Tuesday, January 08, 2008

The People's Car and Automotive Globalization

How about a car expected to retail for only $2,500, or about the price of the optional DVD player on the Lexus LX 470 sport utility vehicle? India's Tata Motors (NYSE:TTM) will release the world's cheapest car on Thursday, read more here in the NY Times.

Tata Motors is also the likely candidate to acquire Jaguar and Land Rover from Ford for about $2 billion.

And at the same time, Ford plans to more than double its investment in India to produce a small car for the fast-growing local market and to build an engine manufacturing plant there. Ford will likely increase spending in India by $500 million, raising its total investment to $875 million, as it focuses on making the country a regional hub for small-car manufacturing.

Bottom Line: Think about it - Ford will get about $2 billion from an Indian company for its British vehicle division, and at the same time it will invest almost $1 billion back into India for its expansion of operations there. Tata Motors will introduce the world's cheapest car, and at the same time will probably be selling one of the world's most expensive cars - Jaguar. What a flat world.

Carpe Diem on CNBC's "Kudlow and Company"

The CD graph above (from this recent CD post) was featured last night on CNBC's "Kudlow and Company." Here is a video link of the 14-minute segment, the discussion of the graph above occurs at about 4:30.

Comeback for the USD?

The USD has been gaining strength vs. the euro, and is now selling at a .54% one-year forward premium (spot rate of $1.4718/EUR and one-year forward rate of $1.4639/EUR), the highest one-year forward premium for the dollar (vs. euro) in at least several years.

Ron Paul on the Tonight Show

From last night (Monday).

For the second part of the interview, go here.

Monday, January 07, 2008

Retail Clinics and Competition Are Forcing Change

I posted recently about Target's retail health care clinics that opened recently in Minnesota and Maryland offering "quick, convenient care from a certified profession for a variety of everyday illnesses - no appointment necessary." What do primary care physicians think about this competition from retail clinics at Target, Wal-Mart and Walgreens? Any time consumer options increase and demand becomes more elastic, you can be pretty sure that status quo suppliers must be feeling some pressure from the increased competition. Here some evidence:

According to FierceHealthcare: Primary care physicians may not be sure what to do about competition from retail clinics--but this may be an option. Slowly but surely, clinics are trying new ways to make themselves flexible and accessible in ways that hadn't been common before. In Portland, for example, ZoomCare is open 362 days a year, offers evening hours, and accepts walk-in patients. Not only can they walk in, they can go online to schedule appointments and see how long their wait time will be. Zoomcare was profitable in 2007, and patient volume is growing 20 percent per quarter.

Read a related Portland Business Journal article here.

MP: Isn't it interesting that starting in the 1960s Wal-Mart pioneered an entirely new method of discount retailing and in the process broke up the old, static, stagnant retail model of high-priced department stores of that era. Perhaps the new retail model of providing low-cost retail healthcare at Wal-Mart and Target will ultimately have the same effect on the medical status quo and the AMA's cartel?

Workers Pay the Burden of Higher Corporate Taxes

Democratic front-runner Obama wants to raise corporate taxes, and taxes on capital gains and dividends. John Edwards says he will stand up to the interests in Washington that run government for the "glorification of corporate profits," as he has been regularly condemning the top six oil companies for collecting over $477 billion in profits over the past six years and often criticizing Exxon Mobil for earning $40 billion last year, the largest annual corporate profit in history.

But who actually bears the burden of higher corporate taxes? The standard assumption is that shareholders absorb the impact of higher corporate taxes, and not workers. But a new Treasury research paper, "A Review of the Evidence on the Incidence of the Corporate Income Tax," questions that assumption:

From the paper's conclusion: The incidence of the corporate income tax is an important issue for designing tax policy. Who bears the corporate income tax can affect overall conclusions about the progressivity of the tax system. Policy analysts have often made assumptions about how to allocate the corporate income tax in measuring the distribution of tax burdens.

A common assumption, based on theoretical models of tax incidence, is that capital (i.e. shareholders) bears the burden of the corporate income tax. Recent empirical work using cross-country data on corporate taxes and wages suggests reconsidering this assumption; labor may actually bear a substantial burden from the corporate income tax.

Empirical evidence from three different studies cited in the paper includes:

1. It is estimated that 61% of any additional corporate tax is passed on in lower wages in the short run, and around 100% in the long run.

2. Using cross-country panel data from the Luxembourg Income Study, it is estimated that a 10% increase in the corporate tax rate decreases annual gross wages by 7% percent.

3. The results in this paper suggest that corporate tax rates affect wage levels across countries, and that higher corporate taxes lead to lower wages. A 1% increase in corporate tax rates is associated with nearly a 1% drop in wage rates.

Bottom Line: Corporations don't pay taxes, individuals pay taxes in their roles as shareholders, workers and consumers. Higher corporate taxes translate to lower dividends for shareholders, lower wages for workers and/or higher prices for consumers. According to the empirical evidence presented in this paper, it appears that a substantial burden of increases in corporate taxes fall on the workers employed by corporations. Higher corporate taxes = lower wages.

