Economy Archives - Page 74 of 132 - the patient investor

October 3, 2013

China recovery

China’s Shanghai Composite Index is testing support at 2150 and the lower trend channel. Recovery above the descending trendline would suggest another rally, while failure of support would warn of a correction to primary support at 1950. The index hints at long-term recovery but further confirmation is necessary.
Shanghai Composite Index

The Harper Petersen Index, from ship brokers Harper Petersen & Co., indicates that shipping rates for container vessels remain depressed, suggesting a sluggish global trade in manufactured goods. Exporters like China would be severely affected.

Harper Petersen Index

The Baltic Dry Index — reflecting dry bulk shipping rates for commodities like iron ore and coal — jumped sharply, however, reflecting an upturn in demand for bulk commodities.

Bulk commodity prices remain depressed according to the RBA.
RBA Bulk Commodity Prices
But export volumes are rising, in step with the Baltic Dry Index, reflecting strong demand from infrastructure development.
RBA Bulk Commodity Exports

WSJ reports that monthly electricity consumption has reached a new high:

China on Tuesday posted an all-time record-high electricity output level of 498.7 billion kilowatt-hours in August, rising 13% from a year earlier.

Monthly fluctuations should largely be ignored because of weather variation — excessively hot months like August can boost electricity demand — but the rising long-term trend in electricity consumption (chart from IndexMundi) suggests a robust recovery. A recovery led primarily by infrastructure investment rather than manufactured exports may well prove unsustainable in the long-term, but should provide welcome relief to the resources sector in the next few years.

September 24, 2013

Germany’s strange parallel universe | FT.com

……a large country with a huge structural current account surplus does not just export products. It also exports bankruptcy and unemployment, particularly if the counterpart capital flow consists of short-term debt.

~ Martin Wolf

September 24, 2013

Bellwether Fedex suggests improving economy

Bellwether transport stock Fedex displays a healthy primary up-trend on the monthly chart, suggesting that economic activity is improving. Bearish divergence on 13-week Twiggs Money Flow warns of selling pressure at the 2007 high of $120; reversal below zero would indicate a reversal, while a trough above the zero line would signal a primary up-trend. Breakout above $120 would offer a target of $130*.

Fedex

* Target calculation: 120 + ( 120 – 110 ) = 130

September 23, 2013

Saving Medicare: The Case for Market-Based Health Reform

In a paper to Catholic Health Conference Australia, Jeremy Sammut highlights the need for revision of Australia’s national health care system.

….health spending already consumes a third of the NSW budget….. and if health spending continues to grow at current rates, health will consume the entire NSW budget in 20 years time.

Providing free services encourages over-use and, with limited budgets, restricts access to essential services for the most needy. Sammut suggests a shift to self-funding for minor expenditure, with state assistance for chronic or catastrophic needs.

As the increasingly unaffordable United States private health system demonstrates, it is impossible to insure people for all health services without over-use causing a cost and premium spiral. In a private system, moral hazard creates un-affordability; in a free public insurance system like Medicare it causes arbitrary and unethical rationing.

Public and private health systems are both plagued by the problem of ‘first dollar insurance’ – the expectation among consumers that private or public insurance should entitle them to receive treatment entirely paid for by a third-party payer no matter how small the cost or condition.

By contrast, a soundly constructed insurance system should not insure people for all services. Instead, individuals should be required to self insure for minor health needs and expenses. Third party insurance should be reserved to enable people to share exceptional risk involving major health problems, and thus should only cover a minimum package of high-cost treatments for complex chronic and catastrophic conditions. And personal responsibility, consumer sovereignty, and price signals should also feature by using front-end deductibles and copayments to control costs and deter unnecessary use of marginal and discretionary services and trivial claims.

What we also need is for public and private hospitals to compete on an equal footing for the taxpayer’s health care dollar. This system has been successfully implemented in the Lombardy region of Italy, with excellent results. Margherita Stancati at WSJ online reports:

Lombardy, by contrast, has increased its quality standards, set its own reimbursement rates and, most important, put public and private hospitals on an equal footing by making each equally eligible for public funds. If a hospital meets the quality standards and charges the accepted reimbursement rate, it qualifies. Patients are free to choose between state-run and publicly funded private hospitals at no extra cost. Their co-pay is the same in either case. As a result, public and many private hospitals in Lombardy compete directly for patients and funds.

…..Around 30% of hospital care in Lombardy is private now — more than anywhere else in Italy. And service in both the private and public sector has improved.

Read Jeremy Sammut’s presentation at Saving Medicare: The Case for Market-Based Health Reform | Jeremy Sammut.

