Daily Digest

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Daily Digest 4/12 - What You Should Know About Financial Aid, Why Do Investors Make Bad Choices?

Saturday, April 12, 2014, 8:47 AM

Economy

Social Security, Treasury target taxpayers for their parents’ decades-old debts (Kenneth S.)

Since the drive to collect on very old debts began in 2011, the Treasury Department has collected $424 million in debts that were more than 10 years old. Those debts were owed to many federal agencies, but the one that has many Americans howling this tax season is the Social Security Administration, which has found 400,000 taxpayers who collectively owe $714 million on debts more than 10 years old. The agency expects to have begun proceedings against all of those people by this summer.

Everything You Need to Know About High-Frequency Trading (jdargis)

This rise of the robots certainly seems to have helped ordinary investors. Bid-ask spreads—the difference between what buyers want to pay and sellers want to be paid—have fallen dramatically the past 20 years. Part of this is because, since 2001, stock prices have gone from trading in fractions to pennies—which has allowed them to be increasingly precise. Another part is that electronic trading, though not super-fast, has made markets more liquid. And the last part is that HFT has added even more liquidity, eliminating bid-ask spreads that would have been too small to do so before. Indeed, researchers found that Canadian bid-ask spreads increased by 9 percent in 2012 after the government introduced fees that effectively limited HFT.

Why Do Investors Make Bad Choices? (jdargis)

The second mistake involves "loss aversion." People tend to hate losses from the status quo – in fact, they hate them far more than they like equivalent gains. If you suddenly lose $10,000, the distress you would feel would almost certainly be greater than the joy you would feel if you suddenly gained $10,000.

Shipbuilding Orders Evaporate As Baltic Dry Collapses (pinecarr)

We are sure the fact that the industry has been overbuilt - based on Keynesian-policy-inspired mal-investment and mispriced signals from global markets - will be used as the excuse for the collapsing price of shiiping dry bulk... but that argument s entirely circular and fallacious as it merely reinfoces the unintended consequences of the oh so visible hand in the world's markets and leaves more zombie entities clogging up any potential economic growth that is possible in a world of peak debt.

What You Don’t Know About Financial Aid (but Should) (jdargis)

It becomes clear over a long conversation that she does not understand how colleges define basic, crucial terms like “need,” “aid” or “need-blind admission,” and she does not know that those definitions vary from place to place. Her confusion is distressingly common, as demonstrated in studies, surveys and interviews with students and parents.

Greed Is Good: A 300-Year History of a Dangerous Idea (jdargis)

It was not until the mischievous moralist Bernard Mandeville that someone attempted to gloss greed as anything other than a shameful motive. A name now largely lost to history, Mandeville became a foil for 18th-century philosophy when, in 1705, he first proposed his infamous equation: Private vices yield public benefits. It came as part of The Fable of the Bees, an allegorical poem that described a thriving beehive where dark intentions keep the wheels of commerce turning. The outrage Mandeville stoked had less to do with this causal explanation than with the assertion that only by such means could a nation grow wealthy and strong.

China Takes On Big Risks in Its Push for Shale Gas (jdargis)

Like the United States and Europe, China wants to wean itself from its dependence on energy imports — and in Jiaoshizhen, the Chinese energy giant Sinopec says it has made the country’s first commercially viable shale gas discovery. Its efforts could also help address another urgent issue, as Beijing looks to curb an overwhelming reliance on coal that has blackened skies and made China the largest contributor to global warming.

White-Nose Syndrome (WNS) (Wendy SD)

White-nose syndrome (WNS) is an emergent disease of hibernating bats that has spread from the northeastern to the central United States at an alarming rate.

The true ecological consequences of large-scale population reductions currently under way among hibernating bats are not yet known. However, farmers might feel the impact. In temperate regions, bats are primary consumers of insects, and a recent economic analysis indicated that insect suppression services (ecosystem services) provided by bats to U.S. agriculture is valued between 4 to 50 billion dollars per year.

Gold & Silver

Click to read the PM Daily Market Commentary: 4/10/14

Provided daily by the Peak Prosperity Gold & Silver Group

Article suggestions for the Daily Digest can be sent to [email protected]. All suggestions are filtered by the Daily Digest team and preference is given to those that are in alignment with the message of the Crash Course and the "3 Es."

12 Comments

saxplayer00o1's picture
saxplayer00o1
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Arthur Robey's picture
Arthur Robey
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Axel Merk. "Too Much Debt."

The Ukraine is a symptom. If they fix the Ukraine there will be trouble elsewhere. It looks like we are playing wac-a-mole, down the hole.

