Tuesday, June 03, 2008

It's Over: From 70% Odds to 5.5% in 135 Days

Hillary's odds on Intrade.com, from 70% in February 2008 to 5.5% today (click graph to enlarge).

How Rich Are You? Even Minimum Wage Workers in the U.S. Are Richer Than 87% of People in World

Check it out here at the Global Rich List. Enter your annual salary and find out how you rank (percentage ranking) among the 6 billion people on the planet, based on world salary data from the World Bank Development Research Group. Here are a few examples:

A single American living at the poverty level of $10,294 annual income (in 2006) would be in the top richest 13.25% people in the world.

An American worker earning the minimum wage of $6.55 (July 2008) would be in the top richest 12.64% people in the world.

The median income per household member of $26,036 (in 2006) would be in the top richest 9.47%.

An American making the average hourly wage of $17.88 ($35,760 in 2008) would be in the top richest 4.4% people in the world.

A U.S. high school teacher earning the average salary of $52,450 (in 2007) would be among the top richest 0.96% people in the world.

A UAW worker making the average hourly wage of $39.68 (in 2007 with overtime, holiday and vacation pay, etc.) would be in the top 0.79% richest people in the world.

Bottom Line: We might complain about declining real wages in the U.S., increasing income inequality, the "middle-class squeeze," and the "disappearing middle class," etc., but think about it: even minimum wage workers in the U.S. are richer than 87.36% of the people on the planet. As much as we might complain, just by being alive in 21st century America, even if you're lower or middle class, you've "won first prize in the lottery of life."

Want Cheaper Gas? Here Are 4 Solutions

To address rising oil and gas prices, there's not much we can do about rising global demand, but we can do a lot to increase supply. Cato Institute's Jerry Taylor outlines 4 ways to increase domestic supplies of oil and gas in today's NY Post:

1. Open up key areas for oil and gas exploration and development.

2. Open up the West to oil-shale development.

3. Empty out the Strategic Petroleum Reserve.

4. Suspend federal rules that force refiners to use only low-sulfur oil to make gasoline and diesel.

Thanks to Cafe Hayek for the pointer.

Return of King Dollar?

The chart above shows the one-year forward premium or discount for the USD vs. the British Pound (BP) and the euro, on the first trading of June in 2006, 2007 and 2008 (data available here). Compared to two years ago when the dollar was selling at a one-year forward discount versus both the BP (-0.60%) and the Euro (-2.1%), the dollar is now selling at one-year forward premiums of +2.6% for the BP, and +1.8% for the euro.

Does this signal the return of King Dollar?

Global Market Flows for Oil: U.S. Sucks It Up

The global oil flow map tells an interesting story: The U.S. sucks in oil from oil-producing countries around the world on five continents, despite the fact that it has much of its own domestic energy resources that are currently off-limits. Then when demand for oil increases in emerging markets like Russia, China, India and Brazil, and these countries compete with the U.S. for a limited supply of global oil, the U.S.: a) complains about high oil prices, but b) refuses to open up its own domestic oil supplies.

Isn't it kind of like Jed Clampett discovering oil on his land while hunting, but refusing to use it or sell it?

Update: The global oil flow map is
from the API.

Monday, June 02, 2008

No New Oil Refineries Since 1976

A new oil refinery has not been built in the United States since 1976. During that time, our gasoline use has increased over 25%. The nation's 149 existing refineries have been running at maximum capacity trying to meet record demand and, as a result, not only do we import oil, we actually have to import 10% of our daily gasoline from refineries overseas.

For the wealthiest, most powerful nation in the world this is a ridiculous situation that will only get worse as our insatiable demand for gasoline keeps growing and refinery capacity falls further behind in the coming years. Just a few new refineries would alleviate the problem and help keep our gas prices lower and steadier.

But getting an oil refinery built is next to impossible, hence the 30-year construction drought. There will always be environmental activists who fight any new proposed refinery, regardless of where it might be located and how environmentally safe it is. And our environmental rules give them the upper hand.

Consider the example of Arizona Clean Fuels, which has been trying to build a small refinery outside Yuma for almost 10 years. It took five years just to get air-quality permits. Now they hope to be operational in 2010, 15 years after they started the project.