(HT: Ben Cunningham)

Philippines: The New Destination for IT Outsourcing

In a bid to manage costs, rising salary levels, and attrition, Indian IT-BPO companies are now expanding to other low-cost destinations like the Philippines. In the last eight months, 12 tier I IT-BPO firms have set up shop in the country.

IT giant Wipro Technologies, for instance, opened a business process outsourcing (BPO) center in Cebu, one of the Philippine islands, as a part of its strategy to build global delivery capabilities.

And it is not just Indian firms that are lining up. American-based companies like IBM, Accenture and Citigroup are also present in the country.

Read more here.

Sunday, January 06, 2008

If Pitchers, Batters Both Cheat, Is It Still Cheating?

From tonight's "60 Minutes": With 354 wins, Roger Clemens is one of the best pitchers in the history of baseball. There's no question about it. But as Mike Wallace reports, there are questions now about whether Roger Clemens cheated to enhance his record and prolong his career.

At a steroid hearing in March 2005, numerous members of the House Committee on Government Reform, led by Chairman Tom Davis, R-Va., denounced performance-enhancing drugs. They offered three arguments: The drugs are illegal, they're harmful, and they're cheating.

Question: If the best pitchers in MLB like Roger Clemens are using performance-enhancing drugs at the same time that the best hitters in baseball like Mark McGwire and Barry Bonds are using performance-enhancing drugs, how can that really be cheating? Wouldn't the enhanced performance of pitchers exactly cancel out the enhanced performance of hitters, with a net effect of zero?

Inconvenient 2007 Weather: Year of Global Cooling

Exhibit A: Buenos Aires Gets First Snow Since 1918 (pictured above)

Exhibit B: The weather phenomenon La Nina will bring Canada the coldest winter in nearly 15 years.

Exhibit C: Peru has been in the grip of extremly cold weather with temperatures ranging between -22º and -15º C (July 2007). The record breaking cold spell has caused the death of 55 children under five and is responsible for over 6,000 cases of pneumonia. The Government of Peru has declared a National Emergency in 14 of the 24 Peruvian provinces as severe weather continues to sweep the country.

Exhibit D: “This has been Chile's toughest winter in the past 50 years, and the latest snow storms means less exports, job losses, less fresh vegetables and an overall negative impact for regional and local economies,” said Chile's Agriculture Minister Alvaro Rojas. Rojas added that 30 to 40 percent of citrus and 30 percent of avocados crops “can be considered as lost.”

Exhibit E: There’s snow on the ground in Johannesburg (South Africa) today (June 27, 2007), for the first time in 26 years. The Johannesburg airport shut down, hundreds of bus passengers and 20 trucks were stranded, and one man died from exposure.

Exhibit F: Following the snowiest December on record, many areas of New Hampshire got about a foot of snow on New Year's Day, with a couple of inches added during the night and a couple more likely Wednesday. December's snowfall at Concord, N.H., totaled 44.5 inches, toppling a record of 43 inches that had stood since 1876. Burlington, Vt., got 45.7 inches, far above its 17.2-inch December average, and Portland, Maine, amassed 37.7 inches for its third-snowiest December on record.

Source: "Br-r-r! Where Did Global Warming Go?" by Jeff Jacoby in the Boston Globe

Globalization's Creative Destruction and The Fate of Letter Writers in India

G.P Sawant, a professional letter writer in Mumbai for 25 years, is a winner and loser due to globalization. Mr.Sawant had made a profession out of writing more than 10,000 letters in Hindi for the poor and illiterate, who often traveled miles to the city to get letters written by him. With the telecom revolution, the price of telecommunication has dropped and his customers now use cell phones and ubiquitous telephone booths and stands. Mr. Sawant hasn't written a letter now in three years.

But the same telecom revolution that effectively killed Mr.Sawant's business has created an economic wave for his children's generation to ride. In the very years that the telecommunications revolution was squashing the letter writing business, it was plugging India into the global networks that would allow its IT industry to explode. Mr. Sawant's daughter works for India's IT giant Infosys and earns $9,000 per year, three times as much as her father did at his peak.

Read more here in the NY Times, and watch a video here.

(HT: Sanil Kori)

Cartoon of the Day and Mencken's Political Wisdom

H.L. Mencken is often regarded as one of the most influential American writers of the early 20th century. Here are some of his quotes on politics, democracy, government and elections.

1. Every election is a sort of advance auction sale of stolen goods (see cartoon above).
2. A good politician is quite as unthinkable as an honest burglar.
3. A politician is an animal which can sit on a fence and yet keep both ears to the ground.
4. Democracy is a pathetic belief in the collective wisdom of individual ignorance.
5. Democracy is also a form of worship. It is the worship of jackals by jackasses.
6. Democracy is the art and science of running the circus from the monkey cage.
7. Democracy is the theory that the common people know what they want, and deserve to get it good and hard.
8. Every decent man is ashamed of the government he lives under.
9. If a politician found he had cannibals among his constituents, he would promise them missionaries for dinner.

Read more here.

Saturday, January 05, 2008

Business is Booming at Orlando Theme Parks

The nation's economic jitters that contributed to lackluster holiday retail sales in December seemingly failed to make a serious dent in year-end travel to Central Florida as theme parks filled and hotels had few vacancies.