I hope so-it sure beats a nuclear war.

thc0655's picture
thc0655
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Lies, damned lies, and statistics

While we complain about goal-seeked economic statistics designed to influence our opinion and behavior (more than just shed light on reality), keep in mind that the same kind of massage is often applied to crime statistics.  When an elected official gets heat for rising crime statistics you can believe they put plenty of pressure on law enforcement agencies to come up with some kind of way to turn the statistics around toward the positive.  You can then expect the police commanders at the top and near the top to get creative with crime statistics (along with their actual crime fighting efforts) in order to demonstrate progress. Here's the latest big city expose (Chicago).

http://www.chicagomag.com/Chicago-Magazine/May-2014/Chicago-crime-rates/

It happens just about everywhere and goes through a cycle something like this: frightening crime stats and anecdotal stories that graphically illustrate them > demands for a reduction in crime > pressure by politicians on law enforcement >  some law enforcers play loose and fast with the stats to show a reduction in crime > people are relieved and everyone's attention shifts to some other issue > over time the frightening crime stats and stories reappear, and then the cycle repeats.

Please exercise some skepticism about crime statistics, especially if they are falling at a rate that might qualify as "too good to be true."

Tom

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HughK
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Death of Money reviews & Rickards on slow growth

Hi all,

I'm currently listening to the audio version of Jim Rickards' The Death of Money, and looking forward to Chris' interview with Rickards.  

I found Rickard's Currency Wars to be fascinating, especially the pages about complexity theory, and it was there that I first learned about Joseph Tainter's energy-complexity theory of civilizational expansion and contraction.  Overall, I was impressed by Rickard's broad outlook

I'm only on the second chapter of The Death of Money, so I don't have much to say yet, but I did take a look at a couple of book reviews, and I thought I'd pass them along, with a quote or two from the review.  

I don't want to ruin the book for anyone who wants to read it w/o seeing reviews first, but I assume those people have already skipped this post.  Rather, I'm interested in how the book is being received in various places, and also where it is being ignored so far.

Financial Times - "An entertaining prophesy that will convert few non-believers."  

[Rickards] makes two big assumptions. First, that we are living in a depression; since 2007 slow economic growth has been structural. Central banks, assuming it is cyclical, are tackling it with the wrong tools. Second, gold is the only “true money”. Neither assumption is sufficiently supported by the book...

Rickards may be right that “the system is going wobbly”. But only the most ardent millenarian would follow his portfolio prescription of holding 20 per cent each in gold, land and hedge funds/private equity, 10 per cent fine art and the rest in cash.

Maclean's - "A doomsday scenario for stocks and bonds"

Rickards’s pessimism about the dollar extends to financial assets denominated in dollars, such as stocks and bonds. He suggests investors protect themselves by shifting to hard assets such as gold, farmland and fine art, plus old-fashioned cash and hard-asset alternatives such as hedge funds. His worst-case scenario he dubs “chaos,” with a total breakdown of global currencies and, hence, of the economic infrastructure of developed nations. If this starts to occur, he’s hopeful the system may yet be salvaged by reinstating a gold-backed dollar, even if it means letting the price of gold soar tenfold.

Hmmm...did this reviewer read The Death of Money all the way through, because the review seems based as much on Currency Wars as on Rickards' latest book.
 

According to Rickards, the inexorable character of the next global financial storm is essentially due to the fact that “the world is facing structural problems, but is trying to address them with cyclical solutions. A structural problem can only be solved with structural solutions including changes in fiscal policy, labor policy, regulation and the creation of a positive business climate. Monetary solutions of the kind being pursued are not an answer to the structural problems we face. Meanwhile, monetary solutions threaten to undermine confidence in paper money. The combination of unaddressed structural problems and reckless monetary policy will ultimately produce either extreme deflation, borderline hyperinflation, stagflation or a collapse of confidence in the dollar.”...

Ultimately, however, Rickards argues that if his predictions come true (and in his opinion it is only a matter of time), the collapse of the dollar would lead to a reset in the world’s monetary system whereby gold would regain its historic role as the standard unit of value. What happens after the end of fiat money would then depend on how each country is positioned in terms of its gold reserves.
This review is much more thorough than the FT and Maclean's reviews, with lots of quotes from the book.  Note: The Hugh in the comments thread is not me.

Rickards delivers a definitive analysis of the current state of the world financial system  - Epoch Times

At the end of the analysis, he comes to a pretty candid conclusion: “The coming collapse of the dollar and the international monetary system is entirely foreseeable. This is not a provocative conclusion.”...

According to Rickards, if everything goes according to plan, the United States can do nothing against the IMF launching the next reserve currency. In fact, he said it has already accepted this path and is managing rather than obstructing it...

The book includes a brief but valuable section of what money is, namely an expression of value, and that all fiat money in circulation today is merely a debt contract. Rickards correctly concludes that gold is the purest form of money and makes a compelling case to return to a modified gold standard within the SDRs scheme...

Among all the economies in the world, Rickards’s curious favorite is the European Union. He cites the largest gold pool of an economic block (not as a single country), a huge pool of untapped labor (unemployed people can come in handy even if your population is shrinking), world-class infrastructure, and education as well as painful supply side reforms without money printing as positives.

