LyrArc Article Gist
This issue of the Economist magazine looks at Saudi oil price cuts and the future for shale oil in the world's energy mix. In the short run overleveraged companies in the shale oil business in the U.S. will be affected by oil prices below $50 a barrel. The Economist points out that shale oil deposits are extensive in the U.S. and other parts of the world. The upfront costs are as little as $1.5 million for drilling a well. As a result the economics of shale will depend on new advances in technology and efficiency to bring costs down below existing costs averaging of about $57 a barrel, with some producers at costs of $35 a barrel. Because of technology advances anticipated in the field it points to shale oil as a reliable source of low cost oil supplies in the future, keeping oil prices lower than in the past and much less subject to manipulation by cartel pricing or oil price shocks. The lower volatility and lower level of oil prices will be good for the rapidly growing economies in Asia and the developed economies of Europe and the U.S., and for countries in Latin America such as Argentina with large shale deposits....

LyrArc Article Gist
Raising the minimum wage makes sense because it is low and has not caught up with inflation. In real terms it is lower today than in the 1960's, even though productivity has doubled, which is why it makes sense. Economic sudies show that it is not likely to reduce jobs.

LyrArc Article Gist
MaC Group, a risk advisor to Spanish banks, says Spanish banks hold about 30 billion pounds of distressed real estate and unsellable land. Prices are down 28% from the peak in 2007, according to a report by the IESE Business School, and are expected to fall a further 15-20 percent in the next 2-3 years by some experts. Much of the bank owned land is far from city centers and there is no demand for this. One Madrid based consultant R.R. de Acuna Asociados, says 43% of bank owned land is poorly located and there may be no demand for unfinished residential units for decades. The new government of Mariano Rajoy plans to take action to cleanup the banking system. Louis de Guindos, director of PricewaterhouseCoopers and IE Business School Center of Finance is expected to become the new finance minister. Guindos says strict rules need to be implemented, with some banks able to handle this and others that won't. MaC Group's Cantos, a managing partner, says the gap is huge between prices offered by banks and what investors will pay- as much as 70%. Prime assets can be sold for 30% discount but the land, residential and commercial real estate will require discounts of 70%. Banks have made provisions for losses of 30%, and are now facing the prospect of another 40% in losses. As a result many of the medium and small sized banks which operate only inside Spain may have to be shut down or consolidated by the government of Mariano Rajoy. Only the larger banks like Banco Santander, Banco Bilbao, La Caxia, and Bankia are likely to surivive....

LyrArc Article Gist
Macroprudential policies of central banks in S. Korea, Indonesia, China, Canada, and other countries, as concerns grow about a housing and credit bubble.

LyrArc Article Gist
A 2007 video of Obama speaking at Hampton University in Virginia on race relations, on the slow relief sent to Hurricane Katrina affected residents of New Orleans because they were black, praising pastor Wright, and presenting a different view on race relations than President Obama has made in public appearances. The video has surfaced again in the final weeks of the 2012 presidential campaign, especially as polarization has increased in the last four years.

LyrArc Article Gist
About $70 billion in Greek credit default swaps are outstanding. But after all sides settle their accounts only $3.2 billion will have to be paid out. The International Swaps and Derivatives Association made the decision to set off the swaps payment after the Greek debt restructuring and bond swap on March 8, 2012.

LyrArc Article Gist
11 Pacific Rim nations form the Trans-Pacific Partnership in 2018. The Obama administration supported the trade pact alienating supporters in its union base particularly in the midwestern states. Mr. Trump opposed the TPP in his election campaign and made it a significant issue for swing voters in midwestern states after job losses in the auto industry. With the opposition of president Trump the U.S. decided to withdraw from TPP.  The 11 nations agreeing to join a revised agreement are Japan, Canada, Mexico, Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam. So far six countries have formally approved the deal, Australia, Canada, Mexico, Singapore, New Zealand and Japan, setting the stage for two rounds of tariff reductions starting December 30, 2018. Agricultural products duties will be duty free within 3 to 7 years including for Japan and Mexico. Australia, New Zealand, Canada are major agricultural exporters. Japan supported the deal as a way to counter China's influence in the region. In the U.S. the gains would be in intellectual property rights but losses for workers in the auto and manufacturing industries, a point Mr. Trump recognized in his election campaign as he campaigned in the midwestern states. Mr. Obama pursued TPP over objections of workers organizations and unions including auto workers union, with his advisors suggesting this as a way to counter China's influence in the region. By 2018 the Democratic party support base fractured on this as one of the major issues.   ...

