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What We Read Today 18 January 2017

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:

  • Legal Weed Market to Triple in 5 Years

  • Investing in Marijuana Stocks

  • There is Much Elitism at Top Colleges

  • Why is Mercedes Maker Daimler Buying a Bitcoin Business?

  • What Would Income Distribution be Today if the Patterns of 1945-1980 Had Continued?

  • Global Shipping Prices are Surging

  • Trump is Talking Down the Dollar

  • Dollar Bashing Could Hurt the Economy

  • The Republican's Corporate Tax Strategy is Revolutionary

  • U.S. has Extreme Disparity Between Statutory Rates and Effective Rates

  • Yell Says 'Makes Sense' to Gradually Raise Interest Rates

  • US inflation, core inflation & 10-yr inflation expectations all above 2%

  • Istanbul Nightclub Attacker Was Directed by ISIS

  • Ukrainian president calls for global response to Russian threat

  • Obama to Trump: Keep Russia sanctions separate from nuclear talks

  • And More

Articles about events, conflicts and disease around the world

Global

  • Global shipping prices are staging a major comeback and here's why (CNBC)  The CEO of the world's largest shipping firm by capacity has given his unique insight into the rebound seen in global shipping prices in the last few months.  Speaking to CNBC Wednesday the World Economic Forum in Davos, Søren Skou, the chief executive officer of Maersk Group, told CNBC on Wednesday the global freight index for container shipping had more than doubled in the last nine months months.  He said:

"It's simply driven by the fact that the carriers have taken a lot of capacity out of the market.  They are losing significant sums of money every day, and continuing to do that and continuing to do that is simply not sustainable. Today, about 5 percent of the global container fleet is actually idle ... That has helped to support prices.  We and others were surprised by the fact global trade not growing nearly as much as one would have expected five years ago."

baltic.dry.index.5.years.2017.jan.17

U.S.

  • Trump Comments Signal Shift in Approach to U.S. Dollar (The Wall Street Journal)  Hat tip to Jim Welsh.  Jim says he has been advising advisor clients that Trump was likely to 'talk down the dollar' but Jim never thought he would be doing it before he took office.  See Jim's monthly report:  Macrotides Monthly Market Report 09 January 2017.  By talking down the value of the U.S. dollar, President-elect Donald Trump is potentially veering away from more than two decades of strong-dollar precedent.  Since the mid-1990s, administrations from both sides of the aisle have maintained a policy of backing a strong U.S. currency as a way to keep interest rates low, inflation under control and U.S. buying power strong.  Presidents have tended to refrain from commenting on the currency altogether, deferring to the Treasury secretary on these matters. When Treasury leaders have talked about it, they have tended to speak in neutral and carefully calibrated terms, for fear of upsetting financial markets.

  • How Trump’s Dollar Bashing May Hurt the Economy (Investopedia)  In a break with over two decades of strong dollar policy, President-Elect Donald Trump told The Wall Street Journal “Our dollar is too strong.”   See preceding article.  He was especially concerned about how the strong dollar has put the U.S. at a competitive disadvantage with China.   In discussing the established U.S. policy of not commenting on the value of the dollar, University of California, Berkeley economics professor Barry Eichengreen told the Journal that talking “about the value of the single most important price in the global economy in terms that could be misunderstood can wreak havoc with markets.” Another observer who fears that Trump runs the risk of destabilizing markets by commenting on this issue is former Treasury Department economist Tim Duy, according to The WSY.  Besides talk, the president also has the power to order foreign exchange interventions by the U.S. government, the Journal notes. These are purchases or sales of foreign currency reserves undertaken to influence the value of the dollar.  In 1971, President Richard Nixon unexpectedly announced that the dollar would no longer be backed by gold, a move that put world markets in turmoil, until floating exchange rates became accepted as the new normal, The WSJ notes.

  • Understanding the Republicans’ corporate tax reform (Brookings)  Republicans in the House are proposing sweeping corporate tax reform.  Their proposals would effectively repeal the corporate income tax, currently levied at a 35% rate, and replace it with a new “destination-based cash-flow tax" (DBCFT) at a 20% rate for corporations and 25% for unincorporated businesses.  The new tax would be border-adjustable, taxing imports and exempting exports.  The DBCFT has a lot to offer and it deserves a serious look.  But right now, the overall proposal is very poorly understood.  This article discusses 11 things to know about DBCFT.  Among them:  It is not an income tax, but a Value added tax (VAT).  The U.S. would become the only advanced country without a corporate income tax.

  • U.S. Has Largest Gap Between Statutory and Effective Corp. Tax Rates in OECD (Twitter)

Click for larger image.
corp.taxes.oecd

  • Fed's Yellen says 'makes sense' to gradually raise interest rates (Reuters)  See also next item.  With the U.S. economy close to full employment and inflation headed toward the Federal Reserve's 2% goal, it "makes sense" for the U.S. central bank to gradually lift interest rates, Fed Chair Janet Yellen said on Wednesday.  Yellen told the Commonwealth Club of California in San Francisco:

"Waiting too long to begin moving toward the neutral rate could risk a nasty surprise down the road - either too much inflation, financial instability, or both.  In that scenario, we could be forced to raise interest rates rapidly, which in turn could push the economy into a new recession."

