Monday, October 08, 2007

Manhattan Housing Boom

NEW YORK ( -- Despite a housing slump across the rest of the nation, home sellers in New York City are selling houses faster with the number of listings reaching a two-year low.

Prudential's Douglas Elliman reported that inventory in Manhattan fell 31.7% to 5,204 units in the third-quarter from a year-ago total of 7,623 units, while units stayed on the market for 123 days, faster than the 150 days seen in the same period last year.

Corcoran Group reported that the average (mean) price of an apartment in Manhattan jumped to $1.41 million, up 14% from the same quarter last year. Market-wide, a Manhattan apartment sold for between a median price of $815,000 and $895,000 during the three months ended September 30.

Sunday, October 07, 2007

Is the Marriage Market an Efficient Market?

UPDATE 1: Craigslist removed the original post at the link below, but here are some other links here and here that have reproduced the original post and response.

UPDATE 2: NYTimes has covered this story, see articles here and here.

Here is the opening paragraph of an actual post on New York's Craigslist, in the Personals section called "Rants & Raves":

"Okay, I'm tired of beating around the bush. I'm a beautiful (spectacularly beautiful) 25 year old girl. I'm articulate and classy. I'm not from New York. I'm looking to get married to a guy who makes at least half a million a year. I know how that sounds, but keep in mind that a million a year is middle class in New York City, so I don't think I'm overreaching at all."

Two responses follow the original post, and both invoke the "efficient markets hypothesis (EMH)":

"I was taught early in my career about efficient markets. So, I wonder why a girl as "articulate, classy and spectacularly beautiful" as you has been unable to find your sugar daddy."

"I also do believe in the efficient market theory, and am surprised that $500k hasn't found you yet. There are plenty of rich lawyers, investment bankers and hedgies to go around in this city. What gives?"

The "efficient market hypothesis" assumes that there are no hundred dollar bills lying around on the sidewalk unclaimed, and would it not also imply that there should be no "spectacularly beautiful, classy and articulate 25-year old women" unattached in Mannhattan?

Actually the market for dating and marriage might not always be efficient, because it operates as a barter economy, and relys on the "double coincidence of wants," or more accurately the "double coincidence of attraction," unlike the stock market or currency trading, where barter is replaced by the much more efficient money to facilitate trading, avoiding the inefficient "double coincidence of wants."

BTW, Eugene Fama at U. of Chicago, who developed the EMH in his Ph.D. thesis in the early 1960s at Chicago, has been mentioned as a likely candidate for this year's Nobel Prize in Economics. The first 2007 Nobel Prize (medicine) will be announced tomorrow, Monday.

(HT: Sanil Kori)

Interesting Web Site of the Day

Planning a family reunion, or meeting 1-3 old friends for a weekend and looking for a place to meet in the middle to equalize travel distance for everybody?

HappyMedian allows a user to enter 2 to 4 towns representing each person wishing to meet, via zip code, or a city-state combination. HappyMedian then finds the most fairly equidistant towns between those entered, and then provides a list of various types of places to meet, from restaurants and bars, to coffee shops and lodging.

What next?

NYC Teachers Have a "Jobs Bank" Too

From the NY Post article "Why Is The City Paying 757 People To Do Nothing?"

It's all in a day's work on the city payroll.

For seven hours a day, five days a week, hundreds of Department of Education employees - who've been accused of wrongdoing ranging from buying a plant for a school against the principal's wishes to inappropriately touching a student - do absolutely no work.

The Post has learned that the number of salaried teachers sitting idly waiting for their cases to be heard has exploded to 757 this year - more than twice the number just two years ago - at a cost of about $40 million a year, based on the median teacher salary.

The city pays millions more for substitute teachers and employees to replace them and to lease rubber-room space.

Meanwhile, the 757 - paid from $42,500 to $93,400 a year - bring in lounge chairs to recline, talk on their cellphones and watch movies on portable DVD players, according to interviews with more than 50 employees.

MP: One of the problems is that NYC's public schools are a monopoly, with unionized employees, so heavily regulated that it's sometimes impossible to fire even dangerous teachers. Here are the illustrated procedures required to fire an imcompetent union teacher in NYC.

Picture of the Day: More Bad, Bad Grammar

Another example above of bad, bad grammar that you see everywhere. For an explanation of why this is wrong, go here.

I think most Wal-Mart stores actually have correct grammar for their express lane signs ("Everyday Correct Grammar"), unlike Target, which has this one wrong and has bad, bad grammar in its stores.

Free Market Leads to Lower Ticket Prices for MLB

Sites like StubHub may let people sell some World Series tickets for eye-popping prices. But letting the free market work actually leads to cheaper prices for fans.

The fact that there are services like StubHub increases the supply of tickets that can be sold on the secondary market, thus lowering the price.

It also helps that this year, Major League Baseball and more and more states around the country are finally acknowledging that it is in everyone's best interest to have a true transparent secondary market for ticket sales.

Baseball ticket sales on StubHub soared, and the site is now on pace to sell 5 million tickets this year alone, after selling a total of 5 million tickets in its first six years of existence.

The deal with baseball was beneficial enough to StubHub that it gave the sport something it never granted other teams or sports in its sponsorship deals -- a cut of the 25 percent combined commission that StubHub gets from the buyer and seller when a ticket is sold.

