Early Bird Headlines 06 May 2015
Econintersect: Here are some of the headlines we found to help you start your day. For more headlines see our afternoon feature for GEI members, What We Read Today, which has many more headlines and a number of article discussions to keep you abreast of what we have found interesting.
Global
- IBM’s Watson Enters Market For Analyzing Cancer Genetics (Forbes) Hat tip to Alun J. Hill. It is known that months of laborious work by an army of scientists can often find a cure for cancer for a specific individual through DNA sequencing. A multi-institution effort is now underway to find a way to do the process, potentially in a few minutes, using the IBM Watson supercomputer.
U.S.
- U.S. trade data points to first-quarter economic contraction (Reuters) A huge surge in imports and increasing slack in exports, mostly driven by the surging dollar, produced the largest trade deficit in 6 1/2 years for April. The monthly increase was the largest in almost 20 years. Analysts now think that poor trade numbers will be enough of a burden to produce a GDP contraction for the first quarter in the next estimate update. However, growth is regaining momentum as other data on Tuesday showed activity in the services sector, which accounts for more than two-thirds of the economy, accelerated to a five-month high in April. The negative GDP number, should it occur, is likely to be a one-quarter event.
- Senate Republicans pass budget plan, eye Obamacare repeal (Reuters) The first combined House-Senate budget in six years passed 51-48 with all Senate Democrats and two Republicans voting against it, presidential candidates Ted Cruz and Rand Paul. Senator David Vitter, a Republican who is running for Louisiana governor this year, did not cast a vote. This is a non-binding resolution intended to define guidelines for spending bills and represents a platform statement for Republican campaigns in 2016. The guidelines would slash spending on the social safety net, education, infrastructure and other domestic programs by $5.3 trillion over 10 years with no tax increases. At the same time, it boosts defense spending next year by adding about $38 billion to an off-budget war operations account. Senate Budget Committee Chairman Mike Enzi said:
“American families know they can’t live on borrowed money, and neither can the federal government. This balanced budget shows these families that if they can do it, so can we.”
Econintersect: This is a scam. Remove $5.3 billion from in-budget social safety-net programs and add $38 billion off-budget military programs? Fiscally responsible? And to then utter the ignorant comparison of household budgets to sovereign fiscal balances is a disgrace. When will our politicians stop speaking to the level of the least informed of the electorate and start to show some leadership, starting with their own intellectual development and then moving to an effort of educating their constituents?
EU
- European equities trend remains bullish….EuroStoxx50 likely to push higher in coming months (Financial Buzz Guru) The European Central Bank unleashed their version of quantitative easing in April and European equities took off. In the bigger picture, the trend remains higher and periphery markets still look constructive, and The ECB remains dovish. This is very positive for stocks coming into the summer months.
UK
- Why neither main UK party is competent (Martin Wolf, Financial Times) Wolf says preoccupation with fiscal deficits and debt is hiding fundamental economic weaknesses that can never be resolved by focusing on reducing debt and spending.
Saudi Arabia
- Oil reaches $68 as Saudi raises selling prices (Financial Times) Brent crude has hit a new high price for 2015, up approximately 40% from the January low. The U.S. benchmark WTI crude has risen almost as much to get near $61. Econintersect: Right now both the Saudis and the U.S. frackers are looking pretty smart to have maintained production in the face of the 2014 price collapse.
Iran
Washington wants to be certain that any nuclear deal between Iran and major powers includes the possibility of restoring U.N. sanctions if Tehran breaks the agreement without risking Russian and Chinese vetoes, a senior U.S. official said on Tuesday.
United Nations sanctions and a future mechanism for Iran to buy atomic technology are two core sticking points in talks on a possible nuclear deal on which Tehran and world powers have been struggling to overcome deep divisions in recent days, diplomats said on condition of anonymity.
China
- May Day Sales Surge 91% In Beijing (Investing in Chinese Stocks) According to one data collection firm, Beijing new home sales over the May Day holiday jumped 91% over 2014 levels. Existing home sales climbed 58.1%. Inventory heading into May is at a 10-month low. Some perspective: This year new home sales were 324 units, up from 170 last year. But this is not the start of a new housing bubble; in 2012 the same period saw 530 units and 2013, 803, That is what a bubble looks like. And the analyst quoted in this article foresees the current modest flurry may last only “two or three months“.
- Spotlight: Xi’s visit to Russia, Kazakhstan, Belarus to safeguard post-war world order, enhance economic cooperation (Xinhuanet) Chinese President Xi Jinping‘s upcoming trip to Russia, Kazakhstan and Belarus will emphasize China’s determination to safeguard the post-WWII world order. Xi is also set to deepen win-win cooperation with the three nations, push forward the construction of the Silk Road Economic Belt while seeking common development with existing economic belt initiatives.
- Talk of Chinese QE Is Pure Speculation, Completely Delusional (Investing in Chinese Stocks) This is a dsicussion of an article by Yu Feng Hui (in Chinese). From Yu:
From the legal aspect is concerned, “PBOC Law” stipulates that the Bank shall not provide financing directly to the Government. If the central bank were to directly buy bonds issued by the government, bonds with no “material guarantees” (no output of goods and services behind them), it puts money directly to the market, eventually brewing inflation, plundering the wealth of the people. Local government debt the central bank issued the first direct purchase of local same. Is the Fed’s rounds of quantitative easing, but also through open market operations in the secondary market rather than in the primary issuance market to buy bonds directly.
In a strict sense, whether it is [central] government bonds or local government bonds, the central bank and commercial banks not only can not purchased directly, nor distributed in the inter-bank market. Instead, bonds should be directly issued businesses and individuals in the market. This is because to issue bonds in the inter-bank market, to allow commercial banks buy, will raise suspicion that the central bank is covertly financing the government.
The article concludes:
China will not (should not) do QE because it is illegal and will destroy the wealth of the people via inflation induced by direct central bank funding of government spending. In other words, China currently has more legal protections for its people than the United States. Does that mean the PBoC and central government won’t decide extraordinary times call for extraordinary policies? Maybe not, but it would be very ironic if the often legally ambiguous Chinese regime were to uphold legal restrictions on their central bank after much of the developed world has abandoned them. It would also be a very important in terms of long-term economic leadership.
What Yu doesn’t go on to say is that should forex reserves continue to fall, draining liquidity from the financial system, and the government responds by lowering the RRR, the renminbi is likely to depreciate.
India
- On the economy, the Modi government deserves the flak it is getting (Business Standard) The Modi govt has surrendered its initial momentum, failing to offer and pursuing regressive tax policies.
Nepal
- Death toll climbs to 7, 652 in deadly Nepal quake (Xinhuanet) An additional 16,390 are injured. There is still no estimate of how many are missing and may never be because thousands of Tibetan refugees have been “invisible people”, in Nepal without permission.
Mexico
- In Honor Of Cinco De Mayo, The Case For Investing In The Most Interesting ETF In The World (Trang Ho, Forbes) Trang Ho has contributed to GEI. Trang is recommending iShares MSCI Mexico Capped (NYSE:EWW), in spite of its market lagging performance over the last 1-month, ytd and 12-month periods.
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