The opposition to building new refineries ignores the dramatic technological improvements that have been made since an oil refinery was last constructed here in 1976. New, clean refineries emit far less pollution than older refineries, with new scrubbers and design changes that dramatically reduce sulfur and other emissions. And at the same time our ability to model and map emission characteristics and distribution lets us choose the best locations for new facilities – where they will have the least possible impact on people and the environment.

Reason Magazine

The Ultimate Commandment: Carbon Chastity

Via WonderMark, click to enlarge.

The Founding Fathers Were Bloggers

Well, OK, let me rephrase that. Many of the Founders were the 18th-century equivalent of a certain category of modern-day bloggers — writers on political topics, typically using a pen name, who are also connected to formal journalism and simultaneously active in partisan politics.

John Adams, Thomas Jefferson, James Madison, Alexander Hamilton, Benjamin Franklin, John Jay, Gouveuneur Morris — these and other notables of the Founding were not just drafters and signers of America’s founding documents, wartime leaders, statesmen, diplomats, and jurists. They were also prolific media commentators capable of great works of political philosophy as well as ribald jests, character assassination and political rumor-mongering.

Read more here.

Zimbabwe: Everybody's a Billionaire, But Starving

Zimbabwe's Official inflation rate: 165,000 percent
Actual inflation rate: 1,700,000 percent

Amount of money an average family of six needs per month for basic services and goods: $100 billion

The Progressive Teachers’ Union of Zimbabwe's salary demand: $76 billion per month

Amount awarded to the teachers by the government: $60 billion per month

Result: 16,000 teachers have left Zimbabwe for South Africa and elsewhere

Harare Tribune link

Girls vs. Boys

Inflation Fighters: McDonald's and Steve and Barry's

We hear a lot about bad news about inflation, agflation, higher food prices, the middle-class squeeze, high gas prices, rising income inequality, etc. etc.

How bad can things really be for the average person when you can get a double cheeseburger or a McChicken sandwich at McDonald's for $1, and can buy any item of clothing at Steve and Barry's for $8.98 or less?

See previous CD post here on Steve and Barry's.

Iowa Farms Harvested $4 Billion of Cash in 3 Years

Iowa may be a blue state politically, but when it comes to farm subsidies Iowa is all red (see picture above, red dots indicate locations receiving farm subsidies). According to the Environmental Working Group Farm Subsidy database, 70% of Iowa farms received subsidies in 2002 (most recent year available, data here), the second highest percentage in the country (see chart above).

During the 2003-2005 period, Iowa led the nation by harvesting almost $4 billion in cash, i.e. farm subsidies (
data here), or 10.8% of the $37 billion paid in total farm payments during that period. Iowa benefited from the generous $18 billion of subsidies given out by the U.S. government for growing (or not growing) corn, which is an amount equal to the subsidies paid for cotton, wheat, rice, soybeans, dairy, peanuts and barley COMBINED (data here).

Farm subsidies in Iowa are so popular and common that many citizens of the city of Des Moines partake of the government's generous agricultural largesse (see map above, red dots represent mailing addresses of "farmers" receiving subsidy payments).

Blogosphere Dictionary

Blogossary is an online dictionary for bloggers, wannabe bloggers, or those who just want to know what a blog is.

Average Price of a House in Detroit? Only $20,514!!

The good news is that Detroit home sales through April are up by a whopping +48% (YTD) compared to last year (3,360 homes sold in 2008 YTD vs. 2,267 last year), but the bad news is that the average price for a home sold in Detroit has fallen by almost 56% to only $20,514 so far this this year, compared to an average price last of $46,183 for the January-April period! Compared to the peak of $97,850 for the average Detroit home price in 2003, prices have fallen by 79% (see chart above, values are annual except for 2008, which is YTD, data available here).

(Hat Tip: James Hohman)

Cancer Kills, But So Does The FDA's Bureaucracy: Cancer's Cruel Economics

BUSINESSWEEK -- Billions of dollars are spent developing cancer drugs, but precious few get approved. Is the FDA part of the problem?

