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What We Read Today 02 September 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



  • Obama secures enough support from senators for Iran deal (BBC News)  US President Barack Obama has secured enough support in the US Senate to ensure that the Iran nuclear deal will go into effect.  US Congress could still oppose the deal, but Mr Obama has now enough votes to override any resolution of disapproval.
  • When Will It End? History Shows U.S. Stocks Rebound Needs Months (Bloomberg Business)  The S&P 500’s rally that began in March 2009 has been marked by two previous corrections: a 16 percent selloff from April to July in 2010, and a 19 percent slump over seven months a year later. The benchmark group recovered within about four months of each, so if history is any guide, the market may not be back at its May peak until late December.  Econintersect:  That is the optimistic view.  There are some thinking this will be a deeper decline than the two previous ones.  To follow what the markets are doing follow Gary's Market Commentary at GEI.  Click here for today's Market Close report.
  • It's Time to Get Real on the Still-Negative Real Yield (Bloomberg Business)  The bond yields we live with day to day and moment to moment are nominal yields. Another phrase is the current yield. Right now, the all-American, full-faith-and-credit 10-year U.S. Treasury yield is 2.18%. For 30 years now the "real yield" has descended. The financial crisis and Great Distortion are clearly evident. Critically, the real yield has not come back.

Click for larger image at Bloomberg.

  • Five Chinese Navy Ships Are Operating in Bering Sea Off Alaska Coast (The Wall Street Journal)  Chinese naval presence off Alaskan coast appears to be a first.  Pentagon "officials said they have been aware in recent days that three Chinese combat ships, a replenishment vessel and an amphibious ship were in the vicinity after observing them moving toward the Aleutian Islands, which are split between U.S. and Russian control."


  • Migrants shut Eurostar trains to UK; dead wash up on Turkish beach (Reuters)  Hundreds of thousands of refugees fleeing wars, as well as economic migrants escaping poverty, have arrived in the European Union, confounding EU leaders and feeding the rise of right wing populists.  Every day the news seems more grim.  See also next article.
  • Budapest migrant standoff enters second night (BBC News)   Hundreds of migrants are in a standoff with police for a second night outside a Budapest railway station.  Earlier, scuffles broke out between the two sides as frustration among migrants boiled over outside Keleti station.  Many of the migrants have tickets and are insisting they be allowed to travel on to Germany and other countries, but Hungary says it is enforcing EU rules.  Meanwhile, Germany, Italy and France have called for "fair distribution" of refugees throughout the EU.


  • Let the Mediterranean refugees come to work in Britain (Adam Smith Institute)  There probably is no solution to the current Mediterranean refugee crisis, but letting more refugees come to Europe as economic migrants may be a viable way of at least making some people better off.  The author cites a number of studies where economic migrations from regions of political, military and economic distress have not shown any detriment to native low-level workers and some which show benefits.    


#Russia's oil-dependent economy is in deep trouble

— Pedro da Costa (@pdacosta) September 2, 2015


  • China parade to display past and future (BBC News)  China is preparing a massive military display.  On Thursday President Xi Jinping will preside over an enormous military parade in Beijing in commemoration of China's World War Two victory over Japan 70 years ago.


Morgan Stanley issues 'full house' buy alert for stocks  (The Telegraph)  All five of the bank's key timing indicators are flashing a green light for the first time since early 2009, suggesting the worst may be over for global equities as selling fever reaches capitulation levels.  European equities look particularly attractive as "[e]quities remain very cheap relative to government bonds and there remains a lot of liquidity around that is looking for a home".  This bold call has raised eyebrows since the bank caught the exact top of the European equity market in June 2007 using the same timing indicators, on that occasion issuing a "full house" sell alert.

Undone:  Homeownership Falls to 50 Tear Low (Despite Mortage Purchase Apps up 25 Percent YOY) (Confounded Interest)  The data indicates that the U.S. housing policy to increase home ownership has come undone.  With homeownership still declining the inference is that increased mortgage purchase apps represent an increased rate of homeowners changing homes with limited entry of new homeowners.


