Tuesday, January 22, 2008

Outsourcing IN India, Not TO India: IBM #1 Provider

From today's NY Times Technology section:

India's IT services market is forecast to grow to US$10.73 billion by 2011, at a five-year compound annual growth rate of 23.2%, as outsourcing emerges as a more favored option for companies in India.

As companies are finding it more difficult to hire and retain staff in their IT departments, they are looking at external service providers as an option, hoping to also cut down costs, and better manage growth in the process. A number of large Indian banks and telecommunications service providers are already outsourcing key IT operations.

IBM, Tata Consultancy Services (TCS) and Wipro together accounted for 26.1% of IT services vendor market share in India last year. IBM was the top vendor, with 11.2% market share. TCS and Wipro occupy the second and third positions with 10.9 and 4.1 percent market shares, respectively.

Isn't it interesting that:

1. Indian companies are now increasingly outsourcing IT services, TO other Indian (and U.S.-based) companies IN India.

2. U.S.-based IBM is the #1 provider of IT outsourcing services IN India for Indian-based companies.

It's a flat, flat, flat, flat world.

China: 12 Million New Jobs in 2007, 23 Per Minute

China Daily--The national urban and township unemployment rate was reduced to 4 percent last year, thanks to the creation of more than 12 million jobs and despite more people entering the workforce, a top labor official said yesterday.

The number of jobs created exceeded the target of 9 million set at the beginning of last year, Zhai Yanli, vice-minister of Labor and Social Security, said at a press conference.

12 million jobs per year breaks down to:

New jobs created every day: 32,876

New jobs created every hour: 1,369

New jobs created every minute: 23

How To Rent A $1,500 Tokyo Apartment? Pay $10K

For a $1,500 per month apartment in Tokyo:

1. New renters have to pay 2 month's rent in advance = $3,000

2. New renters have to give another 2 month's rent as a security deposit = $3,000

3. New renters also have to give another 2 month's rent as a gift to the landlord, which is not refundable
= $3,000

4. New renters also have to give another month's rent as a finder's fee to the realtor, which is also not refundable = $1,500

Total Cost = $10,500

Read more here.

But as a special bonus, you might get one of these Japanese toilet/sink combos:

Dow 15,000 in 2008?

Our model suggests that the market is undervalued by 25% today. With the economy picking up steam in 2008, our forecast is that the Dow moves up as well and our year-end 2008 forecast is 15,000, with the S&P 500 at 1625.

Once recession fears prove unfounded, US equities will soar. Those who maintain their appetite for risk will be richly rewarded sooner than they think.

~An optimistic forecast from economists Brian Wesbury and Robert Stein at First Trust Portfolios

Stock Market Investing: Some Words of Wisdom

With all of the turmoil and uncertainty about the stock market, here six good quotes from Warren Buffet:

1. The future is never clear, and you pay a very high price in the stock market for a cheery consensus. Uncertainty is the friend of the buyer of long-term values.

2. The most common cause of low prices is pessimism - sometimes pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer.

3. Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well.

4. Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful.

5. The stock market is designed to transfer money from the active to the patient.

6. If you don't feel comfortable owning something for 10 years, then don't own it for 10 minutes.

Retail Clinics Outperform MDs for Minor Illnesses

No state has more experience with retail clinics than Minnesota, the birthplace nearly eight years ago of MinuteClinic, which still dominates the field even as competitors crowd in. An independent, nonprofit coalition of doctors, insurers, consumers, and employers called MN Community Measurement annually rates health clinics' and doctors' practices statewide.

The most recent report card from the group, based on data from 2006, awarded MinuteClinic the highest marks in Minnesota for treating children 2 to 18 years old for sore throats, giving it a score of 99%. The lowest grade: 26% for a doctors' group.

Quoted from today's Boston Globe article "Upbeat Diagnosis for Clinics," following up on the controversy in Massachusetts about CVS planning to open dozens of medical clinics. More here:

Mayor Thomas M. Menino of Boston and other critics have warned of inferior care driven by an unquenchable profit motive. He and others predicted that in the name of convenience, patients would sacrifice an ongoing relationship with a doctor.

But interviews with a dozen independent researchers, insurers, and regulators in other states painted a far more positive portrait. Increasing evidence, they said, suggests that when patients are treated for sore throats and other minor illnesses at retail clinics, the care may actually be as good as - if not better than - in more traditional doctor offices.

Forget Election-Inspired Makeshift Rebate Goodies

From today's San Diego Tribune, "New Incentives, Not Fiscal Stimulus, Are the Best Way to Bolster a Slowing Economy":

The bottom line on fiscal stimulus to stave off or ameliorate a recession is this: None is needed for that purpose that wouldn't be good policy under more normal circumstances. Low marginal tax rates on income, capital gains and dividends are always good policy and largely pay for themselves by stimulating economic activity. They need to be lower, but the first urgent priority is to avoid making them higher by letting the Bush tax cuts expire and to make that clear as soon as possible to end the uncertainty.

Corporate tax rates should be lowered at least to the level of those of our trading partners and lower still if we can get our minds around the fact that corporations don't pay taxes, people do.

Eastern European countries are way ahead of us in fundamental tax reform as they implement flat, low income taxes. Do we have to sink to their previous levels before we have the courage to implement fundamental reform? When will we learn that what is taxed is destroyed; so taxes on consumption that exempt saving is key to continued dynamic income expansion. We don't need election-inspired makeshift rebate goodies from Washington under the guise of economic stimulus. We need to get real with fundamental reform worthy of this great nation.