The U.S. government has doled out more than $75 billion for oncology research since President Nixon declared his War on Cancer in 1971. Outlays by the pharmaceutical industry have been far greater. Yet the death rate from cancer has dropped only about 7% in the past three decades, with most of the progress in the last few years. The disease continues to strike 1 in 3 Americans, and it kills 1 in 4. That averages out to 1,500 deaths every day, at an annual cost to the nation of $210 billion and climbing. Cancer is expected to become the nation's biggest killer within a decade, surpassing heart disease.

There are many plausible reasons for so much disappointment, not least the complexity of the disease. But more and more researchers, companies, and patients lay part of the blame on the FDA. They complain that the agency is using outmoded and overly rigorous methods for evaluating a new generation of cancer treatments, rather than doing everything possible to get better drugs to sick patients.

Since 2005 the FDA has approved 18 new cancer drugs, many of them breakthrough products. But the pipeline contains hundreds more that will never get to market because corporate developers aren't able, or willing, to come up with the money, time, and patients necessary to establish acceptable data. Only 8% of experimental cancer drugs end up receiving FDA approval, compared with 20% of medicines for all other diseases.

Those difficulties haven't kept the pharmaceutical industry from trying. There are currently some 750 cancer drugs in human trials, far more medications than in other disease categories. Successfully ushering any one of these drugs through the necessary development stages will take up to 15 years and typically cost more than $1 billion—about $200 million more than is spent winning approval for a noncancer drug. The clinical trial sinkhole most threatens small biotechs that develop the bulk of new cancer drugs, and it is these firms that complain the loudest about the FDA.

There's Some Relief: Falling Gas Prices in Michigan

Gas prices in Michigan have fallen for 8 consecutive days, according to MichgianGasPrices.com (blue line above), reflecting falling crude oil prices over roughly the same period (red line above).

Sunday, June 01, 2008

Windfall Profits for Big Food, Where's The Outrage?

As Food Prices Spiral, Farmers, Others Profit

WILLMAR, Minn. (AP)The steepest run-ups in food prices since 1990 are hurting grocery shoppers, restaurants and school cafeterias but they're making others rich.

The winners in the new food economy include crop farmers selling corn and wheat for near-record highs after years of crushingly low prices. Ingredient makers like Cargill and ADM are rife with profits. Fertilizer and tractor companies are cashing in.

Profits at seed and pesticide maker Monsanto Inc. reached nearly $1 billion last year — a 14-fold increase since 2003. They've tripled to $1.1 billion at agrichemical maker Syngenta and agriculture divisions of DuPont Co. and Dow Chemical Co. have also seen their earnings balloon. Cargill, which makes ingredients, boosted its profits to $2.3 billion, up nearly six-fold since 2001. Meanwhile, profits at agricultural processor Archer Daniels Midland Co. have more than quadrupled to $2.16 billion during the same period.

Question: Why don't the "obscene, windfall profits" of Big Food get the same attention as the profits of "Big Oil?" Where are the Congressional hearings and proposals for windfall profits taxes on Big Food? After all, the increase in profits for major food companies from 2005 to 2007 are ridiculously and obscenely higher than the paltry 12% increase in profits for Exxon Mobil (see chart above).

Capitalism In A Nutshell

4-Block World.

Oil Market Fundamentals

The chart above (data available here from Net Oil Exports blog) shows Net Oil Exports of the top 20 oil exporters, representing 93% of total world exports, versus the world price of oil, from January 2001 to April 2008 (for oil exports) and May 2008 (for oil prices).

The story seems clear: Net oil exports peaked during the 2004-2006 period, and they have been declining in 2007-2008. In the face of rising global demand, oil prices have been increasing. Of course, there are the effects of the falling USD and speculators, but the chart below looks basically the same when oil is priced in euros.

Saturday, May 31, 2008

2004 Flashback: Speculators Got Blamed Then, Too

Business Week (August 30, 2004) -- Are Speculators Driving Up The Price Of Oil? There is no doubt most of oil's huge price leap -- up 40% in the past year, to $45 a barrel (see chart above) -- is grounded in fundamental supply-and-demand issues. But how much of crude's big bounce is also because of speculation -- hedge funds and other financial players pushing up the price in futures markets? That's tougher to answer, but these traders are surely adding froth to an already superheated market.

World Gas Price Map

$11.49 per gallon in Germany!!