Click for larger image.
inflation.us.2.pct.2017.jan.18

Turkey

  • Istanbul nightclub attacker says was directed by Islamic State: report (Reuters)  An Uzbek gunman who killed 39 people in Istanbul's Reina nightclub on New Year's Day told police he had changed his target at the last minute to avoid heavy security and acted on direct orders from Islamic State in Syria, a newspaper said on Wednesday.  The gunman, named on Tuesday as Abdulgadir Masharipov, had initially been told to attack the area around the central Taksim square and said his instructions came from Raqqa, Islamic State's stronghold in Syria, the newspaper Hurriyet cited him as saying in police testimony.

Ukraine

  • Ukrainian president calls for global response to Russian threat (Reuters)   Ukrainian President Petro Poroshenko called for a worldwide effort to counter the threat of Russian cyber warfare and urged the United States to "be great again" by demonstrating leadership on issues such as global security.  U.S. President-elect Donald Trump's pledge to improve ties with the Kremlin and open admiration for Russian President Vladimir Putin has put Ukraine, whose Crimea region was annexed by Russia in 2014, under the spotlight.  Poroshenko played down speculation that Washington could backtrack on its support for Kiev, noting that Trump had said publicly he would stick to U.S. obligations and there had been "promising" statements by nominees to his cabinet.

Russia

  • Obama to Trump: Keep Russia sanctions separate from nuclear talks (Reuters)  President Barack Obama urged President-elect Donald Trump on Wednesday to keep separate the issue of economic sanctions on Russia from the pursuit of talks to reduce nuclear stockpiles.  Trump, who takes office on Friday after winning the Nov. 8 election, said in an interview with the Times of London published on Monday that he would propose offering to end sanctions on Moscow in return for a nuclear arms reduction deal.  Obama's administration imposed the sanctions in 2014 after Russia's annexation of the Crimea peninsula from Ukraine.  The outgoing president said that ending the sanctuions should coincide with ending the actions that created them.

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

  • Legal Weed Market to Triple In 5 Years (Investopedia)   According to a summary report released Monday by Arcview Market Research, legal marijuana in North America reached $6.9 billion in 2016. While that might not sound like a lot of money (Philip Morris International Inc. (PM) brings in almost that much revenue in a month) the growth rate is astounding: up 34% from 2015.  Nor is the growth expected to stop there. Arcview predicts that the legal market will grow at a compound annual rate of 26% per year to reach $21.6 billion in 2021. The primary driver will be legalization. Nine states loosened marijuana laws in 2016, including California, Maine, Nevada and Massachusetts, which made recreational use legal. Arcview, perhaps optimistically, expects this trend to continue. (See also, Top 4 Medical Marijuana Stocks for 2017 and review of 20 marijuana stocks in The Investment Potfolio .)  If it does, the market for legal weed is in a rare and enviable position: the demand is already there, it is just limited to the black market. Arcview estimates the total North American pot market, including illicit sales, to be $53.3 billion. Dispensaries can grow the market by billions of dollars per year simply by swallowing a greater share of the illegal market. That shouldn't be difficult: give consumers the option of waiting (and waiting) for their "guy" in a parking lot or walking into a brightly lit store with posted hours of operation, and they'll go for the latter. In Colorado, just 33% of marijuana spending is illicit, compared to 88% in the country as a whole and, of course, 100% in states with prohibition.

  • Some Colleges Have More Students From the Top 1 Percent Than the Bottom 60. Find Yours. (The New York Times)  Eliteism is well embedded in the U.S. higher edycation system.  Students at elite colleges are even richer than experts realized, according to a new study based on millions of anonymous tax filings and tuition records.  At 38 colleges in America, including five in the Ivy League – DartmouthPrincetonYalePenn and Brown – more students came from the top 1% of the income scale than from the entire bottom 60%.

Click for large image.

  • Why is Mercedes Maker Daimler Buying a Bitcoin Business? (Investopedia)  In a move that has some wondering what they will do with it, Mercedes Benz parent Daimler AG (OTC:DDAIF) has purchased digital payments and Bitcoin transactions processor PayCash Europe. While PayCash handles many types of digital payments aside from Bitcoin and other cryptocurrencies​, it may pave the way for the car maker to directly accept payment in Bitcoin in the future. (See also: The Top 5 Investors Investing in Bitcoin.)

  • Income Inequality (inequality.org)  Income includes the revenue streams from wages, salaries, interest on a savings account, dividends from shares of stock, rent, and profits from selling something for more than you paid for it. Income inequality refers to the extent to which income is distributed in an uneven manner among a population. In the United States, income inequality, or the gap between the rich and everyone else, has been growing markedly, by every major statistical measure, for some 30 years.  Since the early 1980s the nature of income distribution in the American economy has drastically changed:

Before the 1980s, lower-income earners owned a far larger portion of total U.S. income than they do today. How much more income would these earners be making today if the United States had the same distribution of income as the nation displayed in 1979? NPR found that Americans would experience income increases of at least $3,000 across all quintile levels, with the highest quintile owed an additional $17,311. The top 1 percent of earners would see a dramatic fall in their income, losing more than just $824,844.


Sources: Household income shares for the 0-99 percent, U.S. Census Bureau. Top 1 percent data, the World Top Incomes Database. Analysis by NPR, January 2015


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