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What We Read Today 19 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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Articles about events, conflicts and disease around the world


  • Nokia opens $16.7 billion bid to acquire Alcatel-Lucent (The Times of India)   An all-share offer by Finnish telecom group Nokia for its French-American rival Alcatel-Lucent opens on Wednesday, the French financial markets authority (AMF) said.  If successful, the acquisition will create the world's biggest supplier of mobile phone network equipment.  "The public offer will be open from November 18 until December 23," the authority said.  The Finnish operator is offering 0.55 Nokia stock for every Alcatel-Lucent share, valuing Alcatel-Lucent at 15.6 billion euros ($16.7 billion)

  • Gundlach – The Scariest Indicator in the World (Robert Huebscher, Advisor Perspectives)  RH has contributed to GEI.  Jeffrey Gundlach, founder and chief investment officer of Los Angeles-based DoubleLine Capital, has a very important reason for thinking oil prices will not rise anytime soon:  the unprecidented oil glut.  Even when the price of oil collapsed from nearly $150 to just above $30 in 2008 the global oil inventory remained in the historical range for recent years.  So Gundlach does not see a rapid price recovery this time as was seen in 2009.  There is further discussion of this article (for other topics) later on in today's WWRT below.



  • House votes to curb Syrian refugees, snubs Obama veto threat (Associated Press)  In a stinging rebuke to President Barack Obama by Republicans and Democrats, the House ignored a veto threat Thursday and overwhelmingly approved GOP legislation erecting fresh hurdles for Syrian and Iraqi refugees trying to enter the United States.  Forty-seven Democrats joined all but two Republicans as the House passed the measure by a veto-proof 289-137 margin, a major setback to the lame duck president on an issue —the Islamic State group and the refugees fleeing it — that shows no signs of easing. The vote exceeded the two-thirds majority required to override a veto, and came despite a rushed, early morning visit to the Capitol by senior administration officials in a futile attempt to limit Democratic defections.

  • Religious groups urge GOP to welcome Syrian refugees to US (Al Jazeera)  Christian charities across the United States have rebuked calls by Republican lawmakers to halt the resettlement of Syrian refugees in the country — a rare show of disagreement between the religious groups and a political party they’ve traditionally supported.  See also Connecticut welcomes Syrian refugees after Indiana refuses them (Al Jazeera)

  • UnitedHealth cuts outlook, CEO grim about Obamacare participation (CNBC)  UnitedHealth chopped its 2015 earnings forecast and the nation's largest health insurer has begun to question its future in public insurance exchanges, a key component in the nation's health care overhaul.  The company said Thursday that it would pull back on the marketing of its exchange business a few weeks after open enrollment for that coverage began nationwide. It also said that it will decide in the first half of next year "to what extent it can continue to serve the public exchange markets in 2017." 


  • 3 Numbers: European deflation risk still looms large (James Picerno, Saxo Group)  JP has contributed to GEI.  Monetary stimulus expectations are behind the bearish outlook for the EURUSD.  Downside risks for the EURUSD may have increased following the Paris attacks.


  • Paris attacks: 'Ringleader' Abdelhamid Abaaoud killed in raid (BBC News)  It is finally official.  The suspected ringleader of the Paris attacks, Abdelhamid Abaaoud, was among those killed in a French police raid on Wednesday, prosecutors say.  They confirmed the Islamic State (IS) militant had died in a flat in the Paris suburb of Saint Denis.   His body was found riddled with bullets and shrapnel in the apartment.

  • Frexit talk possible after attacks: Morgan Stanley (CNBC)  There's been lots of talk about the possibility of a Grexit or a Brexit — Greece or Britain leaving the European Union.  But what about France?  The idea of France leaving the EU becomes a decidedly most possible event should the terrorism events of last Friday prove to be a spark that brings right winf nationalists into power.


  • Raqqa activists criticise 'ineffective' air strikes on IS (BBC News)  A spokeman for a local activist group in Raqqa says the "coalition air strikes have not been very successful and he believes that more are needed to combat IS" and that "Russian and Syrian government air strikes on Raqqa have not been targeting the extremist group".


