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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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Articles about events, conflicts and disease around the world
NYSE Margin Debt Hits an All-Time High (Advisor Perspectives dshort.com) Margin debt is at an all-time high, both in nominal dollars and adjusted for inflation. Why should you watch this metric? Because in the past sharp declines in margin debt from record highs have preceded major market declines. Right now it is still going up after a head fake pullback in early 2014. Just stay alert when the next pullback occurs - If it sticks, as it did in 2000 and 2007 it would be wise to increase defensive positions and cut back on more aggressive ones.
Before you conclude that the U.S. margin debt is too high, check out the article discussed second following this.
There is a growing disconnect in the stock market (Akin Oyedele, Business Insider) A new Bank of America Merrill Lynch survey published Friday finds that US investors have pulled $79B out of equities year to date — including net outflows in 9 of the past 10 weeks — despite stock prices continuing to break new record highs. Part of this disconnect is a result of the sharp spike in margin debt. But margin debt can't go up forever unless prices continue upwards apace. So what we have is prices going up, debt increasing to buy the higher prices and money being extracted from the captial appreciation. Hmmm ... did this ever happen with houses?
See also Steven Hansen's discussion of this graphic at Seeking Alpha: The Economy Is Growing Slower While The Markets Rise.
xIs China going from property bubble to equity bubble? (Angus Nicholson, China Spectator) See also additional discussion of this article above. The most amazing thing about this article for us is the data on margin debt (see second graph below). First, note that the rapid rise in Chinese property prices ended in early 2013 (blue line):
And what happened starting in early 2013? Margin debt in China was starting a "moon shot" rise:
Other Economics and Business Items of Note and Miscellanea
Report on “How to Change the Teaching of Economics” (Inside, vol. 2, no. 6) A review of a report (available here) from a panel discussion by four American academics, addressing what the process might be for changing the economic curricula in use in the U.S. and around the world.
Pitfalls when trying to analyze economics (Stevens Point Journal) A discussion of three economic faux pas written in the language of the non-economist. Read about "the fallacy of composition, the fallacy of division, and the post hoc, ergo propter hoc fallacy." These are problems that we find frequently in economic discussion and analysis, although the expression of these may be hidden without careful dissection by the reader (of those other works, not this article).
Does the Black Community Understand the Language of Economics? (Milwaukee Courier) Econintersect: The answer is no and this is just another way that the black community shares experience with the white community (and any other ethnic community in America).
Scott Walker’s Labor Economics (The Wall Street Journal)
Paul Krugman: Supply-side economics and other 2016 Zombies (The New York Times, Kentucky.com) The great Prof. Krugman holds forth on his view of the "living dead".
The Economics of Suspense (The New York Times) The unexpected has more value than the expected, even if the events are exactly the same.
Doomed: 11 Cities on the Verge of Disaster (Thrillist)
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