March 19-25, Finance and Economics: Japan shakes markets, I learn what the hell re-insurance is, the Europeans come to an agreement (sort of), Credit even you can get, PIMCO's bond selloff, and China throws on the breaks.

Posting one week behind the current issue is starting to catch up with me, and I fear that many of the articles we discuss here are quickly being overtaken by events. Witness Japan, Libya, Yemen, and now Portugal (not to mention the ouster of Canadian tyrant Harper by mobs of angry Canadians) - I'm sure the articles from this week's Economist are probably more current and what I am about to write outdated. But, on principle I refuse to skip an issue to catch up, and as you have probably guessed, doing an extra weeks' entry is about as likely as mid-week posting. Before we get started, I did want to note that the U.S. Treasury Department found and froze a good portion (30 billion worth) of what is ostensibly Libya's sovereign wealth fund that we discussed last week. So a word to the wise, if you're going to become a crazy dictator, you might want to avoid putting your people's money in sovereign wealth funds.

In any case, let's take a look at this week's edition - which, with some really long articles, was a bear (you're welcome).

• The Japanese earthquake has had a severe impact on global equity markets and important elements of global supply chains, and combined with the European debt crisis and the increase in oil prices due to the unfolding events in the Middle East, has sent investors packing. But the magazine offers some reason for hope.
• Re-insurance companies (yeah, I know - I had never heard of this either), which insure the insurers against catastrophic risk, seem poised to absorb the hit from the earthquake based on premium increases from a disaster prone 2010.
• The leaders of the Euro Zone arrive at a deal that exchanges more favorable terms for Greece, but not  Ireland, in exchange for some belt tightening at home - but the analysis suggests that this could be too little, too late (and seems to presage what we know now about Portugal.).
• In the second article in as many weeks about alternative banking, new services Wonga and Klarna allow consumers to borrow and buy on the basis of real time, information-driven credit worthiness.
• Buttonwood does what all of you refused to do in my un-noticed weekly contest from last week: Analyzes the PIMCO Treasury Bond fire sale and its relevance to Quantitative Easing, and goes a step further to speculate on the difficulty of ending the QE process once it has started.
• We get a little more detail about how China is slowing down their inflation through monetary policy and credit tightening, and while retail bank lending is cooling off, the non-conventional loans we discussed some weeks ago still raise the total amounts well over government targets.

But first, impress your friends with:

This Week's Fun Economic Facts:

• The Nikkei 225 average fell by 6.2% and 10.6% in the first two days after the earthquake, and the Dow Jones industrial snuck below the 12,000 mark again, having just made it back for the first time since Lehman collapsed.
• Brent crude oil prices per barrel rose to $116, still $30 short of the $146 in 2008
• Japan is responsible for supplying 90% of an epoxy resin used for the manufacture of circuit boards. It also produces much of the world's lithium batteries and electronic chips. 
• Morgan Stanley estimates that profits for S&P firms should grow by 15.4% this year, following their rise of 39.3% last year.
• Even with re-insurance payouts of between 10 and 20 billion, the non-Japanese re-insurers will still be paying out of profits, and will likely not eat into capital (knock on wood that there's not another major catastrophe.)
• 50 billion Euros: The amount the Greek government intends to raise through privatization of public assets.
• 0: The number of Greek islands currently for sale under this program.
• The annual interest rate on a Wonga loan of as much as $641 (the maximum personal loan) exceeds 4,000%
• Wonga makes over 100,000 loans per month
• The U.S. Federal  reserve is estimated to purchase 70% of issued U.S. Treasury Bonds as part of the Quantitative Easing process
• One ratings agency estimates that China lent over 11 trillion Yuan in 2009, above the official Chinese figure of 7.9 trillion (with the 3 trillion in excess perhaps accounted for by non-traditional lending.

 Yep, a real thrill a minute. Each article, in slightly greater depth for your reading enjoyment, after the jump.
*And if you haven't figured it out, each title in bold is a link to the article discussed.

March 12-18 - Finance and Economics: Raj Rajara-not-going-to-be-working-here-anymore, Yale's endowment troubles, bank-less Americans, Libya's sovereign fund hanky panky, and why going to the reserve well is a dumb idea.

