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 today include:
How Negative Yields Strain the Financial System
South Dakota is the Fastest Growing State Economically - Doing It the Old Fashioned Way
Why are White Death Rates Rising?
Why Wage Growth Suffering for the Average Worker
Germany Opens Probe of Facebook
Italian Mafia More Profitable than Fiat
Giant Indonesian Earthquake
China Manufacturing Contraction Continues
Bull Market in Uncertainty
Why Has Wall Street Embraced Heterodox Economics?
Is Warren Buffett Right about Solar Energy and Utilities?
Neanderthals were Chemists
Articles about events, conflicts and disease around the world
Negative Rates Strain Financial System (Bloomberg) Using Japan as an example, the author discusses how negative yields create great stresses in the financial system. This week the Japanese government sold a new issue to 10-year bonds at a yield of - 0.1%. That means for every $1,000 invested there will be about $980 returned in ten years. And there is high demand for these bonds - bid to cover ratio was a healthy 3.20, according to Reuters.
The ‘Other’ Dakota Leads the Nation in Economic Growth (The Wall Street Journal) The economy in South Dakota grew at a 9.2% seasonally adjusted annualized rate in the third quarter, far and away the most robust gain of any state in the country, according to data released by the Commerce Department on Wednesday. North Dakota, which for several years rode the oil boom to lead the nation in economic growth, went bust. Its economy contracted at a 3.4% pace, worst in the nation. A year earlier the state’s output had expanded 5% in the third quarter. (And that was a slowdown from 18.8% in the second quarter of 2014.) South Dakota grew its economy with the industry that’s long been the staple of the upper Midwest: farming. The state’s agriculture sector contributed 6.9% to overall growth. South Dakota’s health care, retail and construction industries also grew at healthy rates.
Meet the New Single-Family Rental Giant (Realtor Mag) American Homes 4 Rent and American Residential Properties announced Tuesday that they have finalized a merger that could play a dominant role in the single-family rental space. American Homes 4 Rent will now own more than 47,000 homes across 22 states. They own at least 1,000 homes in each of 17 markets alone. American Homes 4 Rent says that it now has a total market capitalization of about $8 billion. The total transaction value of the merger was $1.3 billion, with American Homes 4 Rent issuing about 38 million common shares and limited partnership units.
Why Are White Death Rates Rising? (The New York Times) The economic status of high school graduates may have a bearing on the mortality stats. While white males have remained above income levels for blacks and hispanics, the gap has narrowed as real hourly wages for male high school graduates declined by 14% from 1973 to 2012. White male high school graduates look back at their childhoods and see their fathers were more successful financially than they are, which resukts in the data below:
Lagging recovery of construction and manufacturing sectors is one more reason wage growth is suffering for most workers (Economic Policy Institute) The economy has added nearly 5 million jobs in the private sector since the Great Recession began in December 2007, but construction and manufacturing continue to lag behind the recovery. These two key sectors provide good jobs and high wages, particularly for workers without 4-year college degrees. In December 2015, there were still 2.5 million fewer workers in construction and manufacturing than at the start of the Great Recession, accounting for more than three-fourths (77.3%) of total job losses since December 2007.
Migrant crisis: Russia and Syria 'weaponising' migration (BBC News) Russia and Syria are deliberately using migration as an aggressive strategy towards Europe, the senior Nato commander in Europe has said. US Gen Philip Breedlove said they were "weaponising" migration to destabilise and undermine the continent. He also suggested that criminals, extremists and fighters were hiding in the flow of migrants. Migrants are continuing to accumulate in Greece, after Macedonia stopped allowing more than a trickle through.
