Posts from Tuesday Feb 4 2014

The Closer


- Charles Kenny on why China’s booming economy is nothing to fear.

- Martin Wolf on Second Machine Age.

- Matt O’Brien on the emerging market collapseRead more

Working for the coverage

The CBO says that Obamacare will ultimately cause employment in the United States to fall by up to two percentage points. That’s equivalent to roughly 2.5 million fewer jobs by 2024. This reduction in work occurs not because Obamacare makes employers reluctant to hire but because it makes workers reluctant to work.

As the CBO puts it: Read more

Participation rate hysteresis, labour market slack, and why it doesn’t have to matter

It’s been easy to lose track of the dueling research papers and notes published in the last year that have tried to discern the causes behind the demographic-adjusted fall in the US labour force participation rate.

The resulting confusion, specifically about whether those causes are mainly cyclical or structural, has led to uncertainty about what the Fed will do if the unemployment rate falls to or below the 6.5 per cent threshold (the rate is now at 6.7 per cent). Consequently it has weakened the FOMC’s commitment to keeping rates low for as long as its members have forecast. Read more

Not All Forms of Wealth Are Equally Pernicious

Ryan Avent takes issue with my take on Piketty. He makes two points, which I’ll address in turn.

First, the French data [Smith] considers is a bit of an outlier. You can download Mr Piketty’s data tables (in French) here and see the figures for Britain and America. In Britain the recent rise in the capital-income ratio is about two-thirds attributable to housing and one-third attributable to other domestic capital. In America growth in other domestic capital is actually more important than growth in housing. Read more

Home Bias? Not us, says S&P

Standard & Poor’s have penned a response to the academic paper we recently featured and which suggested that, were the US-based rating agency to be consistent, it should have cut the world’s superpower down another notch in 2011.

Click to read the whole letter from S&P in the piqued interior voice of your choosing:

 Read more

It’s the hot money, stupid

There is a destabilising force pounding its way through the global economy, generating untold chaos in its wake. You can’t see it, you can’t touch it, and you definitely can’t kill it. At best, you can scare it away (temporarily). Sometimes, if you’re lucky and it serves your interests, you can woo it back as well.

What we’re talking about, of course, is idle capital, the sort that greedily seeks out guaranteed returns without any respect for conditionality, commitment or risk. Something also frequently referred to as ‘hot money’.

In many ways it’s the equivalent of a bar-shy friend, or one who always somehow knows how to dodge the bill by the end of the night. A ‘friend’ who has no problem in taking from others, and never giving back. Someone who’s around for the good times only. An outright user of others. A flake. Read more

Can we have our bags back?

Here’s the Ocado mission statement:

To revolutionise the way people shop forever, by giving them a uniquely innovative and greener alternative to traditional grocery shopping.

At the 13-year mark, the revolution has not yet found room for profits, however.

With a torrent of new stock on the way this year attached to the latest round of hot initial public offerings (DFS, Zalando, Game, B&M Bargains…) with ebullient forecasts, it might be helpful to go back over Ocado’s history, and compare and contrast the hope with reality. Read more

Markets Live: Tuesday, 4th February, 2014

Live markets commentary from 

The (early) Lunch Wrap

Rising demand boosts UK construction || UBS increases bonus pool after strong year || Arm hit by slowdown in smartphone sales || Real estate bubbles on Sydney Harbour || Toyota drives up profit outlook for second time on weaker yen || HP details Autonomy allegations || Brazil suffers record trade deficit || Markets Read more

Momentum shifted, Japan watch

Big declines for the Japanese benchmarks, with the Nikkei 225 rapidly approaching 14,000 from the wrong direction to leave it and the broader Topix firmly in correction territory.

There are reasons aplenty. Japan vied with Portugal for most go-go market last year, Chinese growth appears to be slowing, the US had a bad day, and then there is the whole taper-related, Turkey-inspired return of general angst.

Still, momentum watchers may have reason to be concerned by the following chart: Read more

Why the Eurozone output gap could be a chasm

A few years ago Capital Economics made a strong case that the UK output gap — or how much slack there is in the economy — was being grossly under estimated by one and all. Their note prompted a spirited debate about the importance of output gaps in ascertaining correct monetary and fiscal policy.

Well, a similar case is now being made for the Eurozone by David Mackie and team at JP Morgan.

It’s an absolutely fascinating note, which argues above all that the ECB and the European Commission are wrong to think that the Euro area output gap is modest or that the growing unemployment rate is structural, given there is so little wage pressure in the region. Read more

Further reading

Elsewhere on Tuesday,

- How “nutty” is Krugman’s economics?

- The UK knows its place.

- Big ideas in macroeconomics: a review.

- Capital controls or cooperation? Read more

The 6am London Cut

Markets: Contagion from emerging markets continued to roil the developed world, pushing major bourses to multi-month lows as selling becomes increasingly indiscriminate. (FT’s Global Markets OverviewRead more