~Bob McTeer, former president of the Federal Reserve Bank of Dallas

Government Policy Got Us Into the Subprime Mess

From Walter Williams' column today "Subprime Bailout":

As with most economic problems, we find the hand of government. The Community Reinvestment Act of 1977, whose provisions were strengthened during the Clinton administration, is a federal law that mandates lenders to offer credit throughout their entire market and discourages them from restricting their credit services to high-income markets, a practice known as redlining. In other words, the Community Reinvestment Act encourages banks and thrifts to make loans to riskier customers.

The Bush bailout plan for the subprime crisis is a wealth transfer from creditworthy people and taxpayers to those who made ill-advised credit decisions, and that includes banks as well as borrowers. According to Temple University professor of economics William Dunkelberg, 96% of all mortgages are being paid on time. Thirty percent of American homeowners have no mortgage. Delinquency rates were higher in the 1980s than they are today. Only 2 to 3 percent of all mortgages are in foreclosure. The government bailout helps a few people at a huge cost to the rest of the economy.

Government policy got us into the subprime mess and government's measure to fix the mess is going to create more mess.

Milton Friedman vs. Hillary Clinton

From Thomas Kuper at Human Events: "I thought it would be interesting to do a compare and contrast between a champion of the free market (Milton Friedman) versus a champion of government (Hillary Clinton)." Here are a few examples:

"The unfettered free market has been the most radically destructive force in American life in the last generation."

~First Lady Hillary Clinton in 1996 stating her troubles with the free market

"What most people really object to when they object to a free market is that it is so hard for them to shape it to their own will. The market gives people what the people want instead of what other people think they ought to want. At the bottom of many criticisms of the market economy is really lack of belief in freedom itself."

~Milton Friedman, Wall Street Journal, May 18, 1961

"Too many people have made too much money."

~First Lady Hillary Clinton condemns the insurance industry, feeling it’s not fair that certain businesses are making ‘too much money’

"'Fair' is in the eye of the beholder; free is the verdict of the market. The word 'free' is used three times in the Declaration of Independence and once in the First Amendment to the Constitution, along with 'freedom.' The word 'fair' is not used in either of our founding documents."

~Milton Friedman, WSJ, Mar. 7, 1996

Monday, January 21, 2008

Has the Dollar Bottomed Out?

From the International Herald Tribune: "Has the dollar bottomed out?"

"Foreigners are buying American assets at cut-rate prices. To make their purchases, foreigners need dollars; more demand for dollars pushes the exchange rate higher. And, according to some important measures of the dollar’s value, the greenback may have hit bottom over two months ago."

More evidence: The USD is now selling at a one-year forward premium against almost two dozen currencies, see chart above, including almost a 2% forward premium vs. the British Pound, and almost a 1% premium vs. the Euro.

UK's National Health Care=Third World Dental Care

From the UK Telegraph "Bad Teeth - The New British Disease":

In Britain today, you can stuff yourself on deep-fried Mars bars, drink 20 pints of beer a night, inject yourself with heroin, smoke 60 cigarettes a day or decide to change your sex — and the National Health Service (NHS) has an obligation to treat you. You might go on a waiting list, but it will do its best to cure your lung cancer, patch up your nose after a drunken brawl or give you a hip replacement.

But if you have bad teeth, forget it. You may be rolling on the bathroom floor in agony with an abscess, your gums may be riddled with disease, or people may recoil at the sight of your fangs as you walk down the street, but the NHS doesn't have to help you.

It is now virtually impossible for many people to find an NHS dentist, and if they do manage to squeeze on to a list, they could still be charged 80% of the cost of treatment. A recent survey found that seven and a half million Britons have failed to gain access to an NHS dentist in the past two years (UK population = 60 million). In one quarter of the country, no NHS dentists are allowing new patients to join their lists. And despite government targets that every child should have his teeth seen by an expert every year, more than one in three children never see an NHS dentist.

Now because of our first-world diets and third-world dental care, we have 19th-century teeth.

According to today's related
IBD editorial "Like so many British teeth, national health care systems are rotten." (Note: The IBD editorial mistakenly reported that "2.7 million Britons have gone nearly two years without dental work. It should be 7.2 million.)

Here's another article "
7 million patients can't find a dentist."

Largest-Ever Stock Subscription in Global History

MUMBAI -- Reliance Power Ltd.'s 117 billion rupee ($2.98 billion) initial public offering has been set at 450 rupees a share, company Chairman Anil Ambani said.

India's largest capital raising closed to record subscriptions as investors submitted bids valued at more than 7.5 trillion rupees. Demand for the issue, which was open for subscriptions between Jan. 15 and Jan. 18, exceeded supply by 72.9 times.

"This is the largest-ever subscription in the history of global capital markets. It received applications from more than five million retail participants," Mr. Ambani said.

Unintended Consequences:Do-Good Laws Often Fail

From "Economics: Public and Private Choice" by Gwartney, Stoup, Sobel and Macpherson:

Pitfall #2 to Avoid in Economic Thinking: "Good intentions do not guarantee desirable outcomes."

