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What We Read Today 13 October 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.

  • European Central Bank to launch fresh stimulus as eurozone stutters (Szu Ping Chau, The Telegraph) Hat tip to Ian R. Campbell, GEI Discussion Group, LinkedIn) Inflation expectation moved down to 1.7% (currently at 0.3% actual) is the environment with Graghi saying that further rate cuts are out (some are already negative) but other actions are still being considered. Draghi suggests that "full-blown" quantitative easing was an option if "expectations drifted down further".

  • The Modern Portfolio Flat Earth Society (Vitaliy Katsenelson, Institutional Investor) We have discussed this article before. If you missed it then you should read it now. The author points out the ridiculous connection that MPT (Modern Portfolio Theory) makes between volatility and risk. Most people love upside volatility (gain) and want to avoid downside volatility (loss). Measurement of portfolio performance using the two-sided volatility is simply wrong. Performance is better measured by gain as a positive and drawdown as a negative. A very important aspect of the math in MPT not specifically discussed by Katsenelsen is the assumption that price movements are normally distributed (follow a bell curve). MPT math is based on that fallacious assumption, which is what is behind the improper treatment of gain vs. drawdown by the theory. MPT produces very precise measurements of market and portfolio performance, along with precise expected future results. Unfortunately the projections are sometimes precise but very inaccurate. If you need a visual to help remember the difference between accuracy and precision, the following target graphic will help. If your gun produces the shot pattern on the left, you will eat well by taking only a few shots. If it is the one on the right you may shoot 100 times and still go hungry - you're precisely hitting a spot, it's just not where the meat is located.


  • St. Louis, Ferguson and Related News

St Louis protests to continue after arrests made in Ferguson (The Guardian)

  • Recent articles about Scotland Independence and Similar Movements

Brown says Cameron "unstatesmanlike" on Scottish MPs plan (BBC News)

Thousands rally in Barcelona against Catalonian independence (The Guardian)

Will Catalonia Hold a Referendum on Whether to Break Away From Spain? (National Geographic)

  • Articles about conflicts and disease around the world


Here's How Nigeria Beat Ebola It took 18,500 interviews, but Nigeria managed to contain the outbreak. (Mother Jones)

To stop Ebola, US must be able to diagnose it quickly (The Boston Globe)

Second US Ebola diagnosis 'deeply concerning', top health officials admit (The Guardian)

Obama calls for action to ensure U.S. medical system can handle Ebola (Reuters)

Ebola Vaccine Would Likely Have Been Found By Now If Not For Budget Cuts: NIH Director (Huffington Post)

Ebola – as seen through the eyes of a 13-year-old from Sierra Leone (The Guardian)


Donors pledge $5.4bn for Palestinians at Cairo summit (BBC News)

Israeli minister: World may be wasting its money on Gaza (The Jerusalem Post)

UN Chief Says 'Occupation' is to Blame for Gaza War (Arutz Sheva)


Turkey 'agrees to US air base use' (BBC News)


Iran warns of risk to Israel's security should US seek overthrow of Assad (The Guardian)

How she went from a schoolteacher to an ISIS member (CNN World)


McCain urges ground troops to defeat Isis: 'They're winning, and we're not' (The Guardian)


Ukraine leader sacks defence minister ahead of Russia talks (Yahoo! News)

Russia says it's pulling 17,000 troops from near Ukrainian border (CNN World)

Hong Kong

Hong Kong leader says pro-democracy protests will not change Beijing’s stance Chief executive Leung Chun-ying warns that protests have ‘spun out of control’ and police may use some force to clear streets (The Guardian)

Hong Kong police start clearing protest barricades (The Globe and Mail)

North Korea

Rogers says Korea to unify within 5 years (Futures)

There are 14 articles discussed today 'behind the wall'.

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  • The Bank of Japan may put further easing on hold (Walter Kurtz, Sober Look) The Bank of Japan appears to think there is no use fighting against fiscal stupidity right now as the Japanese economy is being dragged down by the 60% increase in the national consumption tax last April 01.


  • French bank, Twitter team up for money transfers via tweets (Leila Abboud and Eric Auchard, Reuters) Twitter is racing Apple and Facebook to get a foothold in money transfers as an entree into online payments which is expected to become a major transaction process for mobile phones or apps. This looks like the first step has been won by Twitter, considered by many to have been out-maneuvered by its rivals in earlier comparisons.


  • 'People are buying cars they shouldn't be': subprime autos are the next crisis (Chris Arnade, The Guardian) Auto loans aren’t as big as the housing bubble, but it’s a growing disconnect between Wall Street and the people it lends to. Lenders are making sub-prime auto loans at rates as high as 30%, relying on remote shut-off technology if a payment is missed and securitizing the trash for investors suckers to buy. Here is some of what Arnade has to say:

Who are these borrowers? To quote Wall Street: "Obligors who do not qualify for conventional motor vehicle financing as a result of, among other things, a lack of or adverse credit history, low income levels and/or the inability to provide adequate down payments."

Meaning people who usually can't borrow money. They are mostly the working poor in places like Texas and Florida, places that don't have much public transportation, places that require a car to get a job, to shop, to bring children to day care, to drive to the dollar store or Walmart in the strip mall.

These are loans that charge on average 17% a year, often exceed 20%, and sometimes are as high as 30%.

And he characterizes the sub-prime securitization as "a disposal service, but for bad car loans instead of cars". Econintersect wonders if many of these are not a repeat of "liars' loans", a technique that pumped the housing bubble toxic credit flow with lenders creating false income certifications for their buyers. Once the pathway to instant riches by getting fees for creating debt that can't be repaid is blocked in one direction, and the "invisible hands" that support the system at the top remain out of prison, why shouldn't we see the same fraud surface again and again? See this for the repossession end of the subprime car loan business. See also next article.

  • Auto lenders try to steer regulators away from 'bubble' fears (Joseph Lawler, Washington Examiner) While regulators are alarmed at the rapid rise in subprime auto loans (see graph below from Liberty Street Economics article at GEI News), industry representatives argue that this is nothing more than the normal pattern at this stage in the credit cycle. In the second quarter, about 22% of all auto loans originated were subprime ($20 billion out of $92 billion total).


  • Other Economics and Business Items of Note and Miscellanea

10 Wackiest Political Conspiracies Ever (Rant Political)

The 21 best beer bars in the world (Thrillist)

China Central Bank Crushes Hopes For A "Large-Scale Fiscal Or Monetary Stimulus" (Zero Hedge)

Last German state abolishes university fees (The Independent)

Dubai Stock Plunge Leads Middle East Rout After Global Selloff (Bloomberg)

Bolivia goes to polls with Evo Morales favourite to win third term Populist leader who has used funds from natural gas bonanza to cut poverty set to become Bolivia’s longest serving president (Reuters, The Guardian)

Czech Central Bank Head Sees Lowered Risk of Deflation (The Wall Street Journal)

Modi seeks win in Maharashtra election to support economics reform (First Post)

Why global economy needs new economic thinking-2 (SPY Ghana)

“It breaks my heart”: How a SWAT team upended my baby’s life — and got away with it (Salon) Hat tip to Rob Carter.

Snapchat videos and pictures stored on a third party website posted online Images from up to 200,000 teenagers leaked on to internet after users lured into saving images on (The Guardian)

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