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What We Read Today 03 January 2015

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.

Oil declines in thin, volatile trading (Samantha Sunne, Reuters)  Brent crude traded down almost $2 a barrel Friday (02 January 2015) before recovering to close down less than a dollar at $56.42.  Part of the decline of more than 1.5% could be attributed to 0.9% strengthening of the U.S. Dollar Index.  See GEI Investing weekly wrap-up from for more details about stocks, forex, energy and other commodities.

David Bird, Missing Wall Street Journal Reporter, Foresaw an Oil Crash (Pam Martens and Russ Martens, Wall Street on Parade)  The Martens describe David Bird's writing in the Wall Street Journal in August 2013 which described how the Fed's QE taper would slow global economic activity and create an oil glut which would cause a price crash.  Just days after the article appeared, Bird left his home to go for a walk and never returned.  That didn't stop the oil market crash though.  And the Martens are saying now that the fallout from what has been happening still has a lot of playing out to do, especially in emerging markets.

A Stress Test for Mario Draghi and the European Central Bank (Jack Ewing and Binyamin Appelbaum, The New York Times)  ECB President Mario Draghi has been living with his now 2 1/2 year-old promise to do "whatever it takes" to preserve the euro.  As time goes by "whatever" is losing its punch as disagreements within the ECB board have limited his actions.

A central bank claiming that it will do ‘whatever it takes’ while not delivering with actions eventually loses its credibility,” said Athanasios Orphanides, a former European Central Bank board member who is now an economics professor at the Massachusetts Institute of Technology. “It is difficult to escape the conclusion that the E.C.B. has not been operating in a manner that promotes fulfillment of its mandate.”

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Inflation Expectations (Charts from Walter Kurtz, The Daily Shot email, no url)  Comparing these two charts we wonder if inflation expectations might not be analogous to forecasting the weather by looking out the window.  Since last spring inflation expectations have declined by 21% and the Continuous Commodity Index has fallen by 20%.  Kurtz's comment:

"I don’t see how the Fed could possibly consider raising rates in this environment - even if labor markets continue to improve." 



The S&P 500, Dow and Nasdaq Since Their 2000 Highs (Doug Short, Advisor Perspectives  Doug Short contributes to GEI.  In reviewing the three major stock indexes for U.S. markets Short finds that the Nasdaq Composite still hasn't regained it's 2000 peak of 5,048.62 at close on 10 March (5,132.52 intraday high).  As of 31 December 2014 the (nearly) 15-year return on the indexes has been +52% for the Dow; +35% for the S&P 500 and -6% for the Nasdaq Composite.  When dividends are taken into account the total return for the S&P 500 increases to nearly 78%; more than half of the return was from dividends.  But the most dramatic result is when one adjusts for inflation, as shown in the following chart.  See also third article below by Thornberg Investment Management.


The Year in Review: Even More Fantastical Pseudo Economics (Menzie Chinn, Econbrowser)  Hat tip to Talk Markets.  Menzie Chinn has contributed to GEI.  The article starts with:  "To heck with facts… and the scientific method."  And then it it gives a year full of examples of how well some people have followed that introduction.  Don't miss the comments either.

Almost $60-billion in Canadian projects in peril as ‘collapse’ in oil investment echoes the dark days of 1999 (Yadullah Hussain, Financial Post)  Hat tip to Edward Harrison.  The projected capital cutbacks compared to previous plans if current oil prices persist are $12 billion less in 2015, $20 billion in 2016 and $27 billion in 2017.  That's what can happen when you have the world's most expensive-to-recover oil sources.

A Study of Real Real Returns (Thornberg Investment Management)  In this paper an estimate is made of real returns that are also adjusted for estimated taxes and investment expenses.  Over the 30 years1983-2013 an investment of $100 in the S&P 500 would have grown to $570 in purchasing value after losing $1,776 to the total of inflation depreciation, taxes and investment expenses. Less than half of the losses would have been to inflation.


Investments Data (  See also next article.  The individual years 2001 through 2010 are broken out here.  The total returns (nominal, not adjusted for inflation) for these ten years were 15% for the S&P 500 and 74% for the 10-year U.S.Treasury bond.  Incidentally, the 10-year change for the S&P 500 without including dividends from 01 January 2001 to 31 December 2010 was - 4.75%.  (Yahoo! Finance)


Stocks and Bonds, Calendar Year Performance 1980-2013 (Thomas Kenny, about money)  This is a tabulation of total return for the S&P 500 and the Barclays U.S. Aggregate Bond Index (which was known as the Lehman U.S. Aggregate Bond Index prior to Lehman Brothers’ collapse).  This website has the same data as the Census Bureau plus much more.  Added to the results for the ten years 2001-2010 we also have the Barclays Index total return of 78%.

In addition, using this data we can also give the bond returns for most of the time interval covered by Doug Short in the first article in this section today (there is no 2014 data here).  The total return for the Barclays index for 2000 through 2013 was 116% compared to 78% for the S&P 500.  Note: the S&P 500 data is calculated from the 2000 closing market high and the index started the year 4.5% lower.  When that is included the total return for the stock index increases to 86% and this is what should be compared to the bond total return of 116%.

German Bund Yields at Record Lows (Bloomberg)  All the dscussion of how bonds beat stocks in recent years, are you willing to bet that for the coming years?  Tonight we find that you are guaranteed to lose money if you buy and hold to maturity any bund five years or less.  The purchase price is higher than the value at maturity plus all coupons to be paid.  If stocks beat bonds in Germany for the next five years they could still be losing a small amount of money.


10-year government bond yields across major Developed Market economies (Walter Kurtz, The Daily Shot email, no url)


Other Economics and Business Items of Note and Miscellanea

Is Georgia’s High Unemployment Rate a Result of Hands Off Economics? (Peach Pundit)

Can Europe learn anything from America's economic resurgence? (The Telegraph)

The Real Problem With The Economist's Most Influential Economists List (Business Insider Australia)

What U.S. Intelligence Predicted the World Would Look Like in 2015 (The Atlantic) U.S. intelligence report in 2000.

HP confirms it has sold off Palm's trademarks (Everett Rosenfeld, CNBC)  Hat tip to Marvin Clark.  Is this the year Palm rises from the dead?

Econ Jobs Are Up (Inside Higher Ed)  First time in history more than 3,000 job openings for Ph.D. economists.

Manufacturers Lament ‘West Coast Port Issues’  (The Wall Street Journal)  Read monthly data reviews for sea container volumes at GEI Analysis.

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