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What We Read Today 25 September 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.

  • Ex-Barclays bankers to give evidence to fraud agency (Caroline Binham, Financial Times) Two former directors of Barclays Bank have been called before the UK's Serious Fraud Office. At question is a negotiation with Qatari investors to obtain £5.8 billion ($19.5 billion) in 2008 during the Great Financial Crisis, thus avoiding a bailout. In an ongoing investigation of the CEO and other top officers, the bank has resisted supplying key evidence.
  • Recent articles about Scotland Independence Vote :

Scots should forget devo max – it’s not possible and wasn’t offered (The Conversation)

Scotland No vote has halted a wider debate about Trident (The Conversation)

  • Articles about wars elsewhere in the world:

Obama condemns Russia, calls for action against ISIS and Ebola (CNBC) Several video excerpts of UN address.

Algerian extremists behead French hostage (Associated Press, MSN News)

What Arab partners will get in return for strikes on Syria (The Conversation)

The Ancestors of ISIS (The New York Times)

Turks leave for "family-friendly" IS group (Associated Press, MSN News)

Islamic fighters advance in Syria despite U.S. strikes (Reuters)

David Cameron and Hassan Rouhani meet in UN amid signs of thaw (Financial Times)

Ukraine warns West against lifting Russia sanctions (BBC News)


There are 13 articles discussed today 'behind the wall'.

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  • Gold / Silver / Copper futures - weekly outlook: September 22 - 26 (Investing.com) This is the second discussion of this article, the first being for gold, WWRT 23 September, 'behind the wall'. Copper has a monstrous 3-year descending triangle which is a very bearish pattern due to the extended duration of formation. On a technical basis one must remain alert for a break out to the downside. The support level for the triangle is drawn at 2.90 but could also have been drawn at 3.00 or slightly above. One could be justified in starting trading based on any support level 2.90 to 3.00.

Click for large image.
copper-weekly-2014-sep-22-annotated-600x480

  • The rise of the commercial banking sector and household debt (Nick Bunker, Washington Center for Equitable Growth) Hat tip to Ira R. Campbell, GEI Discussion Group, LinkedIn. This is a summary review of a NBER working paper which reviews the development of banking from 1870 to the current day. The paper found (1) banking has become a larger share of the overall economy over the 140 years; (2) Bank credit has shifted from investment in production (businesses) to consumption (house mortgages); (3) Mortgage lending is especially prone to excesses and susceptibility to economic shocks. Paper is The Great Mortgaging: Housing Finance, Crises, and Business Cycles (Òscar Jordà, Moritz Schularick and Alan M. Taylor, NBER Working paper No. 201501)
  • Climate Science Is Not Settled (Steven E. Koonin, The Wall Street Journal) Hat tip to Sig Silber. The author says that global warming is a settled fact. What to do about it is much more uncertain.
  • Ditch the NAIRU! (Lars P. Syll) NAIRU (Non-accelerating inflation rate of unemployment) is a construct which proposes that there exists at any time a rate of unemployment which is necessary to prevent inflation from accelerating and/or rising above a desired level. Syll points out that the construct of NAIRU gives rise to a circular incongruence of logic:
Even authors working within the orthodox NAIRU approach are unable to explain (changes in long-run) unemployment in terms of only "excessive" labor market regulation. To explain (changes in) u*, most empirical studies consider it necessary to include other, additional "factors which might explain short-run deviations of unemployment from its equilibrium level" ... the most important of which are aggregate demand shocks (i.e., import price and real interest rate shocks) and productivity shocks. The inclusion of such "shocks" is not an innocent amendment, because it turns out that a significant part of the OECD unemployment increase during the past three decades must be attributed to these shocks ... This is obviously a dissatisfactory state of affairs: in the theoretical analysis,the impact of demand factors on equilibrium unemployment is defined away, but in the empirical analysis it has to be brought back in, not as a structural determinant but rather as an exogenous shock. We argue that this incongruence points to a misspecification of the NAIRU model.

nairu-unemployment-lars-p-syll-2014-sep-24

  • The Safety Net: An 11.8% Yield That’s Generating a Lot of Attention (Marc Lichtenfeld, Wealthy Retirement) Lichtenfeld suggests a high diviend yield play, American Capital Agency Corp. (NASDAQ: AGNC). Econintersect notes that Managing Editor John Lounsbury holds a different mortage REIT in his personal portfolio, Annaly Capital Management (NYSE:NLY). The dividend yield is less (10.7%) but John says his assessment is that the dividend is safer with NLY.
  • Putting China's economic reforms into perspective (Peter Cai, China Spectator) Cai thinks that the Chinese "entrepreneurial energy" will be a key factor in bringing the country through the stressful period occasioned by the rebalancing of the economy.
  • John Hussman: “The Ponzi Economy” (John Hussman, Advisor Analyst) Hat tip to Ian R.Campbell, GEI Discussion Group, LinkedIn. Hussman has been bearish for several years. Eventually he will be right (unless he changes his position). In this article he points out that there are clear cycle late-stage signs (see buybacks graph) and divergences (see second graph).

buy-backs-hussman-2015-sep

ad-sp500-diverg-hussman-2014-sep

  • Pimco under investigation by SEC (Alanna Petroff and Jesse Solomon, CNN Money) It is reported that PIMCO Total Return fund boosted its returns by buying securities at a discount and recording them at full value on their books, thereby artificially boosting their reported returns. See also next article.

  • Other Economics and Business Items of Note and Miscellanea

Android One won’t make Google big bucks, so why bother with cheap smartphones? (The Conversation)

WTO cuts world trade growth forecasts for 2014 and 2015 (Reuters)

Survey: Three Out Of Four Americans Say The Recession Is Still On (Financial Advisor)

ECB OMT Challenge to Be Heard by EU Top Court on Oct. 14 (Bloomberg Businessweek)

Analysis: EU Tussles Over Private Versus Public-Led Stimulus (mni)

China Focus: Home purchase restrictions eased amid cooling market (xinhua)


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