It's hard this week to be thinking about much other than Japan and Libya, and I'm still in awe at just how much has happened in the first calendar quarter of this year. But nonetheless, in a week where the newspapers and magazines and web sites are stocked with things you should be reading about both crises, I am dedicated to bringing you a summary of those things you definitely will not have time to cover. This week's edition is kind of a soft-ball - no tricky articles about Chinese inflation or banking laws (although there is a letter from a reader in the magazine's correspondence section about the former, and I cannot find the link, so be resourceful) so this should be easy.

In this week's Finance and Economics section:

• A study on income disparities among regions in OECD countries shows growing gaps in the U.S. and UK (but not in Germany, as we all know is the magazine's secret crush.)
• Another Wall Street giant, in this case Raj Rajaratnam, goes on trial for insider trading in during a time when most have little sympathy for white collar criminals.
• New analysis shows that Yale University, once thought to be an institutional genius of endowment investments, may have misplayed its hand by over-diversifying its portfolio.
• Mango Financial is among the vanguard of financial institutions looking to capture the market of Americans who don't have traditional bank accounts, a population that might grow with new checking charges at traditional retail banks.
• Speculation about the disposition of Libya's sovereign wealth fund assets in Europe, and whether or not they will disappear in the chaos.
• Finally, an argument in response to calls to tap the strategic petroleum reserve as oil prices rise following the turmoil in Libya.

But as always, let's first take a look at the ever-so-useful for water-cooler discussions...


This Week's Fun Economic Facts:

• The District of Columbia is five times as wealthy as the State of Mississippi...
• ...and Central London is nine times richer than Wales
• Adjusted for purchasing-power-parity, over 25% of the regions of the UK and Germany have a lower GDP per capita than Shanghai, and within ten years, half of all U.S. states could have a lower per capita GDP than Shanghai and Beijing.
• 48% of DC residents have college degrees, compared with 19% in Mississippi.
• $45 million: Amount in profits that Raj Rajaratnam's hedge fund pulled in from insider information.
• 20 Years: Amount of time he could spend in jail if he is convicted.
• Between 2008 and 2009, Yale's endowment dropped 24.6%, and Harvard's 27.3%
• At least 17 million American adults live in households with no bank accounts, and 43 million Americans use payday check cashing services per month.
• The Libyan sovereign wealth fund is estimated at between 50 and 70 billion dollars, or roughly $10,000 per Libyan.
• Economists estimate that the fighting in Libya has prevented 1.4 million barrels of oil per day from hitting international markets.

These facts and more after the jump (again, for the uninitiated: READ MORE!)...

March 5 - 11, Finance and Economics: Chaos and uncertainty reigns! European debt, Chinese Banking, Dodd-Frank Section VII rules, Hong Kong housing, and Yunus gets early retirement five years late!

Well, so much for that experiment - I know what you're thinking (all ten of you, and probably my family) - I missed the midweek Economics Focus piece that I had promised. Apologies - this was a busy week (again). But I have to say, I am getting a lot out of this, even if it's a relatively pointless exercise in terms of accumulating any sort of real readership. I am finding that like a New York Times crossword, there are repeated patterns and concepts in the section, and it pays to read the section week in and week out. I think I'm picking up some basic concepts as I go and starting to recognize consistent themes - Basel 3, capital ratios, all of that stuff. You'll see what I mean if you've been paying attention, and you'll notice that some stories are continuations of past stories, and the section almost seems naked without mention of certain recurring themes. For instance, we are all shocked that not a word was mentioned this week about emerging markets or fuel prices. And no Robert Shiller, although he was interviewed on NPR this week about housing prices...is this dude going to win the Nobel or what!?But I know you can't wait to get on with it...

In this week's Economist Finance and Economics section:

• The writers get tired of coming up with new cover stories, as we have another long one about Europe's sovereign debt crisis. Things don't look good in Europe, but then again, where do they look good (other than Brazil?)
• We get a dose of a kind of wishy-washy analysis of China's banks - I can't tell if they're in trouble or not, and it would seem that neither can the Economist.
• We get the entire value of the magazine in a rather complex article about the new Title VII section of the Dodd-Frank act on financial reform relevant to derivatives. Get out yer' econ book for this one folks. 
• An interesting snippet about a study that suggests that Americans living in sunny places may be more tolerant of public sector wage premiums because they are simply less likely to move away than cold-state citizens as taxes and inefficiency in the public sector rise. 
• An article highlighting the recent EU court decision mandating the elimination of gender as a variable in the actuarial science of insurance policies.
• A brief snapshot of the ouster of Mohammed Yunus, the founder of the Grameen Bank and winner of the 2006 Nobel Prize. Disappointingly, not much about the controversy surrounding the bank nor many details about the political issues at the heart of the expulsion.
• A compelling argument for why you should not look to buy a house in Hong Kong.

