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.

(HT:
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
here.

(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.

Sunday, December 23, 2007

Hey, The Goldilocks Economy Can Handle $500 Oil And We'd Still Be Richer Than UK, Canada, Sweden

Study of the long economic history of the world suggests two things. Cheap fossil fuels actually explain little of how we got rich since the Industrial Revolution. And after an initial period of painful adaptation, we can live happily, opulently and indeed more healthily, in a world of permanent $100-a-barrel oil or even $500-a-barrel oil.

UC-Davis economist Gregory Clark explains in today's Sacramento Bee.

(HT: Marginal Revolution)

Soviet Light Bulb Story, Revisited

Hey, it's a little slow for new postings, so I thought I'd recycle an interesting post from last December about the market for used light bulbs in the Soviet Union, especially because: a) I'm taking a group of MBA students to Russia in April 2008, b) Russia's Putin is Time Magazine's "Man/Person of the Year," c) my MBA students in MGT 551 are studying price controls in CH 4 of the Gwartney textbook and d) I didn't have a lot of regular readers last year at this time. Here it is:

Economists generally oppose price controls because they distort markets, and cause either shortages (e.g. rent control) when there is a price ceiling, or surpluses (e.g. minimum wage) when there is a price floor. Shortages (excess demand) and surpluses (excess supply) represent an inefficient use of scarce resources, and economists support market prices because they eliminate shortages and surpluses, and therefore lead to efficiency.

From the Soviet Union, there are many examples of distortions and inefficiencies from its long history of price controls, but here is a real classic.

Light bulbs, like most other basic goods and staples in the Soviet Union, were often in short supply because the official price was below the market price, resulting in excess demand and prolonged shortages. As a result of the chronic light bulb shortage, an informal, black market developed in the USSR for used, burned-out light bulbs. That is, Soviet citizens would actually pay a positive price for a light bulb that didn’t work.

How would it be possible for a burned-out light bulb to have a positive price, when it would normally just be thrown out? Of what use could anybody have for a used light bulb? Think about it first, and read the
answer here.

Quotes of the Day

"The humble improve."

~Wynton Marsalis, Jazz Musician

"Sell your cleverness and buy bewilderment."

~Rumi