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What We Read Today 11 March 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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DThe rest of this post is available only the GEI Members.  Membership is FREE -  click here

Topics today include:

  • Fascism is the Expected Final Phase of Capialism?

  • History of  Unsuccessful Bottom Calls for Oil

  • U.S. Stocks Hit New High for 2016

  • Bundesbank Fears Asset Bubble Death Loop

  • New Assessment by Troica for Greece

  • Saudis Walk Out of Arab League Meeting

  • Dumb Money from China in U.S.

  • Good Cholesterol May Be Bad

  • U.S. Methane Pollution

  • Several Views of Free Trade

  • China's Shadow Banking Boom

  • And More

Articles about events, conflicts and disease around the world


  • Edward Luttwak: Why Fascism is the Wave of the Future (Fabius Maximus)  FM has contributed to GEI.  The Luttwak essay was written in 1994 but "reads like written today".  The argument is that the "creative distruction" of capitalism fosters a revolt among the citizenry which would welcome an authoritarian protector from the pain.  The appeal would be that it would be seen as an alternative to the undesired economic straightjacket of pure socialism or communism.  Read the full 1994 essay:  Why Fascism is the Wave of the Future (London Review of Books, 1994).

  • A Short History of Unsuccessfully Calling a Bottom in Oil: Chart (Bloomberg) Catching a falling knife is hard, especially when it’s covered in oil. The International Energy Agency today said oil prices may have bottomed out. Several people have tried to call the oil’s floor since prices started falling in the summer of 2014. So far nobody has been right.



  • Wall St. rallies to highest close of 2016 (Reuters)   Wall Street rallied on Friday in a delayed response to the European Central Bank's stimulus measures announced Thursday, while higher oil prices drove up energy shares.  The S&P 500 closed at its highest level of the year and above its 200-day moving average for the first time since Dec. 30.  The Dow Jones industrial average .DJI rose 218.18 points, or 1.28%, to 17,213.31, the S&P 500 .SPX gained 32.62 points, or 1.64%, to 2,022.19 and the Nasdaq Composite .IXIC added 86.31 points, or 1.85%, to 4,748.47.  For details see GEI Market Close by Gary and the weekly wrap-up from to be posted at GEI Investing later.

  • Flint families file lawsuits over children poisoned by water (Reuters)  A group of Flint families with children has filed new lawsuits in the Michigan city's water crisis, accusing private companies of professional negligence and government employees of misconduct that led to the contamination of the water supply.


Yesterday, the ECB bent over backwards to increase the negative interest rate absurdity, given how well it has been working so far. It cut its deposit rate one notch to negative 0.4%. That was less than expected. But it also added a slew of “surprises” intended for the markets to feed on and soar.

It cut the main refi and marginal lending rates to 0% and 0.25% respectively. It expanded the monthly asset purchases by a greater-than-expected €20 billion to €80 billion, now including euro-denominated corporate bonds. It added four “targeted longer-term refinancing operations” (TLTRO II), with maturities of four years, conducted quarterly starting in June. These loans are subject to the refi rate, now 0%. But if banks increase their lending past certain benchmarks, the interest rate can drop as low as negative 0.4%. In other words, banks would get paid by the ECB to borrow from the ECB.

This is some serious money-printing and market manipulation explicitly intended to inflate corporate bond prices further, push even corporate bond yields near or into the negative, and prop up stocks. And to heck with the economy. But that’s a big problem for the Bundesbank.


  • Greece bailout: eurozone inspectors to review reforms (The Guardian)  Eurozone inspectors of Greece’s bailout have been cleared to return to Athens to complete a much-delayed review of the government’s adherence to its economic reform commitments.  Jeroen Dijsselbloem, the eurozone’s top official, said there was “enough common ground” between the two sides for the inspectors to return to the Greek capital as soon as Tuesday.   However, he said the Greek government had more work to do if the review was to be favorable, notably on plugging a budget hole and deepening certain reforms.

Saudi Arabia

  • Saudis walk out of Arab League meeting after Iraqi minister's comments (Reuters)  The Saudi delegation at the Arab League stormed out of a meeting after Iraqi Foreign Minister Ibrahim al-Jaafari defended the Shi'ite Hashd Shaabi militia grouping, an Iraqi foreign ministry source told Reuters on Friday.  Tensions between Sunni and Shi'ite Muslim powers have been on the rise as sectarian wars rage in Syria, Yemen and Iraq, and the Arab League has become a forum for predominantly Sunni countries, led by Saudi Arabia, to air grievances with regional Shi'ite power Iran.