In a Sunday NY Times article "Unintended Consequences," Freakonomics authors Steven Levitt and Stephen Dubner explain why "do-good" laws often fail:

1. The Endangered Species Act is actually endangering, rather than protecting, species.

2. The Americans with Disabilities Act, enacted in 1992, has led to a sharp drop in the employment of disabled workers.

Sunday, January 20, 2008

Export Sector is 2X As Big as the Housing Sector

Wall Street Journal: Robert Gordon, an economist at Northwestern University in Illinois who is also a member of the National Bureau of Economic Research committee that determines (usually long after the fact) when recessions begin, is hopeful that overseas growth may continue to bolster the U.S. economy. He notes that exports, which have been growing rapidly and account for more than twice as large a share of GDP as home construction does, will continue to post strong growth, easing the pain of the housing decline.

The chart above (click to enlarge) using BEA data (via the St. Louis Fed) verifies what Robert Gordon is saying: The export sector of the U.S. economy is more than twice as large as the residential housing market, and continued strong export growth will help absorb some of the weakness in the much smaller housing sector.

Exports in 2007 were up by 55% from 2003, the strongest 4-year period of export growth since 1991; and from November 2006 to November 2007, exports of goods increased by almost 14% and service exports increased by 11.4%. The strong economic growth forecast for 2008 in countries like India (8.4%), China (10%), Vietnam (8.2%), Russia (6.5%), should continue to provide strong demand for U.S. exports, and help offset the sluggish growth expected here.

Penn and Teller on the First Amendment and University Speech Codes

We've Tried Tax Rebates Before; They Don't Work

There is virtually no empirical evidence that tax rebates are an effective response to economic slowdowns. The main benefit of a tax rebate would seem to be political -- giving politicians a way of appearing to be doing something about the nation's economic problems that is superficially plausible.

It's an insult to Keynes even to call a tax rebate Keynesian economics. It should be called "feel good economics" because its only real effect is to make politicians feel good about themselves and buy re-election with the public purse.

~Bruce Bartlett in Saturday's WSJ editorial "Feel Good Economics"

The Packer Fan

A Packer fan was enjoying himself at the game in a packed Lambeau Field, until he noticed an empty seat down in front. He went down and asked the guy next to it if he knew whose seat it was. The guy said, "Yes, that's my wife's seat. We haven't missed a game since the Lombardi days, but my wife just died suddenly." The fan offered his sympathy and said it was really too bad he couldn't find a relative or friend to give the ticket to and enjoy the game together. "Oh no, none of them were available" the guy said, "they're all at the funeral right now."

Psychology is the Joker in Economy's Deck of Cards

From Time Magazine, December 2, 1957 issue:

The uneasy sign in the nation's economic picture is not the statistical droop but the mood. If too many consumers postpone purchases out of worry, shrinkage in sales may bring on a real recession. "Psychology," says Vice President Dr. Arthur A. Smith of Dallas' First National Bank, "is the joker in the economy's deck of cards."

Now I'm not saying I think the U.S. economy is about to go into a recession, but it does seem like there is a certain amount of "recession psychology" going on, and some have suggested that we might be "talking ourselves into a recession." Recessionary fears seem to generate more media attention than maybe more realistic talk of an economic slowdown, which feeds the "recession psychology" (see the increase in "recession" hits above on Google Trends for January).

According to
futures trading on Intrade, there is now about a 71% chance of a U.S. recession in 2008. So let's assume it happens: the U.S. economy goes into a recession this year. How bad will it be and how long will it last? The chart above shows the average length of U.S. recessions going back to 1854, using data from the NBER.

We know this for sure: It could be a lot worse, recessions used to last almost two years during the 1854-1919 period, and 1.5 years in the 1919-1945 period. Since WWII, the average recession lasted 10 months, and the last two recessions (1990-1991 and 2001) lasted only 8 months. With the support of a booming world economy, we could expect a short and shallow 2008 recession, IF if happens. If futures trading is correct, there's a 29% of NOT having a recession, so don't give up hope.

We would have to experience at least 6 months of significant economic downturn to have a recession, and there's no evidence yet that there's even been one month yet of serious decline in the important recession-indicating variables. I'm still saying the U.S. economy is not in recession. But then there's always the joker....

Why Is $5 Gas Good for America? Many Reasons

"High Gas Prices Truly Cut Dependence on Foreign Oil," Wired Magazine 2008

"Why $5 Gas is Good for America,"
Wired Magazine 2005, here's an excerpt:

Rising oil prices are more than just an irritant or even an ominous nick out of the GDP. For anyone with a fresh idea, expensive oil is as good as a subsidy - with no political strings attached. Indeed, every extra penny you pay at the pump is an incentive for some aspiring energy mogul to find another fuel.

For the better part of a century, cheap oil has fatally undercut all comers, not to mention smothered high-minded campaigns for conservation, increased efficiency, and energy independence. The changing outlook opens horizons - for conventional drilling, sure, but also for alternatives. Some new technologies merely produce more crude. But others tap energy supplies that have nothing to do with black pools under the Middle East.

What to do? Keep driving. In fact, drive more. The longer gas stays expensive, the higher the chance we'll see alternatives.

By the Time NBER Announces A Recession, It's Over

From today's Washington Post: The NBER's pronouncements historically come long after recessions have begun, a whopping seven months on average. By the time the bureau announced the recession of 1991, it had already ended.

It's true. On April 25, 1991, the
NBER announced that a recession started in July of 1990. It later announced at the end of 1992 that the recession actually ended in March 1991. It was an 8 month recession, and it took the NBER 9 months to make the official determination.