Large hotels in Central Florida's core tourist areas say they had no problem filling rooms during the final two weeks of December. Theme park parking lots swelled past capacity, and pedestrian concourses at Walt Disney World, SeaWorld Orlando and Universal Orlando resembled Manhattan sidewalks during rush hour.

The outpouring of tourists belied consumer concerns about an economy facing a significant housing industry slump, tightening credit markets and volatile financial markets. Hoteliers acknowledged the concerns, but those catering to the higher end of the market said they haven't seen a pullback.

Read more of this Orlando Sentinel article here.

Thursday, January 03, 2008

The Redolent Smell of Profits Crosses All Borders

From the FT article "US Studios Get Taste for Bollywood":

International investors are preparing to make an unprecedented onslaught on Bollywood this year, with several Hollywood studios and a group of London-listed funds looking to take a share of the world’s most prolific movie-making market.

Studio groups such as Sony Pictures Entertainment, Viacom – which controls Paramount Pictures – and Disney are working on new releases and partnerships that will give them an entry into India’s once closed and idiosyncratic movie industry.

Bottom Line: As developing economies like India grow and prosper, and as their middle classes emerge with increasingly higher disposable incomes, they become increasingly attractive as profitable consumer markets for firms in developed economies like the US. International trade and globalization are win-win, not win-lose as you would think from Lou Dobbs and the media. The "smell of profits" has a strong odor, penetrates globally across all international borders, and U.S. studios have picked up the redolent scent of profits in the booming Indian movie market.

Faux Populism

"You can't create a job without a business. And unless an investor finances a business, you ain't gonna have any jobs, you're not going to have a middle class, and you're not going to have any consumers. Therefore, this faux populism is a lot of crap."

Larry Kudlow on tonight's CNBC "Kudlow and Company," in reponse to the anti-investor, anti-business, pro-government faux populism and political rhetoric of Huckabee and Edwards.

Milton Friedman Debates Naomi Klein

(HT: Newmark's Door)

Is the USD Making a Comeback vs. the Euro?

Using foreign exchange data from FT.com, the chart above shows the one-year forward discount or premium of the USD vs. the euro from January 2006 to January 2008. (Mid-month rates were used for the months between January 2006 and December 2007, and yesterday's quote was used for January 2008.) After trading at a one-year forward discount vs. the euro for at least 23 consecutive months, the dollar has been selling at a one-year forward premium vs. the euro for the last two months, and is now trading at a one-year forward premium of .40%. Over the last 6 weeks, the dollar has strengthened by about 1.5% vs. the euro in the spot market.

Homo Politicus: The Strange and Scary Tribes...

It's a land where things are often not what they seem — at least to outsiders. They are, in fact, the opposite of what they seem. In his new book, "Homo Politicus: The Strange and Scary Tribes that Run Our Government," Dana Milbank describes this place as Potomac Land, also known as Washington, D.C.

'Potomac Land' Speak Select phrases, followed by their English equivalents:

"You're doing a heckuva job."
You will be fired in ten days.

The following statement is false.

"You are either with us or against us."
You are against us.

"The senator will deliver a major policy address."
The senator is desperate to get on television.

And my favorite:

"I will continue to do the people's business."
I expect to be indicted.

From a story this morning on NPR.

Wednesday, January 02, 2008

The Coen Brothers' Green Guilt and Their Purchase of Eco-Indulgences: The Eco-Extortion Scam

The credits of the Coen brothers feature film "No Country for Old Men" state that the film's production was "carbon neutral," thanks to carbon-offset credits purchased through Native Energy.

From the September 2007 LA Times article "Can You Buy a Greener Conscience?":

The race to save the planet from global warming has spawned a budding industry of middlemen selling environmental salvation at bargain prices. The companies take millions of dollars collected from their customers and funnel them into carbon-cutting projects, such as tree farms in Ecuador, windmills in Minnesota and no-till fields in Iowa.

In return, customers get to claim the reductions, known as voluntary carbon offsets, as their own. For less than $100 a year, even a Hummer can be pollution-free -- at least on paper.

Driven by guilt, public relations or genuine concern over global warming, tens of thousands of people have purchased offsets to zero out their carbon impact on the planet. Beneath the feel-good simplicity of buying your way to carbon neutrality is a growing concern that the idea is more hype than solution.

In this related commentary "Carbon Offsets: Eco-Extortion, Green Guilt, and the Selling of Indulgences," Frank Pastore writes:

The selling of “voluntary carbon offsets”—eco-indulgences—is a $55 million per year industry, involving over three dozen companies worldwide. Total sales are anticipated to double both this year and next, and entrepreneurs are clamoring all over themselves for a piece of the action.

And it’s all a scam.

Yes, the money is very real, but the alleged benefits to the environment are fake. Paying someone to plant a tree to “offset” the carbon footprint of your SUV is just plain silly. Yet there are thousands of people spending real money on these kind of indulgences every day.

Why? The answer is that it’s part green guilt, part eco-extortion, and part just plain novelty.

MP: Both articles point out this part of the scam: Native Energy and other companies selling eco-indulgences often contribute only 1% of the total cost of windmill projects and alternative energy plants, yet they claim and sell 100% of the carbon reductions.

Oil Less Than $70 Per Barrel in 2015?