$0.12 per gallon in Venezuela!!

The Stabilizing Role of Speculators

1. People who argue that speculation is destabilizing seldom realize that this is largely equivalent to saying that speculators lose money, since speculation can be destabilizing in general only if speculators on the average sell when the currency (commodity) is low in price and buy when it is high.

~Milton Friedman, Essays in Positive Economics (p. 175)

In other words, speculators who continually lose money by buying high and selling low (which would increase volatility and be destabilizing) will be forced to leave the market eventually, and only rational speculators – those who will actually help to stabilize prices – will survive.

2. Speculators anticipate shortages and buy up commodities early, thereby removing them from the market. This alerts consumers to the oncoming shortage, fulfilling the important financial market role of providing information and allowing them to reduce consumption as prices rise. Later, the speculator sells, ameliorating the shortage while making a profit.

Speculators anticipate and warn others about shortages—they do not cause shortages. As a result of their trades, price swings are less severe than they otherwise would have been. We do not blame doctors, police, or firemen for profiting from the misfortune of others because it is understood that they help a bad situation. Speculators deserve the same consideration.

~Joetta Forsyth, Learning to Love Financial Market Barbarians

The Global Blogosphere

Click map to enlarge, showing visits to CD in the last 2 weeks.

4-Day Work Week is Back: Part of the Adjustment

To help offset high gas prices, the 4-day work week is coming back (just like it became popular in the 1970s and early 1980s when gas prices rose); just another example of how consumers will find many ways to deal with $4 gas: buying smaller cars (see post below), driving less, and working four 10-hour days instead of five 8-hour days to achieve 20% savings, etc.

Bottom Line: Markets adjust, consumers adjust, producers adjust, employees adjust, employers adjust, everybody makes adjustments; that's part of the miracle of the market - continual adjustments to the never-ending dynamic changes in the economy and the marketplace.

Gas Prices Drive Geo Metros From Clunkers to Chic

The 1995 Geo Metro pictured above (92,800 miles) has a Kelly Blue Book Retail Value of $1,790 and a Private Party Value of just $1,335, but it just sold on Ebay for $5,200 (with 34 bids).

Reason? Great, gas mileage (50 mpg), rivaling the hybrid Prius.

According to CNN, a 1996 Geo Metro sold on Ebay recently for $7,300, which is just $1,700 less than what Metros sold for new in 1995-1996, about $9,000.

In May alone, 43 Metros of various years and models were sold on eBay, ranging in price from $221.50 to $7,300. The cars have been hot items, drawing upwards of 49 bids on certain vehicles, with many of the auctions coming down to last-second bidding wars.

As of today, there are currently
39 Geo Metros for sale on Ebay, highest bid is currently $4,000 (38 bids total) for a 1993 model with 87,000 miles, auction ends tomorrow night.

The Ultimate Salvation: Environmentalism; And The Ultimate Commandment: Carbon Chastity

For a century, an ambitious, arrogant, unscrupulous knowledge class -- social planners, scientists, intellectuals, experts and their left-wing political allies -- arrogated to themselves the right to rule either in the name of the oppressed working class (communism) or, in its more benign form, by virtue of their superior expertise in achieving the highest social progress by means of state planning (socialism).

Two decades ago, however, socialism and communism died rudely, then were buried forever by the empirical demonstration of the superiority of market capitalism everywhere from Thatcher's England to Deng's China, where just the partial abolition of socialism lifted more people out of poverty more rapidly than ever in human history.

Just as the ash heap of history beckoned, the intellectual left was handed the ultimate salvation: environmentalism. Now the experts will regulate your life not in the name of the proletariat or Fabian socialism but -- even better -- in the name of Earth itself.

Environmentalists are Gaia's priests, instructing us in her proper service and casting out those who refuse to genuflect. And having proclaimed the ultimate commandment -- carbon chastity -- they are preparing the supporting canonical legislation that will tell you how much you can travel, what kind of light you will read by, and at what temperature you may set your bedroom thermostat.

~Charles Krauthammer, Environmentalists Pick Up Where Communists Left Off

Quote of the Day

The largest threat to freedom, democracy, the market economy and prosperity is no longer socialism. It is, instead, the ambitious, arrogant, unscrupulous ideology of environmentalism.

