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What We Read Today 04 March 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".).


Every day most of this column ("What We Read Today") is available only to GEI members.

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Topics today include:

  • The Arrow of History Points Upward

  • Trump Accuses Obama of Wiretap

  • Trump Budget will Drastically Cut Foreign Aid

  • Two Republicans Join Effort Demanding Trump Tax Returns

  • Lawmakers Introduce Student Debt Legislation

  • Employment by race and place: snapshots of America 

  • The Vital Role of Government Collected Data

  • White House proposes steep budget cut to leading climate science agency

  • Why Putin May Have Overplayed His Hand

  • Canada has No Plans to Clamp Down Border to Deter Migrants from the U.S.

  • New Class of Mutual Funds to Compete with ETFs on Costs

  • Selling Your Annuity can have Pitfalls

  • Bubbles for Eugene Fama

  • Harvard Academics Reveal Blueprint for Avoiding Stock Crashes

  • And More

Articles about events, conflicts and disease around the world


  • The arrow of history points upward (Brookings)  A generation ago, 50% of humanity was malnourished, with calamitous famines widely predicted. The United Nations Food and Agriculture Organization reported in 2015, the most recent year for which statistics are available, that malnutrition has declined to the lowest level in human history. Today only 12% of the world’s population goes hungry. Of course 12% is too high, but the number means there are more than 6 billion people who eat sufficient meals. That’s four times the total number of people alive when Theodore Roosevelt was the United States president.  Per-capita production of grain, beef, poultry, and dairy is rising faster than population almost everywhere in the world, in no small part owing to efforts supported by the U.S.


  • Trump ratchets up Obama attack with wiretapping allegation (The Hill)  President Trump ratcheted up his attacks on his predecessor Saturday, with his allegation that Barack Obama ordered surveillance of the real estate mogul before the November election sparking confusion and backlash.  Democrats slammed Trump for making the accusations without offering evidence, characterizing his early morning rant as an effort to distract from renewed scrutiny of his aides and allies' alleged ties to Russia.  Taking to Twitter early in the morning, Trump fired off claims – without providing evidence – that Obama had wiretapped his phones in Trump Tower in New York to monitor his campaign’s communications.  See also GOP senator demands Trump give more information behind wiretapping accusations.

  • Trump administration to propose 'dramatic reductions' in foreign aid (Reuters)  The White House budget director confirmed Saturday that the Trump administration will propose "fairly dramatic reductions" in the U.S. foreign aid budget later this month.  Reuters and other news outlets reported earlier this week that the administration plans to propose to Congress cuts in the budgets for the U.S. State Department and Agency for International Development by about one third.  Money would be used to help increase the military defense budget by $54 billion.  White House Office of Management Budget director Mick Mulvaney told Fox News on Saturday:

"We are going to propose to reduce foreign aid and we are going to propose to spend that money here." 

Reps. Mark Sanford (R-S.C.) and Walter Jones (R-N.C.) signed a letter urging the chairmen of the House Ways and Means Committee and Senate Finance Committee to ask for copies of Trump's tax documents from the last decade.

The letter was spearheaded by Rep. Bill Pascrell (D-N.J.) and signed by most of the 193-member House Democratic Caucus. It argues that letting members of Congress see what’s in Trump’s tax returns would clear up any questions about whether his business ties offer conflicts of interest.

  • Lawmakers introduce student debt legislation (Employee Benefit Advisor)  U.S. Reps. Rodney Davis (R-Ill.) and Scott Peters (D-Calif.) Thursday introduced new legislation amending IRS Code to extend the tax exclusion for employer-provided educational assistance to include payments of qualified education loans up to $5,250 per year by an employer to either an employee or a lender.

The Employer Participation in Student Loan Assistance Act (H.R. 795) encourages employers to be part of the solution of the nation’s growing student debt problem by allowing them to offer a tax-free employee benefit that will help graduates pay down their loans, says Davis. Many companies already see the attraction and retention payoff for providing such a benefit, but “we want to encourage more to participate so we can help both struggling graduates and our economy,” Davis says.

  • Employment by race and place: snapshots of America (Brookings)  This is a detailed demographic and geographic study of U.S. employment and labor force participation.