Read the full article here from CNN Money: Why $75,000 Playoff Tickets Are a Good Thing

(HT: Sanil Kori)

Saturday, October 06, 2007

GM: Market Share Falling, But "Job Share" Rising?

The chart above is from the Level Field Institute's 2007 report, in which it says:

"Our car-by-car analysis also accounts for differences in market share. In other words, an automaker with 15% market share that employs 20% of U.S. autoworkers is overperforming on jobs, while an automaker with 15% market share that employs just 10% of autoworkers is underperforming."

That's a very interesting definition of "overperforming and underperforming on jobs," isn't it?

GM has a 23% market share and 29% of the autoworkers and is "overperforming on jobs?" That sounds a lot more like "ineffiency" to me. And Toyota has a 17% market share and 9% job share and is "underperforming on jobs?" That seems more like "efficiency" to me.

After all, corporations don't exist to create the maximum number of jobs, they exist to serve consumers and shareholders by producing output with the least number of employees.

Free Markets Are Good, But Foreign Firms Are Bad?

The Pew Research Center conducts a major international survey about every five years on the general public's perception of trade and globalization. The most recent study was just released, based on responses from 45,000 people worldwide in 47 countries (more than 2,000 in the U.S.).

From the study: "Overwhelmingly, the surveyed publics see the benefits of increasing global commerce and free market economies. In all 47 nations included in the survey, large majorities believe that international trade is benefiting their countries. For the most part, the multinational corporations that dominate global commerce receive favorable ratings. Nonetheless, since 2002 enthusiasm for trade has declined significantly in the United States, Italy, France and Britain, and views of multinationals are less positive in Western countries where economic growth has been relatively modest in recent years.

Just 59% of Americans say trade with other countries is having a good effect on the U.S., down sharply from 2002, when 78% believed it was having a positive impact."

Interestingly, these results are consistent with the recent trend reported in the Wall Street Journal that "Republican voters believe free trade is bad for the U.S. economy by nearly a two-to-one margin, a shift in opinion that mirrors Democratic views."

Notice in the chart above (click to enlarge), that in many countries like the U.S., Canada, UK, France, Germany, Spain, Sweden and Italy, people inconsistently express strong support for both: a) trade and b) free markets, but very weak support for "foreign companies."

In the U.S., 70% of the respondents have a favorable view of "free markets," but only 45% have a favorable view towards "foreign companies." In the U.K. and Italy, those percentages are 72% (free markets) vs. 49% (foreign companies) and 73% vs. 38%, respectively.

What's up with that? Aren't "foreign companies" an intergral part of "free markets"? Without foreign companies, we wouldn't have "free markets," we would have "closed markets" and a closed economy.

Is Wall Street Now Conducting Monetary Policy?

From Larry Kudlow's very interesting column today "Anatomy of a Fabulous Fed Flip-Flop":

On the afternoon of Aug. 7, the Federal Reserve chair was an inflation hawk -- according to the unchanged FOMC policy statement -- fearful of adding liquidity to the markets. By day's end on Aug. 9, however, he was leading the liquidity charge, initiating a process that would help unlock the credit seize-up that started in late-July.

Using the Freedom of Information Act, Ken Thomas, researcher and lecturer at the University of Pennsylvania's Wharton school, was able to get Bernanke's calendar of phone calls and meetings at the time the flip-flop occurred.

Over the next few weeks, Bernanke participated in no fewer than 35 separate conference calls with fellow Fed operatives -- a complete departure from his earlier no-conference-call style. And he got the liquidity ball rolling. As we now know, the Fed started pouring liquidity into the system on Aug. 9.

Exhibit A: See the chart above (click to enlarge) showing the significant drop in effective Fed Funds rate on August 9 to 4.68%, at a time the official target rate was 5.25%. During the entire month of August the effective Fed Funds rate was 5.02%, almost a quarter point below the official target. Simply put, the Fed implemented an unannounced "secret" rate cut to 5% in August, under pressure from Wall Street.

But is this a good outcome? Kudlow seems to think so, and says that "the academic Bernanke became a hands-on market participant through his contacts with Rubin, Paulson, the hedgies and others. He reached out to savvy financial-market players, who put him in touch with the real world."

Doesn't this call into question the concept of "central bank independence?" Most economists consider it desirable to have central bank decisions insulated from political pressure from politicians seeking short-term political goals, so that the central bank can do what is best for the economy in the long run. But shouldn't the central bank also be insulated from pressure from hedge fund managers and investment bankers on Wall Street, which is apparently exactly what happened in August? Wouldn't an official inflation target insulate the Fed from Wall Street pressure?

Comments welcome.

Friday, October 05, 2007

Picture's (Yes, I Know) of the Day: D'oh!

At this middle school in "Floriduh" there are multiple signs with this wording in its parking lots. If you have to make a grammatical blunder, at least don't make it in front of a school!

Here are a few more.....

Just wondering, are the grammar rules about the proper use of it's vs. its really that hard to learn? Isn't that something you are supposed learn in elementary school, maybe about third grade?

Rising Unemployment, But Education Pays Off

Employment rose in September, and the unemployment rate increased slightly to 4.7%, the Bureau of Labor Statistics (BLS) of the U.S. Department of Labor reported today.