US 2013 income shares (Branko Milanovic, Twitter)  Observations:  (1)  For the bottom 7 percentile transfers are larger than wages (Econintersect thought it wiould be higher); (2) There is a small but measurable income from capital in the lowest income percentiles (Econintersect is surprised); (3) The decline in income percentage from transfers is very gradual from about 40th percentile (ca. 22%) all the way up to 90th (ca.14%) - and from 50th (ca. 20%) to 80th (ca. 16%);  and (4) Transfers are low but significant at high incomes (10% at 95th percentile) and (4% for the top 1%).  For perspective, see next article. 

Kunstler: "What’safoot is not “recession” but a permanent contraction of what's been normal for over 200 years."

— DoomsteadDiner (@Doomstead666) September 2, 2015

What is Your Income Percentile Ranking? (Political Calculations)  Refer to numbers in discussion for preceding article for the following comparisons.  The approximate amount of money received by households in transfer payments (direct and indirect) for various income percentiles:  7th = $630; 40th = $8,800; 50th = $10,600; 80th = $16,300; and for 90th. 95th and 99th, all are around $20,000.

Click for larger interactive graphic at Political Calculations.

Other Economics and Business Items of Note and Miscellanea

  • A Surprise Source of Life's Code (Scientific American)  For most of the last 40 years, scientists thought that this was the primary way new genes were born — they simply arose from copies of existing genes. The old version went on doing its job, and the new copy became free to evolve novel functions.  But certain genes seemed to defy that origin story. They had no known relatives, and they bore no resemblance to any other gene. They’re the molecular equivalent of a mysterious beast discovered in the depths of a remote rainforest, a biological enigma seemingly unrelated to anything else on earth.  And the occurred far too frequently to be major mutations.  But now researchers have evidence that the new genes arise from so-called "junk DNA".  This is the material between the code carrying sections of DNA.  And these "new" genes are found to make up significant portions of the genome.  To wit:

The mystery of where these orphan genes came from has puzzled scientists for decades. But in the past few years, a once-heretical explanation has quickly gained momentum — that many of these orphans arose out of so-called junk DNA, or non-coding DNA, the mysterious stretches of DNA between genes. “Genetic function somehow springs into existence,” said David Begun, a biologist at the University of California, Davis.

This metamorphosis was once considered to be impossible, but a growing number of examples in organisms ranging from yeast and flies to mice and humans has convinced most of the field that these de novo genes exist. Some scientists say they may even be common. Just last month, research presented at the Society for Molecular Biology and Evolution in Vienna identified 600 potentially new human genes. “The existence of de novo genes was supposed to be a rare thing,” said Mar Albà, an evolutionary biologist at the Hospital del Mar Research Institute in Barcelona, who presented the research. “But people have started seeing it more and more.”

  • (What’s Left of) Our Economy: Good News on Labor Productivity – Unless You’re Labor (Reality Chek)  Labor productivity in the second quarter rose by 3.3% on an annualized basis for non-farm businesses (the Labor Department’s universe on this score). That’s the best reading since the the fourth quarter of 2013, and a nice reversal of the previous two quarters’ performance, during which labor productivity fell in absolute terms.  While this may ease pressure on the Fed to raise rates it also is not good news for labor which is seeing another decline in real income.
  • Will Oil Cause the Next Recession (Gary Shilling, Bloomberg View)  Some predict that lower oil prices will lead to increased consumer spending as money is saved on spending.  (Econintersect:  We have considered that logic suspect. Why should shifting expenditures from energy to other areas boost an economy that produces more than 2/3 of its energy?)  Shilling also doesn't buy the potential for an economic boost compared to the risk of just the opposite:

Lower oil prices, however, could come with a downside. As they work their way through the system, deflation could follow. Already, 10 of the 34 largest economies in the world have seen year-over-year declines in consumer prices. The risk is that deflationary expectations could follow, encouraging consumers to withhold purchases in anticipation of even lower prices.

If that happens, excess capacity and inventories would build, forcing prices down more. When buyers' suspicions are confirmed, they further delay consumption, in a vicious downward cycle. The result is little if any economic growth, as deflation-prone Japan has seen over the last two decades.

  • Was Einstein the First to Invent E = mc2?  (Scientific American)  Albert Einstein was not the first physicist to relate mass and energy.  But he was the first to state the relationship in the famous form that has been so dominant in physics over the past 110 years.  Curiously, he never succeeded in proving the equation theoretically; However, all experimental work since 1905 has confrirmed its correctness.

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