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What We Read Today 12 December 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



  • Which stock sectors will Fed rate hike help most? History no guide (Business Insider)  It has been so long since the Federal Reserve raised interest rates that U.S. stock market investors probably should not look to past rate hike cycles for clues about potential winners and losers.  But investors do expect more rapid-fire moves from one stock market sector to another, based on what happened throughout 2015 when comments from Janet Yellen or other Fed officials changed expectations of central bank moves multiple times.  See also Volatility the surest bet in stocks after Fed meets (Reuters)

  • UPS on-time deliveries dipped in a few areas (USA Today)  UPS experienced a dip in on-time deliveries during the week of Nov. 29 through Dec. 5, as Americans shopped early, often and online.  UPS’ on-time deliveries fell to 91% in the period, according to ShipMatrix, a shipping software company, They usually stand at about 97%, said spokesman Mark D’Amico.

  • Citigroup Funded Loan to Syed Farook Made Through Prosper Marketplace (Wall Street Journal)  Strange things get swept up in securitization.  Econintersect:  How about a headline:  "Citigroup Funds Jihad"?


  • Parents of foreign fighters accuse Belgian police of inaction (Al Jazeera)  Several parents whose sons have left for Syria say that Belgian police and the federal prosecutor failed to act on signs their children were becoming radicalized — thus helping facilitate their departure by not intervening in time. The mothers’ accusations are backed by police reports showing that agents knowingly let young men travel to Syria, despite their mothers' requests for help weeks before their sons’ departures.


  • U.S. asks Germany for more military help in fight against IS (Reuters)   The United States has asked Germany for more military help in the fight against Islamic State, a German magazine reported on Saturday, a week after parliament approved a plan to join the campaign in Syria.  Der Spiegel said U.S. Defense Secretary Ashton Carter had sent a letter asking for a bigger military contribution from Berlin.  Its mission currently includes six Tornado reconnaissance jets, a frigate to protect the French aircraft carrier Charles de Gaulle, refueling aircraft and up to 1,200 troops.

Saudi Arabia

  • Saudi Arabia's women vote in election for first time (BBC News)  Women in Saudi Arabia have cast their first votes in the country's history, in municipal elections.  Women were also standing as candidates, another first, despite the conservative kingdom being the only nation where women are not allowed to drive.  A total of 978 women have registered as candidates, alongside 5,938 men.  Female candidates have had to speak behind a partition while campaigning or be represented by a man. Turnout was high, state media reported.


  • Russia plans $40 a barrel oil for next seven years as Saudi showdown intensifies (The Telegraph)  Russia is battening down the hatches for a Biblical collapse in oil revenues, warning that crude prices could stay as low as $40 a barrel for another seven years.  Maxim Oreshkin, the deputy finance minister, said the country is drawing up plans based on a price band fluctuating between $40 to $60 as far out as 2022, a scenario that would have devastating implications for OPEC (Organization of Oil Producing Countries).  It would also spell disaster for the North Sea producers, Brazil’s off-shore projects, and heavily indebted Western producers.


  • Taiwan, India to partner on industrial development (Taiwan Focus)  Representatives from Taiwan and India agreed during economic talks earlier this week that both sides should cooperate on industrial development, under the right conditions.  After signing two Memorandums of Understanding (MOUs) on bilateral cooperation related to small and medium-sized enterprises and information and communication technology, the two sides said future partnership could help the development of the relevant sectors in both countries.


  • WSJ Survey: Yuan No Challenge to Dollar Amid China’s Tiptoe Toward Freer Markets (The Wall Street Journal)  China’s yuan is highly unlikely to challenge the dollar’s hegemony as the world’s most used reserve currency in the next 50 years despite winning International Monetary Fund backing, according to economists surveyed by The Wall Street Journal.  The IMF last week added the yuan to its elite basket of reserve currencies, acknowledging the growing heft of the world’s No. 2 economy and encouraging Beijing to move ahead with promised liberalization.


The Taylor Rule: A benchmark for monetary policy? (Brookings)  Stanford economist John Taylor's many contributions to monetary economics include his introduction of what has become known as theTaylor rule (as named by others, not by John). The Taylor rule is a simple equation—essentially, a rule of thumb—that is intended to describe the interest rate decisions of the Federal Reserve's Federal Open Market Committee (FOMC).

