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What We Read Today 15 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.

Japan's ruling party wins in landslide victory (Associated Press, Al Jazeera)  Japan's ruling coalition won big in Sunday's lower house elections, returning the party of Prime Minister Shinzo Abe to power and ensuring the continuation of reforms aimed at lifting the country's economy out of its two-decade funk.  With 61% of the seats the Liberal Democrats have a comfortable margin over an array of smaller parties, even more secure because they have a ruling coalition with the Komei party which gathered another 7% of the lower house seats.  The results appear to assure the continuation of the economic reform policies known familiarly as 'Abenomics'. 

Abe's coalition secures big Japan election win with record low turnout (Linda Seig and Kiyoshi Takenaka, Reuters)  Record low turnout may suggest that Japan's voters may not have been very enthusiastic about returning Abe to power.  This article even says the "record low turnout pointed to broad dissatisfaction with his performance".  Abe's party actually won 4 fewer seats than it held since the previous election.  The turnout for this election is 52.4%.  In 2012 the turnout was 59.3%.


BOJ Said to Reject Adding Stimulus to Ease Blow to CPI From Oil (Toru Fujioka and Masahiro Hidaka, Bloomberg)  Policy makers feel that while cheaper energy costs may weigh on consumer prices for a time (Japan is trying to drive up inflation), they ultimately will boost the economy and therefore will spur inflation.

Articles about events, conflicts and disease around the world

Ferguson and Related News

NSA / CIA

Ebola

Syria

Ukraine

Russia

Hong Kong

Greece

Mexico

Crude:  Unknown Territory (Dave Gonigam, 5 Min. Forecast) Repeated from WWRT 05 December 2014. Quoting Greg Guenther:

“… this could be the final nail in the coffin of the commodity ‘super-cycle’ that began about 15 years ago.  From 2001-2011, the price of copper exploded more than 620%, topping out near $4.50 a pound. That’s a huge. And the breakdown we’re seeing now could easily send copper prices to $2 or lower over the next couple of years.”

See also next article.

copper-crushed


The Fed's policy trajectory is tied to global recovery (Walter Kurtz, Sober Look) Repeated from yesterday.  The Fed is in a tough spot.  The perception is that the U.S. economy is strengthening and that the U.S. labor market is tightening up with higher rates of wage growth (Econintersect note:  Both perceptions are debatable as mentioned elsewhere here.)  But the commodity deflation now ending its fourth year is "importing deflation" into the U.S.  See The Fed concerned about "importing" disinflation (Walter Kurtz, Sober Look).  The Fed would not want to let wage inflation get a foothold (Econintersect note:  There is no sign that it has started - see following article.)

commodity-index-2011-2014

Oil As A Weapon (Barry Ritholtz, The Big Picture)  This is a quote from Art Cashing who in turn was quoting a third party.  The bottom line is that this assessment holds that the Saudi Arabian and Gulf Emirates are waging a price war aimed at damaging their competition, but the target is not U.S. fracking production (which may suffer from collateral damage) but the Shia world (Syria, Iran and now also Iraq) and their prominent support, Russia.  Further concern by the Sunnis is the prospect that Iran may become a nuclear power,  So the Sunni "powers" are waging war against the Shia "axis" and their Russian supporter.

The next two articles are about practices in the mainstream of the investment management business.

Merrill Raises Broker Bonuses, Eliminates Pay On Small Accounts (Reuters, Financial Advisor)  Merrill Lynch has told its brokers that they will be paid more for attracting new clients and new assets if the assets go into loans, banking and trust products, or into fee-based advisory accounts.  They are eliminating pay for accounts under $250,000.  According to Reuters:

Brokerage executives and headhunters scrutinize annual changes in compensation at top firms to assess how they may attract or repel new brokers and retain veterans. Merrill's emphasis on bank products could be risky, one said, because the firm has lost brokers and been criticized for bending its traditionally broker-centric culture to the parent bank's norms.

"The number one reason people are leaving is the persistent pressure to 'BankofAmericanize' Merrill brokers," said Ron Edde, president of Millennium Career Advisors.

Econintersect:  Merrill Lynch is clearly focusing on the present and not the future.  How many up and coming 30-somethings have $100,000 investable?  Probably the number is not that impressive (a few hundred thousand?  A million?)  Whatever the number, ten years from now this group will provide most of the 40-somethings with at least $250,000 to invest.  The Merrill will have to try to woo them away from the advisors who got them there.


The Wall Street Takeover of Charity (Jesse Eisinger, ProPublica)  Jesse Eisinger has contributed to GEI.  A very rapidly growing class of investment vehicles are entities called donor advised funds.  These are funds for which deposits are tax-deduction credited as charitable donations in the year deposits are made, with the feature that the "donor" can at some (possibly distant) time in the future specify what beneficiary(ies) will get money from the account.  This differs from a trust which requires that the beneficiary(ies) be specified when the trust is established. (Note:  It is possible to use a donor-advised fund as the beneficiary of a trust.  Talk to an estate attorney to determine how and if this could/should be used.)  The donor-advised fund differs from the other common charitable vehicle, the foundation, in two ways:  (1) Costs are much lower for the fund; and (2) The fund is not subject to the minimum annual distribution requirement averaging 5% which is the requirement for foundations. 

This article asserts that the advent of donor advised funds is possibly a losing proposition for charities, for two reasons:  (1) Charities do not receive the contributions immediately and may wait for many years for a distribution; and (2) Expenses of running the fund are going to Wall SAtreet instead being part of the amount(s) received by the charity(ies).

Fidelity Charitable runs the second-ranked charity in the United States, according to the Chronicle of Philanthropy, behind United Way Worldwide. Charles Schwab's is fourth and Vanguard's is 10th.  For an investor-advised fund friendly review read A Donor-Advised Fund for You (Amy Feldman, President of Fidelity Charitable, Barron's)

Global Stocks Crashing! It’s Not as Bad Here, But Should We Be Worried? (Mike Larson, Money and Markets)  If you are worried about the 300 point drop for the Dow today (Friday, 12 December) and the fact that the S&P 500 is 3.2% below its recent all-time closing high, contemplate where you could have had your money:  Oil, down almost 50% in just a few months; or Russian stocks down more than 40% since the end of June (NYSE:RSX).  Some other other disasters shown below, including the biggest decline in Greek stocks since the 1987 crash.  While you congratulate yourself that you weren't invested in any of the emerging market disasters, pause for a minute to remember that it is a global economy.  But, also read next article.

mexico-nigeria-stocks-2014-dec-12

athens-stocks-2014-dec-12


Emerging Markets: How Do BRICs Stack Up Now? (Joseph Lisanti, Financial Planning)  Brazil (-7.4%) and Russia (-28%) have negative 12-month returns while China(+3.4%) and India (+36%) are positive.  Here is what Lisanti said here about the BRICs (above) vs the broader emerging markets sector (+1.4% 12-month return):

FactSet reports that the emerging markets as a whole had an anemic 1.4% return for the 12 months ending in November. But that underperformance and the broader diversification offered by the larger group may make emerging markets a better choice than BRICs for rebalancing.

Other Economics and Business Items of Note and Miscellanea


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