  • In order that they might rest their arguments on facts: The vital role of government-collected data (Brookings)  The modern economy has never been more reliant on data. Businesses, governments, and families must navigate the complexities of a world made possible by new technologies and innovative business practices. Without reliable information about the economic and social environment, it is impossible in many instances to make sensible choices.  This article enumerates some of the areas in which government collected data is critical for business operating and development decisions (as well as informed public policy choices), and some other data that could be added to the archival processes that would increase value to business and the economy.  Not included in this discussion is weather and climate data, discussed in the next article.

  • White House proposes steep budget cut to leading climate science agency (The Washington Post)   The Trump administration is seeking to slash the budget of one of the government’s premier climate science agencies by 17%, delivering steep cuts to research funding and satellite programs, according to a four-page budget memo obtained by The Washington Post.  The proposed cuts to the National Oceanic and Atmospheric Administration would also eliminate funding for a variety of smaller programs, including external research, coastal management, estuary reserves and “coastal resilience”, which seeks to bolster the ability of coastal areas to withstand major storms and rising seas.  NOAA is part of the Commerce Department, which would be hit by an overall 18% budget reduction from its current funding level.  See also next item.  More from WaPo:

The Office of Management and Budget also asked the Commerce Department to provide information about how much it would cost to lay off employees, while saying those employees who do remain with the department should get a 1.9 percent pay increase in January 2018. It requested estimates for terminating leases and government “property disposal.”

The OMB outline for the Commerce Department for fiscal 2018 proposed sharp reductions in specific areas within NOAA such as spending on education, grants and research. NOAA’s Office of Oceanic and Atmospheric Research would lose $126 million, or 26 percent, of the funds it has under the current budget. Its satellite data division would lose $513 million, or 22 percent, of its current funding under the proposal.

The National Marine Fisheries Service and National Weather Service would be fortunate by comparison, facing only 5 percent cuts.


  • What Putin is up to, and why he may have overplayed his hand (Brookings)  Last December, Putin must have been in particularly ebullient sprits. Over the course of 2016, he oversaw the boldest, most consequential covert operation against Russia’s principal ideological and geopolitical foe for much of the last century, breaching the firewall of American democracy and influencing a high-stakes presidential election. Putin seemed to have made a big bet and come away with a trifecta: He could congratulate himself for settling old scores with a traditional foe, relish the prospect of a Russia-friendly counterpart in the White House, and let the ripple effect of the U.S. election further confound and further unsettle the democracies in a wobbly Europe.  But this may turn out to have been an overreach with an undesirable (for Russia) backlash in the U.S. and Europe.  The reverberations of the Russian attack have the U.S. government in an uproar. The disruption has triggered bitter public tensions between the White House and the agencies it supervises, fueled a partisan debate in Congress, and opened a schism within the Republican party, most recently over potential perjury by the nation’s top justice official.  When the dust settles:

"Putin’s victory could turn out to be a Pyrrhic one."


  • Canada: No plans to clamp down at border to deter migrants (Reuters)  Canada will not tighten its border to deter migrants crossing illegally from the United States in the wake of a U.S. immigration crackdown because the numbers are not big enough to cause alarm, a government minister said on Saturday.  Public Safety Minister Ralph Goodale said the issue had not risen to a scale that required hindering the flow of goods and people moving across the world's longest undefended border.  Hundreds of people, mainly from Africa and the Middle East, have defied winter conditions and walked across the border, seeking asylum. They are fleeing President Donald Trump's immigration crackdown, migrants and refugee agencies say.

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

  • Clean Shares Could Shake Up Investment, Advice Industries (Financial Advisor)  In January, American Funds, a subsidiary of Los Angeles-based Capital Group, received regulatory clearance to launch a “clean share” class of its mutual funds stripped of distribution and marketing fees.  American Funds and Denver-based Janus Capital appear to be the first active managers to launch completely stripped-down products created to fit any distribution channel.  These are aimed at use by fee-based advisors and independent investors to compete with indexed funds offered by Vanguard and electronically traded funds (ETFs).  Operating expenses for active managed funds are higher than passive index funds but much lower than usual for traditional classes of mutual funds.  The new shares may have toal operating costs as low as 0.30%.  Passive funds can be found as low as 0.1%.