AP: "The bump up in the unemployment rate from 4.6%in August came as hundreds of thousands of people streamed back into the labor market. That new rate of 4.7% the highest since the summer of 2006, is still considered low by historical standards."

The BLS also reports the unemployment by educational attainment in Table A-4 of its report, shown above in the chart (click to enlarge). Notice that the unemployment rate for those with some college has actually decreased from August to September from 3.7% to 3.4%, and has stayed the same for workers with a college degree (2.0%). For high school graduates, the jobless rate has increased by .40% from 4.3% in August to 4.6% in September, and for workers without a high school diploma the rate increased by .70%, from 6.7% to 7.4%.

Therefore, the increase in the September unemployment rate is entirely due to an increase in unemployment for workers with a high school degree or less. For workers with at least some college, unemployment rates are falling (some college, no degree) or stable (college graduates).

Yahoo Search for Foreclosures

I'm not sure how long this website has been going, but I just found the Yahoo! Real Estate website, where you can do a foreclosure search, by city and state, or zipcode. Here is a sample of some cities and the number of foreclosures currently available:

Las Vegas: 21,205
Chicago: 9,107
Detroit: 9,876
Minneapolis: 2,066
Miami: 6,614
St. Louis: 1,882
Cleveland: 8,006
Orlando: 12,448
San Diego: 7,764
Houston: 20,271

This seems like more evidence that house prices will continue to fall. Exhibit A: 21,205 foreclosed properties in Las Vegas!

Club For Growth: Symposium on Free Trade

The Club for Growth features a "Symposium on Free Trade" on its website, based on yesterday's Wall Street Journal "Republicans Grow Skeptical On Free Trade," which reported that "Six in 10 Republicans in the poll agreed with a statement that free trade has been bad for the U.S. and said they would agree with a Republican candidate who favored tougher regulations to limit foreign imports."

I was one of the six respondents who commented on the WSJ article.

Three Related Stories, Let's Connect The Dots

1. From today's Detroit Free Press article "Taxes May Hinder Attracting Businesses":

Selling Michigan as an attractive and low-cost place to do business just got a little harder.

The expansion of the state's sales tax to many service providers will raise the cost of business-to-business transactions and could hurt Michigan's enterprise reputation at a time when it can least afford it, economic development experts said Tuesday.

To be sure, the increase in taxes won't necessarily deter companies interested in Michigan. Taxes are just one of several factors that affect businesses' decisions about where to put a new factory or headquarters.

2. From today's NYTimes article "More Doctors in Texas After Malpractice Caps":

Four years after Texas voters approved a constitutional amendment limiting awards in medical malpractice lawsuits, doctors are responding as supporters predicted, arriving from all parts of the country to swell the ranks of specialists at Texas hospitals and bring professional health care to some long-underserved rural areas.

The influx has flooded the medical board’s offices in Austin with applications for licenses, close to 2,500 at last count.

“Doctors are coming to Texas because they sense a friendlier malpractice climate,” he said.

3. From U-Haul Reservations, a one-way rental from Austin, TX to Detroit, MI for a 26-foot truck is $661, and a one-way rental from Detroit, MI to Austin, TX is $1,583.

Bottom Line: Although taxes might not be the only factor for business location decisions, neither are malpractice limits for physicians' locations. But the fact that thousands of physicians are going through the trouble of moving to Texas demonstrates that taxes and regulations do play a role in business location decisions. Many physicians are actually independent, small businesses who move to where the business climate is most friendly. Making Michigan's business climate less friendly with higher taxes has to have some effect, the only question will be the size of that effect.

Given the difference in one-way truck rentals between Detroit and Austin, it sure seems like a LOT more people are moving out of Michigan to Texas, than the other way around.

Thursday, October 04, 2007

Cartoon of the Day

Trade Gridlock Would Be A Lot Better

From today's Wall Street Journal, front page article Republicans Grow Skeptical On Free Trade, "By a nearly two-to-one margin, Republican voters believe free trade is bad for the U.S. economy, a shift in opinion that mirrors Democratic views and suggests trade deals could face high hurdles under a new president."

For example, from the actual poll that was given to Republicans:

Statement A: Foreign trade has been good for the U.S. economy, because demand for U.S. products abroad has resulted in economic growth and jobs for Americans here at home and provided more choices for consumers.

Only 32% of Republicans agreed with this statement. Yikes!

Statement B: Foreign trade has been bad for the U.S. economy, because imports from abroad have reduced demand for American-made goods, cost jobs here at home, and produced potentially unsafe products.

59% of Republicans agreed with this statement. Yikes!

In another part of the poll on policy positions that a Republican president might take, 61% of Republicans agreed with the position "Favors tougher regulations to limit imports of foreign goods." Yikes!

In other words, it looks like there will be upcoming bi-partisan consensus on anti-trade, pro-protectionist policy positions. That's pretty scary when you have the Republicans agreeing with the Democrats that free trade is bad and protectionism is good. Legislative gridlock on trade would be a lot better, I agree with P.J. O'Rourke on this one. Here's what he said:

"I like legislative gridlock. What I hate is bipartisan consensus. Bipartisan consensus is like when my doctor and my lawyer agree with my wife that I need help."

More Trouble Ahead for Housing: 4-Year Decline

From today's Wall Street Journal article "Home-Price Outlook Takes Another Shot: Trading on CME Indicates a Decline Into Late 2011":

Traders on the CME expect home prices in 10 major cities to drop an average of about 10% from mid-2007 to November 2011, according to an analysis of prices for housing futures traded on the exchange.

