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What We Read Today 04 August 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:

  • Large U.S. Metros Ranked for Affordability

  • Businesses are Making a Huge and Risky Mistake

  • How Extractive Business Management is Destroying America

  • How You Could Have Become an Amazon Millionaire for Just $143.

  • Police Body Camera are not Being Properly Used

  • Some Whites are Recognizing Racism

  • Foreigners are not Buying U.S. Stocks and Bonds Anymore (At Least not as Many)

  • Greenspan Says Oil Has Bottomed - Others Not So Sure

  • Kerry Defends Iran Deal

  • Trump and Ryan Still in Awkward Dance

  • Italy Retail Sales Plummet

  • Arab Youth are Living a Disaster

  • Does China's Property Bubble Parallel Japan's

  • Brazil has the Olympics but Most Brazilians Don't Care 

  • And More

Articles about events, conflicts and disease around the world

Global

  • Greenspan Suggests Oil Prices Have Probably Bottomed Out at $40 (Bloomberg)  Former Federal Reserve Chairman Alan Greenspan suggested that oil prices have probably bottomed out at about $40 per barrel after tumbling more than 20% in the past two months into a bear market.  “It’s hard for me to imagine it going very much lower, but it could”, he said Wednesday, according to the transcript of a conference call organized by Rock Creek Group, an investment advisory firm in Washington.  Greenspan sees oil trading in a range of about $40 to $50 a barrel over the next couple of years. A $50 price would be high enough to encourage new shale oil production in the U.S., he said.  Econintersect:  If Greenspan says "up", we'll bet "down".  See the following video discussion between two commodity professionals:

U.S.

  • Clinton wooing a new group of voters: Republicans (Associated Press)  Hoping to capitalize on the criticism battering Donald Trump, Hillary Clinton has begun portraying support for her candidacy as a patriotic duty of voters. She's broadening her message and appealing directly to Republicans to keep him out of the White House.  It's a twist for a Democratic presidential candidate who has some of the highest unpopularity ratings in history. But aides believe Trump's controversial campaign and the chaos it's caused within the Republican Party offers a unique opportunity.

  • Paul Ryan says Trump’s campaign is ‘distressing’ but stands by endorsement (The Washington Post)  House Speaker Paul D. Ryan repeated Thursday that his endorsement of Republican presidential nominee Donald Trump was “not a blank check” and delivered a sharp critique of Trump’s flailing campaign two days after Trump declined to endorse Ryan for reelection to his Wisconsin congressional seat.

  • Kerry defends cash payment in wake of Iran deal (Associated Press)  A $400 million pallet of cash delivered to the Iranian government at the same time a complicated nuclear deal was settled and four Americans were released was unrelated and not a ransom, Secretary of State John Kerry said Thursday.  Kerry flatly denied any connection between the cash — and an additional $1.3 billion interest payment — and the implementation of the nuclear deal and the prisoner swap that all occurred in rapid succession. The payment was part of a decades-old dispute over a failed military equipment deal dating to the 1970s, before the Islamic revolution in 1979.

  • Trump conflict overshadows attacks on Clinton foreign policy (Associated Press)  Back on the defensive, Donald Trump's campaign chief acknowledged conflict inside Trump Tower on Thursday as anxious Republicans struggled to shift voters' attention to Hillary Clinton's record on foreign policy.  The feud between the GOP's presidential nominee and House Speaker Paul Ryan continued to overshadow fresh attacks on Clinton, underscoring the rising concerns from party leaders over the New York billionaire's unorthodox candidacy and its impact on the future of the Republican Party.  Trump refused for another day to endorse the Republican speaker, though he said Ryan is "a good guy, actually".

Italy

Egypt

  • The ruining of Egypt (The Economist)  In most countries a youth bulge leads to an economic boom. But Arab autocrats regard young people as a threat—and with reason. Better educated than their parents, wired to the world and skeptical of political and religious authority, the young were at the forefront of the uprisings of 2011. They toppled rulers in Tunisia, Egypt, Libya and Yemen, and alarmed the kings and presidents of many other states.  Now, with the exception of Tunisia, those countries have either slid into civil war or seen their revolutions rolled back. The lot of young Arabs is worsening: it has become harder to find a job and easier to end up in a cell. Their options are typically poverty, emigration or, for a minority, jihad.  No place is this more evident than in Egypt where repression and the incompetence of Abdel-Fattah al-Sisi are stoking the next uprising.

