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What We Read Today 03 January 2016

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".).


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

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  • Are stocks and the economy related?

  • More big oil cuts

  • Raw sewage in the Mississippi

  • Recession elects Trump?

  • EU to battle Poland's media control law

  • Israelis charged in Palestians' deaths

  • ISIS steps up attacks in Iraq

  • Belarus looks to the West

  • Foreigners misread Japanes stocks

  • China's two speed econony

  • Talking crows

  • And more

Articles about events, conflicts and disease around the world


  • Big oil to cut investment again in 2016 (Reuters)   With crude prices at 11-year lows, the world's biggest oil and gas producers are facing their longest period of investment cuts in decades, but are expected to borrow more to preserve the dividends demanded by investors.  At around $37 a barrel, crude prices are well below the $60 firms such as Total (TOTF.PA), Statoil STO.OL and BP (BP.L) need to balance their books, a level that has already been sharply reduced over the past 18 months.  International oil companies are once again being forced to cut spending, sell assets, shed jobs and delay projects as the oil slump shows no sign of recovery.  U.S. producers Chevron (CVX.N) and ConocoPhillips (COP.N) have published plans to slash their 2016 budgets by a quarter. Royal Dutch Shell (RDSa.L) has also announced a further $5 billion in spending cuts if its planned takeover of BG Group (BG.L) goes ahead.  Global oil and gas investments are expected to fall to their lowest in six years in 2016 to $522 billion, following a 22% fall to $595 billion in 2015, according to the Oslo-based consultancy Rystad Energy.  This is first two-year decline in investment in 29 years.


  • Raw sewage is flooding into the Mississippi River due to historic flooding (Business Insider)  Hat tip to RJS.  Flood levels are projected to at least tie all-time records at some locations.  Sewage treatment plants have been flooded out of operation and raw sewage is now flowing into some rivers.

  • Armed protesters occupy U.S. wildlife headquarters in Oregon (Reuters)  A group of self-styled militiamen occupied the headquarters of a U.S. wildlife refuge in eastern Oregon in a standoff with authorities, officials and local media reports said on Sunday, in the latest dispute over federal land use in the West.  Econintersect:  More on this in today's Early Bird.

  • Trump’s hope: a recession puts him in the White House (Fabius Maximus)  FM has contributed to GEI.  This piece argues that Trump's best chance for the presidency comes with the advent of a recession in 2016.  Econintersect:  Perhaps with no financial crisis in 2008 John McCain would have been elected?

  • Rethink Homelessness (LinkedIn)  This was posted at GEI Discussion Group, LinkedIn, by investment professional Michael Wasson, CFA  He recounts the many activities of Pass the Word Ministry, a volunteer-driven ministry serving the homeless and hungry of the Monterey Peninsula, California.


  • EU ready to fight Polish media law amid row over values (BBC News)   Polish MPs have approved a law giving the government direct control over top appointments in public broadcasting.  It undermines free speech, critics say.  A senior EU official has threatened legal action against Poland's new conservative government over this controversial media law.



  • Attack on Iraqi military base kills at least 15: sources (Reuters)   ISIS stepped up responses to the Iraqi retaking of the city of Ramadi last week.  Attacks by five suicide bombers on an Iraqi military base north of Baghdad on Sunday killed at least 15 members of the security forces and wounded 22 others, security sources said.  Two of the bombers detonated their vehicle-borne explosives at the western gate of Camp Speicher, a former U.S. base outside the Sunni city of Tikrit.  Three others exploded themselves after entering the section of the base where Iraqi police are being trained, police and military sources in the Salahuddin operations command said.  Islamic State, the militant group controlling swathes of Iraq's north and west, claimed responsibility for the blasts in a statement distributed by supporters online.

Saudi Arabia


  • Khamenei Warns of Repercussions for Saudi Cleric's Death (Bloomberg)   Iran’s Supreme Leader Ayatollah Ali Khamenei said Saudi rulers will face repercussions after the kingdom executed an outspoken Shiite cleric.  Khamenei, Iran’s highest authority, who frequently lashes out at Saudi rulers,  said on Sunday:

“The divine hand of revenge will take the Saudi politicians by the throat. [Cleric Nimr al-Nimr] was neither encouraging people to armed protests, nor plotting secretly, all he did was to openly criticize.” 


  • As Belarus economy falters, Lukashenko looks West (Al Jazeera)  Recent pandering to the West by Belarus' prime minister has human rights groups there worried that the West, eager to pull Belarus out of Moscow’s orbit, may forsake a two-decade struggle for democratic reforms by rewarding his recent international public relations success.  Rights groups warn that apparent reforms are merely a "show", a political bid for a cash infusion from the IMF


  • Foreigners Get It Wrong on Japanese Stocks, Ending a 25-Year Run (Bloomberg)   For the first year since 1989, foreigners sold Japanese stocks and missed a rally.  Overseas investors, who account for more than two-thirds of trading in Tokyo, cut holdings in 2015 even as the Topix index climbed 8.9% in dollars and 21% in euros. It had been 25 years since foreigners last offloaded shares amid annual gains, data compiled by Bloomberg show. As traders dumped $1.9 billion, Japan’s own pension funds, asset managers, central bank and companies took their place.



