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.
Ten stocks for the next 25 years (John Melloy, CNBC) Hat tip to Marvin Clark. Jim Cramer's list is heavy on tech with a smattering of apparel, leisure, water and health. Energy (at least not directly, there is one company that could become a major energy company although not much in that area today), financial services, industrial, media/communications and basic materials sectors do not make the list. Caution: Remember the "Nifty Fifty" of the late 1960s and early 1970s? See discussion article 'behind the wall'.
Articles about unusual events, conflicts and disease around the world
There are 10 articles discussed today 'behind the wall'.
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Valuing Growth Stocks: Revisiting the Nifty Fifty (Jeremy Siegel, AAII Journal) This 1998 paper tracks the performance of the "hold forever" group of stocks from their heyday in the early 1970s to 1998. For most of that 25 year period they underperformed the S%P 500.
G20 climate challenge calls for a rethink of economics (Geoff Harcourt and Anne Junor, The Conversation) The conclusion of these authors is that the world needs a new growth model and may have to move beyond the current one based on the "utility-maximizing individual". The authors suggest the new model will have a foundation in "social cohesion". They are talking a language that will sound primitive and unintelligible to neoclassical mainstream economists. They (neoclassicals) believe the assumption attacked is actually a fundamental law of the universe. Something like the belief of 17th century alchemists in the fundamental element of phlogiston. Econintersect: Social cohesion may have common elements with return on coordination discussed often by Roger Erickson.
The low wages fallacy (Lars P. Syll) Idea that we should lower wages until the labor market clears depends on the hypothesis that supply creates its own demand. And there are those who believe that. Many of them are the same who think that banks lend deposits. And that the government should cut back until the economy improves. Hello Europe, how's that working out for you?
Fear and Change (Buttonwood, The Economist) Turn the crank hard enough on the economy that is squeezing the people and political extremists pop out.
The wacky economics of Germany’s parallel universe (Wolfgang Munchau, Financial Times) Munchau says that there are two kinds of economists in Germany: those who have not read Keynes and those who have not understood him. As a result economics in Germany operates in a different place ("parallel universe") from the rest of the world. The latest report from the government's economic advisory group doesn't recommend any investment, any infrastructure or social welfare improvement, but just some more cuts (wages, retirements).
Via Twitter (Sony Kapoor) Interesting (and informative graphics) from The Wall Street Journal:
An Offshore Swan: Could the next financial crisis be sparked by China being pulled into the Currency War? (Walter Kurtz, Sober Look) Kurtz discusses how they world is loaded up with carry trade debt to benefit from the higher interest rates in China vs. other major economies. This is the result of China suppressing the exchange rate of the renminbi to increase exports. But part of the rebalancing China must do for sustainability will require letting the renminbi move toward a free-market exchange rate which would move from approximately 6 rmb to the US dollar to a much higher number (7? or 8? or 9? or 10?). Such moves would produce massive principal losses on exchange out of the renminbi on maturing debt and would also diminish the big spread in rates. The carry trade has exploded over the past 4 years (see graph below), both by legitimate financial exchanges and by faked export invoices which move move money into China with nothing leaving. There is suspicion that the faked invoices are the dominant factor - and this also has inflated the reported export numbers for China. (The large positive trade balance may be fictitious.) Kurtz summarizes this well:
Given the long running, strong performance of the CNY and CNH carry trades over the past few years and the rapid growth in the offshore currency market, it is reasonable to expect net exposure is large and leveraged with investors and financial institutions. Furthermore, the size of cross border trade with China has led RMB to be the 2nd largest trade finance currency. This leads me to believe that foreign corporates may have large exposure to the carry via RMB trade finance arrangements and is evidenced by over-invoicing. Furthermore, this could be resulting in a favorable and potentially fleeting skew to the underlying economics of trade with China
Other Economics and Business Items of Note and Miscellanea
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