Oil for delivery in December 2015 is trading on the NYMEX for $88.33 per barrel. Assuming a 3% average annual inflation rate over the next 8 years, that means that oil in 2015 is trading for only $69.72 per barrel in today's dollars.

Is A Recession Looming on the Horizon in 2008?

I say NO in this commentary that has appeared nationally in these papers (circulation in parentheses):

JANUARY 2 — AKRON BEACON JOURNAL (141,073) / Op-Ed “Our economy is strong”

JANUARY 2 — ROCHESTER (MN) POST-BULLETIN (42,391) / Op-Ed “Key indicators show few signs of financial trouble ahead”

JANUARY 1 — KANSAS CITY STAR (261,776) / Op-Ed “No, a recession isn’t looming in 2008”

JANUARY 1 — COLUMBUS DISPATCH (259,000) / Op-Ed “Global economy will keep U.S. economy vibrant”

JANUARY 1 — JANESVILLE (WI) GAZETTE (26,682) / Op-Ed “Expanding global economy will keep U.S. economy humming”

DECEMBER 31 — AUSTIN AMERICAN-STATESMAN (183,952) / Op-Ed “Despite pressure, America’s economy will remain strong in 2008”

DECEMBER 31 — CHARLOTTE OBSERVER (232,000) / Op-Ed “U.S. economy is resilient enough to handle changes”

DECEMBER 29 — YOUNGSTOWN (OH) VINDICATOR (64,763) / Op-Ed “We’re thriving in this economy”

2008: 100% Chance of Alarm About Global Warming

Science columnist John Tierney's prediction in today's NY Times:

In 2008, your television will bring you image after frightening image of natural havoc linked to global warming. You will be told that such bizarre weather must be a sign of dangerous climate change — and that these images are a mere preview of what’s in store unless we act quickly to cool the planet.

Unfortunately, I can’t be more specific. I don’t know if disaster will come by flood or drought, hurricane or blizzard, fire or ice.

Tierney also writes about the "availability entrepreneurs: the activists, journalists and publicity-savvy scientists who selectively monitor the globe looking for newsworthy evidence of a new form of sinfulness, burning fossil fuels."

When the Arctic sea ice last year hit the lowest level ever recorded by satellites, it was big news and heralded as a sign that the whole planet was warming. When the Antarctic sea ice last year reached the highest level ever recorded by satellites, it was pretty much ignored. A large part of Antarctica has been cooling recently, but most coverage of that continent has focused on one small part that has warmed.

When Hurricane Katrina flooded New Orleans in 2005, it was supposed to be a harbinger of the stormier world predicted by some climate modelers. When the next two hurricane seasons were fairly calm — by some measures, last season in the Northern Hemisphere was the calmest in three decades — the availability entrepreneurs changed the subject. Droughts in California and Australia became the new harbingers of climate change (never mind that a warmer planet is projected to have more, not less, precipitation over all).

Maybe CEOs Like Jack Welch Are Underpaid?

Aren't CEOs overpaid? Here's part of George Mason economist Walter Williams' column today:

What about complaints about CEOs earning so much more than the average worker? Before looking at CEOs, let's look at another area of huge pay differences. According to Forbes' Celebrity 100 list, Oprah Winfrey earned $260 million. Even if her makeup person or cameraman earned $100,000, she earns thousands of times what they earn. Among the celebrities earning hundreds or thousands of times more than the people who work with them are: Steven Spielberg ($110 million), Tiger Woods ($100 million), Jay Leno ($32 million) and Dr. Phil ($30 million). According to Forbes, the top 10 celebrities and athletes earned an average of $116 million in 2004 compared to an average of $59 million earned by the top 10 corporate CEOs.

When Jack Welch became General Electric's CEO in 1981, the company was worth about $14 billion. Through hiring and firing, buying and selling decisions, Welch turned the company around and when he retired 20 years later, GE was worth nearly $500 billion. What's a CEO worth for such an achievement? If Welch was paid a measly one-half of a percent of GE's increase in value, his total compensation would have come to nearly $2.5 billion, instead of the few hundred million that he actually received.

Bottom Line: You could probably make a stronger case that Jack Welch was underpaid and exploited by his shareholders and GE's Board of Directors than making a case that he was overpaid as a CEO.

Tuesday, January 01, 2008

Do U.S. Companies Overlook Labor Arbitrage Here?

Fact 1: The size of the global outsourcing market is estimated to be $310 billion in 2008, driven primarily by the endless pursuit of U.S. MNCs looking for low-cost labor any where in the world it is available and ultimately seeking greater corporate profits. Most offshore outsourcing efforts save 15-20% when all costs are considered, representing a form of "labor arbitrage" generated by the wage gap between industrialized and developing nations.

Fact 2: According to the National Organization for Women, full-time women workers in the U.S. are paid an average of 77 cents for every dollar men are paid. Women of color are short-changed even more, with African-American women paid only 71 cents and Latinas just 58 cents on men's dollar. These wage gaps stubbornly remain despite the passage of the Equal Pay Act more than 40 years ago, and a variety of legislation prohibiting employment discrimination.

