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    Daily Digest – June 22

    by Davos

    Monday, June 22, 2009, 3:13 PM

  • Xie: Chinese Banks Funding Commodities Speculation, Casting Doubt on Recovery
  • Dad, Mom, Grand: Means of deficit reduction, Medicare and Social Security
  • One Wrong Move (Video)
  • Investors are finally seeing the nonsense in the efficient market theory (H/T Fujisan)
  • States in Deep Trouble Over Plunging Income Tax Revenues (H/T Fujisan)
  • Dirty Rat Gamblers!
  • Terrific pressing TV journalism by Dylan Ratigan (Video)
  • When, not if, equities tank again
  • Steve’s Economic Forum AKA Two Beers with Steve
  • Record Unemployment Rates in Eight States

Economy

Xie: Chinese Banks Funding Commodities Speculation, Casting Doubt on Recovery

Andy Xie, writing for Cajing, questions the durability of China’s recovery. He argues that much of hte upsurge in lending, which was one of the developments that cheered commentators, is fueling asset speculation, in this case in commodities, Reports this spring has suggested that as much as a third of the new lending was going into the stock market.

Observers have argued that China is stockpiling commodities as a diversification strategy., Xie adds an important tidbit to this equation, that banks are lending against commodities, using mortgage-like structures, and argues that the current price levels of commodities are a function of easy credit, not fundamentals.

Dad, Mom, Grand: Means of deficit reduction, Medicare and Social Security

[Lots of links on page]

One Wrong Move (Video)

Investors are finally seeing the nonsense in the efficient market theory (H/T Fujisan)

The best response I’ve heard to the efficient markets theory that has dominated thinking about investment for 30 years or more is a joke. Two men walking down a street spot a £20 note on the pavement. One, an economics professor, says to the other: "don’t bother to pick it up – if it were really a £20 note it wouldn’t be there".

States in Deep Trouble Over Plunging Income Tax Revenues (H/T Fujisan)

States most dependent on Personal Income Taxes

68.5% of Oregon’s Tax Revenue from PIT. Collections off 27.0%
57.2% of Massachusetts’ Tax Revenue from PIT. Collections off 28.5%
55.9% of New York’s Tax Revenue from PIT. Collections off 31.8%
47.5% of California’s’ Tax Revenue from PIT. Collections off 33.8%
52.4% of Connecticut’s Tax Revenue from PIT. Collections off 25.9%
52.7% of Colorado’s Tax Revenue from PIT. Collections off 25.4%

Dirty Rat Gamblers!

“Not only have we seen that our rats will gamble, but we’ve also been able to modulate that behaviour,” lead author Catharine Winstanley from the University of British Columbia told BBC News.

You can read a great scientific study on human behaviour by Jonah Lehrer called How We Decide. Probably the best book I’ve read since Market Wizards.

Terrific pressing TV journalism by Dylan Ratigan (Video)

When, not if, equities tank again

Long term bonds did find support by bouncing off that long term TLT uptrend line as I suggested was likely. I keep reading where a lot of people believe that bonds are going to go all the way back to where they were or even lower in terms of interest rates. I DON’T THINK SO. The long bonds experienced a parabolic blow off top and collapsed… bubbles do not reflate once revulsion has occurred. The reason is that blow off tops need outsiders to create the bubble… once the bubble pops the outsiders are the ones who get burned and they do not come back. Thus Bernanke has a problem. When, not if, equities tank again, you will not (I believe) see interest rates get all the way back down to where they were. That’s why I believe that instead of seeing equities go down hard with money flowing into bonds, the next round may see equities go down, bonds stay in a range, and money flee the United States sending the dollar lower or keeping it in a range instead of stengthening as much as the last bout of deleveraging. We’ll see, but that would be my guess, it won’t be pretty regardless.

Steve’s Economic Forum AKA Two Beers with Steve

Our podcast (Two Beers with Steve) is made up of members of the Chris Martenson website and the reason we get together every sunday is to further our understanding of the principles brought up in the Crash Course video series.

In this past episode we asked YouTube vlogger Loren Howe to talk with us about the Creation of Money and the Exponential Function of Money (Episode 8a). We also review the flaws of Central Banking and Fractional Reserve Banking. This topic of money creation is covered in the Crash Course video series but on a college freshman level. In this podcast we take it a few steps further. Episode 8b concentrates mostly on investing in todays tough financial climate.

Here is the link for iTunes users

Here is the link for non-iTunes users

 Record Unemployment Rates in Eight States

Note: the BLS started keeping state records in 1976, so obviously this doesn’t include the Depression.

From the BLS: Regional and State Employment and Unemployment Summary

Michigan again reported the highest jobless rate, 14.1 percent in May. The states with the next highest rates were Oregon, 12.4 percent; Rhode Island and South Carolina, 12.1 percent each; California, 11.5 percent; Nevada, 11.3 percent; and North Carolina, 11.1 percent. Six additional states and the District of Columbia recorded unemployment rates of at least 10.0 percent. The California, Nevada, North Carolina, Oregon, Rhode Island, and South Carolina rates were the highest on record for those states. Florida, at 10.2 percent, and Georgia, at 9.7 percent, also posted series highs. Nebraska and North Dakota registered the lowest unemployment rates, 4.4 percent each. Overall, 12 states and the District of Columbia had significantly higher jobless rates than the U.S. figure of 9.4 percent, 29 states reported measurably lower rates, and 9 states had rates little different from that of the nation.

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