The contracts have been trading since May 2006 but last month were adapted so that traders could bet on prices as long as 60 months into the future. The current contract prices show that traders expect prices in the Miami metro area in November 2011 to be down 28% from the mid-2007 level. The expected drops in other metro areas for the same period are 18% for Las Vegas, 12% for New York, 19% for San Diego, 26% for San Francisco and 13% for Washington, D.C. (see chart above).

MP: Below (click to enlarge) is an example of the current quotes for the Miami Housing Futures Contracts from the CME, showing November 2007 contracts trading at 251.80 and November 2011 contracts at 187.80, a -25.42% difference. If you expect Miami housing prices to fall by less than (more than) 25.42% between November 2007 and November 2001, you can take a long position (short position) on this contract and make money.

Wednesday, October 03, 2007

Michigan Committing Economic Suicide?

"The only good news from Maryland and Michigan (both raised taxes) is that these states will serve as laboratories for economic failure. In upcoming years, public policy experts will compare their economic performance to the results in states — like Rhode Island and New Mexico — that have lowered tax rates. Needless to say, it is easy to predict that the states lowering tax rates will prosper relative to the states that are increasing the burden of government."

Read the
full article here from Cato.

Japan Sweats It Out at 82 Degrees With No Suits and Global Warming Underwear

Global Warming Underwear in Japan:
NPR: Two years ago, the Japanese government instituted a new policy that has so far trimmed more than two million tons of greenhouse gases from the country's growing emissions: Get men to stop wearing suits and ties in the summer. That way, office buildings could ease up on the air conditioning, and set temperatures at 82 degrees Fahrenheit — that's seven degrees warmer than what you might find in a typical U.S. office building.

The campaign is called "Cool Biz," and generated some initial complaints from some tie-makers, but stimulated a new industry for "global warming clothing" including the "Su su suit," a one-pound suit for $500, so light you barely know you're wearing it, and "global warming underwear" (pictured above).

Read other articles about Cool Biz here and here.

Economic Conundrum: Square vs. Round Containers

Q: Why does milk usually come in a square container, while most other liquids come in round containers (water, beer, soft drinks, etc.)?

Update: Thanks for all of the comments to this question, I agree with "ty b" who said:

A: "Milk requires expensive refrigeration, so the shippers and sellers want to maximize the use of refrigerated space. The square containers do that."

That is the answer I had in mind. Milk and cream require constant refrigeration from the time of processing and packaging, during shipping, and at the point of sale, and square containers maximize the use of refrigerated space. Water, beer and soft drinks don't need constant refrigeration, and so square packaging isn't an issue. Another example of square containers is the Tropicana varieties of pasteurized "Pure, Premium" orange juice, which would also require constant refrigeration.

September Sales: Ford Falls 21%, Drops to #3 Place

DETROIT, MI-- Ford Motor Co.'s U.S. vehicle sales plunged 20% in September, despite an average of $3,074 in incentives per vehicle, vs. $802 per vehicle for Toyota, which has overtaken Ford for the #2 spot for sales so far this year (see chart above).

Actually, Ford's car sales slipped a whopping 39% in September 2007 vs. September 2006, according to AutoData, while trucks sales dropped by "only" 8.6%, Jaguars sales fell by 8.4% and Volvo dropped 13.1%. Land Rover sales increased by 21%, the only bright spot for Ford's September sales numbers.

WSJ: "The overall seasonally adjusted annual rate of sales equaled 16.23 million vehicles during the month, according to Autodata Corp. The result was reasonably better than many analysts and auto-company officials had been expecting, after August's relatively weak showing. But the latest sales pace was still well below the trend set over the course of the decade and into the early months of this year. Most analysts now expect total light-vehicle sales in 2007 to crawl to 16 million vehicles, well below the 16.7 million rate that is generally considered healthy."

Tuesday, October 02, 2007

Crack vs. Powder Cocaine, In Pictures

1. As a result of the Anti-Drug Abuse Act of 1986, Congress established different mandatory penalties for cocaine and crack cocaine, with significantly higher punishments for crack cocaine offenses. There is a 5-year minimum prison penalty for a first-time trafficking offense involving 5 grams or more of crack cocaine or 500 grams or more of powder cocaine (see top chart above) and a 10-year mandatory minimum penalty for a first-time trafficking offense involving 50 grams or more of crack cocaine or 5,000 grams or more of powder cocaine.

2. One gram of pure powder cocaine will convert to approximately 0.89 grams of crack cocaine (see middle chart above).

3. Historically, the majority of crack cocaine offenders are black; powder cocaine offenders are now predominantly Hispanic. In 2006, African-Americans accounted for 82 percent of crack cocaine-related arrests, while white and Hispanic offenders accounted for 72 percent of powder cocaine-related arrests (see bottom chart above).

Bottom Line:

1. Members of Congress might need some remedial math, especially on decimals? If 1 gram of powder cocaine = .89 grams of crack cocaine, why is the amount of crack cocaine for five years of jail time (5 grams) 100X less than for powder cocaine (500 grams)?

2. Nobel economist Milton Friedman once called the minimum wage "the most anti-black law on the books." For once I have to disagree with Milton, I think the Anti-Drug Abuse Act of 1986 is now the most anti-black law on the books. By far.

