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What We Read Today 06 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

Global

  • Stop blaming China—the problem is bigger than that (CNBC)  Everyone is blaming China for the recent stock-market rout, but this blame is misguided. China was the beneficiary of global expansion of money supply at the hands of activist central banks. In fact, my view is that Chinese leadership had little to do with the growth "miracle" it experienced over the last decade.  As central banks in the U.S., Japan and Europe eased policy, money sought a higher-yielding home in China. This capital inflow was the cause of the growth "miracle" and now that the expansionary monetary policy is ending, it is only natural that the Chinese economy would begin to slow. Unfortunately, this "search for yield" has created the largest shadow banking system the world has even seen … and it could be in trouble.  Since 2010 the amount of U.S. dollar-denominated debt issued by foreign companies has grown 50% ($6 trillion to $9 trillion). The proximate cause of this debt buildup was the impact of U.S. Federal Reserve quantitative easing on bond yields:  As the Federal Reserve bought bonds, yields were pushed lower and investors were forced to search globally for higher-yielding financial instruments. This demand for yield fueled a credit binge of unprecedented scale.    

U.S.

  • Big Oil Pulls Back From Washington? (Bloomberg)  Despite a long wish list, the industry is slashing lobbying spending amid the oil downturn.  Econintersect:  Whatever will congressmen (and women) do to replace the "lost revenue"?

EU

  • Threat of euro zone deflation not rising: Bank of Italy (CNBC)   The euro zone is likely to escape the threat of outright deflation this year, the head of Italy's central bank told CNBC on Saturday, but he warned of "very, very low inflation" ahead.  Ignazio Visco, the Bank of Italy governor, made the comments in an exclusive interview just days after the European Central Bank (ECB) downgraded its inflation forecasts for the year. Currently, the ECB sees inflation at 1.1% next year, below its June forecast of 1.5%. The central bank also expects economic growth in 2016 of 1.7%, versus its June forecast of 1.9%.
  • Pope Calls on All of Europe’s Catholics to House Refugees (The New York Times)  Pope Francis has made a public statement about the mass migration of tens of thousands of people, many from Syria and Iraq, but also Afghanistan, who have been arriving in Europe in recent weeks.  Hungary continues its hostile actions with a new “alien holding center,” while construction crews were putting the finishing touches on a 12-foot fence topped with razor wire spanning the entire 108-mile border with Serbia.  In contrast, volunteers raced to rail stations in Austria and Germany to offer food, drink, toys and cigarettes to arriving migrants, applauding each train and emphasizing that the newcomers were welcome.  See also next article.
  • Refugees and Europe face perfect storm as crisis deepens (Al Jazeera)  A European Union schism hampers response as worsening Syrian security and Balkan weather boosts refugee numbers.  A perfect storm appears to be developing. As the EU’s 28 countries squabble over how many refugees to accept, some member states are seeking to seal their borders to new arrivals, and continued fighting in Syria is driving people to embark on the trek from the Middle East to Europe now, before winter sets in.

Turkey

  • Several Turkish soldiers killed in PKK attack (Al Jazeera)  The Kurdish militant group PKK says its members killed 15 Turkish servicemen and seized large number of weapons in Hakkari province in southeastern Turkey near the Iraq border.

Israel

  • Israel to build fence to keep refugees out (Al Jazeera)  Netanyahu says he will not allow Israel to be "submerged by a wave of illegal migrants and terrorist activists".  Israeli Prime Minister Benjamin Netanyahu has announced the start of construction of a fence along Israel's border with Jordan after calls were made for Tel Aviv to take in Syrian refugees.

Russia

  • U.S. Warns Russia Over Military Support for Assad (The New York Times)  Secretary of State John Kerry told his Russian counterpart on Saturday that the United States was deeply concerned by reports that the Kremlin may be planning to vastly expand its military support for President Bashar al-Assad of Syria, warning that such a move might even lead to a “confrontation” with the American-led coalition, the State Department said.