Questions: If the wage gap in the U.S. exists primarily because of discrimination and U.S. companies could immediately save 23-42% by exclusively hiring women, why would they overlook this "labor arbitrage" opportunity and profitable wage gap right in their own back yard? In other words, why would U.S. companies go to the other side of the planet to hire low-cost workers in Bangalore, to take advantage of a 15-20% wage gap and exploit labor arbitrage in India, when they could exploit labor arbitrage and a wage gap right here in the U.S.?

Demise of Newspapers; Outsourcing to the Rescue?

It's a grim new year for newspapers. As yet another rough quarter draws to a close, we witness the closing of a venerable Midwestern journal, The Cincinnati Post, after 126 years of publication, as well as an alarming new trend: the outsourcing of advertising responsibilities to India.

Read more here.

World Stock Market Boom 2007

According to world stock market capitalization data available from Global Financial Data and the World Federation of Exchanges, more than $9.5 trillion of stock market value was created from January-November 2007, an historical record for that period (see chart above).

Bottom Line: Despite $100 oil, a subprime crisis, a somewhat weak U.S. stock market, and constant worries about a U.S. recession, the $9.5 trillion increase in world stock market capitalization during the first 11 months of 2007 was almost as much stock market value as was added in the global bull market, Dot.com years of 1995, 1996, 1997 and 1998 COMBINED. The global economy and the global stock markets are alive and well.

2007 Bull Market in the Emerging Markets

Chart above (click to enlarge) is based on 2007 stock returns for the emerging markets, in USD, from MSCI. Note that the return for the US market was 4.1%, measured by MSCI's US Index, and the S&P500 return with dividends was about 5.4%.

Note also that most returns of these markets, measured in local currency (not displayed here), were less than these returns above measured in US dollars. But the falling dollar (and rising foreign currencies) turned out to be another significant advantage of the weak dollar, at least for U.S. investors holding stocks or mutual funds of emerging markets with appreciating currencies.

Santa Claus Front Runner in Economics-Free Zone

Santa Claus may turn out to be the real front-runner in the primaries, judging by the way candidates are vying with one another to give away government goodies to the voters.

We now have a bipartisan tradition of the government stepping in to rescue people who engaged in risky behavior -- whether by locating in the known paths of hurricanes in Florida or in areas repeatedly hit by wildfires over the years in California or by gambling in the housing market.

Why not also rescue people who gambled away their life's savings in Las Vegas? That would at least be consistent.

After the departure of Senator Phil Gramm and House Majority Leader Dick Armey, Congress has been an economics-free zone. There is not one economist among the 535 members of Congress.

But, in an election year, that is not a political handicap. Santa Claus has won far more elections than any economist.

From Thomas Sowell's article "Santa Claus Politics"

The Starbucks Reverse Jinx

Strange as it sounds, the best way to boost sales at your independently owned coffeehouse may just be to have Starbucks move in next-door.

Read why here in Slate.com's article "Don't Fear Starbucks: Why the Franchise Actually Helps Mom and Pop Coffeehouses."

Monday, December 31, 2007

Hillary 3:1 Favorite; 3-Way Tie for Republicans

Based on Intrade.com trading:

Hillary is more than a 3:1 favorite for the Democratic nomination. There is close to a 3-way tie for the Republican nomination among Giuliani (27%), Romney (26%) and McCain (23%).

Sunday, December 30, 2007

Harley-Davidson To Drive Into the Indian Market

NEW DELHI: American cult bike brand Harley-Davidson may finally hit the Indian roads.

Bottom Line: Globalization works both ways. As U.S. companies outsource business processing, research, software development and call centers to India, wealth and prosperity are created there that creates a demand for U.S. products like Harley-Davidsons.

(HT: Sanil Kori)

The Coming Oil Glut and $30 Oil, $1.50 Gas?

The tripling of oil prices since the summer of 2003 has unleashed forces that within the next two or three years will bring oil prices tumbling back down to below $50 a barrel. Looking even further ahead, prices could easily fall to $30 a barrel or even lower.

With prices close to the inflation-adjusted record, energy companies and governments are investing heavily in facilities that generate crude and crude substitutes. Consumers of fuel oil and gasoline are starting to economize, and over time, these changes in behavior will shift the balance of power in their favor. When that happens, an oil glut will emerge, and the price will plummet. So before you trade in your Cadillac Escalade for a Toyota Prius, think twice: $1.50-a-gallon gas might not be gone forever.

Read more here.

(HT: Newmark's Door)

Giving Birth Latest Job Outsourced to India

The small clinic at Kaival Hospital in Anand, India matches infertile couples with local women, cares for the women during pregnancy and delivery, and counsels them afterward. Anand's surrogate mothers (pictured above), pioneers in the growing field of outsourced pregnancies, have given birth to roughly 40 babies.

More than 50 women in this city are now pregnant with the children of couples from the United States, Taiwan, and Britain. Suman Dodia, a pregnant, 26-year-old, said she will buy a house with the $4,500 she receives from the British couple whose child she's carrying. It would have taken her 15 years to earn that on her maid's monthly salary of $25.

Experts say commercial surrogacy could take off in India for the same reasons outsourcing in other industries has been successful: a wide labor pool working for relatively low rates.

Read more here.

(HT: Sanil Kori)

Quote of the Day: Good Renters, Bad Homeowners

"Easy credit made bad homeowners out of good renters."

