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What We Read Today 13 December 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.

U.S. Senate aims to vote Monday on $1.1 trillion spending bill (Richard Cowan and David Lawder, Reuters)  Efforts for the U.S. Senate to pass the $1.1 trillion appropriations bill to fund the government for the rest of fiscal year 2015 (ends 30 September 2015) collpased Friday night.  The bill had been passed by the House Thursday.  A special resolution has been passed by the House to keep the government funded until Wednesday night, according to a late article from The Washington Post, to give the Senate time to get the bill to a vote.

Negotiations between Democrats and Republicans to speed the process along collapsed during late-night talks in the nearly abandoned U.S. Capitol.  A major concern on the Democratic side was regarding a roll-back of the Dodd-Frank Law provisions limiting the the investment in derivatives by banks.  Conservative Republicans were arguing for an immediate defunding of the actions authorized on immigration reform by President Obama's recent executive order.  If either change were made then the bill would have to return to the House for another vote, so it is likely that both initiatives will not be seen through. 

Heartbeat during marriage proposal (Flowing Data)  About 40 minutes of output from a heartrate monitor worn before during and after a marriage proposal at the Roman Collosium.

Click for large image with good legibility.

Boom: North America's Explosive Oil-By-Rail Problem (Weather Films, vimeo)  Exposee on the "Ford Pinto" of rail cars.

Click to watch 10 minute video at vimeo.

Storms Batter California (Reuters)  See what happens when drought is followed by heavy rains.

Click to watch 1 minute, 10 second video at Reuters.

Articles about events, conflicts and disease around the world

Ferguson and Related News










China’s Slowdown Deepens as Factory Output Growth Wanes: Economy (Xiaoqing Pi, Bloomberg)  China's economic numbers continue to come in below recent levels and below expectations.  Bloomberg has a GDP tracker which has just logged it's fourth month in a row below 7%.  Fourth quarter GDP could fail to reach the "magic" 7% GDP growth number and make it virtually certain that the government will set a 2015 target no higher than 7.0%.  See also China November factory output up 7.2 percent, misses forecasts, investment cools (Reuters).

China pumps $78bn into banking system (Dow Jones Newswires, Business Spectator)  China is pumping about 400 billion yuan ($78 billion) into the country's banking system, in an effort to get banks to increase lending.  The fund injections so far have been seen as a short-term effort to spur growth without flooding China's financial system with excess credit. The moves fall short of more-dramatic efforts such as cutting the amount of deposits banks have to keep in reserve. Still, by extending more credit as past loans come due, Beijing is showing it is getting increasingly uncomfortable with the slow growth.

Dynastic bull (The Economist)  There is good reason for China's stocks to be on the rise, but The Economist says that "a manic market is a policy headache".  Some of the sharp jump in Shanghai stock prices is from low valuations but some is also because available interest rates are low and the real estate sector is pulling back.  It is a case of nowhere else to go.  The Economist says rally has "sucked in more and more mom-and-pop investors", with amost 600,000 new accounts opened in the first week in December alone.  This is 4x the usual rate.  The rally (40% since July) may still have room to run - PE ratio for the Shanghai market is 10x projected earnings.  The global average is 15x and the growth rate for China is well above the global average (although some would argue that will soon change).  The current rally has a long way to go to reach the bubble proportions that resulted in the collapse from the 2008 peak.  The Economist thinks that the current advance will end long before such extreme overvaluation is reached.


The following four articles discuss what has been called the "Dred Scot Decision" for the U.S. financial system.

U.S. court reverses fund managers' insider trading convictions (Nate Raymond and Emily Flitter, Reuters)   A U.S. appeals court dealt federal prosecutors a blow in their crackdown on insider trading on Wall Street on Wednesday, overturning the convictions of Todd Newman, a former portfolio manager at Diamondback Capital Management, and Anthony Chiasson, co-founder of Level Global Investors.  The defendents were cleared because the court ruled that they had no knowledge about whether or not the original tipper made disclosure for personal benefit.  More in the following articles.  In addition:

"Although the government might like the law to be different, nothing in the law requires a symmetry of information in the nation's securities markets."
- U.S. Circuit Judge Barrington Parker wrote for the three-judge panel.