~Czech President Vaclav Klaus

Let The Good Times Roll in Russia: Unprecedented Possibility to Live a Free Private Life

What did Putin do right in his eight years in office? Under him Russians acquired the unprecedented possibility to live a free private life. Private life was never an open theme of the Putin era. Yet it was, and is, omnipresent.

Private life is the restaurants full to capacity across the country; it is the traffic jams, the suburban mansions that rival anything in Bavaria or California, the nightclubs and discotheques. These are but the external signs. The philosophy of private life throws itself at you from every billboard and advertisement. The Internet and television are saturated with it. The news and political programs have been rendered as tribute to the Kremlin, but the rest of television is a celebration of the joys of private life - in songs, soap operas, humor and other entertainment.

The same can be said for the print media. The large majority of magazines are dedicated to style - a word Russians didn't know 20 years ago. A huge amount of space, in glossy magazines and provincial leaflets alike, is devoted to fashion, sex, cars, food, the good life. Newspapers are not far behind: Their favorite theme is leisure - family, tourism, whatever you want.

We've obtained the secret freedom of an underground private life. We can teach our children almost anything, we can turn them into Christians or Buddhists. And we can travel, depending on our means, to Italy or to Easter Island.

By Viktor Erofeyev (Russian writer and TV host), writing in the IHT

HT: Greg Allar

Friday, May 30, 2008

World Stock Market Value Increases By $4T in April, The Largest Monthly Gain in History

According to data obtained from the World Federation of Exchanges, the world stock market capitalization increased by more than $4 trillion in April (see chart above, click to enlarge), the largest monthly gain ever (monthly data became available starting in 1995). The record 7.6% monthly gain, to almost $58 trillion of stock market value in April, was fueled by double-digit monthly market capitalization gains in April for Colombia (17%), Brazil (15.5%), India (11%), Hong Kong (11%), NASDAQ (15.6%), Turkey (13%), South Africa (11%), and Norway (11%).

(Note: Market capitalization of $4.012 trillion for NASDAQ in April was obtained separately from Global Financial Data.)

World's Most Worthless Currency

The Zimbabwe 10 million dollar note pictured above, is currently worth about only $4 (USD) on the black market. See more examples here of the "World's Most Worthless Money."

Look Out Craigslist

Kroger Joins Wal-Mart, Target, CVS and Walgreens

Nashville, TN -- Kroger Co. says it has made a "significant" investment in The Little Clinic LLC to support a rollout of the in-store health centers across its locations nationwide.

Currently, Little Clinic operates 26 walk-in clinics inside Kroger-owned stores. The clinics handle minor illnesses and injuries like bronchitis, sinus infections and sprains, and also provide physicals, screenings and vaccinations.

Kroger, headquartered in Cincinnati, operates more than 2,400 supermarkets and multi-department stores in 31 states.

Comment: While politicians in Washington and the three presidential candidates dream up the next grandiose government healthcare reform to address rising healthcare costs, the most effective, affordable and convenient market-based healthcare solutions might be right around the corner, at your local Kroger, Walgreens, CVS, Target or Wal-Mart. Let a 1,000 retail healthcare clinics bloom. No, make that 10,000.

Quotes of the Day

No drug, not even alcohol, causes the fundamental ills of society. If we're looking for the source of our troubles, we shouldn't test people for drugs, we should test them for stupidity, ignorance, greed and love of power.

~P.J. O'Rourke

I love to go to Washington, if only to be near my money.

~Bob Hope

Real GDP Growth: Percent Change from Year Ago

From Greg Mankiw (Note: Greg shows real GNP growth, the chart above is real GDP growth, both on an annual percent change basis from a year ago. Both graphs tell the same story).

Moscow Now Has More Billionaires than NYC

World Billionaires By City

Despite all the squabbling between New York and London for bragging rights, neither is actually home to the largest number of billionaires in 2008 according to Forbes. That honor belongs to Moscow (see chart above).

The Russian capital is home to 74 billionaires, with an average net worth of $5.9 billion. That's quite a jump from just five billionaire residents in 2002. Moscow knocked off perennial No. 1 city New York, who is close behind with 71 billionaires and an average net worth of $3.3 billion. It is the first time since 2001, when Forbes started closely tracking the city data, that New York hasn't been at the top.

