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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.
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Next for oil: Mergers, layoffs and 'death spirals' (Tom Christopher, CNBC) Oil will "grind back up to low 60s by end of the year". See also As oil prices crater, hedge funds dive in.
Articles about events, conflicts and disease around the world
Debt of the Elderly and Near Elderly, 1992–2013 (Employee Benefit Research Institute) Debt levels of the elderly have been rising relentlessly. Today debt-free retirement is a possibility for only about 1/3 of all households over age 65. Even over age 75 more than 40% of households still have debt.
Who Doubts Yellen's Policies? Summers for One (Rich Miller, Bloomberg Business) The man who would have had her job before losing the political infighting in 2013 doubts that the expected pick up in wages will be as strong as the Fed is hoping as the economy approaches "full employment". Larry Summers told the Davos conference last week:
The Philips Curve relates falling unemployment to rising wages.
A number of other economists are quoted with opinions supporting Summers. The Philips Curve simply has not behaved in the traditional manner following the two recessions preceding the Great Recession (2001 an 1991-92). In addition, now there is hidden slack behind the unemployment rate because the labor force participation rate has come down so much from what it was at the turn of the century.
Summers says that there is a big risk that the Fed could be "setting off a spiral toward deflation" by raising rates too soon. He thinks that keying off the unemployment rate would be an error.
See also last article (video) discussed below.
Massive debt leaves country little leeway (Hiroshi Murayama, Nikkei Asian Review) Every time economists expect China to implement a stimulus package, they are disappointed. Financial markets are calling for pump-priming measures as the Chinese economy shows stronger signs of a slowdown, but the government has not responded. President Xi Jinping's leadership even calls the slow growth the "new normal" and accepts the situation.
Data clearly shows that the Chinese economy is under deflationary pressure, with CPI up a meager 1.5% in 2014, wholesale prices falling 3.3% and housing prices falling for most of the year. China is seeing growth in service industries which support employment levels even as industry slows down, cutting employment.
China has a rapidly growing debt/GDP ratio with a 25% jump in just 12 months (see graph below). This is a trend that must be slowed and the reason that fiscal stimulus is just not an option.
All this produces a serious global concern. From the article:
Oil prices slip as output remains high, producers slash costs (Henning Gloystein, Reuters) Since the first of the year volatility in oil prices has fallen significantly as prices have settled into the $40 - $50 range. Production remains high and for two reasons: Producing countries are desperate for the revenue and producers are cutting production costs. According to this article, the outlook is for continued softness in demand and prices in the face of continued high production.
Warning: Bond Funds That Act Like Stocks (Craig L. Israelsen, Financial Planning) Many mutual funds that are nominally bond funds do not have the characteristic correlation (really, lack of correlation) with the stock market that you may be looking for when you put bonds into your portfolio. In the table below it is seen that the standard deviation of annual returns is much lower when a portfolio uses the Vanguard Total Bond Market ETF (NYSE:BND) than when many other "bond" funds are used. The difference between a standard deviation of 13% compared to 17% or higher can be judged by looking at the returns for 2008. While the reference portfolio lost 20%, some of those with higher standard deviations lost 25% to more than 30%. And, in spite of the greater volatility, some of these other portfolios had poorer 7-year returns. The bottom line: Make sure you are getting the kind of bond fund you want if diversification is your objective.
What's Up? Quantitative Easing and Inflation (Chris Brightman, Research Affiliates, Advisor Perspectives) As good a short summary of how central bank operations work and the basic differences between QE (quantitative easing) and "money printing" as we have seen. To use an metaphor not in the article, it's all about where the helicopter drops the money.
The next shot in the currency war will be fired by... (Sara Eisen, CNBC) It is a war "being played like a chess match nad that is going to end". See also next article.
Why The Fed Will Never Be Raising Interest Rates: Huge Revelation Revealed (Gareth Soloway, In the Money Stocks) GEI has featured Gareth Soloway market commentary videos a few times over the years, but not recently. Notice the word "Never" in the headline. In the video Soloway discusses why the Fed will not raise rates in 2015 and maybe not for one or two years afterwards - not quite "Never". See also preceding article and the second article discussed today (about Larry Summers).
Other Economics and Business Items of Note and Miscellanea
It’s Not Time to Sell Everything – Yet (Shah Gilani) SG is a contributor to GEI.
Is US Sliding Into Recession? (Advisor Perspectives) When the Fed raises rates in late cycle the economy will turn over. As often in the past the Fed will key a recession. See next article.
Bill Gross Expects Yellen to Save US From Crisis of Capitalism (ThinkAdvisor) Gross says that without the Fed chair’s planned rate hikes, investors would just stuff their money in mattresses. See also previous article.
Extreme oxygen loss in oceans accompanied past global climate change (R&D) End of last ice age produced disruptive loss of ocean oxygen due to rapid temperature change.
States That Tax Social Security Benefits (The Wall Street Journal) Only 13 states don't tax Social Security benfits. Other things to consider: Only 7 states don't tax dividends and some states don't tax part of retirement income (other than Social Security).
Ancient Israeli skull may document migration from Africa (R&D) Skull is 55,000 years old.
The Big Lie about tax reform. One day the eyes will open. (Rodger Malcolm Mitchell, Monetary Sovereignty) RMM contributes to GEI.
Dartmouth president’s Jan. 29 speech on safety reforms (The Washington Post)
Gully patterns document Martian climate cycles (R&D) Erosion patterns indicate a history of flowing water on Mars within last two million years.
Women in combat are the real Revolution in Military Affairs (Fabius Maximus) FM contributes to GEI.
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