Friday, October 27, 2006

NCAA's Tax-free Lifestyle Operating Football and Basketball Factories at Colleges

From George Will's new column in today's Washington Post:

What is the place of high-stakes football in higher education? Only 55 percent of football players and 38 percent of basketball players at Division I-A schools graduate.

Republican Rep. Bill Thomas wrote, as chairman of the tax-writing Ways and Means Committee, an eight-page letter to the president of the National Collegiate Athletic Association, asking awkward questions. Thomas wonders how, or whether, big-time college sports programs, which generate billions of tax-exempt dollars -- CBS pays the NCAA an annual average of $545 million, mainly for the rights to televise the March Madness basketball tournament -- further the purposes for which educational institutions are granted tax-exempt status.

Some say the tax-exempt status of college sports is justified by the fact -- and it is a fact -- that successful sports teams often trigger increased applications for admission, and largess from alumni and legislatures. But, Thomas notes, "federal taxpayers have no interest in increasing applicant pools at one school opposed to another." Furthermore, athletic success that causes a surge of giving to universities might decrease giving to worthy charities.

Also, tax exemption is financing an escalation of coaches' salaries. More than 35 college football coaches are paid more than $1 million annually.

The University of Michigan, which has had 198 consecutive sellouts at its stadium -- it now seats 107,501 -- is spending $226 million to add 3,200 luxury seats and 83 suites. The University of Texas at Austin is spending $150 million to add 10,000 seats to its current 85,123 capacity. These may be sound commercial decisions, but why should this commerce be tax-exempt?

Arbitrage on Eagle Coin Sets?

American Eagle 20th Anniversary Silver 3-coin sets are available from the US Mint for $100 + $4.95 shipping.

These exact same coin sets are selling on
Ebay for $160 - $175, + $5-$10 for shipping.

The only difference is that coins on Ebay are available immediately, and the coins from the Mint will be shipped in early December. But being willing to $60-$75 extra for delivery in November vs. delivery one month later in December for $100, is about a 720%-900% annual interest rate. Annualized interest rates at Paycheck Advance operations are often less than that, see
some rates here, showing that 14-day rates are "only" 460% on an annual basis.

Arbitrage profits anyone? You can purchase up to ten sets from the US Mint!

New Homes: Good Time to Buy, Save $40k vs Feb

The median price for new homes sold in September ($217,100) was 9.7% below last September's median price of $240,400, which is the largest percentage year-over-year drop in median home prices since December 1970! The median price home in September 2006 fell to about the same as the median price two years ago in August 2004 ($218,100). The median price for new homes peaked in February 2006 at $250,800, and new home prices have fallen by almost $40,000 in the last seven months!

Unit sales have fallen by more than 14% over the last year, and the "months supply"of new homes has increased (months supply is the ratio of new houses for sale to new houses sold).

The information above is from the monthly report on new home sales
from the Census Bureau. Monthly reports on existing-home sales come from the National Association of Realtors. According to the Realtors report earlier this week, the median price for an existing home was $220,000 in September, 2.2 percent below last September's median price of $225,000.

Therefore, you can now buy the median priced new home for $217,100, which is almost $5,000 cheaper than buying the median priced existing home!

Thursday, October 26, 2006

Big Worries for Big Oil?

From today's WSJ, a staff editorial on oil companies, profits and oil prices:

Our favorite headline this week has to be "Big Worries for Big Oil," reporting that oil company profits are under pressure as oil prices decline. Exxon Mobil, Royal Dutch Shell, BP and other members of the vast energy conspiracy may have a hard time keeping their run of profit growth going now that oil prices have fallen to $60 or so a barrel from upwards of $80.

Imagine that: Oil companies are subject to market forces. They may make big profits when the price of oil rises, but those profits invariably fall back down to Earth when oil prices decline. This is also what happened in the 1990s, as oil crashed below $20 a barrel after the heights reached in the 1970s. The companies and their shareholders swallowed those declines, as they should have.