But first...drumroll...

This Week's Fun Economic Facts:

• Earnings by China's banks rose by 20-50% in 2010
• American bank-holding companies made $12.2 billion in derivatives trading in only the third quarter of last year.
• 350: The number of people currently employed by J.P. Morgan trying to interpret the impact of Title VII section of the Dodd-Frank act on financial reform.
• 5000: The number of comments received by government regulators at printing from industry stake-holders on the rulemaking for the same legislation.
• Grameen bank has nearly 8.35 million clients, and as the Economist points out, most of them are poor Bangladeshi women.
• There are 31,306 licensed realtors in Hong Kong - 40% more than in 2009.
• According to the magazine's index, real estate in Australia is currently overvalued by a whopping 56%.
• Hong Kong, Singapore, and Switzerland are the only three property markets where real estate is more overvalued now than at the beginning of the economic downturn.

As always, we'll review the articles one by one, after the jump (that means there's more, so click: Read More!)

February 26 - March 4, Finance and Economics: Oil Prices have #AdonisDNA, but Portugal and Japan's banks could use some #TigerBlood. Basel 3 is #Winning.

Capital Ignorance, going into its third week is #Winning. Sorry, can't help the Charlie Sheen references, because I find the whole debacle pretty hilarious. Meanwhile, the week in the Middle East was nearly as fascinating as the last, and I can only hope that the situation in Libya concludes with as few casualties and as promising a future as possible. This week's issue (or last week for you pedants out there) continues some now familiar themes - retail banking (this week is Japan), sovereign debt crises (Portugal) and equity market reform, and we have some familiar visitors in the Basel 3 rules and Robert Shiller for the third time in as many weeks. For the latter, you'll all have to wait for mid week in my first basic format change. I'll be looking at the "Economics Focus" section later than Sunday because after I was crushed last week by the Focus on Chinese inflation, I realized that my ADD prevents giving the section's concluding opus the attention it deserves. I hope to include more analysis through the week or at least references to articles I've seen that relate to our discussion here. Just this week, for example, you may have seen this article in the New York Times about China's five year plan, which among other things, describes the goal of raising household incomes. Rather than just speculating that this is a response to concerns over unrest in the Middle East meant to satisfy the Chinese public, we learned last week that this might be a policy to promote "good inflation" (is that like "good" Parkinsons, Larry David fans?), i.e. inflation derived from a boost in consumer spending rather than exports, which is critical to balancing China's growth.

But first, let's get to this week, in which the Economist:

• Speculates on the future of oil price increases caused by supply disruptions, in turn caused by unrest in the Middle East. The section highlights the especially troubling, if not unrealistic, prospects for disruptions to Saudi supplies and reserves. (Ahem, wasn't it just two weeks ago that we were pretty optimistic about oil supplies and OECD reserves?)
• Describes a new perspective on the chaos of pricing and markets between pure market theory and behavioral economics, and touches on the prospect of central bank intervention to prevent asset-price bubbles. Can you see the torches of the free-market-or-bust mobs, Buttonwood?
• Paints a troubling picture of Japan's retail banking sector which seems prone to a good crushing soon between Japan's moribund and declining economy and new Basel 3 rules that may prevent it from moving its cash to foreign market investments.
• Sets Portugal up as the next to fall in the European sovereign debt crisis.
• Briefly touches on a watered down and seemingly intractable G20 discussion on the Gordian knot of economic imbalances.
• Discusses the decline of credit ratings systems and agencies in assessing credit for standards and regulation (not consumer credit, so you can temper that short spurt of excitement.), but bemoans the lack of good existing alternatives.
• Offers a brief glimpse into the entertainment insurance market
• ...and for later this week, provides a Focus on the collection of seminal American Economic Review articles now available on that publication's website. 