Fortunately, the
Supreme Court is considering this egregious sentencing double standard.

Value of the Dollar in 1 Year? Check Forward Rates

What's going to happen to the U.S. dollar over the next year? Stronger, weaker? The best place to find out is in the forward markets for foreign exchange, where the dollar is already trading against the currencies of about 30 countries for delivery one year from now.

According to yesterday's
one-year currency forward rates, the dollar is expected to continue depreciate over the next year, and is trading at a one-year forward discount, against 11 major currencies like the euro, Swiss franc, yen, Canadian dollar, etc. (see chart above, click to enlarge). The USD is expected to appreciate over the next year, and is already trading at a one-year forward premium against 18 currencies including the UK pound, Mexican peso, Indian rupee, etc.

Bottom Line: The fall of the USD has probably stabilized and will actually appreciate over the next year against some currencies like the UK pound, and will depreciate only mildly against many other currencies.

Monday, October 01, 2007

Stocks Surge on Possible Rate Cut, 75-80% Chance

NEW YORK (AP) -- Wall Street shot higher Monday, sending the Dow Jones industrial average above 14,000 for the first time in 2 1/2 months (closing at 14,087.55) as investors moved back into stocks at the start of the fourth quarter. The blue chip index rose more than 200 points as it surged to a new trading high.

The market grew more optimistic that the Fed might lower rates to boost the economy after a report showed that manufacturing grew in September at the slowest pace in six months.

"People are getting more confident there is going to be an October rate cut."

The Fed (FOMC) meets again on October 30-31. What are the chances of another rate cut?

1. According to Fed Funds futures contracts for November, the chances of a rate to 4.5% are about 74%.

2. According to trading on ("The Prediction Market") for the contract "Fed Funds Rate to be ON or OVER 4.75% on Year End 2007," there is only a 19.5% of that happening, indicating about an 80% of a rate cut by year end.

Weak Dollar Has Its Advantages

From today's WSJ front page article "Dollar Lifts Exporters":

As long as the dollar's decline is gradual, most economists see it as a modest plus overall.

Real exports have grown faster than real imports for nearly two years, and this trend is expected to continue. U.S. exports rose 2.7% to a record $137.68 billion in July, and stronger exports have contributed a half percentage point of added growth to GDP since 2005.

At the moment, strong foreign economies are soaking up U.S.-made goods and services.

Visits by foreign tourists to U.S. theme parks and other attractions are up, which means more bookings for hotels, restaurants and rental cars. The convention bureau in Orlando, Fla., forecasts a 3.9% increase in foreign visitors this year compared with 2006. Canada's dollar recently hit parity with its U.S. counterpart for the first time since 1976, which is why Disney recently ran ads north of the border urging Canadians to "enjoy the magic" of a strong currency by traveling to Florida.

People like James Mallon are seeing yet another dimension to the falling dollar. The 34-year-old native of Ottawa, who now lives in Ann Arbor, Mich., says he's gotten a flurry of phone calls in the past few weeks from friends in Canada who want to stay with him for weekend shopping excursions. Several asked him to accept mail-order shipments -- including a surfboard, cookware and bicycle parts -- that they'll pick up in the future.

"I feel richer for my friends," he says, "but poorer." Mr. Mallon, an engineering consultant who specializes in ergonomics, has his student loans in Canadian dollars that now cost more to pay back. And a loan of C$25,000 that he took from his parents to buy his house in 2003 has suddenly grown far more onerous. "When I took out that loan, it was the equivalent of $14,000 U.S., but now I owe them $25,000."

Economic Boom Down Under in Australia

We don't hear much about it in the U.S., but Australia is in the middle of a huge economic boom, with a record low unemployment rate of 4.3% and a record high stock market that has more than doubled in the last three years (see chart above).

Here's a report on job vacancies reaching a record high in Australia, and how "the unemployment rate is tipped to fall to a fresh historic low as bosses struggle to keep young and restless workers seeking to cash in on the commodities bonanza (coal and iron ore are Australia's two largest exports)."

Alan Greenspan praises Australia
in his new book (The Age of Turbulence) as a model of what can happen when governments deregulate their economies, crediting former prime minister Bob Hawke with "a series of significant but painful reforms, especially in labor market reform." Greenspan also pointed to the tariff reductions and the floating of the Australian dollar, which he said "sparked an amazing economic turnaround."

Another article reports that
"In the past two weeks, the International Monetary Fund and international credit rating agency Standard & Poor's have both heaped praise on the performance of the Australian economy and its economic management."

Sunday, September 30, 2007

Housing Market Continues to Soften

WASHINGTON -- Existing-home sales slipped 0.2% in July to a seasonally adjusted annual pace of 5.75 million homes, the lowest in five years, according to the National Association of Realtors (see top chart above). The median sales price dropped to $228,900, down 0.6% from the July 2006 level, which was the highest on record.

Inventories of homes for sale jumped 5.1% to 4.59 million, or about 9.6 months of supply at the current sales pace (see bottom chart above). A supply of about six months generally indicates a balanced market.

Ethanol, Schmethanol: El Mistako Muy Grande

"Everyone seems to think that ethanol is a good way to make cars greener. Everyone is wrong. The political rush to back ethanol is a mistake."