While this fresh perspective is not without merit, it is puzzling, however, that Rickards sees the ongoing effort by the unelected leadership of bureaucrats in Brussels to centralize power and centrally plan economic affairs as a positive, whereas he correctly cites it as a negative for the United States and China.

 

One of the interesting aspects of Chris' 2012 interview with Rickards was that Rickards clearly saw slower real economic growth, but not necessarily because of peak oil, as Rickards said that he just didn't know enough about peak oil to comment on it.  He did say that he believed that higher oil prices due to geopolitical instability could be a drag on economic growth.  

But, this quote from that interview shows that Rickards - and many others concerned about slow-growth for only 1st E reasons - seem to think that debt overhang is the primary cause of the current slow growth:

The overhang of debt impedes growth because it clogs up bank balance sheets and clogs up the savings to investment mechanism and has a lot of negative effects. 

This belief, I think, would lead to less investment in K (capital) in a traditional production function of:

Output(Y) = labor(L)*capital(K)*technological advance (i.e. total factor productivity)(A)

or

Y = ALK

I wonder if Rickards would find Reiner Kummel's biophysical production function interesting:

KLEC model:  q = q(k,l,e,t)

or:

production = capital*labor*energy*creativity.expressed.as.time  

(See Kummel's presentation for more on that last term.)

If the problem with our economy is truly structural, and not cyclical, as Rickards holds, then it seems likely that the principle structural shift is going from expanding oil production to flat oil production.  In this 1st and 2nd E view, which most of us seem to share here, the reason for the debt overhang, and especially the acute financial crises related to this, have at their root the slowing growth in energy production.   And, when we shift from flat oil production to declining oil production, we will experience another phase of this structural shift.  

Cheers,

Hugh

P.S. So far I have not seen a review of The Death of Money in the NYT, the NY Review of Books, or the London Review of Books.  Did I miss these? 

Arthur Robey's picture
Arthur Robey
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IQ Distillation.

Amongst those who graduate from high school, just about all the bright youngsters get a crack at college education. Heartening also because our most elite colleges have opened their doors wide for youngsters of outstanding promise. But frightening too. when people live in encapsulated worlds , it becomes difficult for them, even with the best of intentions, to grasp the realities of worlds with which they have little experience but over which they have great influence both public and private.

The Bell Curve. (PP50)

 

Arthur Robey's picture
Arthur Robey
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Bundy Ranch

My disinterested interpretation of the Bundy Ranch fracas is this. Someone in high office wants to make a buck selling off that bit of the USA to the Chinese. So he invents some story about an endangered tortoise and sends in the BLM, armed. With orders to get Cliven Bundy off.

The next step is to allow the dust to settle, forget about the tortoise, and then sell the land to the Chinese.

However, what you see is not what you get. Buyer Beware, Emptor Caveat. The models predict that that area is going to become dryer and hotter.

The desert tortoise will have the last laugh.

earthwise's picture
earthwise
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Close....

....but no cigar. Your cynicism got you close to the mark, but the real story is that Senate Majority Leader Harry Reid is working a deal with the Chinese to put a solar electric farm on another location, but such a project requires environmental mitigation to compensate for the damage done to Ma nature. Bundy's ranch fits the bill quite nicely: evict the trespassing cattle and transplant some tortoises and voila, all is well. 

But you are right in that I'm quite certain the tortoises will laugh last (and best).

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osb272646
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re digest

Grice and social security clawbacks.  Based on demographic analysis of the 2008 and 2012 elections, she most likely voted for the current President and the other liberals.  She has to pay for someone else's free lunch and that's not fair?  Where's the justice?

 

 

 

 

Arthur Robey's picture
Arthur Robey
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Political capital.

Thanks for thr the correction Earthwise.

In which case the BLM manager who decided to rope off a free speech area needs to be fired.

What should have happened was for the complexities of the situation to be exposed. Now there are patriots rushing down there and they will be made to look foolish. That should take some of the air out of any righteous indignation.

Political capital was squandered.

earthwise's picture
earthwise
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Call it corruption.

 

In which case the BLM manager who decided to rope off a free speech area needs to be fired.--Arthur Robey

Except that manager is none other than Neil Kornze, director of the BLM and coincidentally (or not) a former senior advisor to .......wait for it ........ Harry Reid.

It doesn't get any more incestuous than that.

earthwise's picture
earthwise
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Thanks Hugh

That was a helpful post. I've always found Rickards' perspective a most valuable one. I'm looking forward to reading his book, but with life's demands on my time, especially kids in Little League, and several farming/gardening books at the head of the line, it might be awhile. I hope to hear your own review if you're so inclined.

TechGuy's picture
TechGuy
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Even more info

Feds are going to kill over 700 desert tortoises because the  conservation center ran out of money:

http://rt.com/usa/desert-tortoises-euthanize-nevada-024/

The BLM is indeed trying to steal Bundy's ranch for Harry Reids Sons Development project.

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