This cycle is typical of commodity markets, and is part of the risk of doing business. The run-up in oil prices over the past couple of years was rooted in worries about supply related to hurricanes, Middle East tensions and low stockpiles, as well as growing demand in a strong global economy and the Federal Reserve's easy money policy. As supply fears and demand have ebbed and the Fed has tightened, prices have fallen back down, albeit still to higher levels than a decade ago.

The recent price decline is also proof of the folly of a "windfall profits" tax or similar punitive measures against Big Oil favored by so many politicians. Only this week, however, Democratic Leader Nancy Pelosi repeated her pledge to soak the oil companies if her party takes over the House next month.

Her policy seems to be that when oil prices decline, oil company shareholders must absorb all the market risk and the lower profits. But when oil prices rise, the companies must hand over a cut of their profits to Members of Congress to spend as they like. The only "windfall" is for the political class.

Michigan: Single State Recession?

From today's WSJ, an editorial about Michigan's economy and upcoming election for governor, written by Michigan resident Shikha Dalmia of the Reason Foundation.

That Michigan has become the Mississippi of the Midwest is no secret (actually, Mississippi is doing better than Michigan right now). While the rest of the country is experiencing real overall growth of 3.2%, Michigan is in a single-state recession. Its unemployment rate, at 7.1%, is twice the national average; it was the only state last year not hit by a hurricane to lose jobs. Personal per capita income is 7% below the national average. Home foreclosure rates have doubled this year. And over the last four years, 200,000 economic refugees have left the state, a trend that will only accelerate as the ongoing downsizing of the Big Three forces other auto-related industries to lay off workers.

The fundamental reason why not a single non-U.S. auto maker like Honda and Toyota has ever opened a major plant in Michigan -- notes David L. Littmann, a senior economist at the Mackinac Center for Public Policy -- is not a lack of these offices (MP: Devos' plan to make Michigan globally competitive involves opening offices in 10 countries to promote trade and tourism), but that it costs too much to generate wealth in this state.

Thanks to the strong union presence, Michigan's labor costs relative to productivity are the second-highest in the nation. Normally, an economy might adapt to such realities by "diversifying" -- to use a buzz word that both candidates bandy -- into non-unionized service industries. But Michigan's onerous combination of redistributive regulations and high taxes has prevented even this from happening, making it more vulnerable to the imploding auto industry.

Lesson on Opportunity Cost: Professor Gatemouth

I think blues guitarist Clarence Gatemouth Brown understood opportunity cost, based on his song "My Time is Expensive." Here are the lyrics:

My time is expensive, baby.
I'm tryin' to make it last.
My time is expensive, baby.
I'm tryin' to make it last.
If we're going to get together,
We better do it fast.

Listen yoself here:
My Time is Expensive by Clarence Gatemouth Brown, R.I.P.

Happy 25th Anniversary, HP-12C Calculator

In 1981, Hewlett-Packard introduced the HP-12C financial calculator, and it became the standard financial calculator used by financial anlaysts, mortgage bankers, stock analysts, bond traders, accountants, real estate brokers, MBA students, finance and accounting majors, etc.

The HP-12C orignally sold for $150, it now
sells for $70.

The goal of developing the 12C was to have a sophisticated programmable financial calculator, that would be small enough to fit in a shirt pocket, would have long battery life and would meet the HP "drop test" - the ability to withstand a fall from a desktop onto a concrete floor. HP worked with several researchers with Ph.D.s in numerical analaysis, mathematics, electrical engineering and computer science to develop the 12C.

The decision was made, for the ultimate mathematical and computational efficiency, to use RPN (Reverse Polish Notation) for data entry, instead of the traditional algebraic entry. For example, instead of 2 + 2 = 4 (algebraic entry), RPN entry would be 2 ENTER 2 + (mathematical operation comes last). Although mathematicians and engineers were comfortable with RPN, HP was concerned that finance professionals would have trouble accepting RPN, but the calculator became a huge success, and is still used widely today.

In 2003, HP introduced the
Platinum 12-C that uses either RPN or algebraic. Although once you learn RPN, I can guarantee that you will NEVER go back to algebraic, it is TOO slow.