And for the last recession that lasted from March to November 2001, the
NBER announced on November 26, 2001 that a recession started in March, just about the time that the recession was ending. In July 2003, the NBER made the official announcement that the recession ended in November 2001. It was an 8 month recession, and it took exactly 8 months for the NBER to make the official recession announcement.

Bottom Line: If the NBER's track record continues, by the time it announces the next recession, it's likely the recession will already be over. So s
it back and relax. Even if there is a recession in 2008 or 2009 or 2010, we probably won't know for sure until it's just about over. And by that time it will, well, be over.

Saturday, January 19, 2008

A Rising Global Tide of Capitalism Lifts All Boats

From an Anonymous comment on CD:

"Isn't it better that the world economy is becoming less dependent on the U.S.? Isn't a multi-polar world more economically resilient than a uni-polar world? Other countries that have been helped by the U.S. in the past are now able to help the U.S. through their sovereign wealth funds. That would seem to be an improvement from a world where the U.S. is responsible for all of the world's ills and gets little thanks for its efforts either philanthropic, diplomatic or military."

The top chart above shows the decline in the U.S. share of world stock market capitalization from more than 50% in 2001, to less than a third in 2007 (32.8%), using data from the World Federation of Exchanges. Even though the U.S. Stock market capitalization has increased in each of the last five years, the explosive growth in many of the emerging markets has caused the U.S. share of world stock value to decline. In other words, the relatively poor countries are getting richer, and the relatively rich U.S. gets richer, but the "poor" are getting rich even faster. That's great.

Likewise, even though U.S. GDP has increased this year at a healthy 3.1% rate, our share of world GDP growth has fallen below 30% (see bottom chart above), due to the even greater growth in the emerging economies like China and India.

One result of all of that economic and stock market growth around the world?

According to the NY Times, "Last year, foreign investors poured a record $414 billion into securing stakes in American companies, factories and other properties through private deals and purchases of publicly traded stock. That was up 90% from the previous year and more than double the average for the last decade.

The influx is the result of a confluence of factors that have made the United States both reliant on the largesse of foreigners and an alluring place for opportunistic investors. The weak dollar has made American companies and properties cheaper in global terms, particularly for European and Canadian buyers. Even as Americans confront the prospect of a recession, economic growth remains strong worldwide, endowing oil producers like Saudi Arabia and Russia and export powers like China and Germany with abundant cash."

Bottom Line: Globalization and the spread of market capitalism has both united the world economies in important ways, while at the same time helping to strengthen and support the U.S. economy. We have the advantage of selling American products to the growing middle and upper classes around the world at a time when U.S. demand is slowing, and also being the recipients of massive foreign investment at a time when it is needed here. Yes, it is better that the world economy is less dependent on the U.S., and it is also better that the U.S. economy can become more dependent on the world economy.

GM Counts on India, China to Offset U.S. Slump

An interesting Bloomberg exclusive "GM, Ford Count on India, China to Offset U.S. Slump" supports the suggestion in the post below that today's global economy helps support the U.S. economy in ways that are fundamentally different than in the past. Consider these excerpts from the article:

1. General Motors CEO Rick Wagoner says the U.S. is in an automotive recession, and he and his fellow CEOs are looking abroad for help.

2. With sales stagnating in Europe and down in Japan as well, U.S. automakers are banking on developing markets such as China and India to ease the pain. "Everybody is aiming at Russia, China and India,'' said an auto analyst. China is an automobile market that's going to be as big as the United States or EU.

3. U.S. sales are expected to fall by 2.5% in 2008 to 15.7 million units, but worldwide sales are expected to rise 4% this year to 75 million vehicles. In other words, almost 80% of the world vehicle market is now OUTSIDE the U.S.

4. The biggest sales gains for vehicles will come from countries where the rate of automobile ownership is climbing, like China, Russia, Eastern Europe.

5. In 2007, GM last year sold more than 1 million vehicles in China for the first time, and sales there are expected to grow by 15% this year.

6. GM sold 1 million units last year for the first time in the Latin America, Africa and Middle East region.

7. GM sold 3.82 million vehicles in the U.S. in 2007, and about 5.5 million units OUTSIDE the U.S., which means that GM now depends on foreign sales for almost 60% of its total sales.

Bottom Line: In previous U.S. economic or automotive slowdowns, especially in the 1970s, 1980s and 1990s, there certainly weren't strong growth areas in countries like China, India, Russia, etc. to help support GM and Ford when U.S. sales slumped. It should be considered a positive development that in an era of globalization, Ford and GM are no longer so dependent on just the U.S. market.

Worldwide Outsourcing Industry Rebounding

Equaterra, one of the leading outsourcing advisory firms, just released its latest quarterly report on worldwide outsourcing activity, based on a survey of its advisors. From its press release:

"Despite fear of a recession in the U.S., jitters on virtually all major stock exchanges worldwide and widespread cut-backs in corporate spending, EquaTerra’s 4Q2007 Pulse surveys revealed that outsourcing demand is rebounding, with continued strong growth in EMEA (Europe, Middle East and Africa) and a substantial increase in North America. In fact, 70% of EquaTerra advisors cited increased demand levels for Information Technology (IT) and business process outsourcing in 4Q07, with demand up 19% over 3Q07, up 24% over 4Q06, and at the highest level recorded since 2Q05. Further, 59% of service providers cited new deal pipeline growth in 4Q07, and 57% expect demand to increase in 1Q08."