China

  • China’s Property Bubble Echoes Subprime Crisis (Economy & Markets)  Hat tip to Ian Campbell. Harry Dent thinks the Chinese real estate bubble will be the catalyst for the next financial crisis.  Since 1999 the Shanghai Real Estate Price Index has risen 7X.  This huge growth has created capital gains that have now spread around the world as newly minted Chinese multi-millionaires buy properties in developed countries, driving up prices there.  Dent likens the Chinese real estate history to the similar bubble which burst for Japan in 1991.  Econontersect:  Japan saw land values in its largest cities grow by 5.5X between 1975 and 1991; since the peak prices have dropped by 64%.  During the same 16 years Japan Disposable Personal Income rose by 2.8X, about half the rate of prime real estate price growth.  China, for comparison, saw Disposable Income per Capita rise from ¥5000 in 1999 to more than  ¥30,000 ($4,480) in 2015, a 6X increase, about 86% of the Shanghai Real Estate Income Growth.  The Japanese bubble saw real estate outpace income by 100% 1975-1991.  The Chinese situation 1999-2015 has real estate and incomes moving in similar patterns.  Real estate prices in China have not significantly outpaced income growth in that country.  Finally, Dent ignores a price plateau 2010-2013 when looking for possible price decline levels (about 275).  A decline to that level would be a decline of 28% and would put the Shanghai index growth since 1999 at 5.5X, less than the 6X growth in disposable income.  Conclusion:  Dent has compared apples to oranges and failed to see an obvious market correction possibility for Chinese real estate rather than a complete collapse.  His observations about Chinese buyers driving up real estate prices in other countries (Australia, Canada and the U.S., for example) is quite another issue.  These markets may in fact see reduction in Chinese buyers if there is a 28% decline in Chinese real estate, combined with a slowing of income growth as China rebalances to slower economic growth. 

Brazil

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

  • Large metro areas ranked by affordability (Graphiq, MSN Money)  The 50 large metro areas in the U.S. are ranked for affordability.  The three least affordable are Washington, DC, New York City and San Francisco.  The three most affordable are San Antonio, Oklahoma City and Memphis, TN.  Click on the title for the other 44. 

  • Businesses are making a huge and risky mistake (Business Insider)  In theory, the fact that their deposits are earning nothing or next-to-nothing in the bank should make businesses eager to borrow money to invest in research and development and make capital expenditures that stand to boost their long-term growth prospects. It hasn’t. A new white paper from Credit Suisse’s HOLT Corporate Advisory team shows that corporate spending on both capital expenditures and R&D as a proportion of sales has been declining since the early 1990s. Even more baffling: such spending apparently has no correlation with changes in 10-year government bond yields – a proxy for prevailing interest rates – in either Europe or the United States.  Econintersect:  Business Insider has some very reasonable suggestions as to why this is happening - these may well be contributors to the investment decline.  But we suggest the biggest reason is cultural - many businesses are run today to maximize short-term extraction.  Things such as share price appreciation and increased profits quarter-to quarter and year-to-year are the primary objective.  A bigger, more profitable company in 10-20 years is at best secondary and, in many cases, may not even be on the planning radar.  An example of one company that has not followed the extractive formula is Amazon.  Year-after-year Jeff Bezos was widely criticized for low reported profits - he stated his objective was to grow the company, not to maximize current returns.  See, from 2013, Amazon and the "profitless business model" fallacy.   Look at Amazon today for the payback.  From a low of $5.37 in August 2001, NASDAQ:AMZN) is up more than 13,300% today.  Had you invested $10,000 in August 2001 you would be a millionaire today.  (Note:  You can really play the 'what-if' game to the extreme.  If you had bought AMZN in May 1997 (it traded below $1.40), sold it in March or November 1999 for $100 (when it traded well above that), paid the 20% capital gains tax and reinvested in August 2001, as above, you gain to day would be about 760,000%.  Just 100 shares purchased in May 1997 for $1.40 each would have made you a millionaire today!

 amazon.1997.2016

  • Police Body Camera Use—Not a Pretty Picture (Scientific American)  The latest body-worn camera scorecard from the The Leadership Conference on Civil and Human Rights, working with technology and policy consulting firm Upturn, examined 50 U.S. police departments and pronounced them lacking in most of the study’s eight criteria. These benchmarks include how well police protect the privacy of those they record, whether officers are allowed to review footage before filing their reports, how long the footage is retained and whether civilians can view footage in which they appear. A number of civil rights organizations, privacy advocates and media outlets developed the criteria in May 2015 to influence how departments implement and use the technology.  None of the departments got a passing grade in all categories. In fact only 13 passed muster in more than two areas.

  • Why some whites are waking up to racism (The Washington Post)  As the nation’s first African American president completes his second term, the country’s racial divide has grown more pronounced, bursting into full view during heated debates over issues such as income inequality, jobs, educational opportunities and, perhaps most prominently, how the criminal justice system treats blacks.  At the same time, videos documenting police officers shooting African Americans — widely shared on social media — are forcing the nation’s white population to confront head-on evidence suggesting that blacks still face an onerous set of challenges.

  • Foreign Appetite For U.S. Securities Has Taken a Drubbing (Bloomberg)  Hat tip to Lance Roberts.  When the Federal Reserve hiked benchmark rates in December, the initial jump in the short-end of the nominal U.S. yield curve raised expectations that foreign buyers would snap up the country's assets, thanks to their yield relative to those of other developed markets ravaged by low policy rates.  In fact, net foreign flows to the U.S. have been decidedly weak this year, thanks to an exodus by foreign central banks and sovereign wealth funds, who've been dumping U.S. securities in order to raise cash to put to work at home.  One of the biggest factors is the selling of U.S. securities as the dollar strengthened in order to bring home dollars to support their own currencies.


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