For the 25th anniversary of the 12C, HP recently introduced a
limited edition 12C model for $80, with both RPN and algebraic, with a beautiful leather case.

Here is
HP's backgrounder on the 12-C.

Here is an
explanation of RPN.

BTW, I own 2 original 12Cs, one platinum 12C, 2 two of the new 25th anniversary 12C, one HP 10B and one HP 10BII.

Wednesday, October 25, 2006

Happy 5th Anniversary, Economic Expansion

As we celebrate the 5th anniversary of the iPod in October, let's also get ready to celebrate another important upcoming 5th anniversary: In November, it will be the fifth anniversary of the current economic expansion, which started in November 2001. The National Bureua of Economic Research is the offical national authority on business cycle dates, see its official business cycle reference dates here, back to before the Civil War.

The last record-setting 120-month economic expansion lasted from March 1991 to March 2001, and the last recession lasted 8 months from March 2001 to October 2001. Then the current economic expansion started in November 2001, and therefore November 2006 will mark the 5th anniversary of this expansionary phase of the business cycle.

The average economic expansion is 52 months, so the current 60-month expansion is already longer than average. And we are half way to the 120-month record of the last expansion.

Happy 5th Birthday, U.S. Economic Expansion!

Latest Asian Economic Tiger: Vietnam

From today's NY Times, an article about Vietnam's roaring economy:

In the three decades since Vietnam has gone from communism to a form of capitalism, it has begun surpassing many neighbors. It has Asia’s second-fastest-growing economy, with 8.4 percent growth last year, trailing only China’s, and the pace of exports to the United States is rising faster than even China’s. Through the end of last year; Vietnam’s growth rate exceeded that of Thailand, Malaysia, Taiwan, South Korea and even India, its closest rival.

American companies like Intel and Nike, and investors across the region, are pouring billions of dollars into the country; overseas Vietnamese are returning to run the ventures.

The Vietnamese government, like China’s, has embraced capitalism after becoming disillusioned with the widespread poverty and sometimes hunger that accompanied tight state control of the economy. Economic liberalization policies have been pursued in earnest since the early 90’s, after poor harvests and economic mismanagement left millions facing malnutrition in 1990.

Bottom Line: The biggest difference between capitalism and socialism is this: Capitalism works.

Congressional Price Gouging?

From Walter E. Williams' latest column:

The Washington-based Institute for International Economics has assembled data that show that tariffs and quotas on imported sugar saved 2,261 jobs during the 1990s. As a result of those restrictions, the average household pays $21 more per year for sugar. The total cost, nationally, sums to $826,000 for each job saved. Trade restrictions on luggage saved 226 jobs and cost consumers $1.2 million in higher prices for each job saved. Restrictions on apparel and textiles saved 168,786 jobs at a cost of nearly $200,000 for each job saved.

You might wonder how it is possible for, say, the sugar industry to rip off consumers. After all, consumers are far more numerous than sugar workers and sugar bosses. It's easy. A lot is at stake for those in the sugar industry, workers and bosses. They dedicate huge resources to pressure Congress into enacting trade restrictions.

But how many of us consumers will devote the same resources to unseat a congressman who voted for sugar restrictions that forced us to pay $21 more for the sugar our family uses? It's the problem of visible beneficiaries of trade restrictions, sugar workers and bosses, gaining at the expense of invisible victims -- sugar consumers.

We might think of it as congressional price-gouging.

Tuesday, October 24, 2006

Best Jazz on the Internet

For the best jazz radio on the Internet, actually the best jazz radio on the planet, check out Minneapolis station KBEM-FM Jazz 88 here.

Are Oil Prices and Gas Prices Related?

A few weeks ago, I had a nationally distributed op-ed on the "gas price conspiracy," where I made the claim that the main economic reason that gas prices have come down is because crude oil prices have come down. Seems simple and obvious.

Here is what I wrote: "The simple truth is that changes in the world price of crude oil account for nearly all changes in the retail price of gasoline -- and so recent international events such as an easing of tensions in the Middle East and growing inventories of oil exerted substantial influence in reducing both oil and gasoline prices -- exactly what textbook economics tells us to expect."