The Taylor rule is a valuable descriptive device. However, Taylor has argued that his rule should prescribe as well as describe—that is, he believes that it (or a similar rule) should be a benchmark for monetary policy. Starting from that premise, Taylor has been quite critical of the Fed's policies of the past dozen years or so. He repeated some of his criticisms at a recent IMF conference . In short, Taylor believes that the Fed has not followed the prescriptions of the Taylor rule sufficiently closely, and that this supposed failure has led to very poor policy outcomes. In this post former Fed chair Ben Bernanke explains why he disagrees with a number of Taylor's claims.

Bernanke starts with the definition of the Taylor Rule:


Normally, the Fed's "target" for real GDP is potential output, the amount the economy can sustainably produce when capital and labor are fully employed. With that assumption, the variable y in the Taylor rule can be interpreted as the excess of actual GDP over potential output, also known as the output gap.  Bernanke then summarizes:


Bernanke argues that Taylor's criticism of Fed actions is based on the selection of the parameter used to define inflation.  In the original Taylor Rule the GDP deflater was used to define inflation while Bernanke prefers the Fed selection of consumer inflation, specifically the core PCE (personal consumption expenditures).  Using the later the Fed Funds rate has had an extended period of time below the indicated inflation rate while the original Taylor Rule was indicating rates were too low.



Other Economics and Business Items of Note and Miscellanea

  • Economics: still a job for the boys? (Financial Times)  Economics itself is a curiously male-dominated discipline. There has still only been one female winner of the Nobel Memorial Prize in Economic Sciences: Elinor Ostrom in 2009 (she shared the prize with Oliver E Williamson), and she was not a mainstream economist herself.  There are two or three male undergraduate economists for every female undergraduate economist in the US.  Econintersect:  Perhaps women, contrary to what some might think, are not more willing than men to be interested in mythology and fairy tales?

  • Economics challenge drill bit manufacturers to reduce drilling costs (World Oil)  Drill bits are relatively inexpensive, compared to other BHA components, but their performance has a significant impact on overall well costs. Today’s difficult economic environment, combined with ever-increasing wellbore complexities, has driven drill bit manufacturers to strive to improve drilling efficiency and bit performance. In most applications, useful life and ROP are the two key barometers that define the economic benefit that an operator will obtain from a PDC or roller cone bit. From an economic perspective, bit longevity determines the number of trips required to change out tools, while ROP affects the number of rig-hours required to TD (total depth) the well. Together, these two fundamental factors directly impact overall well costs.  Recent drill bit improvements have decreased ROP by up to 51%.  See also next article.

  • Systematic candidate selection improves Haynesville refracturing economics (World Oil)  How has U.S. oil production remained so high with the recent oil price crash and the shutdown of so many wells?  It's due to cost reductions in the oil fields, especially in maintaining high production from existing wells, in part through a process known as "refacturing".  Every refracturing operation is unique, and economic success depends on integrating rigorous workflows for candidate selection, stimulation modeling, treatment execution and post-refracture treatment evaluation.  But the averages of recent cost reductions are impressive:

In the Haynesville shale, costs associated with drilling, casing, cementing, perforating and hydraulic fracture stimulating a new horizontal lateral typically range from $6-8 million. By contrast, refracturing an existing wellbore—reopening established fractures or accessing previously unstimulated zones of good quality reservoir along the lateral—now costs from $750,000 to $1.5 million.

Given today’s low commodity prices, refracturing represents an intriguing alternative for operators to minimize capital expenditures, while maximizing production, estimated ultimate recovery (EUR), and return on investment. However, not every declining or underperforming shale well is a viable candidate for refracturing. To identify laterals with the highest economic potential, Schlumberger developed a systematic candidate selection and design workflow as part of its Broadband Sequence fracturing service for unconventional plays.

  • Two Good Doses of Basic Economics (John B. Taylor, Economics One Blog)  This Nobel Laureate and Stanford University professor (creator of the Taylor Rule, see discussion earlier today, above) recommends two books.  In Wealth, Poverty, and Politics, Thomas Sowell, one of the foremost conservative public intellectuals in this country, argues that political and ideological struggles have led to dangerous confusion about income inequality in America.  Brian Kilmeade’s Thomas Jefferson and the Tripoli Pirates reminds us how a young United States adapted to new challenges from North Africa and—after several fits and starts and much infighting—developed a military-political-economic strategy to keep the sea lanes open to free international trade. 

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