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What We Read Today 25 April 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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Articles about events, conflicts and disease around the world

U.S.

EU

UK

  • The economists’ manifesto (Tim Harford, The Undercover Economist)  A review of contributions by several British economists on the interdependent roles of economists and politicians.

Greece

Syria

Iraq

Nepal

  • Nepal Quake Kills at Least 1,500, Triggers Everest Avalanche (Bloomberg)  The most powerful earthquake to hit Nepal since 1934 killed at least 1,500 people, left thousands more trapped under rubble and took the lives of more than a dozen foreign climbers on Mount Everest.  Officials say that the death toll from the magnitude 7.8 event is certain to rise.  The quake was felt across a wide area, including bordering areas of India and Bangladesh.

Pakistan

China

Chinese markets have surged in response to the RRR cut, but this creates a conundrum. Markets already look overextended on many valuation metrics, yet there appears to be plenty more monetary stimulus ahead. The Chinese equity market rally looks set to continue, but so too does the risk of a devastating stock market crash. This could undo all the careful work the PBOC and other government departments are doing to manage the economic slowdown.

How the government manages the equity market boom without precipitating a dramatic crash will be one of the most important stories for China in 2015. In the current environment one can sympathise with investors like Pan Shiyi who are diversifying into overseas assets.



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.

Click for large image at Advisor Perspectives dshort.com
margin.debt.1995.2015


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 AlphaThe Economy Is Growing Slower While The Markets Rise.
stock.equity.flows.price.disconnect


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):

china.property.market.2011.2015

And what happened starting in early 2013?  Margin debt in China was starting a "moon shot" rise:

margin.debt.china.taiwan.japan.us


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 CourierEconintersect:  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)

The good news is that Scott Walker is looking to advisers to educate him on the issues he will have to address if he wants to be elected President. The bad news is that on the economics of immigration the Wisconsin Governor is listening to Alabama Senator Jeff Sessions.

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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