~Los Angeles manager of rental property, from an article in today's Mpls.-St. Paul Star Tribune

Fortunately maybe, the homeownership rate in the U.S., after rising by 5 percentage points (from 64% to 69%) between 1994 and 2004, has fallen over the last four years by the biggest amount (.80%) since the mid-1980s (see chart above). Hopefully, many of the bad homeowners of the last few years of easy credit and now rising foreclosures are becoming good renters again.

Global Capitalism Comes to Southeast Asia

Cheap Chinese products, like motorcycles that sell for only $440, are flooding China's southern neighbors and consumers in Myanmar, Laos, Vietnam and Cambodia are laying out the welcome mat.

The products are transforming the lives of some of the poorest people in Asia, whose worldly possessions only a few years ago typically consisted of not much more than a set or two of clothes, cooking utensils and a thatch-roofed house built by hand.

As the first introduction to global capitalism, Chinese products are met with deep appreciation.

Read more of the IHT article "Chinese Goods Transform Life in Southeast Asia"

Watch a video "Change Arrives on a Scooter" here.

Note that globalization and trade are disproportionately benefiting the poor people of SE Asia, since the rich politicians and politically-connected elite already had their BMWs. Also, this story counteracts the myth that "globalization exploits the developing nations and their poor." I don't think the mountain villagers of Laos, who can now reach the nearest city in 2 hours on a scooter instead of walking all day, feel too "exploited."

(HT: Sanil Kori)

Saturday, December 29, 2007

Putting Subprime Mortgages in Perspective

According to Glenn Maguire, chief Asia economist for Societe Generale SA in Hong Kong:

The economic repercussions of the housing bust and mortgage woes are limited to a great extent because fewer than half of American families own a home with a mortgage. Almost a third of all families rent their house or apartment, almost a fourth own and have no mortgage and the vast majority with a mortgage are current in their payments. Even with about a tenth of all subprime mortgages now in foreclosure, only a small share of all American families -- about 0.3% -- own a home in foreclosure, he said.

It's true: 55.5% of American households either rent their home or apartment (32%), or own a home with no mortgage (23.5%), see chart above. Then add in the 34.5% of homeowners with a prime mortgage, and the 4.2% of homeowners with a FHA or VA mortgage, and you've got more than 94% of American households who are NOT subprime borrowers, and fewer than 6% who are subprime borrowers. And the subprime fixed-rate mortgages are not really a problem, it's only the subprime adjustable mortgages that are having problems with delinquencies and foreclosures.

Then consider that according to the
Mortgage Bankers Association, the percentage of loans in the foreclosure process was 1.69% of all loans outstanding at the end of the third quarter 2007 (both subprime and prime). But because only 44.4% of all homes have a mortgages, that means that only about .75% of all American household own a home in foreclosure.

Marginal Revolution)

Note: I think that Glenn Maguire gets a figure of only .30% of homes in foreclosure by looking at the rate of loans entering the foreclosure process (.78%), and not the percentage of all loans in the foreclosure process (1.69%).

Target Clinics Open in Minnesota and Maryland

I have posted previously on low-cost, consumer-friendly, market-driven, walk-in retail health care clinics in retail stores like Walgreens, CVS and Wal-Mart, see here, here, here and here. Now Target has joined the market for retail clinics by opening Target Clinics in Minnesota (18 locations) and Maryland (5 locations).

Target Clinic's medical professionals can help test and treat guests 18 months and older for many common illnesses and injuries. Cash fees for most services listed below range from $49-$69.

Minor Illnesses: Strep Throat, Earache, Cold, Flu, Sinus Infection, Conjunctivitis/Pink Eye, Cough or Bronchitis, Allergies, Mono, Bladder Infection, Splinter Removal

Minor Injuries: Minor Burn, Bruise, Insect Bite or Sting, Stitch Removal, Wound Check

Skin Treatments: Rash, Athlete's Foot, Cold Sore, Skin Infection, Impetigo, Ringworm, Poison Ivy or Poison Oak, Shingles, Eczema, Acne

Other Services: Flu Vaccine, Pregnancy Test (must be 18+), Rapid Influenza Test, Blood Pressure Check, Tetanus and Tdap Vaccine, Cholesterol Screening, Camp and Sports Physicals

Bottom Line: Perhaps high-cost, bureaucratic, inefficient, socialized medicine isn't the answer to reforming our health care system. Instead, perhaps we need more efficient, low-cost, market-driven, and consumer-friendly healthcare like Target Clinics to reform our health care system.

Milton Friedman once said something to the effect that forcing everybody to see a physician as the medical gatekeeper for even minor, routine health concerns was like forcing everybody to drive a Cadillac. The use of nurse practitioners and physician assistants at Target Clinics is a welcome change, and allows us to get health care at a Chevy standard when we don't want, or can't afford, the Cadillac standard.

Really, We Just Can't Have A President.....

Peggy Noonan writing in yesterday's WSJ: We can't have a president who spent two minutes on YouTube staring in a mirror and poofing his hair. Really, we just can't.