  • Japanese Deflation Threat Hangs Over China (The Wall Street Journal)  China’s economy now genuinely needs both lower interest rates and a lower exchange rate.  The risk is if the People’s Bank of China doesn’t deliver, for fear of political backlash or any other reason, the Chinese economy could slide into deflation, just as Japan did two decades ago.  Could China become the new Japan?  There are some similarities:  Falling production and a strengthening currency are two.  An aging demographic is a third.  But there are also some differences:  China has much more extensive natural resources and still has a significant further shift of the population from agrarian to urban to go.  Both of these latter factors could provide a buffer against "Japanization", at least for another decade.

Gundlach – The Scariest Indicator in the World (Robert Huebscher, Advisor Perspectives)  RH has contributed to GEI.  Jeffrey Gundlach, founder and chief investment officer of Los Angeles-based DoubleLine Capital, is not a supporter of a Fed rate hike.  He thinks it is the wrong part of the business cycle to raise rates.  Indicators he sees that persuade him include global gdp growth (first graph below) and S&P 500 profit margins shrinking (second graph below).  Also in this article is discussion of the oil glut.  (See Global News at the beginning of today's reading list.)


Other Economics and Business Items of Note and Miscellanea

  • Goldman: Buy Apple Because It's Becoming A Services Company (Bloomberg, Financial Advisor)  It's time to stop thinking of Apple as a hardware company and start thinking of it as a service company.  At least, that's what Goldman Analyst Simona Jankowski and her team are telling clients as they add the stock to their "conviction buy" list and call for a price of $163 in the next 12 months.  That's up almost 40% from current levels.  What will drive that growth?  How about 137% revenue growth.  Jankowski estimates that 2017 revenue could be over half a trillion dollars (maximum estimate $533 billion), up from $233 billion for fiscal 2015.

  • PBGC pays nearly $6B in benefits to retirees (Employee Benefit News)  The Pension Benefit Guaranty Corporation paid $5.7 billion to more than 800,000 people in failed pension plans during fiscal year 2015, according to the agency’s annual report, which was released Tuesday. Retirees were quite pleased with service, giving PBGC customer satisfaction a score of 91, based on a survey of those who receive monthly benefits.

  • Why marrying ecology and economics is essential (New Scientist)  Acknowledging the economic value of ecosystem services helps drive home that we are part of nature and have a duty to live responsibly.  Not having this relationship is the same as assuming there is such a thing as a free lunch.

  • Employees slow to embrace Roth 401(k)s (Employee Benefit News)  More corporations are offering employees a choice between a traditional 401(k) plan and a Roth 401(k) but plan participants are not as quick to embrace the Roth 401(k) as their employers are.  Third-quarter statistics from Fidelity Investments found that more than half of Fidelity 401(k) plans offer a Roth contribution option, up from 36% three years ago, and more than 70% of people who have their 401(k) account with Fidelity have access to a Roth 401(k) option.  Most employers who offer a matching contribution on their 401(k) won’t match contributions made to the Roth 401(k) so employees are encouraged to put enough away in their traditional 401(k) to receive the employer matching contribution and then put the rest of their savings in the Roth 401(k).

    Econintersect:  The Roth feature is especially attractive to younger employees, especially when they are still in lower tax brackets.  But even with a high tax bracket now and a lower bracket in retirement a Roth makes sense for someone decades away from retirement.  First:  Roth's have no MDR (minimum distribution requirement) and the full amount can continue to grow after age 70.  Second:  The growth of investment earnings over a long time, say 40 years, creates a large taxable distribution in retirement for a conventional account.  $1,000 invested at age 30 produces growth of $6,040 by age 70.  That is $7,040 all taxable at age 70.  If the marginal bracket in retirement is 28%, the tax bill if all withdrawn that year would be $1970 (plus whatever state income tax might be, if any).  In a Roth there is no tax bill upon withdrawal.  The tax benefit at age 30 would be a reduction of $280 for the 28% bracket.  If that $280 were added to the $1,000 contributed and growth were the same 5% then the age 70 balance would be $9,011, or after tax at 28% $6,488.  If the tax deduction is applied for all added contributions at age 30 the $280 extra grows to $373 and the after tax amount at age 70 becomes $6,960, very close to the $7,040 in the Roth.  But the Roth has the added advantage that there are no RMDs so it keeps on growing at a higher level until actually needed.

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