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What We Read Today 05 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.

China frees prices of commodities, services in fresh reforms (ReutersChina has freed prices of 24 commodities and services, removing all price controls on agricultural products, among other reforms, its top economic planning agency said.  This completes a program for the farm produce market started in 1978.  The government has now only retained its regulatory role through state storage programs, by maintaining minimum prices and giving subsidies on some products.  Freight and passenger prices have also been left to market forces, along with several other services.

Oil prices hits fresh five-and-a-half-year lows; Brent below $56 (Reuters)  Early Monday trading saw Brent crude oil at less than $56 and the U.S. benchmark, WTI crude, as low as $51.40.  WTI is West Texas Intermediate crude oil.  Is the bottom near or will we see oil in the $40s this week?  For reference, in the last oil crash the price of WTI reached a low of $30.28 on 23 December 2008.

2015 Will Be All About Iran, China and Russia (Pepe Eschobar, Sputnik International)  The author believes that 2015 will be a year all about further moves towards the integration of Eurasia.  He says:  "Time may be running out – but for the EU, not Russia."

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The 2015 theme unfolds on the first trading day (Walter Kurtz, Sober Look)  The dollar moved higher and commodities moved lower.  Of course there is a relationship but in this case the changes since July 2014 are significantly different:  the dollar index is 14% higher but the Continuous Commodity Index is 24% lower, and oil is down almost 50%.  And the five-year forward inflation rate expectation came down during 2014 from 2.8% to 2.1%.  Kurtz says:

It's difficult to imagine how the Fed could consider raising rates (expected in Q3) in this environment - even if labor markets continue to improve. Consider the fact that monetary conditions have tightened sharply over the past couple of months even without the Fed doing anything, as real rates rose.


‘Reshoring’ Movement Brings Jobs Back to U.S. (Keith Johnson, American Free Press)  Johnson reports that ten years ago there were 150,000 jobs off-shored and none "reshored".  He says that in 2013 there were about 40,000 jobs moving each direction.  See next article.

(What’s Left of) Our Economy: Could We Get Real About Manufacturing Reshoring? (Alan Tonelson, Reality Chek)  Tonelson protests that the preceding article has no foundation in fact - no data is kept on manufacturing jobs flows.  He also says that any claim of reshoring is not recognizing that there have been foreign manufacturers setting up facilities for production in the U.S. for decades and the preceding article does not account for that.  What data is maintained is the number of employees receiving TAA certifications (Trade Adjustment Assistance compensation for those losing jobs to offshoring).   He says those numbers have declined from 197,747 in 2003 to 104,158 in 2013, a reduction of 47%.  This does not jibe with the numbers from the preceding article which give a ratio of 73%.  Tonelson does think that reshoring has potential; he simply thinks the preceding article is claiming gains that are not yet real.

March Futures Gasoline (Wlater Kurtz, The Daily Shot email, no url) The March 2015 futures for RBOB (Reformulated Blendstock for Oxygenate Blending) gasoline on the New York Mercantile exchange is down almost to $1.45.  As this is being written the 3:14 am est price is exactly 1.45. (Yahoo! Finance for the latest.)


Wall Street's big problem in 2015 (Thomas R. Robinson, CFA Institute, CNBC)  Hat tip to Marvin Clark.  The head of America's CFA Institute (Chartered Financial Analysts) thinks that the roof has blown off insider trading with the December 2014 Appeals Court decsion to overturn the insider trading convictions of two hedge fund managers. Now that new insider trading rules make it 'easier to cheat'.  Thwere are other issues discussed (geopolitical, energy markets, and others) but ethics is the biggest problem for the new year, in Robinson's opinion.

New year may mean new view on energy stocks (Ryan Vlastelica, Reuters)  Oil prices are down about 50% over the past several months and some oil related stocks have been crushed.  This article discusses why some have been buying energy stocks and mutual funds.  Based on data in the article we suggest that some of the major oil companies may not be a "ripe" for bottom fishing (Exxon Mobil (NYSE:XOM) is down only 8.6% in 2014 and Chevron (NYSE:CVX) is -10.2%).  If the price of oil continues to decline and stays depressed into late 2015 such little damaged stocks could have a long way to fall.  Drillers have been hit much harder.  SeaDrill Limited (NASDAQ:SDRL) is down 70% and Transocean (NYSE:RIG)  lost 63%.  The Market Vectors Oil Services ETF (NYSE:OIH) was up for the first half of the year but lost 38% since 01 July 2014, and is down 20% since 24 November.  The United States Oil ETF (NYSE:USO), which attempts to track the price of WTI crude is down 49% since late June, while iPath S&P GSCI Crude Oil TR ETN, which tries to track U.S. oil futures is down 54%.  To show the power of leverage ProShares Ultra Bloomberg Crude Oil (NYSE:UCO) which tracks daily (but not longer term) double the price of the Dow Jones - UBS Crude Oil Sub-Index SM has lost 75% since late June.  Another hard hit ETF is PowerShares BB Oil ETF (NYSE:DBO), down 52% since June.  DBO is based on Deutsche Bank Liquid Commodity Index - Optimum Yield Oil Excess Return reflecting futures contracts for oil.