LyrArc Article Gist
Matthew Slaughter of the Tuck School, Dartmouth, says that the principle of comparitive advantage should determine what America exports and imports. Under comparitive advantage each country concentrates its energies on the particular goods and services that it does better than other countries. Free trade operates under the idea of comparitive advantage, but in practice it is quite different than its textbook economic counterpart. It is constantly changing as new countries or industries in different countries try to upset the existing pattern. Under a textbook example Airbus should not exist because Boeing was the most efficient manufacturer upto that time, and new entrants in a industry are nurtured for years with support from the governments of their countries. And in some situations the governments may exclude certain companies or industries from support such as Komatsu and construction equipment in postwar Japan, and Infosys and software outsourcing in India, and still survive and grow. Under comparitive advantage Japan should still be importing construction equipment from Caterpillar in the US, and there would be no serious competition in that industry. This would work to the detriment of the principle of competition in free trade which is just as important to free trade as the idea of comparitive advantage, with new entrants in an industry upsetting the old way of doing things and creating price/quality improvements. Slaughter simply pulls back off the shelf the old idea of comparitive advantage without seriously considering its real life aspects. Without dealing with trade distortion from currency manipulation, from the impact on jobs, without considering the continuing critical role of manufacturing in developed economies to provide the standards of living for a large middle class, and creating the kind of society that people of developed countries aspire to. He mentions GE's Immelt and the President's Council on Jobs, but makes no effort to engage Immelt 's statement in his recent op-ed article in the Washington Post, that the concept of transitioning from a export-oriented economic powerhouse to a services led consumption based economy could be done without loss of jobs, prosperity and prestige, was fundamentally wrong. He has only one line for manufacturing's role in America's economy. This line says knowledge intensive industries such as education and software are just as important as manufacturing, but fails to mention that manufacturing has received less attention in recent decades. In so doing he is discounting his own profession of concern for the high rate of joblessness in the U.S., and the need for a new focus on manufacturing in the U.S. to reverse that trend. By saying that imports are not a sign of failure but can raise standards of living, and leaving it at that, Slaughter does not acknowledge that consumer debt that US consumers have taken on in the process certainly affects future prospects for the US economy. And he makes no mention of the need for rebalancing the world economy, which is exactly how free trade should work ideally. Countries that have high imports export more to rebalance the world trading system, as currency valuations are allowed to adjust makig their exports more attractive. By not taking into account the realities of free trade, and the need for practical measures to rebalance without policy induced distortions by state run economies, Slaughter ignores the idea of free trade that works as it should and for all countries. The irony is that Immelt's own committment to jobs and competitiveness has been questioned in online blogs and most recently by an editorial in the Wall Street Journal on January 26, 2011, titled "The Misallocators." That editorial refers to the outsize role of GE Capital in GE's earnings during the past decade, and the lack of credibility of a focus on competitiveness and jobs that this creates for GE. It mentions the loss of 34,000 GE jobs in the US during the last decade. ...

LyrArc Article Gist
Prince Mohammed bin Salman, son of the Saudi king Salman, oversees economic policy. He says stock sales of 5% of Saudi Aramco will be used to create a sovereign wealth fund of about $2 trillion that would help create the jobs with income from overseas investments and projects at home. About three times the jobs created in 2003-2013 will be needed with the demographic changes, according to McKinsey consultants. This will act as a diversification away from oil income dependence.

LyrArc Article Gist
ECB's German representative and chief economist Jurgen Stark resigned from the ECB's Executive Board to express his opposition to ECB bond purchases of sovereign bonds of Greece, Spain and Italy. This follows the resignation of Axel Weber as head of the Deutsche Bundesbank in June 2011, who raised similiar concerns. The concern is that the ECB is exceeding its charter by buying sovereign bonds, taking on a political role and adding new risks. Stark wrote in an op-ed in the German newspaper Handelsblatt- as government efforts so far have failed, "far-reaching reform of the mechanism for decisions and sanctions is needed... We find ourselves in a situation in which massive sustainability risks in public budgets are eroding financial stability."