Read more of the article "Ethanol, Schmethanol" here in The Economist.

Africa Leads the World in the Creation of Red Tape

The World Bank just released its "Doing Business 2008" report, an annual study that tracks a set of regulatory indicators related to business startup, operation, getting credit, trade, payment of taxes and closing a business, by measuring the time and cost associated with various government requirements in 178 countries.

The top 10 and bottom 10 countries are displayed above (click to enlarge) for the "Ease of Doing Business Index," along with the GDP per capita of those countries. As expected, the more favorable the overall business climate, the higher the income per capital. Poor countries are poor and remain poor because they stifle private businesses, especially in Africa, which has 9 of the bottom 10 countries, and 19 of the bottom 20. Here are the complete rankings.

From the FT Times: "The U.S. may be the economic superpower, and China the new manufacturing powerhouse, but there is one industry in which Africa still leads the world: the manufacture of red tape. This year’s edition of “Doing Business" is a depressing but important reminder of what we already knew: poor countries tend to stifle their economies with impossibly burdensome regulations, while most rich countries let entrepreneurs start businesses, buy and sell property, and ship goods through customs.

Read a Business Week report here, and an article from Financial Express in India here.

Bottom Line: Wealth, income, jobs and prosperity are created by businesses that start and operate in the private sector of the economy. Business-friendly countries create wealth, income, jobs and prosperity, and business-unfriendly countries don't.

Saturday, September 29, 2007

Why "Free" Municipal Wireless Has Flopped It's hard to dislike the idea of free municipal wireless Internet access. Imagine your town as an oversized Internet cafe, with invisible packets floating everywhere as free as the air we breathe. That fanciful vision inspired many cities to announce the creation of free wireless networks in recent years. This summer, reality hit—one city after another has either canceled deployments or offered a product that's hardly up to the hype. In Houston, Chicago, St. Louis, and even San Francisco, once-promising projects are in trouble. What happened—was the idea all wrong?


Setting up a large wireless network isn't as expensive as installing wires into people's homes, but it still costs a lot of money. Not billions, but still millions. To recover costs, the private "partner" has to charge for service. But if the customer already has a cable or telephone connection to his home, why switch to wireless unless it is dramatically cheaper or better? In typical configurations, municipal wireless connections are slower, not dramatically cheaper, and by their nature less reliable than existing Internet services. Those facts have put muni Wi-Fi in the same deathtrap that drowned every other company that peddled a new Net access scheme.

Job Security? Not Really, Not In the Long Run

From "The UAW's Awakening" in today's Wall Street Journal:

"The problem with unions is not all that dissimilar to that posed by entrenched management: Once they win comfortable contracts, they often become impediments to the kind of innovation and flexibility essential to success in today's economy. So in the name of "job security," they undermine a company's -- or a nation's -- competitiveness. The result, over time, is less job security for everyone, especially the union workforce. There's no better example of this than GM, where the UAW now represents about 74,000 hourly workers, compared to 246,000 in 1994. Some security."

This is classic textbook economics, paraphrased from Gwartney and Stroup:

For a time, unionized workers enjoy higher wages and job security. In the long run, however, investment will move away from firms with low profitability (Ford and GM). To the extent that the profits of unionized firms are lower (GM, Ford), investment expenditures will flow into the nonunion sector (Toyota, Honda, Nissan) and away from unionized firms. As a result, the growth of both productivity and employment, as well as market share, will tend to lag in the unionzed sector.

The larger the wage premium of unionized firms and the greater the guarantees of job stability, the greater the incentive to shift production toward nonunion operations. Empirical evidence shows that industries and companies with the largest union wage premiums and greatest guarantees of job stability are precisely the industries and companies with the largest declines in the employment of unionized workers.

Bottom Line: Gains in the short run of higher-than-market wages and benefits, and greater job security, eventually undermine the companies employing unionized workers, destroying hundreds of thousands of union jobs in the long run. The more success a union has in the short-run, the greater the failure in the long run. The discipline of the market eventually dominates and prevails.

Music I've Been Listening To, Recommended

1. When it comes to groovin', burnin,' swingin' Hammond B3 organ jazz and blues, in the tradition of Jimmy Smith, Jimmy McGriff and Richard "Groove" Holmes, it doesn't get much better than Tony Monaco. Give him a listen on his CDs East to West, Intimately Live at the 501, Fiery Blues, or Burnin' Grooves.

2. For something a little bit unusual and off-beat, but with a great Latin jazz flavor, check out Roberto Perera, a Paraguayan jazz harpist - "In the Mood" is a great CD.

3. I've mentioned it before, but it's worth another plug - check out Pandora Radio, the Internet radio station that plays only the music you like - you pick your favorite artist(s) or favor songs, and it creates a customized radio play list with only those artists or songs that are similar in style to your favorite(s).

4. I've also mentioned
KFAI-FM in Minneapolis before. If you want to hear the very best blues on the planet, check out the afternoon blues programs: Rollin' and Tumblin' (Tues), House Party (Wed), Blueslady's Time Machine (Thursday) and Sugar Shop (Friday - blues and R&B), either live from 3-6 p.m. CST online, or anytime through the KFAI archives for up to two weeks after the live show.

Free Speech is a Messy Affair

Among Mahmoud Ahmadinejad, Andrew Meyer and Lawrence Summers, the world has been treated recently to a carnival of free expression as our most treasured right was exercised on university campuses.

