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What We Read Today 06 July 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 Fed Hasn't Had a Clue

  • Do Not Hire Central Bankers To Forecast Inflation

  • Zillow misestimates, despite Big Data

  • Fat tail Zillow errors

  • EIA's Recent Data Release: What We're Seeing

  • Conservatives in the highest levels of government are blurring the lines between the state and religion

  • There's No One in Charge 

  • McConnell signals doubts about ObamaCare vote 

  • Republicans’ main argument for Obamacare repeal is a lie

  • Government ethics chief who clashed with Trump abruptly resigns

  • Stock and Bond Markets Blow Off Fed, Fed Gets Frustrated

  • European Safe Bond: Handle With Care

  • Many EU Banks Would Collapse Without Regulators’ Help: Fitch

  • Brexit And The Exterminating Angel

  • German police used water cannons and pepper spray to disperse G-20 protesters 

  • The Global Web That Keeps North Korea Running

  • And More

Articles about events, conflicts and disease around the world


“no people of faith today face greater hostility or hatred than the followers of Christ.”

  • McConnell signals doubts about ObamaCare vote (The Hill)  Acknowledging that Senate Republicans may not be able to pass their ObamaCare repeal legislation, Senate Majority Leader Mitch McConnell  (R-Ky.) is warning that action will then have to be taken to stabilize insurance markets.  McConnell said a Rotary Club meeting in Kentucky on Thursday, according to multiple reports:

“If my side is unable to agree on an adequate replacement, then some kind of action with regard to private health insurance markets must occur.”  

  • Republicans’ main argument for Obamacare repeal is a lie (Vox)  Republican lawmakers consistently claim that the Obamacare marketplaces are collapsing, so they need to pass a bill to repeal and replace the health law.  The marketplaces, though, have refused to cooperate. They are not working perfectly — but they are far from ruinous demise, experts say. But the Republican replacement plan, introduced in June, could change that. It contains several provisions that could accelerate the crumbling of the marketplaces and leave millions of Americans with no health care options.

  • Government ethics chief who clashed with Trump abruptly resigns (Business Insider)  The head of the Office of Government Ethics — the government body which provides ethics oversight of the White House and executive branch — abruptly resigned Thursday.  Walter Shaub, who was appointed to lead OGE by President Barack Obama in 2013, resigned with roughly six months remaining in his five-year term.  Shaub told NPR Thursday that

"the current situation has made it clear that the ethics program needs to be stronger than it is. At the Campaign Legal Center, I'll have more freedom to push for reform. I'll also be broadening my focus to include ethics issues at all levels of government."

  • Stock and Bond Markets Blow Off Fed, Fed Gets Frustrated (Wolf Street)   Here is what happened: The Fed has been tightening by raising rates and it has announced the unwinding of QE, with only the timing being still debated – whether at the September or December meeting – and financial conditions should be tightening in response, and the Fed wants them to tighten. But the opposite has happened. Markets have blown off the Fed.  Instead of tightening, financial conditions have been easing. Over the past few months, stock prices have surged, and bond prices have risen too, as longer-term yields have fallen and yield spreads have narrowed. Members of the policy-setting Federal Open Markets Committee (FOMC) have repeatedly lamented this disconnect at their last meeting in June.  This is reflected by the below normal levels of the St. Louis Fed Financial Stress Index, which has recently reached historic lows seen in 2014.  Below is the full history of the index, followed by the data since the beginning of 2014.


  • European Safe Bond: Handle With Care (Social Europe)  In the Euro Area there is a scarcity of risk-free securities; these are issued today only by a few sovereigns with a very high rating, but not by any European institution given strong German opposition. This situation creates huge capital flows in stress periods (flight-to-quality) and it contributes to the diabolic loop between bank and sovereign risks. Hence the recent proposal by Marcus Brunnermeier and other economists to create Sovereign Bond-Backed Securities (“ESbies”) or European Safe Bonds. The proposal has recently been endorsed by the EU Commission.

In a nutshell, ESbies are the senior tranche of a securitization backed by a portfolio of government bonds of the Eurozone countries. In this way, without introducing mutual solidarity between European countries, Esbies create a risk-free asset, through diversification and tranching. In fact, the junior tranche of securities, issued by the vehicle, would be the first to absorb any losses arising from the possible insolvency of a member state.

In our view, this project can work only if it is complemented by an important change in the prudential regulation of banks.

  • Many EU Banks Would Collapse Without Regulators’ Help: Fitch (Wolf Street)  Dozens of Greek, Italian, Spanish and even German lenders have volumes of troubled assets higher or similar to that of Spain’s fallen lender Banco Popular. They, too, are at risk of insolvency. This stark observation came from Bridget Gandy, director of financial institutions for Fitch Ratings, who spoke at a conference in London last Thursday. Troubled banks include:

  • Greece’s HB, Piraeus, NBG, Eurobank and Alpha;

  • Italy’s Monte dei Pachi di Siena (which is in the process of being rescued with state funds), Carige (9th largest bank, now under ECB orders to raise capital or else), CreVal, and the two collapsed banks, Veneto and Vicenza (whose senior bondholders were bailed out last weekend);

  • Germany’s Bremer Landesbank (which just cancel interest payments on its CoCo bonds) and shipping lender HSH Nordbank.

