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What We Read Today 22 May 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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Topics today include:

  • Extended collection of articles on NAIRU

  • Beware of Inverse ETF Tracking Errors

  • When to Take IRA Distributions vs. Starting Social Security

  • Austrian Election

  • Iran Still Adamant on No Freeze

  • More on the Hillary and Bernie Story

  • Blockchain May Save Global Finance

  • Greece Digs a Deeper Hole

  • And More

Articles about events, conflicts and disease around the world


  • Fraud in $4 Trillion Trade Finance Turns Banks to Digital Ledger (Bloomberg)  The risk posed by fraud in the $4 trillion trade-financing industry has prompted banks to start exploring distributed-ledger technology like the one that underpins bitcoin.  Standard Chartered Plc, which lost almost $200 million from a fraud at China’s Qingdao port two years ago, has teamed up with DBS Group Holdings Ltd. to develop an electronic ledger of invoices that uses a parallel platform to the blockchain employed in bitcoin transactions. Lenders such as Bank of America Corp. and HSBC Holdings Plc say they’re looking at blockchain for trade finance and other banking applications.  Blockchain proponents argue that the technology will change the face of banking, helping lenders cut billions of dollars in costs.



  • Absentee ballot count to decide Austrian election (Associated Press)  With direct ballots counted but a final result still outstanding, Sunday's elections for Austria's presidency were too close to call a winner between a right-wing politician and a challenger whose views stand in stark opposition to his rival's anti-immigrant and Eurosceptic message.  The direct votes gave right-winger Norbert Hofer 51.9% to 48.1%  for Alexander Van der Bellen, a Greens politician running as an independent. But final projections that included still-to-be-counted absentee ballots put each at 50% with Van der Bellen narrowly ahead.



  • Iran has no plans to freeze oil exports, official says ahead of OPEC meeting (Reuters)  Iran has no plans to freeze the level of its oil production and exports, Deputy Oil Minister Rokneddin Javadi was quoted on Sunday as saying, as the country tries to raise its crude exports to pre-sanctions levels.  A meeting of the OPEC exporters' group, including Iran, is scheduled for June 2. Plans for a deal between OPEC and non-OPEC producers to shore up crude prices by freezing output fell apart in April when Saudi Arabia demanded that Iran, its main rival for influence in the region, join in.

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

Sexuality has become the axis upon which enlightened values and progress have pivoted between nations. Sexual freedoms have become a litmus test between open societies and closed ones. The drug that dogmatic ideologues are usually addicted to is control, and the thirst for control almost always manifests itself in sexual control. This is why the subject of sex among women, gays and “unmarried” youth fascinates extremists of all bents. And it is why—regardless of our gender or sexual orientation—the struggle against controlling sexuality should preoccupy us all. 

  • Which comes first: Social Security or IRA withdrawals? (Financial Planning)  When planning for retirement cash flow, should a client start Social Security as early as age 62, letting individual retirement account money continue to grow, tax-deferred? Or should that client tap the IRA and wait for a larger Social Security benefit?  A client who would receive $1,500 a month from Social Security at 62 would collect $2,640 a month, plus any cost-of-living adjustments in the interim, by waiting until 70, the latest starting date.  The choice is situation dependent, but for some there is a clear advantage (some potential disadvantages, too, discussed in the article) to using more IRA money earlier and delaying Social Security to age 70.  Among these:

  1. Less retirement income volatility

  2. Lower overall taxes during retirement

  3. Greater retirement income over very long lifetimes (for the lucky who live into their 90s).

  • What is the NAIRU? (Mises Daily)  This criticism of NAIRU is based on its derivation from "statistical correlations".  The essence of the argument is that correlation does not infer causation (unless additional logic applies).  The author goes off the deep end when his arguments diverge into claiming that savings are necessary for economic growth.  This is, of course, based on the mythological loanable funds theory of banking.  Econintersect:  While the author here recognizes that NAIRU is an inadequate concept for describing the behavior of the economy, he does not mention the reason is the incorrect assumption behind NAIRU that the economy exists is states of equilibrium.  See next article.

  • The Time-Varying NAIRU and its Implications for Economic Policy (Robert J. Gordon, NBER)  This 1996 paper delves into the relationships between unemployment and inflation as time variant functions.  While this is a start it is not a destination because the author still deals with the economy as operating through a series of equilibrium conditions.  The result for the periods studied (1955 - 1996) found NAIRU to range between 5.3% and 6.4%.  Of course, in the 21st century employment rates much below these levels have not produced increased inflation so the economy then is not the economy now.

  • Inverse ETFs help avoid margin accounts, but tread cautiously (Financial Planning)  Inverse ETFs can perform the function of shorting a stock or index without the hassle of opening a margin account.  But caution is needed because doing the short and using the inverse ETF are not the same:  Inverse ETFs do not track prices exactly because they are reset daily.  The example given in the article  (see excerpt below) if repeated five times would result in a loss of 2.358%, while the account remaining long the S&P 500 would have still have the original value.  Here is the author's example showing the tracking problem:

Suppose Jane Client’s $100,000 S&P 500 long position goes to $105,000 on Monday and returns to $100,000 on Tuesday. Jane is back where she started.

However, if Jane had purchased $100,000 of an inverse ETF, it would have fallen to $95,000 after Monday’s 5% S&P 500 gain. Tuesday’s index drop from $105,000 to $100,000 is a 4.76% decline.

With a matching gain in the inverse ETF, the inverse ETF would rise to just over $99,500. A flat two days for the index has generated a loss in the inverse ETF.

Over time, this mismatch can be substantial.

  • World Markets Weekend Update: Another Modest Improvement (Doug Short, Advisor Perspectives  DS is a regular contributor to GEI.  Five of the eight indexes on Doug's world watch list posted gains over the past week, the same as the week before, although the average of the eight at 0.34% was a modest improvement over the -0.17% average the previous week. Japan's Nikkei was the top performer for the second week, up 1.97%, a tad higher than its 1.90% gain the previous week. India's SENSEX suffered the biggest drop, down 0.74%.  Many major world indexes are still in bear markets, but some have partially recovered to less than 20% loss from the most recent high.  Of the markets displayed below, only the S&P 500 has not experienced a bear market, currently trying to recover from a 14.2% correction.  See also next article.

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