RPT-UPDATE 3-Insider trading cases face uphill path after convictions tossed (Nate Raymond and Emily Flitter, Reuters)  Security lawyers are (predictably) very supportive of the ruling, saying it makes conviction for insider trading  more difficult for persons who are "one or more layers removed from sources of confidential information".  The ruling is a major blow to Manhattan U.S. Attorney Preet Bharara who has obtained 82 insider trading convictions over the past five years.  If the ruling stands (Bharra may appeal) some other of his convictions may be overturned and future cases will have to meet a raised bar. 

Jill Fisch, a professor at the University of Pennsylvania School of Law, said the ruling was a message the recent insider trading prosecutions had gone too far, according to this article.  She says paying for "corporate insider information" should be illegal.  But information obtained otherwise:  She is quoted:

Wall Street traders routinely "get a whole lot of information from people that you talk to all the time."

"What basis could you possibly have for determining which information you can use and which you can't?"

REFILE-UPDATE 3-U.S. authorities face new fallout from insider trading ruling (Nate Raymond and Emily Flitter, Reuters)  In the case that was overturned a number of others had entered plea bargains to cooperate with the prosecution.  Some of them may consider withdrawing from the deals.  Other cases currently underway are being reviewed based on the Wednesday ruling.  SEC (Securities and Exchange Commission) Chairman Mary Jo White issued a statement Thursday (speaking at a conference) saying  "there is no question it's a significant decision," and indicated her agency was reviewing the ruling.  She characterized the ruling as "overly narrow." 

Econintersect:  Should the SEC develop more specific definitions of what constitutes insider trading?

US 2nd District Court of Appeals Issues the Economic Equivalent of the Dred Scott Decision  (Jesse's Cafe Americaine)  This article will appear soon in GEI Opinion.

Do Foreclosures Increase During a Housing Recovery? (James Quinn, The Burning Platform)  Hat tip to Talk Markets.  James Quinn has contributed to GEI.  Quinn cites the first year-over-year increase (6%) in 27 months in foreclosures as the beginning of a new housing downturn.  Econintersect:  We probably should wait a few months on this call.  There was an even stronger increase (16%) in May 2012 which was followed by a tailing off of increases over the following two months and a decisive turn to the pattern of decreasing foreclosures in the third month.  Another question  is worth pondering while we wait, however:  Why is the foreclosure volume so cyclical?  In a recovery shouldn't we expect a "smoother" decline in foreclosures?  Is this cyclical pattern explained as easily as having it caused by bank management of a foreclosure overhang?  Or are there broader economic factors invovled, such as fragility in the housing market such as Quinn is suggesting?  There certainly are some alarming numbers in the latest data:

REOs increased from a year ago in 15 states, including Maryland (up 93 percent), North Carolina (up 66 percent), New York (up 64 percent), Kentucky (up 56 percent), New Jersey (up 54 percent), Iowa (up 29 percent), and Massachusetts (up 29 percent).

Five of the nation’s 20 largest metro areas posted year-over-year increases in foreclosure activity: New York (up 71 percent), Houston (up 70 percent), Philadelphia (up 43 percent), Boston (up 27 percent) and Baltimore (up 22 percent).

Click for large image.

WSJ Survey: Housing Dinged 2014 Economic Growth (Kathleen Madigan, The Wall Street Journal)  The December projection for 2014 housing starts is 6% below what was forecast in January.  Since the is represents a 12 month forecast with 11 months already in the books it is very close to what the shortfall below expectations for housing starts in 2014 will actually be.  Madigan says that this shortfall is one significant reason GDP growth for 2014 will be about 2.2% instead of the 2.8% forecast.  What about 2015?  Forecasters say 1.22 million units should be started.  They can only hope the actuals do not follow a path similar to 2014.  Note:  The growth in housing starts for 2014 will end at approximately 14%  above 2013.  The forecast of 1.22 million starts for 2015 is 16% above the number of starts for 2014.  So the forecast is more of the same. 


Other Economics and Business Items of Note and Miscellanea

Buffing up (The Economist)  The largest U.S. banks find that they are in yet another hole over capital and JP Morgan Chase is in the deepest.

Are College Students Borrowing Blindly? (Brookings)

Capital Economics: 4 predictions impact renting and homebuying:  Rent to rise faster than home price inflation (HousingWire)

Ponnuru: Jeb Bush's biggest problem for 2016? Economics (Northwest Herald)

Physics World names top 10 physics breakthroughs of 2014 (R&D)

The Prison Reform Blues:  Chris Epps wanted to reform Mississippi’s harsh, decrepit prison system. Now he’s facing three centuries in the slammer. (BuzzFeedNews)

100 Years of Bubonic Plague (Scientific American)

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