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What We Read Today 23 October 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

  • 'Black Death' germ has afflicted humankind longer than suspected (Reuters)  The plague germ that caused the "Black Death" in the 14th century and other ferocious pandemics has stalked humankind far longer than previously known.  A study unveiled on Thursday of DNA from Bronze Age people in Europe and Asia showed the bacterium, Yersinia pestis, afflicted humans as long ago as about 2800 BC, more than 3,000 years earlier than the oldest previous evidence of plague.  The plague has killed untold millions of people over the centuries in pandemic flares that reshaped human society.

  • OPEC's 2nd Biggest Producer Plans To Boost Output By 30% (Oil Pro)  The United Arab Emirates is the second-largest producer of petroleum and other liquids in OPEC, trailing only Saudi Arabia. It was also the world's 6th-largest oil producer last year. In its daily energy briefing on Friday, the Energy Information Administration (EIA) said that because the prospects of additional oil discoveries in the UAE are low, the country is depending on the use of enhanced oil recovery (EOR) techniques in mature oil fields to boost production- by 30% by the end of this decade.  Econintersect:  That looks like more than 1 million barrels a day.

top.ten.oil.producers.globally

U.S.

  • GOP, Dems moving in opposite directions after a pivotal week (Associated Press)  After a pivotal week, the presidential race has become a tale of two parties on sharply different trajectories: Hillary Rodham Clinton has tightened her grip on the Democratic nomination while Republican concern is reaching new heights. Some officials are even considering what could turn into a GOP civil war to stop Donald Trump — with no fallback option.

Iran

  • Could Iran be the next country to legalise cannabis and opium? (The Conversation)  After Uruguay courageously legalised the use of cannabis under a new drug policy, could Iran be the next country to make it legal? From the outside, the image of Iran as retrograde and inherently conservative hardly fits with the reality of a more dynamic domestic political debate within. But drug policy is one of the areas of debate in which the Islamic Republic has produced some interesting, yet paradoxical, policies.  Iran has a conspicuous drug addiction problem – which officially accounts for more than 2m addicts (though unofficial figures put this as high as 5-6m). Drug traffickers risk harsh punishments that include the death penalty. Yet Iran also has very progressive policies towards drug addiction, which include distribution of clean needles to injecting drug users, methadone substitution programmes (also in prisons) and a vast system of addiction treatment.

India

Several hard realities are overlooked by these violent Hindu radicals. The average Indian Muslim doesn’t eat beef because of some religious prerequisite, as many die-hard Hindus would have us believe. Instead, the decision to eat it very often boils down to economics. In India, beef is, and has always been, cheaper than any other meat (chicken, goat or lamb). Kilogram for kilogram, it is even cheaper than potatoes in some places. For poor Muslims living on the economic margins, beef is the only source of a wholesome meal.

There are also Hindus who eat beef for the same economic reasons. Poverty-stricken and living outside the Hindu caste hierarchy, they don’t pay much attention to the religious prohibitions against killing cows and eating beef. And yet radical Hindus don’t complain about them.

China

  • IMF Said to Give China Strong Signs of Reserve-Currency Nod (Bloomberg)  International Monetary Fund representatives have told China that the yuan is likely to join the fund’s basket of reserve currencies soon, according to Chinese officials with knowledge of the matter, a move that may make more countries comfortable using the unit or including it in their foreign-exchange holdings.  "Chinese officials said to prepare celebratory statements."

  • China Cuts Interest Rates as Policy Divergence With U.S. Widens (Bloomberg)  China stepped up monetary easing with its sixth interest-rate cut in a year to combat deflationary pressures and a slowing economy, moving ahead of anticipated fresh stimulus by central banks from Europe to Japan and possible tightening in the U.S.  The one-year lending rate will be cut to 4.35 percent from 4.6 percent effective Saturday the People’s Bank of China said on its website on Friday, while the one-year deposit rate will fall to 1.5 percent from 1.75 percent. Reserve requirements for all banks were lowered by 50 basis points, with an extra 50 basis point reduction for some institutions.  Bloomberg commentators say "the punch bowl has been filled":

Australia

  • Macquarie sees interest rates risking 1% (Macro Business)  Continuing decline in Australian mining due to iron ore continuing lower in price is creating a "risk case" for the RBA (Reserve Bank of Australia) to cut rates further and quickly.

australia.rates

Brazil

  • The Overlooked Forces Driving Brazil's Inflation to 10 Percent (Bloomberg)  Analysts see inflation running above target during Rousseff's entire term.  Contrary to the government's emphasis on inflation caused by energy (electrical) costs and currency devaluation, examination here highlights housing and service sector as primary drivers.  

