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What We Read Today 22 May 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


  • Longshore workers keep their grip on the global supply network (Al Jazeera)  The supply chain is more flexible and resilient than ever, but one union still has the power to slow it down – for now.  They maintain that power in the face of the declining strength of labor nationwide and despite the growing sophistication and resilience of the global logistics industry.


Econintersect:  We leave it to readers to decide what the emails reveal - see next two articles.

  • Edward Snowden: NSA reform in the US is only the beginning (The Guardian)  Edward Snowden has hailed landmark shifts in Congress and the US courts on NSA surveillance,  However, in an exclusive interview from Moscow, Snowden cautions that more needs to be done to curb NSA surveillance two years after his disclosures.


Click for large image.


Econintersect:  We leave it to readers to decide what EU leaders expect - see next two articles.

  • Schaeuble Said to Cite Option of Greek Parallel Currency  (Bloomberg)  German Finance Minister Wolfgang Schaeuble raised the possibility that Greece may need a parallel currency alongside the euro if the country’s talks with creditors fail.  Econintersect:  There are other solutions.
  • Merkel, Hollande Tell Greece to Take Route A to Agreement (Bloomberg)  Angela Merkel and Francois Hollande told Greece there’s no alternative to dealing with creditors as it seeks to unlock bailout funds, after another round of negotiations failed to break the impasse over aid.  Econintersect:  No compromises for Greece.



  • Dozens dead in Mexico gunfight (Al Jazeera)  Government officials and presumed cartel members clash in the western Mexico state of Michoacán; at least 39 dead, police officials say.

Smart Money Most Committed to Falling Rates Since The Last Peak in Long Bond Yields (Advisor Perspectives)  Hat tip to Sig Silber.  Commercial traders (AKA the smart money) has massively flip flopped their positioning since the end of last year with respect to the long bond. In aggregate, commercial traders have moved from a net short position (benefiting when rates rise) of about 50K derivative contracts to a net long position (benefiting when rates fall) of 22K contracts.


Lies, Damned Lies and Alpha (All About Alpha)  Hat tip to Kristen Fox via LinkedIn. “Alpha” as a concept has great appeal since it allows investors to condense all the complexities of “added value” into a single metric. It enables us to quantify in simple terms the value proposition of active management: a low beta manager is less risky, a high alpha manager adds value. Statistical models are incredibly useful and have meaningfully improved our understanding of pernicious issues like undeclared leverage and hidden correlations. However, as with many elegant ideas, it’s incredibly important to pay close attention to the assumptions. Otherwise, we’ve got a big garbage in-garbage out problem.  Here is one of the examples provided in the article.  Fund A appears to clearly outperform the S&P 500 (positive alpha) and with a beta significantly less than 1.0 (indicating less volatility and/or correlation below 1),  However, the author says:

Most investors would leap at the opportunity to invest. There’s a catch, however. Fund A is simply the S&P 500 with moderate smoothing. While less of an issue, perhaps, with mutual funds, the level of smoothing is comparable to that of many hedge fund portfolios. Statistically, smoothing depresses beta and causes a commensurate increase in alpha. In this case, lower risk and “excess returns” are entirely attributable to a statistical quirk.



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