LyrArc Article Gist
Friedman on the opportunity for president Morsi to move the Middle East towards a peace settlement between Israel and Palestine and acceptance of Israel in the broader Muslim community. For the U.S. it also means continuing support for the democracy movement in Egypt and the Middle East. For this to happen Israelis have to take the extra step away from the current position of being insecure in their borders and morally secure to a unknown but right direction of moving towards a lasting settlement of problems. This is looking beyond the conflicts with Syria and Iran- which are likely to be resolved by the people of Syria finally asserting themselves and the Iranian people choosing economic improvement over a weapons program.

LyrArc Article Gist
David Segal takes a detailed look inside Apple's retail stores in the U.S. and talks with employees at different stores to find out what its like working as an hourly employee at an Apple store. World wide Apple's 327 global stores sold $16 billion in Apple products. Per employee the sales are about $473,000, but at an hourly rate of about $12 the average employee makes about $25,000 per year. After recent wage raises this could be up to about $36,000. The National Retail Federation says electronics stores have about an average of $206,000 in sales per employee. Contrary to what most people may think most of Apple's employees are not engineers and other professionals, about 30,000 of the 43,000 Apple employees in the U.S. work as hourly employees in the retail stores. Most are young people in the early 20's, single, with health insurance provided by Apple not costing as much for that age group. There is no career path and most leave after a couple of years. Because of the Apple mystique and the drive to create new user friendly products there are many young people looking for this kind of temporary work, especially now with high unemployment. ...

LyrArc Article Gist
A behind the scenes account of what happened at JP Morgan Chase after CEO Jamie Dimon discovered the trading losses of the London Whale through the pages of the Wall Street Journal, on April 6, 2012.

LyrArc Article Gist
According to a report from the Southern Education Foundation about 51% of the students from pre-Kindergarden to 12th grade in the U.S. were eligible for the federal program of free and reduced price lunches, using an analysis of 2013 federal data. With the highest proportion of students in poverty concentrated in states in the southern and western U.S.. States all across the south, including Texas, show high concentrations approaching 60-70%, and states in the west such as California show about 50-60%. Midwestern states such as Illinois and Michigan show rates over 50%. The implications of this data are that these children from poor and sometimes chaotic backgrounds trail other children in educational development, are less likely to have educationally enriching activity, and more susceptible to dropping out or never attending college. Kent McGuire, president of the Southern Education Foundation says the map showing this is striking. He points to the disinclination to invest in young people today, compared to the focus on leadership in areas of creating opportunity and upward mobility in the decades of the 50's through the 80's. Michael Rebell of Teachers College at Columbia University, says reaching this point where a majority of public school children are from poor backgrounds has happened sooner, and the trend has accelerated over time. ...

LyrArc Article Gist
Greek leader Alexis Tsipras of the Syriza party, the Coalition of the Radical Left, talks to Angelos and Granitsas of the Journal. He says it is in the interests of the European Union to continue funding to Greece, but if the EU stops the funding Greece will stop paying its debt. It will then use the funds going to the debt burden for paying retirees and workers. And it will also tear up the loan agreements signed earlier, and scrap plans for layoff of 150,000 workers in the government services by 2015. He would also reverse measures to lower private sector wages. He also looks favorably on nationalizing banks to better channel lending to where its needed. In his view it will be difficult for Greece either way. Even with funding Greece's GDP is expected to fall 5-7% in 2012, following several years of declining GDP.

LyrArc Article Gist
The TPP as negotiated by Nov. 2015 gives biologics drugs 8 years of protection. Senator Hatch of Utah and the pharmaceutical industry seek 12 years of protection to recoup costly investments in these drugs. Japan says the agreement would be difficult to renegotiate. There is opposition to extending it beyond 8 years in many TPP countries.

LyrArc Article Gist
Jean Brunel, chief investment officer at GenSpring, says expect returns of 2-2.5% on bonds and 5% on stocks and not much higher in the next 5 years. He points out that with low rates the whole investment environment has changed. The consensus among investment managers is that it is a good idea to lower expectations and not chase risky returns in the next couple of years.