Only 2 Out of 54 Economists Expect '08 Recession

For 2008, the economic outlook is Topic No. 1 for almost all investors. Stock prices and bond yields already reflect recession worries, but an actual downturn would hit portfolios hard. To help get a handle on what to expect, BusinessWeek asked 54 forecasters for their views on everything from housing and the credit crunch to Fed policy and global growth. (Click here for full survey results.)

Bottom Line: The economists project, on average, that the economy will grow 2.1% from the fourth quarter of 2007 to the end of 2008, vs. 2.6% in 2007. Only two of the forecasters expect a recession, although it might feel like one if there's sluggish growth over the next couple of quarters, as many predict.

Friday, December 28, 2007

Higher State Taxes = Lower Population Growth

The chart above shows graphically the negative relationship between state population growth using Census data available from the WSJ here, and state tax burden data available from The Tax Foundation here, both for 2007.

The OLS regression results above further verify that the negative relationship between state population growth and state tax burden is statistically significant at the 1% level (highest level generally reported).

Implication of the OLS Results: Based on the negative regression coefficient of -0.232, we could say that as the state tax burden increases by 1%, population growth decreases by about .23%. Alternatively, we could also say that for every one percent decrease in state tax burden, state population growth would increase by .23%. (For an overview of OLS/linear regression, go here.)

Bottom Line: States with lower tax burdens attract more businesses, workers and people, and states with higher tax burdens lose businesses, workers and people. In other words, these results confirm the theory that if you tax something, you'll get less of it.

Thanks to Ben Cunningham for supplying the data. See First Trust Portfolio's similar analysis "Voting With Our Feet"
here using the same data.

Thursday, December 27, 2007

Q: Who Creates More Minority Wealth Than US?

A: Nobody.

From George Will's most recent column:

McDonald's exemplifies the role of small businesses in Americans' upward mobility. The company is largely a confederation of small businesses: 85% of its U.S. restaurants -- average annual sales, $2.2 million -- are owned by franchisees. McDonald's has made more millionaires, and especially black and Hispanic millionaires, than any other economic entity ever, anywhere.

(HT: Division of Labor)

From McDonald's website:

1. McDonald's Hispanic-owned restaurants generate estimated annual revenues in excess of $1.5 billion. Note: That is more than the annual GDP of the Central American country of Belize.

2. McDonald's African-American-owned restaurants generate estimated annual revenues in excess of $2.4 billion. Note: That is about the same as the annual GDP of the African country of Rwanda.

H.S. Diploma in 1970 = 2+ Years of College Today

From the article: "More Grads, But Cognitive Ability Declines: Degrees and diplomas may not translate to on-the-job success," in a recent edition of InsideRecruiting, a recruiting industry trade publication:

The good news: recruiters should see an increase in applicants with college degrees and high school diplomas; the bad news is that those applicants might not succeed on the job. A study conducted by Wonderlic, Inc. reveals a steady decline in the cognitive ability scores associated with specific education levels.

From Wonderlic's press release about its study:

The explanation for this downward trend in cognitive ability by level of education is that more people with modest ability are remaining in school and graduating,” said Michael Callans, President of Wonderlic Consulting. “While remaining in school has obvious personal and societal benefits, it also impacts the relative meaning of a high school and college degree for employers.”

The study suggests that because the ability level of the average high school graduate has changed over time, finding job candidates with the same level of ability as 1970 high school graduates requires employers seek out applicants with two or more years of college training.

MP: Hey, but aren't grades (and self-esteem) at an all-time high in both high school and college?

(HT: Jeff Perry)

Dr. No

From John Stossel in today's NY Sun:

U.S. Congressional representative and Republican presidential contender Ron Paul has been called "Dr. No" because he repeatedly votes against legislation he believes gives government too much power. If it's not in the Constitution, he says, the federal government has no business doing it. He even votes against appropriations to his constituents.

For example, his Texas district is subject to floods, but he voted against FEMA. He represents a farm district, but has voted against farm subsidies because they are not authorized by the U.S. Constitution.

In other words, Ron Paul, aka Dr. No, is a real rarity, a politician with integrity. He's my kind of politician, and I've joined the list of academics for Ron Paul.

Foreign Buyers Snap Up U.S. Real Estate, II

NPR Morning Edition--In 2007, foreign investors acquired more than $43 billion worth of U.S. properties — almost double the amount foreigners spent a year earlier.

Three reasons:

1. Weak dollar makes U.S. real estate more affordable.

2. Increased global wealth means international investors have more investment capital.

3. Falling U.S. real estate prices offer bargains for foreigners.

Bottom Line: A market correction is taking place in the U.S. real estate market thanks to foreign investors, another benefit of globalization. Lou Dobbs, listen up.

(HT: Ben Cunningham)

Chart of the Day: Stock Index vs. Home Price Index

Home prices have been falling (see WSJ article), but still dominate stocks over the last 10 years. Compared to ten years ago, the S&P500 Index today is 2X higher, but home prices are 2.68X higher.

From CNBC's RealtyCheck: "Prices may be down, down even farther than the nasty recession-related bust of the early 1990s, but let’s remember whence we came. During the recent housing boom, prices were up in far greater percentages than they’re down today, so if you bought your home more than three or four years ago, you likely have plenty of gains left."

