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.
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Topics included today include:
Latest U.S. Snowstorm Map
An Up Week for Stocks
IBM Back to the Future
U.S. Rent Rises Slow
U.S. Income Mobility
Correlations of Parent Income with that of Children
Geographic Correlations for Intergenerational Income Mobility
Cash Flow Metrics for Investors
Alien Life May Already be Dead
The Fourth Industrial Revolution
Oil Company Credit Diwngrades
China's Foreign Acquisitions
Lifting Russian Sanctions?
Articles about events, conflicts and disease around the world
Moody's puts 120 energy firms on downward review as oil prices tumble (City A.M.) Moody's is reviewing the ratings of 120 oil and gas companies after it lowered its price forecast for oil this year. The credit ratings agency cut its forecast for Brent and West Texas Intermediate to $33 per barrel, rising by $5 per barrel in 2017 and 2018. Some analysts, including those at Standard Charter, have warned oil could fall as low as $10 per barrel. Many of the 120 companies have global operations. Four of them are giants headquartered in Europe: Royal Dutch Shell, EBN, Total and Statoil.
Davos optimists see a new era of trade reform at hand (Reuters) A rare note of optimism at Davos this year comes from the trade ministers, who will gather on Saturday for the first time since the World Trade Organization (WTO) closed the lid on 14 years of increasingly toxic stalemate. About 30 governments will be represented, forming a potential coalition willing to forge new WTO deals and move on from deadlocked talks that grew from a meeting in Doha in 2001. The WTO's 162 members, meeting last month in Nairobi, agreed to disagree about the Doha round, effectively giving license to any country that wants to get the ball rolling on new reforms.
Global Stocks Surge Most Since 2012 on Stimulus Bets, Oil Rally (Bloomberg) Global stocks surged the most in 3 1/2 years, as U.S. equities joined a rally that pushed oil to its best two days since 2009 on speculation that central banks will expand stimulus measures to counter turmoil in financial markets. Haven assets from Treasuries to gold retreated. MSCI Inc.’s gauge of the world’s equities climbed 2.6% as benchmarks from Asia to Europe and America rebounded from one of the worst starts to a year on record. The Standard & Poor’s 500 Index capped its best day in six weeks. European shares enjoyed the biggest two-day rally since 2011, while the euro fell to a two-week low on the European Central Bank’s signal it may bolster economic support. Asian stocks climbed the most since September on speculation Japan and China may also take steps to calm markets. Yields on 10-year Treasury notes rose above 2.05%. For more details see Gary's Market Close at GEI. Below Nouriel Roubini discusses the global outlook, with emphahsis on what may happen with the Fed in 2016.
IBM Erases Five Years of Gains Buoyed by Share Buybacks: Chart (Bloomberg) IBM tumbled to its lowest in more than five years this week after adisappointing earnings forecast. The shares dropped to $121.86, around the same level as when previous Chief Executive Officer Sam Palmisano forecast earnings per share of $20 by 2015. That target, buoyed by stock repurchases, was never reached.
The Cities Where Rents Will Fall This Year (Bloomberg) After a three-year period of rapid growth, rents are likely to flatten in 2016, according to a new report. By December, year-over-year rent increases will have slowed to 1.1% across the U.S., according to projections published on Friday by Zillow. That follows a three-year period during which rents grew more than 3% each year.
Chinese Firms Are Deep in an Overseas Shopping Frenzy (Bloomberg) China’s listed firms are in the midst of their biggest-ever overseas shopping spree, taking advantage of a wide and attractive valuation gap between domestic shares and foreign assets. Even though Chinese stocks have tumbled other markets are down more. (This article appeared in today's Early Bird but has been updated since.)
Other Economics and Business Items of Note and Miscellanea
The Case for a Gaian Bottleneck: The Biology of Habitability (Astrobiology) Gaia was the ancient Greek goddess of earth (personification of earth as a deity), the daughter Chaos, the primeval void, the first thing. Thus a Gaian bottleneck is anything that inhibits the ordering of matter into structure. This research paper addresses the question of why no evidence of life in the universe has yet been found since the "prerequisites and ingredients for life seem to be abundantly available". This work suggests a possible explanation involving extinctions at early stages of development for most primitive life that might have existed throughout the universe:
If life emerges on a planet, it only rarely evolves quickly enough to regulate greenhouse gases and albedo, thereby maintaining surface temperatures compatible with liquid water and habitability. Such a Gaian bottleneck suggests that (i) extinction is the cosmic default for most life that has ever emerged on the surfaces of wet rocky planets in the Universe and (ii) rocky planets need to be inhabited to remain habitable. In the Gaian bottleneck model, the maintenance of planetary habitability is a property more associated with an unusually rapid evolution of biological regulation of surface volatiles than with the luminosity and distance to the host star.
7 Cash Flow Ratios Every Value Investor Should Know (Old School Value) This is a good tutorial on Cash Flow Ratios that are more reliable indicators of liquidity than balance sheet or income statement ratios. Strong positive cash flow is an essential feature for corporate strength and can show problems before that appear in other statements.
Busting Myths about Income Inequality (Foundation for Economic Education) Mobility in the income levels is still higher that one would guess from much of the macro data discussed. (There are some subtleties hidden within such a macro generalization - see next two articles.) For example, more than 50% of the U.S. population spends at least one year in the top 10% for income, according to this article. And 11% spend at least one year in the top 1%. And the article quotes Mark Perry (who has contributed to GEI):
“Most working Americans, who were initially in the bottom 20 percent of income-earners, rise out of that bottom 20 percent. More of them end up in the top 20 percent than remain in the bottom 20 percent.”
Economic Mobility in the United States (Pew Charitable Trust and Russell Sage Foundation) The economic status of Americans is significantly influenced by the income level of their parents. (Note: There are also large geographic factors of variation buried within the overall data - see next article.) Here are conclusions from this study (followed by one of the graphs):
Approximately half of parental income advantages are passed on to children. The IGE, when averaged across all levels of parental income, is estimated at 0.52 for men and 0.47 for women. These estimates are at the high end of previous estimates and imply that the United States is very immobile.7
The persistence of advantage is especially large among those raised in the middle to upper reaches of the income distribution. The IGE among adults whose parents were between the 50th and 90th income percentiles is 0.68 for men and 0.63 for women. This means that approximately two-thirds of parental income differences within this region of the income distribution persist into the next generation.
Children born far apart in the income distribution have very different economic outcomes. While a finding of unequal outcomes is not in itself surprising, the magnitude of this inequality has not been well appreciated: The expected family income of children raised in families at the 90th income percentile is about three times that of children raised at the 10th percentile.
Parental income matters more for men’s earnings than for women’s. The average earnings IGE for men (0.56) is more than 40 percent higher than that for women (0.32). Although both men and women benefit from being born into higher-income families, men benefit much more—at least when it comes to their own earnings.
Parental income matters more for women’s chances of marriage, and of marrying better-off partners. The income IGE is large for men (0.52) mainly because children from higher-income families tend to have higher earnings as adults. For women, the income IGE is nearly as large (0.47), mainly because those from higherincome origins are more likely to be married in their late 30s—and to marry higher-earnings partners.
The Equality of Opportunity Project(Harvard University) There are wide variations in economic opportunity for low income children depending on location of residence. The variations are seen from county-to-county for a number of metropolitan areas. There appears to be a much higher correlation of county of residence for future earnings of children from low income families than from the actual family incomes. The graphic below shows the ten most positive counties across the country and the ten most negative for the largest population counties in the U.S.. The effect of moving from a low ranked county to a high ranked county shows a remarkable correlation with age of the child when the family moved (second graphic below).
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