  • As Seen on TV: The Annuity Action Network (Robert Huebscher, Advisor Perspectives)  RH has contributed to GEI.  RH provides detailed hypothetical analysis of a process offered to "buy-out" an annuity.  Here is the introduction:

Good financial products are bought, not sold. We are continuing our series of articles analyzing some of the most aggressively sold financial products – those that are advertised on television. This is the second installment in our series. The previous installments were on Lear Capital and Ty J. Young.

In the prior installment on this series, I exposed the deceptive marketing used to sell fixed-index annuities (FIAs). Today I will look at a firm that purchases annuities from investorsthe Annuity Action Network (AAN). It is a way for clients to borrow money at a high interest rate, but it may be an appropriate solution under certain circumstances.

You can see AAN’s televised advertisement here.

The AAN inaccurately bills itself as a not-for-profit organization, “dedicated to providing reliable information regarding annuity payments and the liquidity option.” But the AAN is a web site operated by DBL Capital, which is very much a for-profit corporation. This was the only instance of deceptive marketing I encountered.

DBL Capital is a Florida-based corporation in the structured-settlement business. They will purchase the cash flows from an annuity or a legal settlement. In effect, you are borrowing money from them. You receive a lump-sum cash payment, and in return you forgo certain future cash payments.

The person with whom I interacted at DBL was courteous and promptly provided the information I requested. There was no “hard sell” to engage in a transaction. But that doesn’t mean you should choose this option.

  • Bubbles for Fama (Harvard Business School)  This paper studies the relationships between price action and the occurences of bubbles followed by crashes.  This paper is discussed in the next article.  Here is the abstract:

We evaluate Eugene Fama’s claim that stock prices do not exhibit price bubbles. Based on US industry returns 1926-2014 and international sector returns 1985-2014, we present four findings: (1) Fama is correct in that a sharp price increase of an industry portfolio does not, on average, predict unusually low returns going forward; (2) such sharp price increases predict a substantially heightened probability of a crash; (3) attributes of the price run-up, including volatility, turnover, issuance, and the price path of the run-up can all help forecast an eventual crash and future returns; and (4) some of these characteristics can help investors earn superior returns by timing the bubble. Results hold similarly in US and international samples. 


  • Harvard Academics Reveal Blueprint for Avoiding Stock Crashes (Bloomberg)  Good news for everyone waiting for a bubble to burst. Predicting sectorwide crashes in the equity market isn’t impossible.  That’s the conclusion of Harvard University researchers who studied boom-and-bust cycles in publicly traded U.S. industries since 1926. In a new paper (preceding article), Robin Greenwood, Andrei Shleifer and Yang You found that while not every violent advance in shares ends in horror, those that do share common traits. Among them: rising volatility and greater share issuance.

    As is often the case with academic inquiries into financial assets, the study is a rebuttal to the efficient markets hypothesis, whose Nobel Prize-winning inventor Eugene Fama questioned whether anyone could identify bubbles that ended up wiping out returns.

    While the Harvard authors found that much of Fama’s view is correct, especially that sharp run-ups in shares aren’t by themselves progenitors of market meltdowns, they say tools exist for bailing from the rallies most likely to end violently. Keeping out of crashes can add 10 percentage points to an investor’s long-term return, they said.

    Fama didn’t reply to an email and phone call seeking comments.

    Econintersect:  It is now well established that the efficient market hypothesis rests on a fallacy:  the assumption that market changes are normally distributed (follow the bell shaped gaussian distribution).  This assumption is true a large proportion of the time when market components have a distribution of correlations.  But occasionally the distributions of correlations are destroyed and many market components move in the same direction at the same time.  This is called "tail risk", where extremely improbable points (far from the mean) in the gaussian curve become much more probable than the guassian function predicts.  This gives rise to Black Swan events, such as the recent market crashes of 2000-01 and 2007-09.  (For discussion see Fama the Younger and Fama the Elder - John Lounsbury, 2013.)  The tracking development of such events has been thoroughly analyzed by Clive Corcoran in his definitive 2013 book:  "Systemic Liquidity Risk and Bipolar Markets: Wealth Management in Today's Macro Risk On / Risk Off Financial Environment".  A recent example of unusual correlation is shown in the graphic below.  

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