Reasons for the recent rebound in outsourcing demand include:

1. Increased focus on the bottom line and cost reduction (one benefit of an economic slowdown?)

2. New and growing areas like legal and knowledge process outsourcing, and document and electronic records management

3. More but smaller outsourcing deals spread across a greater number of service providers and delivered on a more global basis

Bottom Line: Today's inter-connected global economy, fueled by worldwide outsourcing, represents a fundamental shift in the way the world operates, probably in ways we haven't even fully appreciated yet. Worldwide outsourcing opportunities are increasing continually, which in many important ways serve to increase the resiliency, flexibility and strength of both the emerging economies and the advanced economies like the U.S. Isn't it possible that globalization and outsourcing help to support and insulate the U.S. economy from significant economic downturns and recession?

Commercial Bank Loans At Record-High

The chart above (click to enlarge) shows the series "Commercial and Industrial Loans of Weekly Reporting Large Commercial Banks" from 1988-2008, available from the Federal Reserve via FRED. A couple key points:

1. As of the first week of January, commercial bank loans are at a record high of $760 billion.

2. It was only three months ago, in early October 2007, that commercial bank loans surpassed the previous record high commercial loan volume of $722 billion set back in September 2000 (a banking milestone that went unreported).

3. Compared to many economic and banking variables that are reported only monthly or quarterly, often with long lags, commercial bank loans are reported weekly, with a lag of only a few weeks, and therefore provide important, current, and up-to-date information on commercial bank lending.

4. It's true that "commercial and industrial loans outstanding" are considered to be a lagging indicator by
The Conference Board, but it's also true that commercial loans started declining at the onset of both of the last two recessions (see chart above).

Bottom Line: Given the continuing strength of commercial bank lending at record-high levels through early January, it's highly unlikely that the U.S. economy has entered into a recession. I'll continue to monitor this important economic variable.

Friday, January 18, 2008

UFO Sightings: What Happened?

My feeble attempt above to imitate the inimitable Jessica Hagy's excellent posts on her Indexed blog. She also has a new book "Indexed," based on her blog postings. Freakonomics author Stephen Dubner "suspects she is a genius."

Remember: Government Has No Money to Give, II

And Government's "Transfer Bucket" Leaks:
The standard stimulus package doesn't change incentives. It's a check from the government. The hope is that the receiver will spend it. But when you just send out checks from the government, whoever gets stimulated is likely to be offset by someone who gets unstimulated.

The money has to come from somewhere. If you raise taxes to fund the plan, the people who are taxed are poorer and they'll spend less. If you borrow money to fund the plan, the people who buy the government bonds have less money to spend and that offsets the stimulus. It's like taking a bucket of water from the deep end of a pool and dumping it into the shallow end. Funny thing—the water in the shallow end doesn't get any deeper.

And even the people who get the money often save more of it than they spend.

That's why stimulus schemes based on giving people money have a poor track record of energizing the economy. Usually, the only thing that gets stimulated is a politician's approval rating.

~From George Mason economist and
Cafe Hayek blogger Russ Roberts on NPR, transcript available here

Bottom Line: Despite what the media, general public and politicians seem to believe, there simply is no such thing as government money. For the government to send out tax rebates to one group, they have to: a) raise taxes on other groups to get the money, or b) borrow money from other groups to get the money, meaning there cannot be any net positive stimulus, as Professor Roberts suggests above. It's merely a coerced government transfer of funds from Group A to Group B, making one group better off at the expense of the other group.

The only comment I would add is that the transfer of water from the deep end of the pool to the shallow end in Professor Roberts' example is done with government's leaky and porous bucket (pictured above), so that the pool actually loses water overall and becomes smaller at both ends!

U.S. Map of Religions

Click to enlarge.

Remember: The Government Has No Money to Give

Appearing before Congress, Mr. Bernanke told Democrats what he thought they wanted to hear. The former academic economist blessed a "fiscal stimulus package," as long as it is "explicitly temporary." How new federal spending can be "temporary," he didn't say, as if a dollar collected in taxes or borrowed and then spent can be recalled.

We're all for putting more money in the hands of the poor and moderate earners, especially via stronger economic growth that will give them better paying jobs. But the $250 or $500 one-time rebate check they may now receive has to come from somewhere. The feds will pay for it either by taxing or borrowing from someone else, and those people will have that much less to spend or invest themselves. We are thus supposed to believe it is "stimulating" to take money from one pocket and hand it to another.

~Today's WSJ Staff editorial

Not to mention that the transfer of $250 or $500 from rich to poor won't be neutral, it will involve a net loss to the economy, due to the inefficiencies of the transfer, i.e. the "leaky bucket effect" noted by economist Arthur Okun in 1975. According to Okun, "The money must be carried from the rich to the poor in a leaky bucket. Some of it will simply disappear in transit, so the poor will not receive all the money that is taken from the rich."

Thursday, January 17, 2008

Global Stock Market Wealth in 2007 Sets Records

According to data just released by the World Federation of Exchanges, global stock market capitalization reached a new record of $60 trillion in 2007 (see top chart above). The increase in stock market value of $10 trillion during the year also established a new all-time record for the largest annual increase of global stock market wealth in history, beating the previous record of a $9.66 trillion increase in 2006 (see bottom chart above).

Consider also that $38.2 trillion of world stock market value was created between 2002-2007 ($22.5 to $60.7 trillion). In the chart above, notice that world stock market value in 1999 set a new record of $35 trillion before declining for three consecutive years (2000, 2001, 2002) during the Dot.com bust.

