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What We Read Today 14 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.

  • Unexpected drop in euro zone output clouds recovery hopes (Martin Santa, Reuters) Hat tip To Ian R. Campbell, GEI Discussion Group, LinkedIn. Industrial production for the Eurozone fell by o.3% in June from May. May had fallen 0.6% from April. That's almost a one percent decline in two months. Output in June was unchanged year-over-year. The prospects for GDP growth in the second quarter now appear bleak. Watch for the preliminary figures later today.

  • The most wanted man in the world (James Bamford, Wired) Edward Snowden says he grew up believing the government didn't lie. So when he read of National Intelligence Director James Clapper telling a Senate committee that the NSA "does not wittingly collect information" on millions of Americans, the clash with his ethics caused him to start acting on what he knew. See also next article. A brief recorded statement by Edward Snowden:

  • Snowden: I Left the NSA Clues, But They Couldn’t Find Them (Andy Greenberg, Wired) Whistleblower Edward Snowden says that he left pointers to the documents he smuggled out of the NSA data bases so the agency could minimize national security risks. He says it is now clear that the NSA has either "purposely inflated the size of his leaks" or is "incapable" of finding the clues he left for auditors.
  • 4 new benefits of coffee (MSN Healthy Living) Studies have shown coffee can lower your risk of diabetes, liver cancer, Alzheimer's and skin cancer. But there are four new reasons to drink your coffee and feel good about it: Slide show.


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

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  • China’s shocking data has a message (Houses and Holes, Macro Business) Credit showed a sharp contraction for China in July and nobody paid any attention after the announcement Tuesday. The drop apparently had little to do with the banking system; the contraction was almost entirely in the shadow banking system. Whether this is a "rogue" data point (an outlier) or not Macro Business suggests it indicates its time to unload commodity long positions.


Chinese buyers' insatiable appetite for overseas property is one of the major driving forces behind the aggressive investment strategy of major developers. Chinese real estate buyers have become a major force to be reckoned with at several major Western countries, such as the US, Canada and Australia.

In the US, cashed-up Chinese are the biggest buyers of high-end luxury real estate in New York and they have outspent their main competitor, the Russian oligarchs. China has replaced Canada as the leading foreign buyer of American properties. According to the National Association of Realtors, Chinese account for 24 per cent of total foreign buying activity, up from 19 per cent.

Australia is also another perennial favourite for Chinese investors. China replaced the US as the largest investor in Australian properties last year. Chinese interest is driving an apartment construction boom in major cities in Australia such as Sydney and Melbourne. Credit Suisse estimates that Chinese buyers are currently purchasing about 12 per cent of new houses in Australia.

The Obama administration on Tuesday rolled back part of its ban on lobbyists serving in government, narrowing one of the president's signature policies in the face of a legal challenge.

Under a new rule, registered lobbyists whom Mr. Obama had previously barred from serving on government advisory boards may now participate if they are representing companies or groups and not acting on their own behalf.

The change was published in the Federal Register and took effect immediately, the administration said. It comes after the United States Court of Appeals for the District of Columbia rejected the Obama administration's efforts to dismiss a lawsuit by six lobbyists who challenged the ban's constitutionality after being excluded from a trade advisory committee. The lobbyists said their First Amendment rights to petition the government had been violated.

1. Past Social Security taxes have been "squandered on other Federal expenses". What is the justification for using the word "squandered"? Specification of money wasted would help here. And further, would these other expenses not have been paid if there were no SS taxes collected? Or would other sources of money been exploited?

2. The assumption is made (but not stated) that the only source of money for government expenditures is debt issuance or tax collections. Every time a person makes such an assumption (usually implicitly because many believe it is a fact) it should be challenged for justification. The problem with assumptions oft repeated and not challenged is that they become seen as facts by many.

3. Smith is relying on oft quoted present value of future liability calculations. These are typically not compared to present value of future asset calculations. Such a comparison is necessary to start a discussion which many think is already finished.

It may sound as if we are not recommending this article, but that is not the case. It is well written and supported with good analysis. But we hope you will read it with factors such as the ones enumerated in mind. One example of his excellent analysis is the following graph which suggests that the paper profits in the form of corporate stocks has become seriously overinflated over the past 20+ years. This is worth giving some thought. Econintersect certainly will.


  • With Natural Gas Byproduct, Iran Sidesteps Sanctions (Clifford Kruass, The New York Times) Iran is circumventing sanctions on its conventional oil exports by shipping ultralight oil (aka condensates). Th oil is going to China and other Asian countries. The result is about 400,000 barrels of oil a day are being shipped above the 1 million that are the sanction limit.
  • A Global Financial Guru Who Predicted the Crisis of 2008 Says More Turmoil May Be Coming (Michael Schuman, Time) In 2005 Raghuram Rajan, now the governor of the Reserve Bank of India, then an economic counselor for the IMF (International Monetary Fund) gave a talk at Jackson Hole that most thought was off the wall crazy. He argued that the complex structure of financial derivatives were making global finance much riskier. That was just the opposite of what nearly everybody else was saying. Now he is saying the same thing about the current financial situation, saying that the easy money liquidity is encouraging the same kinds of bad investments in financial schemes that brought the house down in 2008. Do you think he has any greater audience this time? See also next article.
  • Yield Hunters' New Tune Echoes Financial Engineering's Past (Richard Barley, The Wall Street Journal) Here is an echo to Raghuram Rajan (preceding article). Barley says that games being played for increased return in a very low yield environment can again create risky financial instruments that "ultimately few understand".


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