This week's fun economic facts: 

• OPEC's share of global oil production has actually decreased from 51% in the 1970's to just over 40% now;
• ...But a halt of exports from Algeria alone could send the price of oil to $220 per barrel (from the current $115)
• This week,  Saudi King Abdullah announced government hand outs of $36 billion in benefits for the people of the Kingdom. 
• The Japanese bank Mitsubushi UFJ Financial Group (MUFJ) has deposits worth $1.6 trillion (129 trillion Yen), making it the second biggest bank in the world.
• Portugal's sovereign debt stands at 83% of national output at the end of 2010, and had a borrowing level (budget deficit) at 9.3% of GDP in 2009. (Remember econ nerds, there are two ways of measuring total economic activity in a country. GDP measures expenditures while national output is the total value of goods and services.)
• Finally, best stat yet, Troy Polamalu's hair is insured up to 1 million dollars by Procter&Gamble. 

So, on with the show - after the jump:

February 19-25, Finance and Economics: And the Award Goes to...Brazil's Hedge Funds, Russia's State Owned Banks, and Europe's Economists!

A few thoughts once again as we dive into this week's Finance and Economics section. For one thing, this has been a remarkable week for reasons I think we all know, and I am incredibly behind on my reading. How is anybody supposed to keep up with Tunisia, Egypt, Libya, Yemen, Bharain, and Lebanon - all at once? Which means that this week's submission comes at an even higher opportunity cost for me, so I expect all of you to keep me up to speed on everything else I should be reading (oh, like the other 100 pages of the Economist.) I have added a section at the end - a meager, wimpy section, that includes some of the more unknown or at least less familiar terms from the magazine. I will try to add to this throughout the week. I am also writing this while flipping between the Oscars and the Avalanche-Ducks game, so if there are more typos or missed thoughts this week than usual, forgive me. Finally, I realized that I left an entire article on food prices out of last week's submission - I don't know if I'll have time to get back to it, but I'll try.  Oh, and did any of you catch the typo in last week's print edition? (Hint - unless there's some weird convention in British English that allows a word starting with a vowel to be preceded by the article "a", I'm pretty sure I busted them this time.) If you saw it, drop me a line. If you're reading this. Hello? Anybody....?

This week the Economist:

• Shares the secrets of Brazil's red hot private equity and hedge fund markets (including some oversight and transparency that would have helped Madoff victims!)
• Assesses the invisible gravitational effect of central bank policy on stock prices in the midst of low interest rates and a high ratio of "low" to "high" savers (I had to read this one four times before I understood it, but I'll try to demystify below.)
• Speculates on the impact "Basel 3"  (a global regulatory standard on banking) rules requiring higher capital ratios (sound like a familiar trend we discussed two weeks ago?) may have on investment bank divisions in big banks like Barclays, JPMorgan Chase, and Credit Suisse.
• Touches on the rise of European economists as a larger proportion of contributors in the academic literature.
• Offers commentary on why Russia's state owned banks are both big players in that sector and perhaps nothing to fear for foreign owned banks.
• Remarks on the pitiable situation of Syria's private domestic banks who have to leap at the option of buying Syrian sovereign debt for lack of any other options.
• Concludes as always with an Economics Focus on why inflation in China is a good thing (for China.)

This Week's Fun Economic Facts (Lots of Brazil this week...):

• While OECD economies saw GDP decline by 2.7% in 2008 and 2009, Brazil's GDP grew by 4.9% - and by 7.5% in 2010.
• Brazil now has the eighth largest economy, and could become the fifth by the end of the decade, overcoming Britain, France, and Italy.
• Brazil is the world's largest exporter of sugar, coffee, and meat - and second to the U.S. in soy, and the second largest market for cosmetics and third largest for mobile phones.
• Brazilian backed investment firm 3G Capital bought Burger King  for $4 billion in 2010.
• Eight companies account for 50% of the market value of Brazil's main stockmarket, BM&FBOVESPA
• The latest price/earnings ratio, which measures (in part) the artificial level of share prices above their value, is 45% higher than its historic average.
• Between 1994 and 2006, the percentage of published economic research by Europeans (with an affiliation with a European institution) rose from 24% to 40% while American contributions diminished from 66% to 45%- but North American economists still contribute 75% of the articles in the top Economics journals.
• The assets of Russia's banking system amount to about 75% of GDP. Sound high? Some individual banks in Switzerland and the UK amount to more than 100%. 
• Chinese inflation, spurred by food prices, rose to 4.9% in January.
• While the yuan has only risen 4% against the dollar in nominal terms since 2009, its real exchange rate increase against the dollar was 17%, because the real rate is determined by measuring relative labor costs.