China

  • China trade, inflation and retail sales data to hit this week (CNBC)  Brace yourselves: China is slated to release a deluge of data in the coming week, and market participants will likely be paying closer-than-usual attention as uncertainty about the outlook for the world's second largest economy escalates:  Tuesday there will be trade data, inflation data Thursday and finally industrial production and fixed asset investment on Sunday. 

Australia

  • The Place Where Being a Nuclear Waste Dump May Be a Good Option (Bloomberg)  South Australia, a rustbelt state that’s 60 percent desert, grappling with the highest unemployment in the country and a steady outflow of people to other states. And in 2017, General Motors Co. will close its Holden factory, ending more than 50 years of automaking in the Adelaide suburb of Elizabeth, where one in three are already without work.  Options for State Premier Jay Weatherill to stem the decline are dwindling and he’s looking at all of them, even the possibility of using the state as a dump for the world’s nuclear waste. Perhaps more than anywhere else in the country, this state in the heart of the continent epitomizes the hard choices Australia faces in the aftermath of its 10-year mining bonanza.

Guatemala

  • Guatemalans Ousted President Otto Pérez Molina. Now What? (The New York Times)  Otto Pérez Molina, the retired general who resigned as president, will return to a courtroom on Tuesday, when a judge will decide whether he must stand trial on charges that he ran a vast customs fraud ring. A suddenly diminished figure, he was already old news, though, as people headed to the polls today (Sunday 06 September) for presidential and congressional elections.  But those elections offer no comfort to the protesters because the candidates are drawn from the same political establishment they are fighting. Instead, the months of protest unleashed other demands aimed at transforming Guatemala’s government — calls for electoral reform, for anticorruption measures, for independent judges, among other things.

Even the Most Educated Workers Have Declining Wages (Economoc Policy Institute)  Some commentators are under the false impression that wage inequality is a simple consequence of employers’ demand for increased skills and education—often thought to be driven by advances in technology.  That is not born out by the data.  From 2013 to 2014 the two best educated demographics were the only ones to suffer significant real income losses.

pay.education.20007.2014

Understanding the Historic Divergence Between Productivity and a Typical Worker’s Pay (Economic Policy Institute)  Here is a good review of the data on wages vs. productivity.  The first graph below shows the widely distributed data of median wages vs. productivity.  The second graph below shows that with average wages the difference is much less and other wage related factors reduce the wage/productivity disparity even more.  Bottom line:  Wage share of the economy has not shifted dramatically but wage distribution has.

productivity.wages

productivity.wage.distribution

Other Economics and Business Items of Note and Miscellanea

  • 5 High Dividend Stocks Offering More Than Dividends (Seeking Alpha)  Before the bear market bottom in 2009  higher yielders (stocks with dividends over 4%) were cheaper than those with yield in the 2-4% range 92% of the time. Since then, they've been cheaper just 30% of the time.  This is likely a consequence of ZIRP (zero interest rate policy) as people who are looking for income, especially seniors, find few competitors for dividend stocks.  This author recommends five blue chip dividend stocks (none in the energy sector) with an average dividend yield of 4.4%.  See also next article.
  • Retirement Strategy: Magic? There Is No Magic To Investing For The Long Term (Regarded Solutions, Seeking Alpha).  Submitted to GEI Discussion Group, LinkedIn by Alan Lee.  The premise is that for retirement income investing one should stick to "proven dividend aristocrats with a minimum of 25 consecutive years of paying and increasing dividends".  He says there is "no magic, it just are the facts!"

 

  • Risk of big stock drops grows: Robert Shiller (CNBC)  Based on his research of historical stock market valuations, Nobel Prize-winning economist Robert Shiller said Thursday he sees the "risk of substantial declines" ahead.  Even with the recent turmoil, which pushed the Dow industrials, S&P 500, and Nasdaq into correction last week and again this week, "the market is high now," the Yale University professor told CNBC's "Squawk Box." 


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