Here is a question from a reader in San Diego:
I read your editorial in the San Diego Union Tribune. Interesting stuff. You make the claim that gas prices have come down because the price of crude has come down. My question is this: Since crude prices have come down ~25% and since the price of crude accounts for ~50% of gas prices, why aren't gas prices in the $2.60 range? How do you account for this discrepancy?
I sent the reader the chart above that shows graphically very clearly the direct relationship between crude oil prices and retail gas prices.

iPod 5 Years Later

On October 23, 2001, Apple announced in this press release its introduction of the ipod for $400 retail, holding 1,000 songs on a 5 GB hard drive, that could only be used with a Mac. Steve Jobs said at the time, “With the iPod, listening to music will never be the same again.”

Five years later, for less money (
$332 at BestBuy), and for use on a Mac OR PC, you can get an 80 GB iPod that holds 20,000 songs and plays movies! A 4GB iPod comparable to the original iPod holding 1,000 songs now sells for $189 at BestBuy.

Things get better and better and cheaper all time time, remember when VCRs cost $1200? Probably not, if you were born after 1975 or so.

See CafeHayek for more on this: how does BLS handle this significant price decrease and significant quality improvement?

Monday, October 23, 2006

Tigers Win Game 2, ¡Viva los Tigres!

Pudge Rodriguez (Puerto Rico) and Jim Leyland have been two of the biggest reasons for the Tigers' turnaround in the last three years.

Hispanic connection: 11 players on the Tigers are of Latino descent:

Dominican Republic: Placido Polanco, Fernando Rodney, Neifi Perez, Alexis Gomez, Ramon Santiago.

Venezuela: Carlos Guillen, Magglio Ordonez, Wilfredo Ledezma, Omar Infante.

Puerto Rico: Ivan "Pudge" Rodriguez

Mexico: Joel Zumaya (grew up in California, parents are Mexican.)

From today's WSJ, an editorial titled "Stealing Bases, Not Jobs," which highlights a recent study titled: "Immigrants, Baseball and the Contributions of Foreign-Born Players to America's Pastime." Here is an excert of the WSJ article:

On the eve of the World Series, the sprinkle has become a solid block. A new study shows that, as of Aug. 31, a whopping 23% of players on active rosters in the majors were foreign born. That's more than double the percentage as recently as 1990 and about 10 times what it was in the 1920s and '30s.

But you don't hear Americans complaining about this group of immigrants. And we're not aware of any U.S.-born hitters accusing the Red Sox home-run champion David Ortiz -- or the other Dominican players here on visas -- of stealing their job. Of course not. They get it, we all get it: Foreign players been berry, berry good to baseball.

Sunday, October 22, 2006

Chinese Cars in the US? Not Yet.

From the NY Times, an article about China's effort to export cars to the US:

Despite growing anxiety that the Chinese would quickly seek to conquer yet another important industry, it now looks as if it will be at least another several years before Chinese automakers start exporting large numbers of cars they both design and make. They had intended to start selling their own brands in the United States as soon as 2007 but have pushed off their plans by a couple of years.

And now, some Chinese auto executives admit, it could be as late as 2020 before they will be ready to take on the world auto market.

While Chinese cars are inexpensive and approaching Western levels of reliability, Chinese automakers have not yet brought their styling, safety, emissions and performance standards up to snuff, let alone their skill at marketing home-grown nameplates around the globe.

CD Exclusive: Record Low Jobless Rates in 11 States

Eleven states have set historical record low unemployment rates so far this year (through September 2006):

Alabama: 3.3% in September
Arizona: 3.7% in August
Florida: 3.0% in June
Idaho: 3.2% in March
Louisiana: 2.9% in July
Montana: 3.4% in March
Nevada: 3.6% in January
New Mexico: 4.0% in March
Utah: 2.8% in September
Washington: 4.6% in March
W. Virigina: 3.8% in January

A Google News search indicates that nobody has reported this. You read it here first on Carpe Diem!