September 23, 2013

Interest on Reserves, Settlement, and the Effectiveness of Monetary Policy

Joshua R. Hendrickson suggests that paying interest on excess reserves at the Fed reduces the effectiveness of monetary policy. Money paid to purchase Treasuries finds its way back to the Fed in the form of excess reserves. Here is the abstract from his paper:

Over the last several years, the Federal Reserve has conducted a series of large scale asset purchases. The effectiveness of these purchases is dependent on the monetary transmission mechanism. Federal Reserve chairman Ben Bernanke has argued that large scale assets purchase are effective because they induce portfolio reallocations that ultimately lead to changes in economic activity. Despite these claims, a large fraction of the expansion of the monetary base is held as excess reserves by commercial banks. Concurrent with the large scale asset purchases, the Federal Reserve began paying interest on reserves and enacted changes in its Payment System Risk policy that have effectively made reserves and interest-bearing assets perfect substitutes. This paper demonstrates that these policy changes have had statistically and economically significant effects on the demand for reserves and simply that the effectiveness of conventional monetary policy has been significantly weakened.

Read the entire paper at Interest on Reserves, Settlement, and the Effectiveness of Monetary Policy |
Joshua R. Hendrickson.

September 22, 2013

Emperors of Banking Have No Clothes | Bloomberg

The too-big-to-fail problem for banks is greater today than it was in 2008. Since then, the largest U.S. banks have become much larger. On March 31, 2012, the debt of JPMorgan Chase was valued at $2.13 trillion and that of Bank of America Corp. at $1.95 trillion, more than three times the debt of Lehman Brothers Holdings Inc. The debt of the five largest U.S. banks totals about $8 trillion. These figures would be even larger under European accounting rules.

By Anat Admati & Martin Hellwig

September 19, 2013

Companies Unplug From the Electric Grid, Delivering a Jolt to Utilities | WSJ.com

On a hill overlooking the Susquehanna River, two big wind turbines crank out electricity for Kroger Co.’s KR +0.02% Turkey Hill Dairy in rural Lancaster County, Pa., allowing it to save 25% on its power bill for the past two years.

….From big-box retailers to high-tech manufacturers, more companies across the country are producing their own power. Since 2006, the number of electricity-generation units at commercial and industrial sites has more than quadrupled to roughly 40,000 from about 10,000, according to federal statistics.

By REBECCA SMITH and CASSANDRA SWEET

September 18, 2013

APRA: Australian banking system ‘more sound’

Interesting choice of words:

[Australian Prudential Regulation Authority chairman John Laker] said the Australian banking system was more sound than it was five or six years ago.

“We know that because we managed to negotiate the financial crisis without the fallout for our financial systems,” he said.

“The banking sector is holding more capital, it’s holding higher quality capital, it is holding more liquid assets.”

What he did not say is that Australian banks are financially sound and holding enough capital — and we are unlikely to hear that before banks double their current “improved” capital and leverage ratios.

September 17, 2013

Higher Bank Capital Requirements are Necessary but not Sufficient to Prevent the Next Crisis | naked capitalism

Bill Black explains why higher capital requirements for banks is only part of the solution. Capital is simply an accounting measure of Assets minus Liabilities and bankers are not above gaming this to their advantage.

….There were hundreds of Office of Thrift Supervision examiners whose opinions repeatedly proved vastly superior to the economists’ predictions during the S&L debacle. Akerlof and Romer concluded their 1993 article with these sentences in order to emphasize this message to their peers.

The S&L crisis, however, was also caused by misunderstanding. Neither the public nor economists foresaw that the [deregulation] of the 1980s were bound to produce looting. Nor, unaware of the concept, could they have known how serious it would be. Thus the regulators in the field who understood what was happening from the beginning found lukewarm support, at best, for their cause. Now we know better. If we learn from experience, history need not repeat itself. (Akerlof and Romer 1993: 60)

Larry and Janet: please listen to the regulators in the field. Please end Ben Bernanke’s practice of placing economists in charge of Fed supervision. The Fed’s economists are a major source of the Fed’s problems….. the solution needs to come from the people in the field. That is particularly true with regard to detecting systemic risks.

September 16, 2013

The Mysterious Disappearance of James Duesenberry | New York Times

Any successful consumption theory must accommodate three basic patterns: the rich save at higher rates than the poor; national savings rates remain roughly constant as income grows; and national consumption is more stable than national income over short periods.

The first two patterns appear contradictory: If the rich save at higher rates, savings rates should rise over time as everyone becomes richer. Yet this does not happen.

Mr. Duesenberry’s explanation of the discrepancy is that poverty is relative. The poor save at lower rates, he argued, because the higher spending of others kindles aspirations they find difficult to meet. This difficulty persists no matter how much national income grows, and hence the failure of national savings rates to rise over time…..

By ROBERT H. FRANK
Published: June 9, 2005