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What We Read Today 17 November 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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Every day most of this column ("What We Read Today") is available only to GEI members.

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Articles about events, conflicts and disease around the world

Global

  • Pressure Grows for Global Response Against Islamic State After Paris Attacks (The Wall Street Journal)  World leaders pledged to seize on the Paris attacks to deepen their involvement in what looked Monday to be turning into more of a global campaign against the growing threat of Islamic State.  President Barack Obama vowed to intensify all elements of his administration’s strategy against Islamic State, calling the terrorist attacks in Paris a “terrible and sickening setback” in the fight against extremism.  He pointed to recent U.S. raids, airstrikes and ground deployments as the likely pattern for coming action. But Mr. Obama said he would reject proposals calling for large deployments of U.S. troops.  The Paris attacks of November 13 may prompt a geopolitical shift in the West as the need to stop ISIS takes center stage.

U.S

France

  • Paris attacks: Video 'shows ninth attacker' (BBC News)  French security sources say that surveillance video shows a possible ninth assailant during Friday's attacks in which 129 people died.  The video reportedly shows a third figure in the car which carried the group which attacked several bars and restaurants.  It is not clear if this ninth attacker is one of two suspected accomplices detained in Belgium or is on the run.

  • "France Is At War": Hollande Unleashes 2nd Day Of ISIS Strikes, Mobilizes 115,000, Moves To Change Constitution (Zero Hedge)  Hollande "declares war" and asks for police state authority.

  • French Official Calls for Metal Detectors at Train Stations (The New York Times)  The French environment minister, Ségolène Royal, who also oversees transportation issues, said on Tuesday that she was in favor of installing metal detectors in train stations across France.  “It is something that is done for international trains, and I think that it should also be done for trains in France,” Ms. Royal told the i-Télé news channel.

  • France, Russia strike Islamic State; Hollande, Putin to meet (Reuters)  France and Russia bombed Islamic State targets in Syria on Tuesday, punishing the group for attacks in Paris and against a Russian airliner that together killed 353 people, and made the first tentative steps toward a possible military alliance.  Islamic State has claimed responsibility for a coordinated onslaught in Paris on Friday and the downing of a Russian charter jet over Sinai on Oct. 31, saying they were in retaliation for French and Russian air raids in Iraq and Syria.

  • The victims of Paris (Reuters)  A 23-picture slide show putting some faces on the statistics.

Spain

  • EU Reiterates Warning Spain to Miss Deficit Despite Rajoy Pledge (Bloomberg)  The European Commission reiterated its warning over Spain missing its deficit target for 2016, pressing the nation to submit a new budget plan as soon as possible.  The country has come under scrutiny over its fiscal plan, which was approved by Spanish Prime Minister Mariano Rajoy using his overall majority in the parliament. The administration faces criticism from the opposition and the Brussels-based commission ahead of a general elections due Dec. 20 in which the conservative leader is attempting to use the government’s economic record to secure re-election.  Spain's new budget will likely break the 3% of GDP deficit limit of the EU.

China

  • Exclusive: After market crash, China mulls single 'super-regulator' - sources (Reuters)   China is considering bringing together its banking, insurance and securities regulators into a single super-commission, sources told Reuters, following the summer's stock market crash that was blamed in part on poor inter-agency coordination.  China's stock markets .CSI300 dropped by more than 40 percent between mid-June and August, forcing Beijing to take unprecedented measures to prevent a wider panic, embarrassing the government and delaying planned improvements to nascent derivatives and futures markets.  The uncoordinated policy response prompted senior leadership to begin internal discussions about merging the three main financial regulators, part of a broader goal to reform China's markets, said a senior official at one of the regulators involved in the process.

