● How Adam Smith Can Change Your Life: An Unexpected Guide to Human Nature and Happiness
By Russ Roberts
Summary via publisher (Portfolio)
Adam Smith may have become the patron saint of capitalism after he penned his most famous work, The Wealth of Nations. But few people know that when it came to the behavior of individuals—the way we perceive ourselves, the way we treat others, and the decisions we make in pursuit of happiness—the Scottish philosopher had just as much to say. He developed his ideas on human nature in an epic, sprawling work titled The Theory of Moral Sentiments. In How Adam Smith Can Change Your Life, Roberts examines Smith’s forgotten masterpiece, and finds a treasure trove of timeless, practical wisdom. Smith’s insights into human nature are just as relevant today as they were three hundred years ago. What does it take to be truly happy? Should we pursue fame and fortune or the respect of our friends and family? How can we make the world a better place? Smith’s unexpected answers, framed within the rich context of current events, literature, history, and pop culture, are at once profound, counterintuitive, and highly entertaining.
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There are many risks with blindly following models, but one of the more pernicious hazards is overlooking the problems that arise from assuming that in-sample results will hold up with out-of-sample data. The pitfalls are well known, or at least they should be. In any case, the challenge boils down to an all-too-common problem: What looks good on paper doesn’t easily translate into real-world results. Why? Any number of answers apply. For now, let’s focus on one: the data set in a given study doesn’t age well. This stumbling block arises anew this week in an article from MarketWatch that points us to an eight-year-old study that finds a reasonably strong connection between the monthly return on oil prices and the next-month’s return on the stock market.
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● The world economy: Weaker than it looks | The Economist
Growth is healthy in US & Britain. But most of the world economy is in trouble
● OPEC Oil Price Lowest Since 2010 | Wall Street Journal
The average price of OPEC oil has fallen to its lowest level since Dec 2010, just before a string of Arab uprisings pushed oil prices above $100/bbl.
● Merkel Hints at Economic Policy Shift in Germany | NY Times
As evidence grows that the German economy, the largest in Europe, is beginning to stall, Chancellor Angela Merkel expressed a growing willingness on Thursday to use government spending to stimulate growth, a possible shift in position that could ripple across the entire eurozone.
● ECB’s Nowotny: would not rule out QE perpetually | Reuters
European Central Bank policymaker Ewald Nowotny would not rule out forever a policy of quantitative easing, or printing money to buy government bonds.
● Is China’s Bubble the Next Financial Crisis? | Bloomberg
The Chinese credit boom has rapidly turned the country into one of the developing world’s most indebted, according to a new report from London’s Centre for Economic Policy Research.

Correction: An earlier version of this post noted that claims fell to an 8-year low, which is true only in terms of average monthly data–a detail that was left out previously. On a weekly basis, today’s claims total is the lowest since the week through July 19, 2014, which is the current 14-year low. Sorry for the confusion.

Earlier this week I wondered if the deteriorating state of macro in the Eurozone would eventually pinch the US economy. Some degree of blowback is likely, although for the moment there’s no sign of turbulence, according to this morning’s weekly update on initial jobless claims. It’s still early in the game for detecting signs of imported trouble from Europe. But it’s certainly encouraging to see that the US trend by way of claims looks robust as we head into a period that may be challenged with a nasty storm from abroad. Indeed, today’s numbers on new filings for unemployment benefits clearly show that positive momentum in the US labor market remains intact.
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The Federal Reserve recently introduced a new monthly measure of the US labor market—the Labor Market Conditions Index (LMCI)—and starting this week the series is available on the St. Louis Fed’s FRED database, an addition that makes it easy to download, analyze and monitor the data. Does LMCI offer deeper insight beyond what’s already available in the usual suspects, such as nonfarm payrolls and initial jobless claims? In particular, will LMCI dispense a superior set of timely and reliable signals for tracking critical changes in the US business cycle? Some analysts are skeptical—economist Tim Duy, for instance, isn’t impressed with LMCI’s debut. The acid test, of course, is evaluating the index on a real-time basis going forward. That’s going to take time. Meanwhile, let’s take a closer look at this newly minted series for some perspective.
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● German exports fall 5.8%, deepest since Jan. 2009 | MarketWatch
German exports in August suffered their biggest monthly fall since January 2009, adding to a recent spate of dismal economic indicators from Europe’s largest economy, data from the country’s Federal Statistics Office showed.
● Dollar hits fresh 2-week low in wake of dovish Fed minutes | Reuters
The dollar hit a two-week low versus a basket of currencies on Thursday, after minutes from the U.S. Federal Reserve’s last meeting prompted markets to push out expectations for the likely timing of an interest rate rise.
● Stagnation for 5 years is likely for eurozone, says Nobel laureate | Telegraph
Michael Spence says bold decisions are needed to lift the 18-nation bloc out of its moribund state
● Leading indicators: weakening Eurozone growth; stability elsewhere | OECD
Composite leading indicators, designed to anticipate turning points in economic activity relative to trend, point to a mixed outlook across major economies, characterised by weakening growth in the Euro area and stable growth in most other major economies.
● Time to Look at High Yield Again | Pimco
Given PIMCO’s view for a lower-growth global economy and subdued interest rates over the foreseeable future – an outlook we call The New Neutral – the case for high yield bonds is a compelling one, both as a tactical and strategic allocation.

