Article Collection 04/02/14

Macroeconomics

Ray Dalio’s excellent “How the Economic Machine Works” which we watched in class. Reality obviously much more complicated than this, however this is definitely a reasonable overview of the baseline; if you’re enterprising, there is also the paper version.

Excellent video by the BCC on “How China Fooled the World” (link working) which explains China’s response to the 2008 Financial Crisis, China’s subsequent boom, and the extent to which overextended credit is threatening Chinese growth today. Strongly encourage watching this in it’s entirety. Searching “China’s ghost cities” on youtube provides plenty more content to watch (although our media might be guilty of some over-embellishment and schadenfreude).

The US Federal Reserve just released the “FRB/US Model,” the Fed’s formal model of the US economy; this is interesting as this model has never been released to the general public before. They describe the model and how it works, and then link you to the new webpage where the model is hosted; sadly to use model one must have E-views version 7, but nonetheless reading the first link provides insight as to how the Fed economists model the US economy.

Excellent and concise analysis by JP Morgan about the rise in the US government’s entitlement spending crowding out necessary investments in infrastructure, natural resources, training and energy. Note that US government tax revenue is usually around 17-20% of GDP, hence trending entitlement spending seen here will soon be around 75% of government tax revenue, which (imo) is batshit crazy insane.

Why mortgage origination is slowing in the US: (1) higher rates since this time last year as a result of Fed tapering and (2) JP Morgan loses money when it makes a mortgage, presumably other banks face similar conditions. So both the demand side says no to higher rates, and the supply side can’t make money even with rates where they are. As a result, less mortgages are issued.

US Jobs report indicates 192,000 jobs were added in March 2014, below expectations as unemployment rate remains 6.7%. Graphical breakdown of jobs added by industry in February and March and unemployment rate by industry.

Interesting look current droughts and the recent inflation in global food prices.

High Frequency Trading (explained briefly and explained in laborious detail): Excellent writer Michael Lewis has a new book (he’s the author of Liar’s Poker, Moneyball, The Blind Side, The Big Short, etc.) called Flash Boys on High Frequency Trading (HFT) has been making waves. Here’s two videos of him being interviewed on the Daily Show with Jon Stewart as well as Bloomberg TV. Taking the opposing view is a (brilliant) PhD physicist I regularly follow the blog of explaining some criticisms of HFT in 2009, and again in 2011. Famous investor Dennis Gartman gets behind HFT as well. My views probably mirror Gartman’s the most; though I do think the liquidity provided by HFT is illusory, akin to the airbag in your car that works all the time, except in front-end collisions. What does an HFT look like? Well, HFT firm Virtu accounts for 5% of US equity market volume and the results look like this.

A quick review of the Eurozone, it’s banking system, economy and the possibility of secular stagnation.

Abenomics, Japan’s massive QE monetary expansion, appears to be stalling out and could fall into full retreat if the planned consumption tax hikes are implemented. Essentially the BOJ is trying to create inflation, devaluing the Yen and boosting exports while simultaneously spurring domestic consumption and increasing domestic wages. Unfortunately because Japan imports much of its energy and resources that go into producing products to export, a devalued Yen creates cost-push inflation such that the only way to export more is to lower domestic wages, rather than raise them. Imported Liquid Natural Gas prices have just hit a 5 year high, while wages have been declining for 21 consecutive months, these looming consumption tax hikes could be the straw that breaks the camel’s back. Update: apparently the consumption tax hikes of April 1st have already been blamed for a 25% fall in sales.

A [terrible] cartoon which [kinda] explains the velocity of money.

Emerging markets have been taking a beating as liquidity flows back into the U.S. in the wake of Fed tapering of monetary policy; Dani Roderick discusses some of these problems, and Kenneth Rogoff also explains his view on emerging markets.

Death Knell sounds for Brazil’s economic strategy,” interesting.

Robert Shiller on deflation and austerity.

Brad DeLong on disentangling cycle from trend in economic growth.

Microeconomics 

Interested in the future of Hampton Roads? Several of my ODU professors work in the ODU Forecasting Project doing reports and research on the state and future of the local economy, here is the full report for 2013.

Income and wealth inequality: I’ve said the OWS movement that attacking the “top 1%” was simplistic to the point of being moronic. It’s never been the top 1%, but rather the top 1% of the top 1%, thus the top 0.01% who are the problem. These are your kleptocrats, plutocrats and oligarchs. And yeah, they own a lot of the pie.

USA’s 20 best and worst paying jobs; although the list isn’t perfect.

Survey results of the highest paying IT and CS skills.

Why a Harvard Business School Professor thinks “50% of colleges won’t be here in 20 years.”

How Being a Doctor Became The Most Miserable Profession,” both eyeopening and worrying.

Some examples of questionable market regulations, such the occupational licensing that inhibits competition and the battle between foot-carts and restaurants. Gordon and Bremmer discuss Xi Jinping’s options with regard to reforming China.

Jeffrey Frankel on problems with regulating markets in ways that are removed from market incentives. Speaking of failed incentives, a retiring SEC lawyer recently wrote a piece criticizing the SEC employees for working towards transitioning to Wall Street, rather than protecting consumers from it.

Other

Putin’s Brain – excellent article on Russian geostrategy and where Putin fits in to it. 

A really cool chart of current migration in the world.

The worst Ebola outbreak in seven years recently occurred in Guinea, Bloomberg maps out the details of the disease with a 40-90% fatality rate.

Al Qaeda now controls more territory in the world than ever.” I believe they mean it’s more widely distributed than ever; also the map is not one of Islamic fundamentalism as it leaves out ISIL/ISIS and other active jihadist groups.

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