Think about it: It took the entire history of the world until 1999 to create the first $35 trillion of stock market wealth; and then more than that amount of wealth was created ($38.2 trillion) in just the most recent five-year period from 2002-2007! Not a bad record for wealth creation, largely because of globalization and the most significant spread of free market capitalism in history.

Premium SUV Market Is Booming in India

General Motors India (GMI), the Indian arm of the US automobile manufacturer, has entered the premium SUV segment, by launching Chevrolet Captiva this week, its new sports utility vehicle for the Indian market.

The Chevrolet Captiva (pictured above) is priced to compete with Honda CR-V -which is sold at Rs 18.4 lakh ($47,000), Pajero - priced at 18.8 lakh ($48,000)and Nissan X-Trails - it's priced at Rs 23 lakh ($58,000). The 2-litre diesel driven Captiva will be available to the customers for Rs 17.74 lakh (about $45,000).

Following the launch of the $2,500 Tata Nano in India earlier this week, the introduction of the Chevy Captiva in India suggests that both the low-end and high-end vehicle markets are profitable and thriving in India's booming, red-hot economy.

This is the other side of outsourcing and globalization that Lou Dobbs, John Kerry and John Edwards seem oblivious to. Who is buying $50,000 Chevy SUVs in India? Perhaps it's a manager or executive at Bangalore-based Infosys or Wipro, who got promoted and received bonuses based on providing BPO services to a U.S. corporation, and now can afford to buy a $50,000 vehicle from GM?

Zimbabwe Introduces New 10 Million Dollar Note

What happens when you have 50,000% inflation? The 200,000 note in Zimbabwe, pictured below, is worth only 3 cents, and you need new 10,000,000 notes.
Johannesburg/Harare - President Robert Mugabe's government, stricken by chronic hyperinflation, announced today it will introduce a 10 million Zimbabwe dollar note (along with 1 million and 5 million notes). Economists said it was the highest denomination of any currency in the world.

The issue of new notes follows nearly three months of banking chaos as cash dried up and queues, sometimes hundreds of meters long, became a permanent feature outside commercial banks.

Zimbabwe is in its 10th year of economic crisis, marked by the world's highest rate of inflation, the fastest shrinking gross domestic product in a country not in a state of war, the most rapidly collapsing currency and unemployment of over 80%.

Economists said the disappearance of cash was a result of inflation estimated at 50,000% - the government has banned publication of official figures - that forces shoppers to pay with brick-sized bundles of near-worthless notes for a few simple groceries.

A year ago, the highest denomination was 10,000 Zimbabwe dollars, then worth about $7, now worth about 1/3 of 1 cent (US). The new 10 million Zimbabwe dollar note is worth $3 (US). During the year there were three separate new issues of notes as inflation continued to soar, including the 200,000 note pictured above, which is worth worth only 6 cents (US).

The Zimbabwe Central Bank remained optimistic about the situation, and a spokesman said "As monetary authorities we once again assure the nation that we are in full control of the currency situation."

Wednesday, January 16, 2008

2009: The Shallowest, Mildest Recession in History?

"Whether a recession occurs -- a determination made by academic economists, usually after the fact -- probably won't affect most people. Economist Richard Berner of Morgan Stanley expects a "mild and short" recession, with peak unemployment of 5.6% or 5.7% in early 2009. The average unemployment rate of the past 50 years is 5.6%. This would be a setback, but not a disaster."

~From Robert Samuelson's article "Lollipop Economics" in today's Washington Post

Good point, Robert. Even in the worst case scenario of a recession with a peak unemployment rate of 5.6-5.7% in 2009, it will be the first recession since WWII with an unemployment rate during a recession with a peak rate equal to only the historical average unemployment rate of 5.6% (since WWII). That is, in all of the ten past recessions since WWII (listed below), the peak unemployment rate was always above the average rate of 5.6% (see graph above, click to enlarge, recessions are shaded):

1948-1949: 7.9%
1953-1954: 6.0%
1957-1958: 7.5%
1960-1961: 7.1%
1969-1970: 6.1%
1973-1975: 9.0%
1980-1981: 7.8%
1981-1982: 10.8%
1990-1991: 7.8%
2001: 6.3%
2009?: ONLY 5.6-5.7%?

Bottom Line: A 2009 recession, as predicted by Morgan Stanley, with a peak unemployment rate of only 5.6-5.7% would be the mildest, shallowest recession since WWII, and maybe in U.S. history?

Number of Retail Health Clinics Nationwide = 1,000

According to Health Care Finance News: A recent survey of retail clinics in the nation set the number of such caregiving sites at nearly 1,000.

Number of states that have retail health clinics: 36

Fastest-growing, and largest retail clinic chain: Minute Clinics, operated in CVS Pharmacies (see photo above)

Number of Minute Clinics nationwide: 390

Second largest retail health chain: Take Care Clinics, operated in 136 Walgreens stores nationwide.

Industrial Production Growth Is Below Average, But Certainly Doesn't Indicate Recession

The Federal Reserve released its report today on Industrial Production, which was flat in December versus expectations for a slight decline. The chart above (click to enlarge) shows the annual growth rate in monthly industrial production from the same month in the previous year. The annual growth from December 2006 to December 2007 was 1.58%, which was higher than growth in June (1.47%), August (1.41%) and October (1.52%).