The US economic trend remained positive through early October, albeit at readings near the lower range posted so far this year, according to a markets-based estimate of macro conditions. The Macro-Markets Risk Index (MMRI) closed at +7.9% yesterday (October 7). Although that’s well down from the year-to-date peak of +16.0% in late-August, the current levels are still associated with economic growth. The consistent run of positive numbers in recent history suggests that business cycle risk remains low. A decline below 0% in MMRI would indicate that recession risk is elevated. By comparison, readings above 0% imply that the economy will expand in the near-term future.
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● Growth worries grip stocks, oil | Reuters
European stock markets fell for a second day on Wednesday, pushing world share indexes back towards their lowest in six months as concern mounts over the strength of global economic growth.
● Fed’s Dudley Says Bets on Mid-2015 Rate Hike Reasonable | Wall St Journal
Federal Reserve Bank of New York President William Dudley said Tuesday the U.S. central bank can likely hold off on raising short-term interest rates until 2015 given the expected path of the economy.
● Global Growth Disappoints, Recovery Pace Uneven & Country-Specific | IMF
The IMF forecasts global growth to average 3.3 percent in 2014―unchanged from 2013―and to rise to 3.8 percent in 2015.
● US job openings at 13-year high in August | US Labor Dept
There were 4.8 million job openings on the last business day of August, up from 4.6 million in July, the US Bureau of Labor Statistics reported today.
● US Consumer credit growth decelerates to 9-mo low in Aug | Federal Reserve
In August, consumer credit increased at a seasonally adjusted annual rate of 5%.
● Bundesbank’s Weidmann Criticizes ECB’s Stimulus | Wall St Journal
German Bundesbank President Jens Weidmann criticized the European Central Bank’s decision to buy private-sector bonds and chastised France for budgetary laxness, taking a hard line against new stimulus just before high-level International Monetary Fund meetings.

It’s a perfect score for Germany’s economic reports so far this week—perfectly negative. In two days we’ve seen two macro updates for Europe’s biggest economy and in both cases the numbers were deeply disappointing. Yesterday we learned that new manufacturing orders suffered a substantially larger-than-expected decline in August, followed by today’s news that industrial output plunged 4% during that month. On a year-over-year basis, industrial activity in Germany has crumbled by 3%. It’s been clear for the past month or so that the country’s expansion was slowing, but the latest figures suggest that the deceleration is much worse than assumed.
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● German Industrial Output Drops Most Since 2009 in August | Bloomberg
German industrial production fell more than economists forecast in August in the latest sign that the outlook for Europe’s largest economy is deteriorating.
●Islamic State moves into south west of Syrian Kurdish town | Reuters
Islamic State fighters advanced into the south west of the Syrian Kurdish town of Kobani overnight, a monitoring group said on Tuesday, taking several buildings to gain attacking positions from two sides of the city.
● Has the West entered secular stagnation? | Vox
Among respondents to the latest monthly survey of the Centre for Macroeconomics, reported in this column, three out of four think not – though, on balance, they feel that policy ought to be more expansionary anyway.
● France cautions Germany not to push Europe too far on austerity | Telegraph
France has denounced the eurozone’s austerity regime as deeply misguided and issued a blunt warning to Germany and the EU institutions that demands for further belt-tightening may set off a political backlash, endangering European stability.
● Volatility returning to currency markets | Sober Look
Today the dollar gave up much of its Friday’s gains that were driven by stronger than expected US employment situation report. We haven’t seen such volatility in currency markets in some time. What happened?
● What do the protests in Hong Kong mean for global firms? | Fortune
The foreign business community is worried about the impact of a violent crackdown on protestors by Hong Kong’s police or, even worse, an order from Beijing to deploy Peoples Liberation Army troops.
● Big Banks Face Another Round of U.S. Charges | NY Times
With evidence mounting that a number of foreign and American banks colluded to alter the price of foreign currencies, the largest and least regulated financial market, prosecutors are aiming to file charges against at least one bank by the end of the year, according to interviews with lawyers briefed on the matter.