Wednesday, December 26, 2007

World Economy Growing At Fastest Rate Since '80s

The chart above uses international macroeconomic data on real GDP growth from the USDA's Economic Research Service. Over the last four years, the world economy has grown at an annual average rate of 3.6%, the fastest growth in real world output over a four-year period in almost twenty years (see shaded areas above). If there is any kind of slowdown in global economic growth, it sure hasn't shown up yet in real GDP data.

Compelling, But False Tale of Middle-Class Decline

The American middle class is fighting for its life -- or at least that's what Lou Dobbs would have you believe. The CNN anchor's rants about "the war on the middle class" are probably the most prominent examples of such economic doom-saying, but he isn't alone. Democratic presidential candidates pepper their debates with references to the assault; leading liberal thinkers argue that supply-side conservatives captured the Republican Party during the Reagan administration and implemented policies that continue to privilege the super rich today. They tell a compelling tale of middle-class decline. Pity it isn't true.

Read more of the article "5 Myths About the Poor Middle Class" in the Washington Post

Tuesday, December 25, 2007

Reverse Shoplifting, Shopdropping?

This is the season of frenetic shopping, but for a devious few people it’s also the season of spirited shopdropping.

Otherwise known as reverse shoplifting, shopdropping involves surreptitiously ......

Find out here in the NY Times.

Monday, December 24, 2007

Foreign Buyers Snap Up 2nd Homes in the U.S.

The events of 2007 have made the U.S. much more affordable for international home buyers. Severe dollar declines against the euro and pound have made U.S. homes much cheaper for Europeans. But even foreign buyers without that sort of currency advantage are benefiting from sharp drops in housing prices at a time when problems in mortgage lending are keeping many Americans out of the market.

At the same time, many foreign real estate markets, especially in Europe, have experienced sharp increases in home prices.

Read more

(HT: Ben Cunningham)

Oscar Peterson, R.I.P.

TORONTO (AP) — Oscar Peterson, whose early talent and speedy fingers made him one of the world's best known jazz pianists, died at age 82.

AllMusic entry on Oscar Peterson.

YouTube video of Oscar Peterson Trio in Italy in 1961.

Wikipedia entry on Oscar Peterson, already updated.

Ethanol's Role in The Growing "Dead Zone"

JEFFERSON, Iowa - Because of rising demand for ethanol, American farmers are growing more corn than at any time since World War II. And sea life in the Gulf of Mexico is paying the price.

The nation's corn crop is fertilized with millions of pounds of nitrogen-based fertilizer. And when that nitrogen runs off fields in Corn Belt states, it makes its way to the Mississippi River and eventually pours into the Gulf, where it contributes to a growing "dead zone" — a 7,900-square-mile patch so depleted of oxygen that fish, crabs and shrimp suffocate.

Note: 7,900 square miles is larger than the states of Rhode Island, Delaware and Connecticut combined!

HT: Chris Douglas

The U.S. Economy Could Handle $15 Gas?

According to Professor Gregory Clark, chair of the Department of Economics at the University of California, Davis, writing in yesterday's Sacramento Bee:

With energy five times as expensive as at present we would take a substantial hit to incomes. Our living standard would decline by about 11%. But we would still be fantastically rich compared to the pre-industrial world.

That may seem like a lot of economic hurt, but put it in context. Our income would still be above the current living standards in Canada, Sweden or England.

My "back of the envelope" analysis shows that per-capita U.S. GDP would drop by about 13% if gas was selling for $15 per gallon, assuming that annual per-capita consumption remains at the current level of about 464 gallons. At $3 per gallon, per capita spending on gasoline is about $1400, and annual spending would rise to almost $7,000 at $15 per gallon. If we assume that the increased per-capita spending on gasoline of $5,560 annually would reduce our living standard by that amount, we can estimate that per capita-GDP would fall from from $43,223 to $37,655, and we would still be above U.K., Sweden and Canada (see chart above).

English and The Spontaneous Order of Language

From Wordsmith.org:

If you speak English, you know words from at least a hundred different languages. That's because English has borrowed words from languages everywhere, and continues to do so.

All living languages borrow, though not to the same degree. Each new word brings its own color to the mosaic of the language, just as each new person does to a population, making it richer and vibrant.

We see words derived from Greek, Latin, Spanish, French, etc. every day, but this week we'll look at a few words from languages that are not so well known -- Javanese, Coptic, Tamil, Shelta, and Hawaiian -- and also learn a little about those languages.

From a previous CD post:

Number of words in the English language: 500,000 according to the number of words in the Oxford English Dictionary. There are supposedly another 500,000 uncataloged technical and scientific terms. By comparison, most estimates indicate that German has a vocabulary of about 185,000 words and French and Spanish have fewer than 100,000 words.

Best thing about the English language, and the main reason for its rich vocabulary?

Nobody is in charge! Human languages in general, and English in particular, are perfect examples of "spontaneous order," the spontaneous emergence of self-organization and order out of seeming chaos. And perhaps it's because English has been the language most open to borrowing words from other languages that is has developed the most extensive and richest vocabulary.

The opposite approach to allowing a language to develop according to spontaneous order, is that of the French Academy, which actively tries to limit the French vocabulary and prevent the "anglicisation" of the French language.