The growth rate for industrial production averaged just below 2% in 2007, which is below the long-run average growth rate of 2.91%. Despite industrial production growth being below-average last year, there might be a mild slowdown, but there is still no evidence yet in this important recession-indicating variable that a recession has started. Unless and until we start seeing sharp declines in industrial production growth like during the last two recessions (see shaded areas above) in 1990-1991 and 2001, there won't be a recession.

Bottom Line: Based on industrial production, there is no evidence yet that a recession started in late 2007.

Oil is Almost $100 and Ethanol Still Can't Compete

"If ethanol and other renewable fuels were cost-competitive, they would not need to be mandated. The fact that oil is over $90 a barrel and yet the ethanol industry still felt it needed an expanded mandate to compete indicates how costly ethanol is."

~Ben Lieberman, senior policy analyst at the Heritage Foundation commenting on the energy bill that passed in December

Protectionism = Bullying = Extortion

Mitt Romney and John McCain battled over what the government owes to workers who lose their jobs because of the foreign competition unleashed by free trade. Surely we have fellow citizens who are hurt by free trade agreements, at least in the limited sense that they’d be better off in a world where trade flourishes, except in this one instance. What do we owe those fellow citizens?

One way to think about that is to ask what your moral instincts tell you in analogous situations.

Suppose, after years of buying shampoo at your local pharmacy, you discover you can order the same shampoo for less money on the Web. Do you have an obligation to compensate your pharmacist? If you move to a cheaper apartment, should you compensate your landlord? When you eat at McDonald’s, should you compensate the owners of the diner next door? Public policy (protectionism) should not be designed to advance moral instincts that we all reject every day of our lives.

Bullying and protectionism have a lot in common. They both use force (either directly or through the power of the law) to enrich someone else at your involuntary expense. If you’re forced to pay $20 an hour to an American for goods you could have bought from a Mexican for $5 an hour, you’re being extorted. When a free trade agreement allows you to buy from the Mexican after all, rejoice in your liberation — even if Mr. McCain, Mr. Romney and the rest of the presidential candidates don’t want you to.

~From Steven Landsburg's excellent article in today's NY Times

A Century of People's Cars

NEW DELHI - For millions of people in the developing world, Tata Motors' new $2,500 four-door subcompact — the world's cheapest car — may yield a transportation revolution as big as Henry Ford's Model T.

Well, how does the 2008 Tata Nano (pictured above) compare to the Model T? See the chart above (click to enlarge) from the Car Blog (via Tom McMahon), which also includes the 1958 Volkswagen.

Notice that a 1908 Ford Model T would cost $19,000 in today's dollars, it was a real gas guzzler (15 mpg), and its top speed was 45 mph. The good old days are now. Not 1908.

Tuesday, January 15, 2008

Totally Bankrupt: Morally, Legally, Financially

JANUARY 15--Disgraced and disbarred, Mike Nifong is now bankrupt. The former North Carolina prosecutor, whose career imploded with his botched handling of the Duke University rape case, today filed for bankruptcy, listing liabilities in excess of $180 million.

Heritage/WSJ 2008 Index of Economic Freedom: More Economic Freedom = Higher GDP Per Capita

The Top 10 Most Economically Free Countries in the World:

The Top 10 Least Economically Free Countries in the World:

The bottom line about Economic Freedom:

In other words:

Read more here.

Despite Media Reports to the Contrary: U.S. Retail Sales Are Actually Increasing, Not Falling

The Commerce Department today reported that: 1) total retail sales in December 2007 were 4.1% above December 2006, 2) sales for the 12 months of 2007 were up 4.2 percent% from 2006, and 3) total sales for the October through December 2007 period (QIV) were up 4.9% from the same period a year ago. All of those three measures suggest that retail sales are strong and healthy. But you would never know that from the media headlines:

December Retail Sales Slide 0.4% (WSJ)

US December Retail Sales Down 0.4% (CNN)

US Retail Sales Unexpectedly Declined in December (Reuters)

Consumer Spending Slowdown Deepens (AP)

US Retail Sales Fall in December (BBC)

Report Feeds Recession Worry (AP)

Reason: All of these reports focused on the decline in retail sales from November to December, which is actually fairly typical: In more than half of the last 8 years (5 out of 8), retail sales have either declined from November to December (2001, 2003, 2007) or remained flat (2000 and 2005).

Bottom Line: The chart above (click to enlarge) shows the annual growth in retail sales from the same month in the previous year, from 2001-2007. Over the last 18 months, there has actually been a positive, upward trend in retail sales, not a recessionary decline, see arrow above!

A Search Engine With Attitude!!

Check out Ms. Dewey, an interactive search engine assistant who audibly comments on your searched keywords in her own style, with lots of attitude!

(HT: Heidi Stinson)

Drive What I Mandate You Should, Not What I Drive

Most of the presidential candidates support hiking federal fuel efficiency laws. But do they practice what they preach about fuel efficiency when it comes to the vehicles they drive? Hardly. A review of some of the vehicles the candidates drive appears in today's Detroit News editorial by R. Burr and H. Payne:

Mike Huckabee: "When it comes to his own vehicles, the Baptist minister strays from his scripture of fuel efficiency." Vehicles includes a 2007 Chevy Tahoe (16 mgp, pictured above) and a Chevrolet Silverado (12 mpg) two of the biggest light trucks on the planet.

John McCain: Vehicles include a Lexus (his wife's) and a CTS Cadillac (18 mpg).

