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What We Read Today 19 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.

The Troll Hunters (Adrian Chen, MIT Technology Review)  Hate is having a sort of renaissance online, even in the countries thought to be beyond it.  This article reports on a group of vigilantes doing investigative research "to expose racists, creeps, and hypocrites".   The author asks:  "Have they gone too far?"

BOJ Keeps Record Easing as Oil’s Fall Challenges Kuroda   (Toru Fujioka and Masahiro Hidaka, Bloomberg)  Year-over-year inflation rose less than 1% in October, slipping further below the 2% inflation rate that is targeted by the Bank of Japan (BoJ).  While the sharp decline in oil prices in recent months is a boon to businesses and consumers, it is a component of the CPI softening and helps to keep a ”deflationary mindset” in place.  As a result the BoJ is keeping the monetary easing spigots open full bore.  A measure of the battle for the BoJ is the bond market expectation for future inflation which is now down to an average of 0.84% per year for the next ten years.

China 2013 GDP revision won't affect growth this year (Kevin Yao, Reuters)  China has revised the GDP numbers for prior years and, as a result, the country’s GDP was 3.4% larger last year than previously reported.  The bulk of the increase occurred in the service sector.  The government report stated that the GDP growth reports thus far in 2014 will not be effected (presumably because the service sector data reported this year already included any methodology changes now being applied to prior years.  It remains to be seen how the GDP growth numbers for recent years will be changed once the revisions are complete.  Econintersect suggests it is likely that only a small part of the added 3.4% increase in 2013 will actually be applied to 2013 GDP growth – the bulk of the change will likely be applied to the Chinese economy spli up over a number of years.

Ferguson and Related News








  • The Other War in Ukraine (Christian Caryl, Foreign Policy)  The biggest threat to Ukraine isn’t Vladimir Putin: it’s a deeply entrenched culture of corruption. Can the new government cope?


North Korea



Yuan is Depreciating vs. the Dollar (Walter Kurtz, The Daily Shot, no url)  Kurtz asks:  "The question now is how much depreciation will be allowed? Can Beijing tolerate being pegged to the rising dollar for much longer while the Japanese yen declines?"  China cannot afford to give up too much export advantage to Japan (weaker currency, more export advantage) yet they need an appreciating currency in order to increase domestic consumption, a primary economic goal.


China Stocks Surge (Walter Kurtz, The Daily Shot, no url)  The Shanghai Composite has popped 50% from lows earlier this year.  See chart below.  Yet, if you didn't own the right ETF you didn't get this.  The most widely held China ETF (NYSE:FXI) is up only 5.6% this year, but the smaller ETF (NYSE:PEK) has gained 38% since the first of the year and 50% from the April market lows.


China could deliver a double blow to Australian exports (Callam Pickering, Business Spectator)  The construction boom is ending in China and Australia will pay a price.  The land of Oz has been a major supplier to China, especially for metals and coal from the mining sector.  When China cools, Australia may get hypothermic.  The following graphic shows just how wild investment has been in China.


Here’s Why Investors Should Be Worried About Waning Risk Appetites (Jesse Felder, The Felder Report)  The risk portions of the bond market are declining and Felder says that is a message for the entire market for investments.  The reason is that risk appetites are the main driver of the overall cycle.  The sharp drop-off for leveraged loans and junk bonds is one canary in the gold mine and the bear market for commodities, most recently oil, is a second canary.

All of these signs are flashing red for both the economy and the markets, in my humble opinion. And at the very least, the drying up of liquidity in the high-yield and leveraged loan markets will have a negative impact, and possibly a very large one, on mergers & acquisitions, LBOs and buybacks, three significant sources of demand for equities. All in all, it looks to me like the boom in risk appetites which has driven the markets higher over the past five years could be in the process of reversing and the major implication for the markets is not bullish. 

Wealth Gap between America’s Rich and Middle-Class Families Widest on Record (Neil Shah, The Wall Street Journal)  Before you get too excited, the record that is being talked about only goes back to 1983.  See also the Pew Research report and U.S. Wealth Is Near a Record, Yet Racial Gap Has Widened Since Recession (Neil Shah, The Wall Street Journal).  In about 24 hours from the time this is posted, Steven Hansen's weekly review article will be posted at GEI Analysis and look at the racial wealth disparity data in detail.


The Burning Questions For 2015 (John Mauldin, Outside the Box)  John Mauldin contributes to GEI.  Mualdin has a forward looking piece by Luois Gave.  We'll give you the burning questions and suggest you read the article for some possible clues.

  • Will Japan engineer a revival through its lead in exciting new technologies (robotics, hi-tech help for the elderly, electric and driverless cars etc...), or will Abenomics prove to be the last hurrah of a society unable to adjust to the 21st century?
  • Will China slowly sink under the weight of the past decade’s malinvestment and the accompanying rise in debt (the consensus view) or will it successfully establish itself as Asia’s new hegemon?
  • Will Indian prime minister Narendra Modi succeed in plucking the low-hanging fruit so visible in India, building new infrastructure, deregulating services, cutting protectionism, etc?
  • How will the world deal with a US economy that may no longer run current account deficits, and may no longer be keen to finance large armies?
  • If the US dollar is entering a long term structural bull market, who are the winners and losers?
  • Have we reached ‘peak demand’ for oil?
  • Talking of capital misallocation, does the continued trend of share buybacks render our financial system more fragile (through higher gearing) and so more likely to crack in the face of exogenous shocks?
  • Will the financial sector be next to undergo disintermediation by the internet (after advertising and the media). If so, what will the macro- consequences be?
  • Is euroland following the Japanese deflationary-bust roadmap?

What The Next Generation Of Economists Is Working On (Oliver Roeder, FiveThirtyEight Economics)  Heaven help us!  The incompetent macro economists who have led us down the primrose path these past several decades have trained the most popular Ph.D. specialization in the class of 2015.


A Long-Term Look at Inflation (Doug Short, Advisor Perspectives  Doug Short contributes to GEI.  It always amazes how wildly the economy swung between inflation an deflation in the years before the Federal Reserve.  From 1872 to 1913 inflation was not the long-term problem; it was deflation,  From 1872 to 1900 the dollar appreciated by 100%.  That extreme deflation eased in the first 13 years of the new century such that the value of the dollar in 1913 was about 1/3 greater than in 1872.  Not discussed in this article there was some stability throughout the 19th century that was not experienced in much of the 20th:  Interest rates varied only moderately between 4% and 6% for most of the century.  See graph following this article.

Click for large image at Advisor Perspectives

The long history of long (10-year US treasuries) yields (Business Insider)

Click for large image at Business Insider.

Other Economics and Business Items of Note and Miscellanea

Economists React to the Fed’s December Decision: ‘What Was The Point!’ (The Wall Street Journal)

U.S. International Transactions: Third Quarter 2014 (BEA)

All-You-Can-Eat Buffets: The Scourge of Modern Behavioral Economics (Good Magazine)

Tampa Waterfront plan huge in size, economics (WTSP 10 News)

Bernanke Backs Pimco Forecast for Economic Acceleration  (Bloomberg)

How does Uber’s surge pricing work – and how ethical is it? (The Conversation)

The Economics Behind Why Jim Harbaugh Should Shun Michigan's $8 Million Offer (Forbes)

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