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What We Read Today 12 February 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".).

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Topics today include:

  • Italy's New Great Depression

  • Greece:  The Mother of All Depressions

  • Another Recession for Greece

  • New Talk of Grexit

  • The Broad U.S. Stock Market is Deep in Bear Territory

  • Have Markets Bottomed?

  • How to Play Alphabet (the Stock)

  • The Five Worst Investment Calls of the 21st Century

  • Pentagon Waste Report

  • Who Produces the World's Oil?

  • When State Tax Cuts Don't Make Sense

  • Research Contradicts Federal Lands Protestors in the West

  • And More

Articles about events, conflicts and disease around the world

Global

  • Who are the major players supplying the world oil market? (U.S. Energy Information Agency)  Hat tip to  Sig Silber.  Seven companies produce 28% of global crude oil output.  Other large "national oil companies" produce more than 35%, other large "international oil companies" produce almost 18%, while smaller companies produce more than 18%. 

oil.production.global.company.distrib

U.S.

  • From Wasted Ammo to a Runaway Blimp, How the Pentagon Mismanaged $33 Billion (The Fiscal Times)  The U.S. Defense Department could save itself a cool $33 billion if Pentagon leaders took a firmer hand with wasteful programs and imposed some basic budget discipline, according to a new think-tank study.  See next article.

  • Don’t Get Fooled Again: Pentagon Waste and Congressional Oversight (William D. Hartung, Center for Economic Policy)  The 27 examples in this report document over $33 billion in Pentagon waste. Many of the cases have only entered the public discussion recently, while some represent problems that have persisted for years.  The dollar total of examples described in this report is a conservative figure for overall Pentagon waste as it deals only with a sampling of the most egregious cases.   Reuters reported in 2013, Department of Defense accounting, logistics, and administrative practices are inept and deeply dysfunctional. As the report details, accountants often need to insert phony numbers to get expenditure figures to match up, and some outdated computer programs have been in use since the 1960s.  Even worse, the Department of Defense has not undergone a full audit in almost two decades, despite being legally mandated to do so. Deadlines have been repeatedly set and missed. Without audits and regular accountability, there is no way of knowing where all of the money being appropriated to the Pentagon actually goes, there is no way of systematically detecting waste and fraud in the system, and there is no incentive for spending money wisely and effectively.  Econintersect:  Many of the examples of waste represent money spent in the U.S. for labor and materials.  While this is a good accounting level assessment, a competent economic analysis would assess what was the value added to the U.S. economy by producing the unneeded items vs. what could have been added to the economy had the same amount of money been spent in other ways and including several examples, such as infrastructure improvements, educational support, medical research and/or improved healthcare.   

Greece

As we and quite a few others warned, the new bailout and the attached terms would do exactly nothing to turn the Greek economy around. We’re all for being responsible with the budget but you can’t very well implement fiscal retrenchment during a depression unless you intend to remain in said depression in perpetuity, but alas, that’s exactly what Brussels forced Greece to do and on Friday we learn that the country has slipped back into recession.

  • Greece GDP Constant Prices (Trading Economics)  Greece is in a massive depression, with real GDP down 28% from the 2007 high.  Note that the data for 3Q and 4Q 2015 do not appear on the graph below.  For detailed discussion on the measurement of depressions, see Italy, below.

greece.real.gdp.2006.2015.2q

Italy

  • Italian GDP 0.1% vs. 0.3% forecast (Investing.com)  Italy’s gross domestic product rose less-than-expected last month, official data showed on Friday.  In a report, Istat said that Italian GDP rose by 0.1%, compared to 0.2% in December.  Analysts had expected Italian GDP to rise 0.3% in January.  See next article.

  • Italy GDP Constant Prices (Trading Economics)  GDP Constant Prices in Italy increased to 386969.50 EUR Million in the third quarter of 2015 from 386188.03 EUR Million in the second quarter of 2015.  GDP Constant Prices in Italy is reported by the National Institute of Statistics (ISTAT).  Econintersect:  Italy is in a major depression which started Q1 2008 and has been comprised of two recessions, the second of which may have bottomed in 4Q 2014, depending on whether the weak recovery since then can continue.  The depression has seen a decline in real GDP of 9.65%.  To complete a recovery from the depression will require real GDP growth of 9.41% from the 3Q 2015 level.  For definition of recessions, depressions and recoveries see:  Depression: The Forgotten Part of the Business Cycle (Sorry, graphics have been corrupted.  We will be republishing an updated article with new graphics soon.)  An abbreviated version of this article with graphics intact was published by Seeking Alpha:  Time to Take a Fresh Look at the Business Cycle.

italy.gdp.2006.2015

Turkey

  • Iran cites Turkey as priority, proposes new economic plan (Hurriyet Daily News)  A senior Iranian official has cited Turkey as a “priority” in boosting trade relations in the aftermath of the removal of sanctions, proposing to establish a new economic plan for the development of overall economic ties.  Iranian Deputy Foreign Minister Ebrahim Rahimpour told Hürriyet Daily News in an interview Feb. 10:

“The Turkish state and government, which had stood with us during the implementation of sanctions, are of course among our priorities in this new process as the sanctions have been removed. We are aware of the capacity of Turkish companies and also of the capacity of Iranian companies. But in this new era we should introduce a new economic plan because the mechanisms that we had been utilizing during the sanctions will not respond to the necessities of this new era." 