Barack Obama: Travels with a Secret Service convoy of Chevy Suburban SUVs (12 mpg). His personal vehicle was a gas-guzzling, 340 horsepower Chrysler 300C (17 mpg) until he was exposed, and he bought a more politically correct Ford Escape SUV hybrid (27 mpg).

John Edwards: Now drives an Escape hybrid (30 mpg) after he was inconveniently caught driving a bigger SUV last summer while preaching that Americans should sacrifice their SUVs.

People Pay With Time, Not Money, For Health Care

The RAND Health Insurance Experiment shows that:

1. Patients are responsive to out-of-pocket costs; if people face a high deductible, rather than first-dollar coverage, they will reduce their health care spending by about 30%.

2. This reduction in health care spending has no effect on the patient's health care in most cases.

3. Patients reduce their spending not by comparing the marginal value of various medical services with other uses of money; rather, they reduce their spending by deciding not to initiate care in the first place.

Why #3?

According to John Goodman, the "Father of Health Savings Accounts":

The health care system is a bureaucratic, institutionalized structure, in which normal market processes have been systematically suppressed. Since most people pay with time, not money, when they buy care, providers are not competing on price or quality. Since price and quality data are not available, patients find it impossible to trade off money against health services, the way they would do in a normal market. Hence, their only real choice is whether to enter the system at all. And the higher the expected cost of entry, the less likely they are to do so.

Sources: NCPA and John Goodman's Blog

Ethanol:Profitable Only With Tax-Breaks and Tariffs

Current grain-based ethanol production systems damage soil and water resources in the U.S. and are only profitable in the context of tax breaks and tariffs.

The current focus on ethanol from corn illustrates the risks of exploiting a single source of biomass for biofuel production. A growing percentage of the U.S. corn harvest – 18% in 2006 – is directed towards grain ethanol production. This has not only resulted in record-high corn prices, it has produced strong incentives for continuously-grown corn, higher-than-optimal use of nitrogen fertilizers, the early return of land in conservation programs to production, and the conversion of marginal lands to high-intensity cropping. All of these changes exacerbate well-known environmental problems associated with intensive agriculture.

From The Ecological Society of America's policy statement on "Biofuel Sustainability." The Ecological Society of America is the country's primary professional organization of ecologists, representing 10,000 scientists in the United States and around the world.

Conspicuous Consumption and Race: $500 Sneakers

Do blacks actually spend more on consumerist indulgences than whites? And if so, what, exactly, makes black Americans more vulnerable to the allure of these luxury goods?

Three economists from the University of Chicago and Wharton h
ave taken up this rather sensitive question in a recent unpublished study, "Conspicuous Consumption and Race." Using data from the Consumer Expenditure Survey for 1986-2002, they find that blacks and Hispanics indeed spend more than whites with comparable incomes on what the authors classify as "visible goods" (clothes, cars, and jewelry). A lot more, in fact—up to an additional 30%. The authors provide evidence, however, that this is not because of some inherent weakness on the part of blacks and Hispanics. The disparity, they suggest, is related to the way that all people—black, Hispanic, and white—strive for social status within their respective communities.

Read more here in Slate.

Quote of the Day: Thomas Sowell

In the 1970s, severe government restrictions on building became common in coastal California. With supply restricted and demand not restricted, it was inevitable that prices would soar beyond many people's ability to pay.

The main impetus behind severe restrictions on building is environmentalist zealots who demand that vast amounts of land be set aside as "open space" on which nothing can be built.
It is not uncommon for substantial proportions of all the land in an entire county -- sometimes more than half -- to be set aside as "open space."

Environmentalists often talk as if they are trying to save the last few patches of greenery from being paved over, when in fact 90% of the land in the United States is undeveloped and forests alone cover more area than all the cities and towns in the country combined.

Read more here.

Monday, January 14, 2008

Paul Krugman Has Predicted 9 Out of the Last None Recessions Under Bush Administration

1. "Right now it looks as if the economy is stalling..." — Paul Krugman, September 2002

2. "We have a sluggish economy, which is, for all practical purposes, in recession..." — Paul Krugman,
May 2003

3. "An oil-driven recession does not look at all far-fetched." — Paul Krugman,
May 2004

4. "A mild form of stagflation - rising inflation in an economy still well short of full employment - has already arrived." — Paul Krugman,
April 2005

5. "If housing prices actually started falling, we'd be looking at an economy pushed right back into recession. That's why it's so ominous to see signs that America's housing market ... is approaching the final, feverish stages of a speculative bubble." — Paul Krugman,
May 2005

6. "In fact, a growing number of economists are using the "R" word [i.e., "recession"] for 2006." - Paul Krugman,
August 2005

7. "But based on what we know now, there’s an economic slowdown coming." - Paul Krugman,
August 2006

8. "This kind of confusion about what’s going on is what typically happens when the economy is at a turning point, when an economic expansion is about to turn into a recession" - Paul Krugman,
December 2006

9. "Right now, statistical models ... give roughly even odds that we’re about to experience a formal recession. ... The odds are very good — maybe 2 to 1 — that 2007 will be a very tough year." - Paul Krugman,
December 2006

Bottom Line: In other words, to paraphrase
Megan McArdle, Paul Krugman has predicted nine out of the last none recessions under the Bush administration.

(Source: The Q&O Blog, via the Mighty Angus at Kids Prefer Cheese.)

Update: According to LyinginPonds, Paul Krugman ended up as the #2 most partisan columnist in 2007 (tied with Joe Conason), right behind the #1 most partisan columnist: Ann Coulter.