  • China's Two-Speed Economy Stays Intact as Factories Slump, Services Gain (Bloomberg)  China’s economic rebalancing remained intact as the first economic reports of 2016 signaled manufacturing weakened for a fifth straight month, the longest such streak since 2009, even as a gauge of services rose to the highest level in more than a year.  The official purchasing managers index (PMI) edged up to 49.7 last month from a three-year low of 49.6 in November, the National Bureau of Statistics said Friday. That compared with a median estimate of 49.8 in a Bloomberg survey of economists. The non-manufacturing PMI rose to 54.4, the highest since August 2014. Numbers below 50 indicate deterioration.

The Economy Follows the Stock Market (  Hat tip to John O'Donnell.  The proposition here (see video below) is that the stock market is a leading indicator for the economy:

Economists say the economy drives stocks. In 2007, they said we had "Goldilocks economy." If you bought stocks based on that view, you got caught in the worst crash since 1929. Then, in early 2009 -- after months and months of the Great Recession hardships -- the economy was in shambles. If you sold stocks, you missed out on the biggest rally in 80 years. Oh, and -- the economy only improved after stocks lead the way, again.

The economy doesn't lead the stock market; it follows them.

Econintersect:  This technical perspective is related to a fundamental view of portfolio theory that the current price of a stock is the discounted value of future earnings.  See Wikipedia and Investopedia.  But a 1988 paper by John Y. Campbell and Nobel Laureate Robert J. Shiller concluded that the data indicates only a very long-term trend effect, and that individual prices have limited usefulness as an indicator of actual future value (i.e. performance) because of high volatility.  This led to what is now known as CAPE (critically adjusted price-to-earnings ratio).  But the tendency of the CAPE indication of valuation to spend long periods of time above or below the median (seen in the graph below from Wikipedia) restricts the usefulness of CAPE as a market timing tool.  For example 26 of the last 27 years have seen CAPE above median value and about 2/3 of that time above the 75th percentile.  There have been two major market crashes in that time, but they were only evident in the CAPE chart after they had occurred.  So study this and related material with a critical eye.



Other Economics and Business Items of Note and Miscellanea

  • Understanding The Language Of Crows (Adirondack Almanack)  Econintersect:  Don't think birds are intelligent?  They are the most free of creatures of the land (not going to argue with the ocean creatures) and have existed for many tens of millions longer than man and his early ancestors.  Research shows that crows do have a language with at least enough individuality that individuals are recognizable, perhaps even for communication with other crows.

  • Humongous Sea Spiders From Antarctica Baffle Scientists (IFL Science)  Several hypotheses have been put forward, with some scientists claiming that large body size may have developed as an evolutionary trait to enable animals to withstand long periods of starvation during the winter, when resources tend to become scarce in the polar regions. Others have suggested that some of these species may somehow be descended from creatures that invaded the Arctic and Antarctic from the deep sea, where high rates of gigantism have also been recorded.

  • The Fed’s Birthday—Celebrate Or Denigrate? (Robert J. Murphy, Independent Institute)  Hat tip to John O'Donnell.  RJM has contributed to GEI.  From this article:

The immediate impetus for creation of the Fed was the financial panic of 1907. The very title of the original Federal Reserve Act referred to the job of providing an “elastic currency,” which would expand and contract with the needs of commerce. Rather than having perfectly solvent—though illiquid—banks go hat in hand to the likes of J.P. Morgan, the new central bank would be there to oil the wheels of trade and prevent an irrational seizing up of the financial engine.

How has the Fed fulfilled this role? The worst two banking crises in U.S. history—1929-31 and 2008-09—occurred on the Fed’s watch. Indeed, many economists argue that the Fed perversely promotes such crises, because acting as a “lender of last resort” causes banks to take more risks than they otherwise would. Any particular bank might be safer, but the system as a whole becomes more prone to total collapse.

After the “stagflation” of the 1970s, Congress amended the Federal Reserve Act in 1977 to give it what is known as a “dual mandate”: to promote maximum sustainable employment and price stability. Again, we can ask whether the Fed performs well on these criteria.

As far as employment is concerned, the Great Depression and now the Great Recession are glaring black marks on the Fed’s record. If a central bank is supposed to smooth the ups and downs of the “wildcat free market,” it’s a bit awkward that the two worst economic calamities occurred well after the creation of that central bank.

Regarding price stability, consider: From 1913 to 2015 the U.S. dollar has lost some 95 percent of its value in terms of consumer purchasing power. And it’s no coincidence that “stagflation” occurred in the 1970s: it was in August 1971 that Richard Nixon formally closed the “gold window,” ending the ability of even foreign central banks to redeem U.S. dollars in gold. This removed the last check on the American printing press, giving the Fed the green light to issue new dollars with reckless abandon and leading to double-digit consumer price inflation just a few years later.

As our survey of basic historical facts indicates, the Federal Reserve fails miserably on the various criteria its own creators gave it.


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