North Korea

  • First on CNN: U.S. says North Korean submarine missing (CNN)   The North Korean regime lost contact with one of its submarines earlier this week, three U.S. officials familiar with the latest information told CNN.  The U.S. military had been observing the submarine operate off North Korea's east coast when the vessel stopped, and U.S. spy satellites, aircraft and ships have been secretly watching for days as the North Korean navy searched for the missing sub.  The U.S. is unsure if the missing vessel is adrift under the sea or whether it has sunk, the officials said, but believes it suffered some type of failure during an exercise.


  • China’s shadow-bank boom keeps zombie firms alive (Reuters)   China’s shadow banking sector is piling up risk at the heart of the financial system and keeping deadbeat firms alive. The sums invested in so-called wealth management products surged 57% last year to reach $3.2 trillion. The growth alone is good reason to worry, but new data also suggests much of the cash is propping up troubled borrowers.  In China, wealth management products are short-term investments, typically distributed through banks, backed by assets ranging from cash and government bonds to corporate debt and derivatives. They have long been popular with retail investors seeking better returns than they can get from bank savings.  A recent report from state-owned China Government Securities Depository Trust and Clearing shows just how big the products have become. The industry’s assets under management have doubled in two years and are now equivalent to almost 17% of all Chinese bank deposits.  These are highly engineered financial products (derivatives, etc.) and very short-term maturities (average of a few months).  The base assets presumably backing them are long-term debt instruments of questionable quality.  Econintersect:  Nothing like sub-prime mortgages, is it?

  • Desperate “Dumb Money” from China Arrives in the US (Wolf Street)   Econintersect:  Do you remember when hot money from Japan was gobbling up U.S. real estate at outrageous prices?  Pebble Beach golf course in California and Rockefeller Center ihn New York are two properties we remember.  There were people worried that soon Japan would be "occupying" the U.S.  What happened?  Well, within a decade most of these inflated properties were bought back by Americans at much lower prices.  Here is some of what Wolf Richter writes in this article:

Money creation in China has gone bonkers. Authorities have opened the valves, and new credit is surging through money pipelines, including state-owned banks and the “shadow banking” system, and so loans in just the first two months this year soared by $1 trillion. Where did this money go?

We don’t know, but we’re getting indications that some of it is showing up right here in the US.

At the same time, “China is getting into the venture capital business in a big way. A really, really big way,” as Bloomberg put it: Government-backed venture funds raised about 1.5 trillion yuan ($231 billion) last year to bring the total to 2.2 trillion yuan. “That’s the biggest pot of money for startups in the world and almost five times the sum raised by other venture firms last year globally….”

While China is drowning in this sea of liquidity, its exports in February crashed 25% in dollar terms year over year. Part of it was due to the Chinese New Year effects. The rest was due to weakening global demand for Chinese goods: It was the 11th month of declines in 12 months.

Other Scientific, Health, Political, Economics and Business Items of Note and Miscellanea

  • "Good" Cholesterol Mutation Linked to Heart Disease (Scientific American)  The study, published on March 10 in Science, pitted the genomes of 852 people with high levels of HDL (high-density lipoprotein) cholesterol in their blood against those of a control group of 1,156 people with low HDL cholesterol.  The approach unearthed mutations in a protein called SR-BI that binds to HDL cholesterol and triggers its movement from the blood into the liver. Those who carried the mutations tended to have high HDL cholesterol levels in the blood, as expected. But they were also, paradoxically, at higher risk for coronary heart disease.  However, researchers have not yet bridged the gap from correlation to causation.

  • How Will the U.S. Curb Methane Pollution? (Scientific American)  U.S. EPA said yesterday it will for the first time regulate existing sources of methane from the oil and gas industry.  The announcement came as part of a new joint U.S.-Canada pact to cut domestic emissions of the potent greenhouse gas (Greenwire, March 10). Both countries agreed to reduce emissions from the oil and gas sector by 40 to 45% below 2012 levels by 2025.  Scientists and environmentalists praised the decision as an important step toward reducing U.S. emissions and meeting America’s pledge toward the global climate accord struck last year in Paris.  Industry officials and many Republicans, meanwhile, blasted the move. Sandra Snyder, counsel at Bracewell LLP, said new EPA regulations would likely increase costs for the industry.