Or wasn't. Depending.

Three individuals trying to exercise freedom of speech in three different university environments with three different results. The one with the greatest credibility (Summers) was censored. The one whose regime restricts academic freedom and imposes censorship was given a forum. The one whose participation in the free speech experiment arguably counts the most -- the student -- was physically punished.

Read more here.

Friday, September 28, 2007

Forbes 400 as a Lesson in the Invisible Hand

The Forbes 400 As a Lesson in Economics:

Of the charter members of the first Forbes 400 in 1982, only 32 remain today. Far from a country where only the rich get richer, the wealthy in the US are very much a moving target. While there are 74 Forbes 400 members who inherited their entire fortune, 270 members are entirely self-made. Though many attended Harvard, Yale and Princeton, there are countless stories within of high school and college dropouts, not to mention others who grew up extremely poor. Politicians who regularly engage in class warfare would do well to keep the Forbes 400 out of the hands of their constituents, because it makes a mockery of the kind "Two Americas" rhetoric suggesting the existence of a glass ceiling that keeps hard workers at the bottom of the economic ladder. To read the Forbes 400 is to know with surety that the U.S. is still very much the land of opportunity.

To read many business journalists today, one might assume that the U.S. economy is stratified, offers little room for advancement, and that those at the top are impervious to market forces while enjoying market power that enables them to fleece the less fortunate. Thanks to the lessons offered up yearly in the Forbes 400, we know the opposite is true. Successful people are that way because they make our lives exponentially better, while yearly dropouts from the Forbes list frequently offer evidence showing that consumers punish those who falter. For that, we should be glad that the Forbes 400 goes against the conventional grain and celebrates successful American enterprise.

Here's the
Forbes 400 article.

Bottom Line: Consumers ultimately determine the Forbes 400 list with their dollar votes in the marketplace. If you want to get on the list next year or in the future, first figure out some way that you can significantly improve the lives of millions of consumers and you might have a chance.

Socialism Works, But Only if You Know Their Names

I'm attending a Free Market Forum at Hillsdale College featuring Robert Barro from Harvard, James Gwartney of Florida State (author of the textbook I use for economics), Alan Reynolds of Cato, Mary Anastasia O'Grady of the Wall Street Journal, Walter Williams from George Mason among others.

After Walter Willams' dinner speech last night, Robert Barro asked a question about whether the government had any obligation to provide any socialist-type safety-net programs for the general good.

Walter responded something like this. "Let me make this perfectly clear. I support and practice many types of socialist programs including income redistribution, welfare payments, disability support, free health care, and social saftey nets. But I only practice socialism IN MY OWN FAMILY; and socialism like this only works when you know the names of the people involved. In any situation when you personally can't name everybody involved, then the market is superior to socialism."

Bottom Line: Within a family, socialism works much better than the market. Outside of a family, the market usually works much better than socialism. Good point, Walter!

Thursday, September 27, 2007

If GM Can't Buy and Sell Globally, Why Should UAW?

Washington Post: "The UAW got the assurances it wanted that GM would invest in building new products in the United States, thereby providing job security for members."

Detroit News: "The contract offers assurances from GM that it will continue to invest in its U.S. factories and maintain union jobs."

Just wondering, wouldn't it be fair then to ask UAW members to:

1. Agree to not take any vacations out of the U.S. or engage in any foreign travel to maintain U.S. tourism jobs.

2. Agree not to make any investments in stock or bonds outside the U.S.

3. Agree not to wear any foreign-made clothing, thereby providing job security for American apparel workers.

4. Agree not to eat any foreign-produced food products like bananas or coffee, to maintain U.S. agricultural jobs.

5. Agree not to watch any foreign-made movies, read any books by foreign authors, or listen to any foreign music.

In other words, if the UAW wants to restrict GM's ability to invest, buy and sell globally, shouldn't UAW workers agree to the same restrictions?

India's Stock Market Rocks; New High Above 17,000

NEW YORK (Associated Press) - India's benchmark stock index crossed 17,000 for the first time Wednesday after zooming up 1,000 points in just six sessions since the U.S. Federal Reserve cut its key interest rate last week. That's the fastest ever 1,000-point gain for the Bombay Stock Exchange's 30-share Sensex. The index took 51 trading sessions to get from 15,000 to 16,000 (see chart above).

The benchmark index has risen 22% this year - and 6 percent in the past week - as foreign investors have pumped money into the market amid brisk economic growth that is averaging about 9% annually the last couple years.

Here's another report
on India's red-hot stock market, with a timeline on the rise of the Sensex through Indian stock market history back to 1990, when the BSE closed above 1,000 for the first time.

(HT: Sanil Kori)

Wednesday, September 26, 2007

For the American Car Buyer, It's Never Been Better

From today's Wall Street Journal:

"Over the decades that the Big Three have struggled with their American operations, foreign auto companies have rapidly established and expanded U.S. production through foreign direct investment.

Broaden the view even more, to all American consumers, who have benefited greatly from the global engagement of the U.S. auto industry. The easiest way to see this is to visit any parking lot. The tally this morning outside my office? Five Big Three vehicles and 10 foreign-company vehicles. At the national level, in 1980 the Big Three had 73% of the U.S. automobile market. In recent months this share has slipped below half.