So when you feel like bottom fishing, try to find the best fish on the bottom to get the best gains on the rebound.  Which are the best fish among the big losers?  That's a story for another day.

Jeffrey Gundlach’s Surprising Forecast (Barron's)  Gundlach couples the low bond yield excursion with the price of oil, for which he mentioned $40 dollar oil as a possible couple with the 10-year bond going below 1.38%.  The following chart from MarketWatch shows the 10-year treasury field from 05 January 2011 to 05 January 2015.


The Next Chinese Economy (Zhang Monan, Project Syndicate)  This is an article by a fellow at a Virginia-based China think tank.  She thinks that China is well underway to a consumer based e=rebalancing and this will be a big boost for the technology sector in China as the manufacturing sector moderates growth due to "re-industrialization" of developed countries.  She cites as an example a doubling of growth in U.S. durable goods manufacturing from 4.1% for 2002 to 8% for both 2011 and 2012.

Predictions 2015:  Animal Spirits and Crisis Ghosts (Reuters)  Hat tip to Sanjeev Kulkarni. This is a load of fun.  I'm sure we will be coming back with specific details in the future - we have just started reading this and if what we have seen so far is any indication this is dynamite!  Below is the Table of Contents:

Old wounds.............................................................................................. 6
 The too-big-to-fail club will shrink in 2015
 Euro zone will flit between crisis and catharsis
 Strong dollar is $10 trillion headache for debtors
 China needs history’s biggest spring clean
 Morgan Stanley CEO can outdo Bank of America boss
 Banks will make asset managers pay for regulation
 Deutsche strategy rejig may presage CEO succession
 U.S. housing demand is building
 Future financiers condemned to repeat sins of past

Changing times....................................................................................... 22
 Sub-$100 oil will inflame geopolitical tempers
 Japan’s cash helicopter may be first to take off
 Ukraine crisis forced into suspended animation
 Where to hide in an emerging market rout
 Dry powder may explode in buyout barons’ faces
 China-U.S. shift will end Cold War peace dividend
 Uncle Sam stoked to hash out marijuana in 2015

Fresh challenges .................................................................................... 36
 China’s superlative growth looks hard to sustain
 Acquirers can expect more M&A investor skeptics
 High-yield boom enters hold-your-nose territory
 Accounting fraud is ripe for fresh scrutiny
 Bank cyber-insurance is overdue to come of age
 Alibaba in 2016: an imagined letter to investors
 UK faces risk of cold-weather blackouts
 Water woes could open taps on corporate risk
 Europe could edge past U.S. in race to courthouse
 Activists may take the Pepsi, and Coke, challenge

New beginnings ..................................................................................... 53
 Centre-left may have UK election edge
 Yellen should gird for activist bank investors
 India’s growth spurt could be for real this time
 European telecoms will dial up more deals
 Iran’s reintegration is a prize worth working for
 More than Slim odds America Movil buys T-Mobile US
 Wearable tech will go from novelty to necessity
 IBM turnaround requires atypical activist fix
 Mary Barra gets a second first year at GM’s wheel
 M&A spin doctors could get swept up in the action

Performance of asset classes in 2014 .................................................. 71
Acknowledgements ............................................................................... 72

The Weidmann Curse (Mike Bird, Twitter) Jens Weidmann is the brilliant president of the German central bank, Deutsche Bundesbank. 


Other Economics and Business Items of Note and Miscellanea

Why do Chinese political leaders have engineering degrees whereas their American counterparts have law degrees? (Kaiser Kuo, Quora)

Where Will All the Workers Go? (Nouriel Roubini, Project Syndicate) Loss of jobs because of automation should not mean no income.

Did This Really Happen? (OpEd News) US Chamber of Commerce warns GOP to become familiar with monetary sovereignty.

Michael Hudson: The War on Pensions – The US Budget Anti-Pension Law (Naked Capitalism)

Economics, the user’s guide: a slightly skewed market supplier (The Irish Times) Book review of a tome which could have been titled "Economics for Dummies".

A Point of View: The pursuit of happiness (BBC News Magazine)

High-end malls flourish as others fade  (The Boston Globe)

Uncommon Knowledge: Thomas Sowell's Basic Economics (Wall Street Journal) Interview Video

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