Germany takes on Facebook in competition probe (Reuters) Germany's cartel office is investigating Facebook (FB.O) for suspected abuse of market power over breaches of data protection laws in the first formal probe of the social network for violating competition rules. The watchdog said it suspected Facebook's terms of service regarding how the company makes use of users' data may abuse its possibly dominant position in the social networking market. It planned to examine whether users were properly informed about how their personal data would be obtained by the company. Facebook, the world's biggest social network with 1.6 billion monthly users, earns revenues from advertising based on data it gathers about its users' social connections, opinions and activities in their postings.
Italian mafia earnings from drugs rival Fiat with cars (Reuters) talian mobsters make as much money trafficking narcotics in Italy as Fiat does selling cars, but without having to pay taxes, the anti-mafia prosecutors office said on Wednesday. Citing estimates by the United Nations Office on Narcotics and Crime, anti-mafia prosecutors said that the narcotics trade earns more than €32 billion ($34.7 billion) annually for organized crime, which controls Italy's drug trade.
Syrian opposition casts doubt on U.N. peace talk plan (Reuters) Syrian rebels said on Wednesday they were under fierce government attack near the Turkish border despite a cessation of hostilities agreement and a representative cast doubt on whether U.N.-backed peace talks would go ahead on March 9 as planned. The agreement drawn up by the United States and Russia came into effect on Saturday and has slowed but not entirely stopped a conflict that has been going on for almost six years. Both the government and rebels have accused each other of violations. The agreement does not include Islamic State or al Qaeda's Nusra Front, which is widely deployed in opposition areas.
Indonesia earthquake off Sumatra measures 7.8 (BBC News) A 7.8 magnitude earthquake has struck off the coast of western Indonesia, the US Geological Survey (USGS) reports. There have been no immediate reports of damage. The USGS said the earthquake struck at 19:49 local time (12:49 GMT). It said the epicentre was 805km (500 miles) south-west of the city of Padang, and 24km deep. Indonesia's National Meteorological Agency lifted its tsunami warnings several hours after the tremors.
Official and Caixin factory activity gauges slow again in Feb, underlining need for RRR move (CNBC) Twin gauges of Chinese factory activity revealed slowing growth in February, underpinning the case for more monetary stimulus a day after the country's central bank moved to improve liquidity conditions. Output from large factories contracted for the seventh straight month in February, a government survey revealed on Tuesday. The official manufacturing Purchasing Managers' Index (PMI) came in at 49.0, below Reuters forecasts for 49.3 and January's reading of 49.4. A number below 50 points indicates a decline in factory activity, while one above suggests expansion.
Are investors starting to not care about China? (CNBC) The news out of China, bad or good, just doesn't seem to have as much bite anymore. Sure, downbeat Chinese economic data on the first day of trading in 2016 ignited a global market sell-off. But as the year has worn on, the impact is diminishing. Tuesday's disappointing manufacturing data showing activity at Chinese factories in February contracted and was at the lowest level since November 2011 didn't translate into higher stock market volatility or investor angst. In fact, U.S. markets surged as traders' focus turned elsewhere.
It's been a volatile start to 2016 for the markets and the only thing we seem to know for sure is that no one knows anything.
In a note to clients, UBS' Julian Emanuel highlighted the following the chart which shows the increase in the number of stories on Bloomberg that contain the word "uncertain."
Whether its currency moves out of China or the Federal Reserve's next interest rate decision, the overriding narrative in the market has been the certainty of uncertainty about what happens next.
Emanuel writes that, "the media have fed the uncertainty beast vigorously," leaving with views like those expressed by Horseman Capital's Russell Clark, who wrote in a recent letter to investors, "The future for me is now more uncertain than at any time I can remember."
Other Scientific, Health, Political, Economics and Business Items of Note - plus Miscellanea
The Recurring Question: Where Do Fast Radio Bursts Come From? (Scientific American) Fast radio bursts from space are a relatively rare event and, until now, considered random. But astronomers now know where to look to reliably see at least one repeating source: a patch of sky about one-tenth the size of the full Moon in the direction of the constellation Auriga. That’s where researchers using the Arecibo radio telescope in Puerto Rico detected eleven FRBs over the past four years, all apparently originating from the same mysterious astrophysical source. The findings are reported in the journal Nature(Scientific American is part of Springer Nature).