Thanks to all the competition among the Big Three and foreign companies, consumers have enjoyed massive innovation, new variety -- and lower prices. From 1990 through 2006, the overall U.S. consumer price index rose 53%. The rise in the autos CPI component? Just 13.4% (see chart above)."

MP: We hear a lot of bad news for U.S. automakers, especially in Michigan, e.g. about the decline of the Big Three's market share, the huge losses suffered by GM and Ford, the decline in UAW membership, the $90 billion in health-care benefits the Big Three owe to hundreds of thousands of union retirees, etc.

What we don't hear as much about though is the good, great, and even spectacular automotive news for U.S car buyers. Consider that the CPI for new cars is the same in August 2007 (about 160) as it was in 1994 (see chart above). In other words, new car prices have been flat for 13 years, are lower today than 10 years ago, and are only 12% higher than in 1990.

American car buyers have never had it better in terms of price, quality and selection. Globalization and competition have produced a true car buyer's heaven. It might be getting worse and worse for GM and the UAW, but it's getting better all the time for the group that really counts: the U.S. CONSUMER.

UAW-GM Battle: Showdown About the Past

In the grand scheme of things, the latest installment of the UAW-GM battle has the makings of this fall's Army-Navy football game—a match between two ancient powers whose rivalry once dominated the headlines but who now play a largely symbolic role. GM and UAW—the largest American manufacturing enterprise and the nation's largest manufacturing union—brawled in bloody 1930s battles and ultimately reached an accommodation that led to a golden age. But GM and the UAW matter less and less to the U.S. economy, and the U.S. economy matters less and less to GM.

Both GM and the UAW will argue that the outcome of these contract talks is vital to the future of the U.S. auto industry. But the subject of the talks—the creation of a trust to guarantee health benefits for retirees and workers, the union's desire for job security commitments, and GM's demands for significant cost reductions so it can compete in the United States—prove that the showdown is really about the past.

Bayer Bails On the NYSE, Cites U.S. Regulations

Relieving itself of the pain of high regulation fees in the U.S., German aspirin maker Bayer left the New York Stock Exchange today. Bayer says leaving the NYSE will save more than $20 million in listing fees and accounting costs.

Bayer joins British Airways and 32 other foreign companies that have delisted from the New York Stock Exchange this year. Nine other foreign companies have announced they plan to do so as well this year. Another 20 foreign firms said this year they plan to leave the Nasdaq or have done so already.

One reason is cost. The NYSE listing fee for most foreign companies is $38,000 a year. But fees needed to comply with Sarbanes-Oxley rules and convert books to meet U.S. accounting standards can add millions of dollars in costs.

Expect the exodus to continue,
a global market expert says. "You will see more (foreign companies) delisting from U.S. markets," she says. "I'm hearing everyone in Europe discussing it."

Bottom Line: If you tax or regulate something, you get less of it.

Carpe Diem Milestones

1. Carpe Diem is now officially one year old. This was my very first post on September 20, 2006, and this is now post #1424, which is an average of 3.84 posts per day.

2. The number of visits to Carpe Diem just went over 200,000 a few days ago, view the SiteMeter statistics here.

3. Carpe Diem was just included in the "Top 100 Academic Blogs Every Professional Investor Should Read," published today by CurrencyTrading.Net.

Carpe Diem!

BIS: Global Currency Markets Explode

According to a triennial central bank survey of foreign exchange activity just released by the Bank for International Settlements (BIS):

1. Daily turnover in global currency markets rose to $3.2 trillion in 2007, which is a 71% increase since the last survey in 2004, when daily foreign exchange trading volume was $1.87 trillion.

2. The 71% increase is the largest percent jump in daily currency trading since the BIS began conducting its benchmark survey in 1989.

3. Foreign exchange trading in the U.S. increased by 44% over the last three years, from $461 billion in 2004 to $664 billion this year (see chart above).

4. Trading in financial derivatives linked to currencies soared to $2.1 trillion a day, the report said, a rise of more than 70% since 2004. Large companies are also taking a more active and sophisticated approach to managing currency exposure.

5. Currency trading in the U.K. ($1.359 trillion per day), the world's largest currency center, represented 42.5% of world currency volume, and trading in the U.S. (ranked #2 at $664 billion daily) represented about 21% of world currency volume. Together, the U.K. and U.S. account for more than 63% of the world's currency trading every day.

6. To put $3.2 trillion of daily currency trading in perspective, consider that $3.2 trillion is greater than the ANNUAL Gross Domestic Product of Germany ($2.9 trillion), China ($2.6 trillion) and the U.K. ($2.4 trillion). In the U.K., more currency is traded in London in two days ($2.77 trillion) than the value of all goods and services ($2.4 trillion) produced in the country in a year!

Read more here in today's Wall Street Journal.

Tuesday, September 25, 2007

Interesting Puzzle....

Check out the unusal, moving jigsaw puzzle, drag the pieces together to make the picture above...

Get Your Passport: Business Education Going Global

The list of items to bring to college is going to be a little longer for freshmen who enter the University of Minnesota's Carlson School of Management next fall. They're going to need to bring a passport.

The university announced Monday that starting next fall, students who enter the business school will be required to have an international experience before they can graduate. The reason is pretty simple: The business world is becoming more global.

Continue reading in today's Star Tribune....