Follow me after the jump and we'll sort all of this out...

February 12-18, Finance and Economics: Exchange Markets, European Bonds, and yep, more emerging market inflation

Well, it was bound to happen. The Economist pulls out the big guns during a big news week. This week's section is not for the faint of heart. But that's why I'm here - an ignoramus trying to make sense of these concepts and maybe distilling them to the point that we can all get the gist. None of this week's columns are the nice little one-column jobs with the little red box on the same page as the title - nope, they're all the two pager goliaths - the kind where the two little red arrows exasperate with the promise of yet more analysis on the topic you hoped you could cover in a few minutes. So let's get to it.

This week, the Economist:

•  Poo-poos the importance of exchange market mergers, which have started to proliferate
• Speculates on the potential for sovereign bond market reform in the Euro-zone, 
• Prognosticates on the future of investment in emerging markets in the wake of the Egyptian revolution,
• Warns of a Chinese drought's effects on global food markets
• Ranks post-crisis economic thinkers
• Sheds light on Chinese trust companies
• Dissects Japan's chronic deflation
• ...and in Economics Focus, challenges the notion that severe weather has the impact most presume

...phew!

This week's fun economic facts:

• Despite raising 750 billion Euros in rescue funds, including 440 billion by the European Financial Stability Facility (EFSF), lending capacity is only 250 billion (yep, 1/3 of the total!), in large part because only six EU members have a AAA credit rating (i.e. more cash reserves are required for the lender to retain a AAA credit rating). 
• In the week of February 2, emerging market equity funds shed 1% of total assetts ($7 billion) due to uncertainty in Egypt. This represents the third largest withdrawal in history.
• The Economist's commodity price food index increased by over 6% in January (see last week's entry on rising food prices.)
• China maintains 60 million tons of wheat stocks (about a little less than ten percent of global output forecast for 2011)
• Emerging market shares trade at twice their book value - but get this, in 2000, "dotcom" shares were trading at seven times book value!
• The interest you can expect your deposits in a Chinese savings account to accrue is about 3%, while consumer prices are rising by about 4.6% - so you can expect to lose by saving in terms of real returns on investment.
• Japanese households are sitting on $18 trillion in savings

Follow me after the jump, and we'll get into the weeds (but not as far as the Economist does...)

Three Cool Stories for your mid-week CI hangover:

I don't want to start thinking I have a place blogging original thoughts. I want to retain the niche of exploring our favorite section of our favorite weekly and maybe get us all interested and a little bit better educated along the way (anybody else suddenly dropping terms like "convertable preference shares" this week?)

But in my limited reading time, and with some help from a friend, I came across these this week (although one is not from this week...) and thought you all might find them interesting. The first is an article from the New Yorker about Chinese stocks and the shadow companies they represent. China, the much feared economic juggernaut, treads fearlessly into our sacred world of capitalism with some good ol' book cooking. Fast learners.

The second was a superb radio clip from NPR's Marketplace about subsidies in the Middle East as a palliative for unrest. This phenomenon has started to really grab my interest, as countries like Yemen and Iran wrestle with how much of their public budgets should go to subsidizing prices on gasoline or bread. The IMF has made reduction of subsidies a tenet of many of its programs, but the social response may be untenable for regimes in the region.  An example of the use of IMF conditions relevant to subsidies can be found here, and a great treatment on Yemen's economy that highlights the paradox of subsidies that makes them difficult to stop can be found here. I also recall seeing an article on subsidies in Iran being the barometer for the political climate in country - I'll see if I can find it. This issue is ripe for a masters thesis.

Finally, an article provided to me by a friend (Patrick, I'm looking at you buddy) that reminds us that the winds of change can be transformative, but gradual. By the time the sky falls, we wonder how it happened. This one is short, and probably the best thing you've read today.

I know I need to get this week's version out soon, and probably stick to a schedule, but like you, I work full time, have a significant other (although she seems to be ignoring me these days for business school) and I have a dreadful addiction to terrible sports teams. (A 9-1 loss by Colorado to Calgary pretty much sums it up). This week's hopes rest with another George Mason win at Northern Iowa. I also, probably like you, dread the thought of actually sitting down and actually doing the writing it takes to keep this up - I am not, unfortunately, endowed with a furor scribendi. I'm off to see Robert Kaplan at SAIS (I know, I know...) so we'll catch up later.