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
Economists Discuss the Limits of Economics (Bloomberg) Steve Keen, who has contributed to GEI, was one of the keynote speakers. The focus of the session was why economics is clueless about incipient economic crashes. Keen believes the failures of economics derives from the failure of economists to include credit and banking in their analysis and models. GEI will have more from this conference in coming days. Prof. Keen, Head Of School Of Economics, History & Politics, London, included several of his well known colorful comments in his presentation. Examples:
"Completing an economics degree is the equivalent of a “£9,000 lobotomy”.
"The current economics framework [compares] with astronomists who once thought the Sun went 'round the Earth, and were resistant to any opposing ideas."
Bank of England Warns Greece Threatens Financial Stability (The Wall Street Journal) The Bank of England said Wednesday the outlook for financial stability in the U.K. has deteriorated in recent days as the crisis in Greece intensifies, underscoring how the Mediterranean nation’s debt troubles are reverberating outside the eurozone.
Three Scenarios for Greece and the Eurozone (The Wall Street Journal) Greece has crossed a threshold that no other advanced economy in history of theInternational Monetary Fund (IMF) has passed: Defaulting to the world’s senior-most creditor. This article discusses three scenarios which may have today been reduced to only one.
Greek referendum poll shows lead for 'No' vote, but narrowing (Reuters) A majority of Greeks would vote 'No' to the terms of a proposed bailout deal by foreign lenders but the lead narrowed significantly after banks were closed this week, according to an opinion poll published on Wednesday. The poll, conducted between June 28-30 and published in the Efimerida ton Syntakton newspaper, showed 54 percent of those planning to vote in Sunday's referendum would oppose the bailout against 33 percent in favor. However, a breakdown of results between those polled before and after Sunday's decision to close the banks and impose capital controls showed the gap narrowing.
Merkel-Tsipras Sparring Leaves Greece in Limbo Until Sunday Vote (Bloomberg) German Chancellor Angela Merkel has ruled out any further discussion with Greece until after Sunday's referendum. And the meaning of the referendum is in question because "The Institution" (creditors) has stated the "deal" offer being voted on expired at midnight Tuesday (last night).
NYSE Margin Debt: A 1.6% Decline from Last Month's Record High (Doug Short, Advisor Perspectives dshort.com) Doug Short is a regular contributor to GEI. Doug has plotted the inverse of margin debt and the S&P Index prices on the same chart. If you have ever wondered why margin debt is worth tracking, just observe the tight correlation in this chart. It may not provide a timely indicator of a market top, however, because the margin data is released a month after the fact - end of May data was just released on 30 June. Econintersect: There is too little history to establish significance, but margin debt has peaked a few months before the market peaked for the last two market tops and has declined sharply and significantly before the final top in both cases. So we don't know for sure if it will happen again but we will be taking precautions if there is sudden 10% or so drop in margin debt.
Here's why stock prices crash (Andy Kiersz, Business Insider) Researchers have come up with three statistical measures of stock price crashes, each of which captured a sudden drop in a company's stock price in a given time period. (1) The simplest of the measures was the worst daily return for the stock's price in the given time period. (2) The second measure flagged whether or not a stock's return on a day was extremely below the average return for that stock. (3) The third measure looked at the overall distribution of a stock's daily returns and how far skewed to the downside that distribution was: A negatively-skewed return distribution is an indicator of one or more really bad days for a stock's price. Looking at stock return data for companies in the S&P US Broad Market Index for the four six-months periods ranging from July 2012 through June 2014, they identified 686 severe stock price crash events in which a company's score on at least one of their three indicators was in the lowest-performing 5% among all stocks. Read the research paper: Navigating Stock Price Crashes (B. Korcan Ak, Steve Rossi, Richard Sloan and Scott Tracy, SSRN).
Other Economics and Business Items of Note and Miscellanea
The billion-dollar business to sell us crappy food (Al Jazeera) New report sheds light on the covert tactics used to shape public opinion about what we eat. At the turn of the last century, the father of public relations, Edward Bernays, launched the Celiac Project, whose medical professionals recommended bananas to benefit celiac disease sufferers. Those pitched on the sweet fruit’s miraculous properties didn’t know the project was actually created for the United Fruit Co., the largest trader of bananas in the world. The creation of front groups — independent-sounding but industry-backed organizations — as a public relations strategy dates at least as far back as Bernays’ day. Learn about the effects of such tactics and the damaging results by reading the report: Spinning Food: How Food Industry Front Groups and Covert Communications are Shaping the Story of Food (Kari Hamerschlag, Friends of the Earth U.S.; Anna Lappé, Real Food Media Project; and Stacy Malkan, US Right to Know).
Fed’s Bullard: Over Time, Tighter Policy May Be Needed To Ward Off Bubbles (The Wall Street Journal) Federal Reserve Bank of St. Louis President James Bullard warned Tuesday that very low interest rates could create problems in the financial system, and suggested that in the future the U.S. central bank may need to set short-term rates at higher levels than would normally be the case to mitigate those risks. Bullard indicated in a slide presentation before a local group in St. Louis that
"the Fed should hedge against the possibility of a third major macroeconomic bubble in coming years by shading interest rates somewhat higher than otherwise” would be the case based on historical norms. “The benefit would be a longer, more stable economic expansion.”
Economics & Theology (The Institute of New Economic Thinking) Econintersect: Why is there a connection? We would suggest that the two represent the leading fields of study that focus on belief systems (as opposed to studies of measured facts). Perhaps the logical outcome of such discussions would be the separation of economics into two fields: Philosophy and Accounting/Econometrics.
More Musings on “Monetary Economics” (Washington Center for Equitable Growth) Again more discussion of the failure of economics to understand the business cycle in real time. Brad DeLong thinks there is a profound reason why those who have been unable to understand the business cycle over the past two centuries have been those who have defined themselves as doing “monetary economics”, and those who have not been able to understand the business cycle have not [denied monetary economics]…
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