Mexico

  • The Strongest Hurricane Ever Recorded Is Heading for Mexico (Bloomberg)  The strongest hurricane ever measured in the Western Hemisphere is hours from striking near Mexico’s biggest port and a popular holiday resort, threatening catastrophic damage to property and posing danger to the lives of anyone caught in its path.  Hurricane Patricia is forecast to go ashore between Puerto Vallarta and Manzanillo on Friday with winds as high as 200 miles (323 kilometers) per hour, or Category 5 major storm strength, according to the U.S. National Hurricane Center in Miami.


High Yield Spread Disputes VIX Index’s Complacency (John Lonski, Moody's)  There are some red flags waving in the credit markets.  Moody's suggests that the low reading of the equity market's VIX (volatility index) is in direct conflict with what is happening in high yield bonds, which usually trade as much (or more) like stocks than investment grade bonds.  Notes for graphs below:  Fig. 1 shows the strong positive correlation (R = 0.83) between VIX and the high yield spread;  the last couple of months the correlation is strongly negative.  Fig, 2 shows that sustained declines in high yield borrowing has started before each of the last three recessions and continued through to late recession or beyond.  Fig. 3 shows the almost perfect negative correlation between issuance and default for high yield bonds;  Moody's: "The record strongly suggests that unless the high yield EDF metric trends lower, high yield borrowing will remain suppressed."  Fig. 4 shows that the hard hit oil & gas sector has led the decline in high yield issuance but the net of all other sectors is also down.  Conclusion:  There is currently only bad news from the junk bond arena and both the economy and equity markets should take warning.

 vix.hi.yld.spread.diverge

hi.yld.spread.recession

hi.yld.default.issuance

hi.yld.issuance.energy.other

Other Economics and Business Items of Note and Miscellanea

The Census Bureau resumed work today on a survey that feeds into the nation’s reports on gross domestic product, corporate profits and the flow of funds, after congressional delay imperiled a quarter’s worth of data.

The White House announced Thursday evening that President Barack Obama signed the law reauthorizing the Census Bureau to conduct the work.

The obscure survey, known as the Quarterly Financial Report, receives little attention as it’s not a major report in its own right, even though it’s used to build some of the most prominent U.S. economic reports. During the congressional upheaval of the past month, the authorization lapsed, despite no opposition in Congress to the report. Work on the survey was halted on Oct. 1. After several weeks of delay and scheduling problems, the House sent the measure to the president yesterday.

Had the report not been reauthorized this week, the Census Bureau may have had to cancel the survey entirely, losing a quarter’s worth of data. Even with a pause of more than three weeks, the quality of the surveys will likely be at least somewhat damaged. The census said in an e-mailed statement only that “impacts on the data are being assessed.”

  • 8 must-read economics stories of the week (World Economic Forum)  Check out #5.  This article from Financial Times is grist for the guaranteed income mill. 

  • Paul Krugman Celebrates Another Deathblow for Know-nothing Conservative Economics (AlterNet)  Canada's election of an avowed liberal who wants to invest in infrastructure inspires Krugman.  Econintersect:  The Professor danced on the austerity grave?  Why not take a little more time and explain what's going on interms of sectoral balances?  Austerity can work following a period of very high private sector savings and/or when there is a positive external balance of payments (usually driven by trade surpluses).  When the opposite of these conditions exists (as the case for Canada since 2008) austerity is damaging to the economy.  A professor should educate, not proselytize.

  • Irreducible Uncertainty and its Implications: A Narrative Action Theory for Economics. (Institute for New Economic Thinking)  At the heart of economics is a theory of action. It reflects views about how human beings make economic decisions and leads to an analysis of aggregate consequences.  But, ignored by too much of the economics community, is that logic machines don’t do well with irreducible uncertainty.  This essay presents the difference that can be drawn between how machines and humans handle uncertainty.  And, the author (David Tuckett, University College London) says, the difference matters a lot.  

  • Labor Shortages Trip Up Big Home Builders (The Wall Street Journal)  Construction-labor shortages are starting to dent the results of large home builders.  PulteGroup Inc., the third-largest U.S. builder by homes delivered, on Thursday blamed its 6% decline in finalized sales in its third quarter primarily on a dearth of workers needed to finish homes on time. Analysts had expected Pulte to register a gain in deliveries in comparison to its year-earlier result.  Also on Thursday, M/I Homes Inc., which operates in seven states, posted a 1% gain in deliveries when analysts expected a much more robust gain.

  • Internet connectivity is driving the biggest in-car business opportunity in years (Business Insider)  Automakers are in a rush to add internet connectivity to cars. They're doing this for a number of reasons, including to collect data from the vehicle, push over-the-air updates, and improve car safety.  But one of the biggest ways automakers are leveraging connection in their vehicles is by selling connected car products and service. By 2020, revenues from connected services are expected to top $152 billion.  That's an almost four-fold increase from 2015.

connected.car.revenue.2020


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