5-Year bull trend is ending, breaking below support (Chris Kimble, Kimble Charting Solutions)  November to May is traditionally the stronger half of the year (based on long-term averages).  But not always and 2015-2016 may be a time when tradition is not observed.  Note: The Value Line Index shows an epic triple top pattern which wikll cast an ominous shadow over the market until substantially exceeds the all-time high around 520.  Also note: The Value Line Index indicates a deepening bear market started in 2015 and already down 25%.  The somewhat less broad index for the Wilshire 5000 is down 15%, while the narrower S&P 500 is flirting with a loss of 14%.   Chris (who has contributed to GEI) says:

This 2-pack reflects that these two broad markets are breaking below “Weekly Closing” 5-year bull trends. When long-term trends break, it is common for selling pressure to come forward, regardless of the time of year!

You’ve no doubt heard the phrase “Sell in May and go away!”  This popular phrase also references that markets are typically strong from November to May. Below looks at stock index performance and Gold, since November 1st of last year.

wilshire.2000.2016.feb.11

value.line.1990.2016.feb.11

 perform.since.2015.nov.01.2016.feb.11.600px

Other Economics and Business Items of Note and Miscellanea

  • The 5 worst investment calls of this century (MarketWatch, MSN Money)  There are actually six names associated with the five "bummest" steers because two different individuals are connected to the same bad piece of advice.  We'll give you the six names and see if you can guess what was the bad advice from each before you go to read the article:  Arjun Murti (Goldman Sachs), Marc Faber, Peter Schiff, Meredith Whitney, Ben Bernanke and Alan Greenspan. 

  • Should You Place Call Options or Put Options on Alphabet (anyoption official blog)  Hat tip to Marvin Clark.  The article suggests buying calls on Alphabet (NASDAQ:GOOG),  See (consolidated) excerpt below.  Econintersect:  Not discussed in the article is another possible strategy:  Go long on GOOG stock and short an equal dollar amount of Apple (NASDAQ:AAPL).  Right now the companies' business prospects are going in different directions and hedging market risk with a long-short pairing is an attractive strategy.  This is a hedging strategy where it is quite possible that both sides could gain in a market rally while also possibly gaining or protecting from deeper losses in a continued bear market.

Google has performed remarkably well while Apple Inc (AAPL) has floundered. Before we get into the mechanics of call options or put options, it is important to analyse most every aspect of the latest data pertaining to Alphabet Inc. Analysts have given this stock a mean recommendation rating of 1.6. On a rating scale of 1.0 (strong buy) to 5.0 (strong sell), Alphabet Inc is clearly in bullish territory. The mean target price for the stock is $924.42, with a high of $1,080 and a low of $800. Looking at those numbers alone, it is clear to see that the current price of the stock is undervalued.  

The stock has gained 28.82% over the past 52 weeks. For the year to date, it has shed 10.64%. By contrast, Apple Incorporated (AAPL) has lost 18.92% over 1 year, and the company has lost 9.26% for the year to date. The heavy losses suffered by both of these companies in 2016 are largely a result of global economic uncertainty fueled by China weakness, the commodity price rout, and fears of deflation in Japan and the Eurozone. There is structural weakness in emerging market economies as exports have tapered off; a strong USD has dragged demand for commodities lower, and financial stocks have taken a pounding. Viewed in perspective, the declines suffered by Alphabet Inc (GOOG) and Apple Inc (AAPL) aren’t quite as bad as the 20% to 30% suffered by financial stocks and the Chinese equity markets in the Shenzhen Composite Index and the Shanghai Composite Index.

Based on all of these figures, binary option traders should consider going long with call options on Alphabet Inc (GOOG) over the short-term and the long-term. It’s a great investment and a terrific bullish binary option trade. 

  • Market Analysis - Keep Your Cool (EconMatters)  EconMatters contributes to GEI.  Early morning assessment of oil and stock markets.  Both are oversold and due for a bounce but the opinion here is that both markets have not bottomed.  The outlook here is for an oil rally starting in March, potentially running to June.

  • Gov. Hogan's tax credits based on bad math, economics (Baltimore Sun)  Most of the tax cuts are for business and will result in partial shift of tax revenues from the state to Washington.  The state will experience revenue loss significantly greater that Marylanders will benefit in tax reductions. Here is an excerpt which contains one example:

Gov. Larry Hogan last month proposed a multi-part plan that he claims represents "$480 million in tax relief to those Marylanders who desperately need it most." Further, he claims that these cuts will have "a direct, dramatic, and positive impact on our state economy." Neither claim is true. The proposal will reduce Maryland's revenues by $480 million, but, according to my analysis, only put a maximum of $395 million back in the pockets of state residents — most of them fairly wealthy and more likely to save, rather than spend, their extra cash.

One of the biggest parts of the governor's plan involves reductions spread over five years in the annual filing fee for businesses that he says account for $164 million — a third of his proposed tax relief. But a large portion of the funds that Maryland doesn't collect won't stay with business owners; it will have to be paid to the federal government in the form of taxes. Assuming a 33.33 percent average marginal income tax rate (an assumption that is probably low), the actual fee savings that businesses realize will be about $109 million total; in other words, Mr. Hogan's filing fee cuts will send $55 million that used to go to the state to the feds. And because the cuts are "back loaded," meaning they get bigger as time goes on, they actually underestimate the revenue loss to Maryland after the initial five-year period.

  • Study Disputes Economic Claims Made By People Critical Of Federal Lands (Boise State Public Radio)  Between 1970-2014, rural counties with a lot of federal lands did better financially than those without as much federal control. That’s according to a new study by Headwaters Economics, a non-partisan think tank based in Montana.  Economist Megan Lawson led the study which drew averages from around the West. She says federal lands aren't necessarily the reason why those rural counties were better off, but that having federal land doesn't automatically spell economic ruin.  Econintersect:  The graphic does not show median income comparisons which would reflect on whether high concentrations of federal lands correlate with less income inequality or not.  See also: West Is Best: Protected Lands Promote Jobs and Higher Incomes (2012).

economic.gains.counties.vs.federal.lands


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