  • Spain’s Liberbank and majority state-owned BMN and Bankia, which are completing a merger after private-sector institutions refused to buy BMN. Now, the problems on BMN’s balance sheet belong to Bankia, which already has its own set of issues, Gandy said.


  • Brexit And The Exterminating Angel (Social Europe)  In the June 23, 2016 referendum, UK voters were asked a deceptively simple ‘in’ or ‘out’ question and by a narrow margin decided that the country should ‘leave’ the EU. A year later, however, the UK is still an EU member. Although, in principle, Brexit should finally take place on March 29, 2019, there is a great deal of uncertainty whether such a deadline can be met – indeed, there is uncertainty not only about when but also about how or even whether Brexit would take place. Brexit may not mean Brexit after all!

The UK, having decided to ‘leave’ the EU, appears to be doing its best to thwart the process. Having taken nine months to trigger article 50, Prime Minister Theresa May, shortly afterwards, announced a snap general election with the declared aim of achieving a ‘strong and stable’ government but got instead a hung parliament. It is as if the UK is mysteriously prevented from leaving the EU by some extraordinary, self-inflicted and largely avoidable obstacles and hurdles. Many outside observers find the current Brexit saga rather comical. Even ‘surreal’.


  • German police used water cannons and pepper spray to disperse G-20 protesters (Associated Press, Business Insider)  German police have used water cannons and pepper spray to disperse protesters in Hamburg after being attacked with bottles and stones by some marchers protesting the Group of 20 summit.  Police say they repeatedly asked a group of hardcore anti-capitalist demonstrators to remove their masks Thursday evening, to no avail. They then decided to separate the group from the rest of the several thousand-strong demonstration.  Black-hooded protesters attacked a police vehicle with bottles and bricks, breaking its window.

North Korea

  • The Global Web That Keeps North Korea Running (The Wall Street Journal)  North Korea may be one of the world’s most isolated countries, but the tightening sanctions regime it has lived under for the past two decades is anything but impermeable.  An examination of North Korea’s global connections reveals that even as it becomes increasingly dependent on China, Pyongyang maintains economic and diplomatic ties with many nations. Those links—from commercial and banking relationships to scientific training, arms sales, monument-building and restaurants—have helped it amass the money and technical know-how to develop nuclear weapons and missiles.

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

Click for larger image.

  • Do Not Hire Central Bankers To Forecast Inflation (TalkMarkets)  See also preceding article.  What seems to be tripping up the central bankers is the relationship between falling unemployment and wage acceleration. The theory calls for wage pressure to increase as the unemployment rate falls. Japan has experienced what could be considered as “over full employment” as the unemployment rate fell to 3.5 % recently. Yet, wages have remained stagnant and inflation is non-existent. If Japan represents the future, Canada and the United States may continue to enjoy falling unemployment rates without any impact on the inflation rate. This will throw a monkey wrench into the inflation forecast techniques employed by the two central banks. More importantly, one wonders whether the 2% target is a realistic goal to aspire in setting monetary policy.

  • Zillow misestimates, despite Big Data (Statistical Ideas)  Salil Mehta of Statistical Ideas has contributed to GEI.  See previous article for sequel.  Despite millions of statistical models and proprietary data points behind Zillow’s price estimate (Z-est), the Z-est fails compared to a typical real estate agent in predicting a home’s ultimate sales price.  The occurrences of errors is very much dependent on geography.

  • Fat tail Zillow errors (Statistical Ideas)  Salil Mehta of Statistical Ideas has contributed to GEI.  See previous article for prequel.  Zillow home price estimates have a challenging fat-tail distribution, or more deviant errors than can be assumed by a normal distribution. These errors are exceptionally high in some counties (well beyond the feared 20% relative error level, between the actual price and the Z-est).  It is noted that the realty list price estimate has a median error of nearly 5%, and this squares to Zillow’s estimate of nearly ½ of the listing estimate is within 5% of the final sales price.  But realtors have over 96% of their listing estimates within 20% of the sales price, versus 93% for Zillow.  So, there is some fat-tail among realtors, but half as much as with Zillow.

  • EIA's Recent Data Release: What We're Seeing (Seeking Alpha)  Last Friday's EIA-914 Monthly Production Report, which provides the market with more accurate production figures (and in turn, demand figures) showed some interesting trends:

  • The monthly report indicates a large decline in US production and slower growth in Texas.

  • Gulf of Mexico declines may be an anomaly and distorted overall production declines.

  • Natural gas production is down more than 101,000 bpd which could be a statistical anomaly.


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