hobbits-family-tree


There are 11 articles discussed today 'behind the wall'.

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china-credit-growth-sober-2014-aug-10

  • Energy MLPs for Retirement Income? (Miriam Rozen, Financial Planning) Master Limited Partnerships (MLPs) are high yielding instruments which have great appeal for income seekers, such as retirees. But, even though they are publicly traded, many on the NYSE (New York Stock Exchange), they can have liquidity limitations. In other words trading volumes can be low and selling can be problematic, resulting in large spreads (bid/ask price differences) Thus these instruments are recommended by many planners only for very long-term buy and hold positions. For more info on MLPs, see next article. For another potential liquidity problem to watch out for, see the second article following.
  • Master Limited Partnerships - Alphabetical (The Yield Hunter) The Yield Hunter belives it has a complete list of MLPs. These are typically high yielding instruments which pay no income tax and are a pass-through entity for tax purposes. They are not required to pay out any given percentage of income (REITs - Real Estate Investment Trusts - are another class of pass-through securities which are required to pay out at least 90% of income) and can sometimes payout more than current income when cash flow supports that action. In those cases part of the "yield" is actually classified as return of capital and is not taxed. If the instrument is later sold then the cost basis will be reduced by the sum of return of capital payment, increasing capital gains taxes. MLPs must derive at least 90% of their revenues from natural resource activities, which includes real estate, transportation and processing facilities. MLPs complicate income tax returns because they are reported via K-1 forms. These require tax preparation steps different from the 1099 forms which report most other investment returns. And, whereas 1099s are required to be issued by an IRS specified date, K-1s have much more lax reporting requirements, sometime arriving late (or are amended late)so that amended returns have to be filed.
  • Junk-Bond Turmoil just Preliminary, “The Real Panic Will Come With…” (Wolf Richter, Wolf Street) There are other areas of the market that can suffer from illiquidity. One of those is high yield bonds (aka "junk"). The first graph below shows recent history with liquidity problems creating "panic". These problems are aggravated when the "market makers" (dealer specialists in individual stocks) have limited inventory and cannot respond to higher volumes of orders. Since dealers move to lower inventory levels when they perceive risk is increasing they can be cutting inventory at just the wrong times for effecting market stability. In the case of high yield debt, dealers have been reducing inventory for years while the publicly traded volumes have been rising sharply. Not a good position for holders of junk bonds.

high-yield-fund-flows-wolf-2014-aug-08

high-yield-dealer-inventory-wolf-2014-aug-08

  • More bang for your buck (The Economist) The world's oldest profession is being shaken up by the world's newest technologies. And the cost to the consumer is coming down.

prostitution-coats-economist-2014-aug-09

  • Warren Buffett’s Huge Pile of Cash (Leonid Bershidsky, ThinkAdvisor) At the end of 2008 Berkshire Hathaway had $26 billion in cash and Warren Buffet explained to shareholders that it was important to keep "ample cash" for "tomorrow's obligations". With the financial world crashing all around back then the cash on hand seemed quite prudent. But now Berkshire has more than double as much cash, $55.4 billion. Does Warren know something that we don't?
  • A Corporate Tax Break That’s Closer to Home (Gretchen Morgenson, The New York Times) Here is a corporation which will be reducing corporate income taxes paid to Uncle Sam without doing an inversion (moving off-shore). Telecommunications company Windstream Holdings (NASDAQ:WIN) has obtained a ruling from the IRS which will allow them to split out their network facilities (both copper and fiber optics) into a REIT. This will require WIN to pass through at least 90% of earnings to share holders. Those earnings will be tax free to the company and be taxed as ordinary income to the public. The article says that the IRS will lose $250 million a year in corporate income tax revenue. The article doesn't mention that at least some of that $250 million will be recovered from personal income taxes of the passed-through income.

wi-fi-airplanes-engadget-2014-aug-05


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