Exxon Mobil's Long Game With $12bn Bond Sale (Investopedia) While Exxon has so far maintained its AAA credit rating amid an oil price rout that is taking its toll on the global energy sector, the major bond deal comes as Moody’s revised Exxon’s rating outlook from stable to negative last Thursday. With low oil prices likely to persist for the next several years, the rating agency cited “rising debt levels” and “weak cash flow,” as well as the company’s reduction in capital investment as reasons for the negative rating outlook. A similar warning came from Standard & Poor’s earlier in February.
Why Has Heterodox Economics Become Orthodox On Wall Street? (Seeking Alpha) Our friend Cullen Roche explains that the reason is money. Orthodox economic theory actually ignores the existence of markets and therefore is of little value to the real financial world. Econintersect: It is amazing that the "pillars of intellect" in the orthodox economic community insist on continuing to hold on to their poor representations of the real macro world. We guess one might say it is easier to take the monk out of the seminary than to take the seminary out of the monk. See also next article.
The Transformation of Economics (The Wall Street Journal) Perhaps the most important observation of the author, a veteran economics professor, is that the last half century has seen the rise of "economics as ideology in camouflage". Econintersect: Unfortunately he attacks this topic (as with all areas in this essay) with examples on the left only. This proves he is part of the problem because the camouflage is used by all political persuasions. The author is associated with the American Enterprise Institute.
Genes Responsible for Gray Hair, Unibrows and Bushy Beards Uncovered (Scientific American) Bushy and black, downy and blonde, curly and red: human hair comes in myriad shapes and colors. Now researchers have identified ten new genetic variants that influence its appearance—including the first genes to be associated with the rate at which hair goes grey, the bushiness of someone’s beard or eyebrows and whether they grow a ‘monobrow’. Understanding the variability in human hair isn’t only interesting from a cosmetic perspective—it also informs the study of evolution.
Warren Buffett: solar and wind may erode economics of incumbent utilities (Renew Economy) Billionaire investor Warren Buffett says that renewable energy and efficiency are pushing utilities beyond a “sloppy” operational model and into a more competitive environment. Econintersect: There will be winning utilities here who find the right migration path to utility scale implementation of wind, and especially solar energy. The cost of utility scale electricity from these sources is significantly less than from distributed generation in backyards and on rooftops.
Why Amazon's $50 Tablet is on Fire (Investopedia) Amazon’s $50 Fire tablet is a brand new tablet with years old technology. The tablet is not state of the art, nor is it capable of heavy performance demands but it is the perfect tablet for its purpose: consuming Amazon services. Amazon has made a tablet so integrated with its auxiliary services that it’s virtually impossible to not make additional purchases. Even something as simple as removing ads from the screen saver will cost a user $10, in that, and in other ways, the tablet is basically a freemium tablet. Free users will notice that the tablet can access content on Netflix Inc (NFLX) and can be used as an e-reader, but it’s Amazon Underground which really makes the free tablet stand out. Games on Amazon Underground are all free, including unlimited lives and levels. (For related reading, see: Three Ways Companies Profit From Virtual Goods.)
Neanderthals turned to chemistry to start fires (Chemistry World) When a group led by Marie Soressi at Leiden University in the Netherlands analysed the composition of manganese oxide blocks recovered from the Pech-de-l’Azé Neanderthal site in southern France, they found that they mainly contained manganese dioxide, which is similar in color but more flammable than other manganese oxides. They also noticed scratch marks on blocks, suggesting they may have been scraped or ground to produce a powder. They found that when ground-up samples of the blocks were sprinkled over wood it lowered the ignition temperature by more than 100°C. These findings support the view that that rather than just exploiting naturally occurring wildfires, Neanderthals were able to start their own.
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