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What We Read Today 23 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.

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  • Hedge fund leader bets on emerging market rout (Financial Times)  John Burbank, Passport Capital, has placed lucrative bets against commodities and emerging markets this year. He has forecast that the Fed would eventually be forced into a fourth round of quantitative easing (QE) to shore up the economy.  Mr Burbank said years of QE had caused a misallocation of capital across the world, while the end of QE last year triggered a dollar rally with consequences that were only now beginning to be realised.  Here is something specific:

“The wrong people got the capital — emerging markets countries and corporates and a lot of cyclical companies like mining and energy, particularly shale companies — and this is now a major problem for the credit markets.” ... “I think we are on the precipice of a liquidation in emerging markets, and this feels the way that the fourth quarter of 1997 felt.”


  • Act now on climate change (Reuters)  Pope Francis on Wednesday urged the United States to help tackle climate change and touched on other divisive U.S. political issues such as immigration and economic inequality on his first visit to the world's richest nation.  In a speech on the White House South Lawn on the first full day of his U.S. trip, the Argentine pontiff lauded President Barack Obama's efforts to reduce air pollution, months after Francis made the environment one of his top concerns by issuing a landmark encyclical letter to the church.


  • Migrant crisis: EU splits exposed as summit begins (BBC News)  Splits within the EU on the relocation of 120,000 migrants have been further exposed as leaders begin an emergency meeting in Brussels.  Slovakia is launching a legal challenge to mandatory quotas that were passed in a majority vote on Tuesday.


  • Volkswagen bigger risk for Germany than Greek crisis (Reuters)  The Volkswagen emissions scandal has rocked Germany's business and political establishment and analysts warn the crisis at the car maker could develop into the biggest threat to Europe's largest economy.
  • Volkswagen CEO Likely to Get $32 Million Pension After Leaving (Bloomberg)  Martin Winterkorn, engulfed by a diesel-emissions scandal at Volkswagen AG, amassed a $32 million pension before stepping down Wednesday, and may reap millions more in severance depending on how the supervisory board classifies his exit.  After Winterkorn disclosed Wednesday that he had asked the board to terminate his role, company spokesman Claus-Peter Tiemann declined to comment on how much money the departing CEO stands to get. Volkswagen’s most recent annual report outlines how Winterkorn, its leader since 2007, could theoretically collect two significant payouts.


  • Boeing factory plans submitted to Beijing (Dispatch Times)  Boeing (NYSE:BA) is preparing to announce its first plant outside the USA with a deal to set up a completion facility in China for the 737 single-aisle aircraft, to mark the visit of President Xi Jinping to Seattle on Wednesday, according to several media reports.  A plan for the Boeing plant in Zhoushan, in the eastern province of Zhejiang, has been submitted to the State Council, China’s cabinet, the Shanghai Securities News reported. Analysts say creating a Chinese plant is crucial if Boeing wants to win more aircraft orders from Beijing and stave off competition from China’s own 737 competitor, the Comac C919, which is behind schedule.
  • Boeing Lands $38 Billion Jet Order From Chinese Airlines (Bloomberg)  Boeing Co. landed an order for 300 jetliners, worth $38 billion, from Chinese carriers and lessors as some of the first business deals were unveiled on President Xi Jinping’s official state visit to the U.S.  The general agreement includes 190 737 aircraft and 50 widebody planes for Chinese airlines, and 60 of the single-aisle planes for leasing companies ICBC Financial Leasing Co. and CDB Leasing Co., Boeing said in a statement Wednesday.

Copper price to rally on supply disruptions: Capital Economics (Mine Web)  Capital Economics (CE) sees the copper price rallying to $7,000/t by year-end 2016 but other analysts are not convinced.  If the CE prediction bears out, copper will gain more than 18% by year-end 2015 and more than 33% by year-end 2016.


Other Economics and Business Items of Note and Miscellanea

  • An economy run to benefit producers? (The Economist)   Behavioral economics has at its heart the proposition that individuals are not the logical beings assumed by neoclassical theory but are often biased and emotional rather than than logical.  If consumers have irrational desires, then it makes every sense for producers to exploit them; indeed it makes more sense to exploit such desires as the inefficiency is less likely to disappear, and the profits greater. Drawing the line between those markets where competition ensure goods of high quality, and those where it does not, is very difficult. Indeed, the mind turns to J K Galbraith's classic book "The Affluent Society" and the notion that the modern economy had to create "artificial" desires among consumers in order to keep industry busy. Galbraith even anticipated the debt crisis when he wrote that

It would be surprising indeed if a society that is prepared to spend thousands of millions to persuade people of their wants [through advertising] were to fail to take the further step of financing these wants, and were it not then to go on to persuade people of the ease and desirability of incurring debt to make these wants effective.

  • Lloyd Blankfein, Goldman Sachs C.E.O., Has Lymphoma (The New York Times)  Mr. Blankfein, who is Goldman’s chairman and chief executive, publicly revealed Tuesday morning on the firm’s website that he had what he described as a “highly curable” form of lymphoma.  The 61-year-old Mr. Blankfein will remain in charge as he undergoes chemotherapy over the next several months.  He said in a statement posted on the firm’s website on Tuesday:

“My doctors have advised me that during the treatment, I will be able to work substantially as normal, leading the firm.” 

Bill Gross said the Federal Reserve needs to raise interest rates as soon as possible, trading some near-term market losses for longer-term stability and a healthier financial system.

If zero interest rates become the long-term norm, economic participants will soon run on empty because their investments aren’t producing the gains or cash flow needed to finance past promises in an aging society, he wrote in an investment outlook on Wednesday for Denver-based Janus Capital Group Inc. That’s already beginning to happen as Detroit, Puerto Rico, and, he predicts, soon Chicago, struggle to meet their liabilities.

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