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What We Read Today 26 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.

This feature is published every day late afternoon New York time. For early morning review of headlines see "The Early Bird" published every day in the early am at GEI News (membership not required for access to "The Early Bird".).

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Tougher Internet rules hit US cable, telecom companies (Alina Selyukh, Reuters)  The Federal Communications Commission (FTC) voted on Thursday imposed the toughest rules yet on Internet service providers, aiming to ensure fair treatment of all web traffic through their networks.  The vote was along party lines.

Democrats argue that enforcing new "net neutrality" rules that seek to restrict broadband providers' power to control download speeds on the web will protect "smaller users" against being crowded out of faster service by those that can pay more to receive faster transmission.

Republicans argue that the new rules amount to a "government power grab" that will stifle investments" and curtail innovations that could occur if a greater profit were to be obtained.

A previous attempt to invoke net neutrality rules was struck down in Federal Courts in January 2014 on the basis that broadband services were grouped in a classification by the FTC as "information providers" which are more lightly regulated.  The new ruling separates broadband services from information providers and places the former into the category of "telecommunications services".  These are subjected to regulation as public utilities as are other traditional telephone services.  However, the new ruling includes no price regulations, tariffs or requirements to give competitors access to networks.

Reuters says that the "vote starts a countdown to expected lawsuits from cable and telecoms providers".

Econintersect:  The reclassification of broadband services from "information providers" to "telecommunications services" may have significant ramifications on the structure of the industry.  The new ruling implies that internet service providers (ISPs) will be prohibited from directly or indirectly (through collaboration) being engaged in any aspect of content ownership.  We are not aware that this has taken hold in broadband in general but that might have developed following the model of cable which has had content controlled, and in some cases developed, by cable service providers.  In our opinion this would have created a severe conflict of interest situation, especially with the absence of regulation of prices, tariffs or competitor access, which continues to be codified. 

We are not clear at this point what distinctions may exist between cable, wireless and fixed line service providers:  Will cable providers like Comcast and Time Warner be able to continue content ownership relationships?  For example, Time Warner owns 50% of the CW Television Network, as well as Warner Bros. Television (WBTV), the television production arm of Warner Bros. Entertainment.  Do these relationships fall outside what is permitted under the new ruling?  If they do will their existence be grandfathered? And for how long?

Does this new ruling impact what divestitures will be required for final approval of the proposed Comcast – Time Warner merger?

See also What You Need to Know About the Net Neutrality Decision (Justin Bachman, Bloomberg BusinessBloomberg does not see any of the issues Econintersect raised above.

The FCC vote on net neutrality means lots of rhetoric and lawyers but not too much for consumers, at least for now.


Articles about events, conflicts and disease around the world

Greece

Germany

  • Greece bailout saga strains German patience (The Guardian)  Angela Merkel will likely win the Bundestag vote to back the four-month bailout extension for Athens but acceptance in Berlin is grudging, to put it mildly.

Nigeria

Israel

Syria

Iraq

Ukraine

Russia

China

India

Australia

Argentina



A graph showing the end of American as we know it. (Fabius MaximusFM contributes to GEI FM points to the early 1980s as the inflection point for "so many American political and economic trends".  He refers to the 1% "siphoning off" an ever increasing fraction fo American income as "labor unions were crushed" and workers became ever more "contingent, disposable".  Harsh words that would probably raise the ire of those who would claim that Reagan unleashed the power of the free market.

Econintersect:  The paragraph above hints at the ultimate question of what defines a free market; as well as the question if any market can be free.  A free market implies asymmetry of power between labor and capital, between buyers and sellers.  Are those conditions perhaps the stuff of mythology?  Doesn't somebody or some group always have the upper hand?  And if that "balance of power" does not fluctuate can anything like a free market ever exist?

The following is FM's summary:

This one powerful but dense graph shows the transformation of what we know of as America — born in the fires of the New Deal, WWII, and the civil rights revolution — into the America of the Gilded Age. The top 2 lines (blue and grey) show America’s increasing economic strength: rising labor productivity and GDP. The bottom two show what we get from that (private sector jobs and median household income).

Click for large graph with attributions at Fabius Maximus.productivity.gdp.employemnt.income.1953.2011.600x450


Why Do People Move (DemandInstitute.org)  With real estate it has been said there are three important things: (1) location; (2) locations; and (3) location.  Nearly half of all American households plan to move at some point in the future and 75% say that a location consideration is a reason for moving.  City location preference has remained between 31% and 34% over the past 24 years, while "outside metro area" has declined in preference from 22% in 1990 to 16% in 2014.  Suburban locations have remained the most preferred, rising from 45% in 1990 to 50% in 2014.  The Demand Institute surveyed more than 10,000 household to develop a complete picture of housing and moving patterns and preferences.  Click on the graph below to view the complete infographic summary of their results.

Click for complete infographic of the survey results at DemandInstitute.org.
moving.locations.1990.2014.600x450


When the Fed finally raises rates, stocks will go nowhere (Akin Oyedele, Business Insider)  We keep hearing talk about how stocks will plummet when the Fed starts raising interest rates.  Yet that result would fly in the face of history.  In the months following a first Fed rate hike EPS (earnings per share) for stocks have gone up, on average, in the past.  See graph below.  While that may not be repeated this time because stocks are so highly valued and EPS growth is currently very low, it is a good argument that stocks would simply tread water when the Fed makes a move, and "go nowhere".  Typically stocks move lower for the first three months but then turn around and go higher for the next nine months.

Econintersect:  Another way of looking at this is that the very slow growth rate for EPS is an indicator of a sluggish economy and corresponds to conditions where the Fed is less likely to start raising rates than many believe.

earnings.growth.interest.rate.hike
 


Equity Valuations, Recessions and Stock Market Declines (Doug Short, Advisor Perspectives dshort.com)  Doug Short is a regular contributor to GEI.  High stock market valuations do not necessarily precede large market declines; only in the case of a recession is a decline expected.  In the case of a recession, even a modest overvaluation can result is a major decline.

Click for large image at Advisor Perspectives dshort.com.
market.valuation.1900.2015


Other Economics and Business Items of Note and Miscellanea

Meet the fast-charging, affordable ‘future’ car that Elon Musk hates (The Washington Post)  Elon Musk calls the hydrogen "fool" cells.

2 New Must-Watch Bond ETFs For 2015 (Nasdaq.com)

Major Firms Are Saying the Stage Is Set for Another Crisis in the Bond Market (Bloomberg Business)

What Is ‘Middle-Class Economics’? (The New York Times)

Economics papers have been getting a whole lot math-ier (Quartz)

Takings bills are still bad economics, bad policy (The Bangor Daily News)  Problems in Maine with proposed legislation that would absolve parties for responsibility for externalities and damages to neighbors.

Gilead Avoids Billions in U.S. Tax on Its $1,000-a-Pill Drug (Bloomberg Business)  It's global accounting trickery (which we have discussed before).

U.S. Productivity Now Grows Faster Than Jobs. What Changed? (The Wall Street Journal)

Break up RBS to create 130 new local banks and £30.5bn boost to economy (New Economics Foundation)

Goldman Workers Reaped $2 Billion From 2008 Awards Last Year (Bloomberg Business)


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