  • Trump and Sanders United in Hate of Free Trade -- and That's a Bad Thing (TheStreet)  Republican frontrunner Donald Trump and Democratic challenger Bernie Sanders have made much of opposing free trade deals on the campaign trail, winning cheers and votes by claiming that free trade costs jobs. And this is a worrisome development, at least according to one of the country's leading experts on trade.  Gary Hufbauer of the Peter Peterson Institute for International Economics, frustrated and more than a little angry.  As one of the country's foremost promoters of globalization and free trade, Hufbauer is worried that the rises of Trump and Sanders will provoke trade wars with China and Mexico, leading to slower economic growth. He's also concerned the next administration won't be as supportive of U.S. business expanding into foreign markets.  See next article.

  • Correlating U.S. Demographics, Trade Deficits and Employment (Seeking Alpha)  This analysis concludes that the U.S. consumption levels between 1995 and 2008 would have produced severe labor force distortions without the rise of increasing imports because the country was consuming more than it was capable of producing due to shortages of employment age people.  But when the Great Financial Crisis arrived unemployment levels would have been significantly lower without the "outsourcing of jobs".  But,of course, this analysis suffers from the limitations of assuming of ceteris paribus which is often a crippling disconnect from reality.  And it also suffers from use of the oft criticized concept of NAIRU (non-inflationary rate of unemployment) being around 5% (+/-).  But it does raise the question:  Can something be good for the economy under one set of conditions and bad when conditions change?  Econintersect thinks that is quite possible - and not often even considered in political circles. 

  • Bacteria Devour Polluting Plastic in Landfills (Scientific American)  Researchers have discovered world's first polyethylene-eating bacterium, a tiny microbe that one day could devour the millions of metric tons of polyethylene terephthalate, or PET, that pile up in landfills each year.  PET is the most recycled plastic in the U.S., according to PETRA, the PET Resin Association. But recycling rates still only reach about 31% nationwide. The European Union does better, recycling roughly half of its PET. Even so, tens of millions of metric tons of the plastic wind up in landfills each year, where the polymer’s strong ester bonds resist breakdown.  The researchers,  led by Kohei Oda of Kyoto Institute of Technology and Kenji Miyamoto of Keio University, further found that Ideonella sakaiensis uses one enzyme, which they call a PETase, to break the plastic down into the intermediate mono(2-hydroxyethyl) terephthalic acid, or MHET. Another enzyme, dubbed MHETase, hydrolyzes the MHET into the monomers terephthalic acid and ethylene glycol. The scientists think this enzymatic machinery could one day remediate PET-contaminated environments or reclaim the plastic’s starting materials, which at present are derived from petroleum.  The process could not only solve a major landfill problem but also reduce the need for petroleum as a chemical stock feed - potentially a huge cost saving.  Research paper:  A bacterium that degrades and assimilates poly(ethylene terephthalate) (Science).

  • Yep, US companies tried to hide a ton of bad news from investors last year (Business Insider)   When companies report earnings they give investors a series of numbers. The most basic measure of earnings per share is profit divided by diluted shares. This figure is most often referred to as GAAP — or Generally Accepted Accounting Principles — earnings.  But a growing trend has been reporting an "adjusted," or non-GAAP figure, which includes the company's best estimate of things that came up during a quarter or year that, in the company's judgment, were charges outside the normal course of business.  As a result, non-GAAP earnings tend to be higher.

Legendary value investor Ben Graham wrote in his famous book "The Intelligent Investor" that it's hard to really ever nail down what a company did or did not make in a given quarter or year.

So most of this GAAP against non-GAAP debate comes down to philosophical as much as mathematical views on what companies and businesses are worth or are not worth. 

Maybe companies are deceiving investors, or maybe companies are simply doing their best in a dynamic business world to represent what they think their business is worth, which investors are entitled to — perhaps even encouraged to — disagree with: the first rule of investing, of course, is that you must do your own homework. 


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