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What We Read Today 04 February 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.


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Standard & Poor's hit by largest penalty ever levied on credit rating agency (Andrew Dewson, The Independent)  McGraw Hill Financial, the parent of Standard & Poor's (S&P) has agreed to pay a settlement equal to its 2014 profits.  S&P, the world’s largest debt-rating agency, was accused of manipulating its internal procedures in order to create better ratings for packages of sub-prime mortgage securities.  S&P fought hard to avoid the large payment of $1.4 billion they have agreed to pay, but was undone by internal instant messages and e-mails which supported the Department of Justice case.  Econintersect:  Nowhere in the discussion of this case is there a mention of the financial and economic losses that resulted from the S&P actions.  We hazard a guess that it is closer to $1 trillion than to $1 billion. 

From First FT (FT Alphaville)  More on Greece follows below.

Greece’s finance minister Yanis Varoufakis will meet Mario Draghi today with the hope of persuading him to maintain liquidity in Greece’s banking sector after the country’s EU bailout programme expires at the end of this month. (FT)

The European Central Bank is already resisting Greece’s proposal that Athens raise EUR10bn by issuing short-term Treasury bills as “bridge financing” to tide the country over for the next three months while a new bailout is negotiated. Without this financing, Athens will exit its bailout without access to emergency funding for the first time since the first Greek bailout in May 2010. (FT)

Martin Wolf argues that the Greek government deserves the time to present its ideas and, as the EU is supposed to be a union of democracies and not an empire, the eurozone should negotiate in good faith. At the same time, the Greeks must convince their partners they are serious about reforms. (FT)

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USD And EUR Ripe For Reversals (Chris Kimble,  Chris Kimble has contributed to GEI.  Kimble observes that the U.S. dollar index has risen to dual resistance levels and the euro has fallen to dual support levels.  That makes them candidates to reverse recent trends.  These possibilities are further supported by extreme sentiment levels for the two currencies.  Kimble points out that a decline in the dollar would be bullish for srocks and commodities.  What he doesn't discuss is a failure for either to reverse, but instead to break through these levels, would be very strong confirmation of the existing trends and indicate a much higher dollar and lower euro are likely.  It is possible for one but not the other trend to reverse, as well.  The dollar and the euro could both strengthen if other currencies were, on balance, weakening.  The dollar and the euro could both weaken if other currencies, on balance, got stronger.

Click for larger image.

Speaking of Underinflated Balls (Steven Hayward, PowerLine)  2014 was the ninth year in a row with GDP growth below 3%.  This is the weakest recovery of any in the past four decades.  It is part of a 40-year progression of progressively weaker recoveries from recessions.


Inflation Reading Furthest Away From Fed Target Since 2009 (Eric Morath, The Wall Street Journal)  Does this look like a graph that supports raising interest rates?


Why Falling Prices Are Actually a Really Bad Thing (Shobhana Chandra, Bloomberg Business)  Hat tip to Matt Sellers.  Here's a short summary of a short article (which is very well done).  If businesses and consumers expect prices to be lower they don't invest or spend - they expect to save money tomorrow.  Profits shrink and there is even less reason to spend or invest (or to retain employees or pay them as much).  Do you see the self-reinforcing spiral?  And what then really crushes as economy is debt is harder to repay, defaults shoot up and money is destroyed.  (Remember, in our modern economy virtually all money is created as credit.  When loans default money is destroyed.)  RIP!

A Deepening Crisis:  Keynesian Economics is Born (  Seven short lectures and a quiz.  Both are off-target is some ways but the exercise represents traditional economic teaching and is worthwhile.


After 8 straight quarters, S&P 500 earnings growth is coming to end (Akin Oyedele, Business Insider)  Back in September the earnings expectations for Q1 2015 came in at a healthy 9.9% growth.  By the end of the year it had declined to 4.2% and today it is -1.6%.  (All estimates are for year-over-year earnings change.)  This big change has occurred even as 80% of companies reporting for 4Q 2014 have beaten expectations.  See also next article.


GOLDMAN: This has been the worst quarter ever for earnings guidance (Myles Udland, Business Insider)  A whopping 87% of companies that have given forward guidance for Q1 2015 are below analysts' expectations.  In the 8 1/2 years that Goldman Sachs has tracked this metric, this is the largest value recorded.  Full-year negative guidance is even more extremely negative.


Sorry, but the oil rout isn't over yet: Analyst (Tom DiChristopher, CNBC)  A three day rally for WTI (West Texas Intermediate) crude oil has now hit the 15% gain mark.  DiChristopher says it will not last.  He puts the average price for the entire year at $51 which is where WTI closed yesterday (Tuesday 03 February 2015).

Other Economics and Business Items of Note and Miscellanea

Senator says maybe restaurants shouldn’t make employees wash their hands (The Washington Post)  Requirement interferes with personal freedom.  Would Thom Tillis (R-NC) endorse freedom for Typhoid Mary?

As inequality soars, the nervous super rich are already planning their escapes (The Guardian)  Hat tip to Rob Carter.

The One Percent’s Great Escape (  Hat tip to Rob Carter.

Do Commodities Belong in Your Portfolio? (  Hat tip to Patricia Baronowski-Schneider.

Do I need solar panels? (Handman Tips)   All the basics about solar for the home.

Can We Blame Burger King for Ditching the U.S.? (Wall St Cheat Sheet)

A mystery solved but still an eerie spot (Christopher Reynolds, Los Angeles Times, MSN)  We now know how the moving stones on Death Valley's "Race Track" do it.

Second Harper Lee novel to be published in July (AP, MSN News)  The sequel to To Kill a Mockingbird was actually written first and just discovered.

Earthly Extremophiles Prompt Speculation about Alien Life (Scientific American)

Window To A Wetter Past In Tucson (Scientific American)  Not talking geologic time here, just 100 years ago.

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