  • China says has shown 'great restraint' in South China Sea (Reuters)  China has shown "great restraint" in the South China Sea by not seizing islands occupied by other countries even though it could have, a senior Chinese diplomat said on Tuesday ahead of two regional summits where the disputed waterway is likely to be a hot topic.  Beijing has overlapping claims with Vietnam, the Philippines, Malaysia, Taiwan and Brunei in the South China Sea, through which $5 trillion in ship-borne trade passes every year.  China has been building artifivial islands in the Spratly Island area in and near the 200-mile limit of Philippines and Malaysia.

south.china.sea.territorial.limits

Canada

  • Canadian PM 'committed' to Syrian refugee resettlement (Al Jazeera)  As American politicians gear up for political fight over refugees, Canada sees more consensus.  Trudeau has promised to resettle 25,000 Syrian refugees by the end of 2015. On Monday, the head of Saskatchewan’s provincial government, Premier Brad Wall, said the Paris bombings and shootings that killed at least 129 people were reason to rethink how quickly the government admits refugees.  So consensus is qualified.


The power of pricing (Michael V. Marn, Eric V. Roegner, and Craig C. Zawada, McKinsey Classics)  Profit is determined at the margins and small changes in pricing can lead to large changes is profit or loss.  See graphic below for how a 1% change in price can produce an 8% change in profit.  Recognize that that the same affect can apply to losses as well.  But the determination of what pricing is actually doing to the bottom line is a complicated process:

At few moments since the end of World War II has downward pressure on prices been so great. Some of it stems from cyclical factors—such as sluggish economic growth in the Western economies and Japan—that have reined in consumer spending. There are newer sources as well: the vastly increased purchasing power of retailers, such as Wal-Mart, which can therefore pressure suppliers; the Internet, which adds to the transparency of markets by making it easier to compare prices; and the role of China and other burgeoning industrial powers whose low labor costs have driven down prices for manufactured goods. The one-two punch of cyclical and newer factors has eroded corporate pricing power and forced frustrated managers to look in every direction for ways to hold the line.

In such an environment, managers might think it mad to talk about raising prices. Yet nothing could be further from the truth. We are not talking about raising prices across the board; quite often, the most effective path is to get prices right for one customer, one transaction at a time, and to capture more of the price that you already, in theory, charge. In this sense, there is room for price increases or at least price stability even in today's difficult markets.

Such an approach to pricing—transaction pricing, one of the three levels of price management (see sidebar "Pricing at three levels")—was first described ten years ago.1The idea was to figure out the real price you charged customers after accounting for a host of discounts, allowances, rebates, and other deductions. Only then could you determine how much money, if any, you were making and whether you were charging the right price for each customer and transaction.

 pricing.at.3.levels

profit.vs.price

Other Economics and Business Items of Note and Miscellanea

  • A World Out Of Balance (Financial Advisor)  This is an extremely well written comprehensive summary of investment history of the approximately 80 most recent years.  Discusses are the secular patterns in relative return for debt and equity, business cycle effects and the impact of the ongoing ( and painfully slow) private sector deleveraging.  The current commodity cycle is reviewed, along with emerging markets and Chinese debt.  This is a must read for serious investment strategists 

  • China’s Tianhe-2 Retains Top Spot on List of World’s Top Supercomputers (Scientific Computing)  For the sixth consecutive time, Tianhe-2, a supercomputer developed by China’s National University of Defense Technology, has maintained its position as the world’s No. 1 system.  IBM's Watson doesn't even make the top ten list.  We guess that shows the power of public relations since Watson is so well known.

  • A Common Political Problem That Economists Can’t Explain (Evonomics)  Cameron Murray (who has contributed to GEI) writes that the assumption of free markets permeating mainstream economics can't explain regulatory capture while denying that regulation is necessary (or even denying that there is any possible benefit).  But corrupt regulatory processes are a pervasive characteristic of the modern capitalist state.  Cameron writes:

The systemic financial risk-taking in the lead up to the financial crisis was a product of untouchable insiders taking risks that favoured the connected few. And the many still suffer.

Not only are there insider groups bridging Wall Street and financial regulators, but Defence Departments globally are a hotbed of revolving personnel into, and out of, private weapons and hardware manufacturers. At local government levels this type of revolving door of well-connected insiders is even more insidious, with land rezoning and infrastructure spending a constant battle between in the interests of the insiders and the community at large.

The revolving door culture is now so pervasive that Federal Reserve ChairmanBen Bernanke, arguably the most powerful financial regulator in recent history, waltzed through the door to consult for a multi-billion dollar hedge fund with almost no media criticism.


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