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What We Read Today 22 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

Global

  • Oil prices bounce off 11-year lows, bearish outlook caps gains (Reuters)   Brent crude touched a new 11-year low on Tuesday, as a bearish outlook for 2016 and weaker profits for refining oil products kept a lid on gains.  Brent crude LCOc1 for February delivery settled at $36.11 a barrel, after earlier dipping to $35.98, below the previous July 2004 low.  U.S. West Texas Intermediate (WTI) crude futures CLc1 flipped to a premium to Brent briefly, settling at $36.14 a barrel, up 33 cents or 0.92%. Brent's weakness as WTI strengthened slightly brought the two benchmarks into parity for the first time since January of this year. 

U.S.

  • The 10 Best 2015 Investigative Reports on Political Money (ProPublica)  The millions of dollars being spent on the presidential race by super PACs, secretive nonprofits and the candidates themselves could again make this election cycle the most expensive to date. Huge sums are also flowing into state and local races. Here, in chronological order, are ten stories from other newsrooms that got behind the cash flow to describe the latest uses and abuses of money in politics.

  • Hunger, homelessness on the rise in major US cities, study finds (Al Jazeera)  Officials in surveyed cities attribute rising number living on street to low wages and lack of affordable housing.  Overall, across the 22 cities included in the survey, homelessness increased by 1.6% over the past year, the survey found. The amount of emergency food assistance distributed by those cities increased by 3%.  The report was released by the U.S. Conference of Mayors 

  • Martin Shkreli: My Arrest "Seems Like A Real Injustice" (gothamist)  Econintersect:  What about karma?  From the introduction to this article:

Martin Shkreli, the reviled douchebag pharmaceutical bro and rap connoisseur who was arrested last week for securities fraud, has given his first interview. Speaking with the Wall Street Journal, the 32-year-old insisted the government targeted him because he's just a horrible human being, not because he actually did anything criminal, "Beating the person up and then trying to find the merits to make up for it—I would have hoped the government wouldn’t take that kind of approach."

Shkreli's flamboyant trolling—livestreaming his activities, fighting on Twitter—made him globally infamous when, as CEO and founder of Turning Pharmaceuticals, he raised the price of a drug used to treat toxoplasmosis in AIDS and cancer patients from $13.50 per tablet to $750 per tablet.

EU

Iran

  • Iran says Russia to begin building 2 nuclear plant units next week (Reuters)   Russia will begin building two nuclear power plant units in Iran next week, Mehr news agency quoted an Iranian nuclear official as saying, under a deal signed in Moscow last year between subsidiaries of the two countries' state atomic agencies.  Iran already runs one Russian-built nuclear reactor at Bushehr, its first. Russia signed a deal with Iran in November last year to build up to eight more reactors in the country.  The U.N. nuclear watchdog earlier this month closed a long-running investigation of Iran and issued a report strongly suggesting it pursued a coordinated program to devise a nuclear bomb up until 2003 but that there was no credible sign of bomb-related research and development activity beyond 2009.

India

  • India lowers crime trial age to 16 after Delhi gang rape furore (Reuters)  India passed legislation lowering the age at which someone can be tried for rape and other crimes to 16, spurred into action by an uproar over the release of a minor convicted in a 2012 fatal gang rape of a 23-year-old woman on a Delhi bus.

Australia

  • Why the Nation Needs Reinvent Australia (reinvent australia)  For a very long time, and certainly since the Second World War, Australians have experienced a wonderful sense of unity – and immunity from disruptive events. The war itself bound the country together as we fought in Europe and the Japanese moved south through Papua New Guinea and bombed Darwin. At that time, we found a new friend in the United States.  But now the author argues that Oz needs a new vision and cites business survey results to back that up.


The top charts of 2015 (Economic Policy Institute)  There are 11 charts.  Four are shown below.  Follow the headline link the see the other seven.

prime.age.workers.1990.201

pay.productivity.1950.2015

inequality.pay.productivity.1972.2015

women.working.us.vs.other

Other Economics and Business Items of Note and Miscellanea

  1. ‘Normal’ is coming.

  2. Generational buying trends shape up.

  3. New-home construction focuses more on affordability.

  4. Higher mortgage rates.

  5. Rents to go up even higher.

  • A Brutal Crime, Often Terribly Investigated (ProPublica)  News organizations have long chronicled problems with investigating reports of rape. Backlogs in rape kits. Cynical efforts to bury rape cases to make a police department's crime fighting statistics look better. Failures to fully exploit the powerful investigative tool of DNA.

  • ‘Hive Mind,’ From Beekeeping to Economics (The Wall Street Journal)  In a new book Garett Jones, an associate professor of economics at George Mason University, argues that the average IQ of a nation’s citizens is a vital indicator of its economic success. The title that he gave the book is a phrase that echoes both science fiction and social media: “Hive Mind.”  Econintersect:  Sorry, professor.  We don't know of any study that would distinguish your hypothesis from an alternative:  Economic success of a country is a vital indicator of its citizens' average IQ.  The distinction?  Perhaps countries do not become more economically successful because their citizens are smarter; it could just as well be that economic success leads to the average citizen "smarts" of a country increasing. 

  • Sorry, Barron’s… The High Yield Bond Rout Is Just Beginning (Michael Lewitt, Sure Money)  Barron's is giving advice and Michael Lewitt isn't buying it.  (See the Barron's graphic below.)  Here is an excerpt from Lewitt:

Last week, Barron’s recommended that investors start buying beaten-up junk bond funds that are trading at big discounts and yielding 10% or more.

Their advice: “Take advantage of this rout in risky debt.”

Not so fast!

It is certainly true that a number of closed-end junk bond funds are trading at big discounts and also paying big dividends. Part of the reason for this is that the already weak market in junk bonds was spooked by the liquidation of the Third Avenue Focused Credit Fund, a junk bond mutual fund. (That was huge news. Here’s my take if you missed it.) This led to an even sharper sell-off in junk bonds that pushed the prices of the bonds themselves, as well as many closed-end funds that own them, to prices that may not reflect their intrinsic value.

But there’s a big problem with this Barron’s advice.

The problem is that terrible market conditions, artificially low interest rates, and a weak U.S. economy make it difficult to determine precisely what the intrinsic value of the bonds themselves or the funds that hold them really is.

I think the high yield market is beginning an extended period of losses that will continue through at least 2018. Closed-end funds certainly pay high dividends but are unlikely to see much improvement in their NAVs, since bond prices are unlikely to begin improving until the market bottoms in 2017 or 2018.

Furthermore, the default cycle is likely to pick up considerably in 2016 and the next two years, which means that many of the bonds held by these funds will stop paying interest. This will impair the dividend-paying ability of these funds. It may not happen immediately, but by late 2016 and 2017 it could become a serious problem leading to NAV erosion and dividend cuts.

junk.funds.barrons

  • How Much House Can Millennials Afford? (Smart Asset)  According to data from the U.S. Census Bureau, millennials (born between 1980 and 2000) are buying homes at a far lower rate than previous generations. The 2015 Q3 homeownership rate for adults under the age of 35 was 35.8%. In 1995 it was 39.1%. In 2005 it was even higher at 43%. While no one can say for sure why this is the case, there are a number of theories, but affordability is one of most important.


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