But Mumbai, India, earns bragging rights as the city with the richest billionaires. Mumbai's 20 billionaires, including two of the world's 10 richest (brothers Mukesh and Anil Ambani), are worth an average $7.6 billion, handily besting Moscow's $5.9 billion average.

MP: In terms of total wealth of the billionaires represented in the table above, the billionaires in the emerging markets of Russia, Turkey, Hong Kong and India have a combined net worth of almost $800 billion, far greater than the $600 billion of combined wealth of the advanced economies of the U.S., U.K. and Japan billionaires.

Real Disposable Income Growth Highest in 2008

Buried inside today's BEA report on April Personal Income (tables available here, see Table 10) is the statistic that "Real Disposable Personal Income" grew at an annual rate of 1.82% in April 2008 compared to April 2007, the highest rate of growth since December 2007 (see chart above). This will probably not get a lot of attention from the media, but provides some additional evidence that the U.S. economy is not on the verge of recession, and might in fact actually be moderately healthy.

Thursday, May 29, 2008

Real Gas Prices Now At All-Time High, But Will Fall

It's now official: Real, inflation-adjusted gasoline prices in the U.S. are at an all-time, according to data from the EIA (see chart above). The previous high was $3.426 per gallon in March 1981 (in today's dollars), which was exceeded in April ($3.466 per gallon) and May ($3.671 per gallon) of this year.

The EIA is forecasting gas prices below $3.50 by the end of this year, and below $3.00 by the end of next year (see shaded area in chart).

Index Funds Consistently Outperform Actively Managed Mutual Funds

1. The S&P 500 Index consistently outperformed 98% of mutual fund managers over the past three years and 97% over the past 10 years, ending October 2004. In two 30-year studies, the S&P 500 outperformed 97% and 94% of managers. In addition, only about 12% of the top 100 of managers repeat their performance in the following years. Therefore, it is not possible to consistently pick next year’s hot mutual fund manager.

From IFA.com

2. Over fifteen years to 1998, on a pre-tax basis the Vanguard S&P 500 index fund outperformed 94% of general equity mutual funds and 97% on a post-tax basis. The post-tax average difference in annual performance was 4.2%.

~From Common Sense on Mutual Funds, by John Bogle

Bottom Line: If you scored at the 97% level on the LSAT (score of about 169-170), I think you'd feel pretty good, especially if you didn't even have to study too hard (like index investing). On the other hand, if you paid a test preparation company thousands of dollars (like a mutual fund manager or investment advisor) and got a score far below the 97% percentile (which you pretty much could have gotten on your own for free), I think you'd feel pretty bad.

Wait Times at Traditional MDs vs. Retail Clinics: 3 Months vs. Today, Seems Like a Real Nobrainer

Take Care Health Clinics, which began operation in 2005, has 28 clinics inside Walgreens stores in the Chicago area. The newest opened yesterday in Rockford. Take Care isn’t alone in the rapidly growing retail health-care market, however. The Chicago area has 24 MinuteClinics, each inside a CVS pharmacy, and Wal-Mart has also forayed into the health-care market and offered other clinics space in six Indiana locations.

When Elmhurst, Illinois resident Tina Tuszynski, 44, discovered her allergy prescription was about to expire, the wait for a doctor’s appointment was two to three months. Instead, she went to a local MinuteClinic inside a CVS pharmacy and got a new prescription. “It was a quick way to get my prescription without having to book months in advance,” she said.

Read more here.

Futures 101

Walter Williams explains why the futures market, which takes into account both the present and the future availability of goods, is a vital part of a smoothly functioning economy.

Cartoon of the Day: Sorry, There's Nothing There

Investigate Big Congress, Not Big Oil

The simple fact is that the prices of oil and gasoline are determined by supply and demand—which neither private oil companies nor speculators have any power to dictate in their favor. If they had such market mastery, then why didn't they use it in the 1990s, when gasoline was selling at a barely profitable $1 a gallon? To be sure, speculators can bid up prices—but they only do so when they believe that oil will become even more expensive in the future, and only make money when they are right.

The question Congress should really be asking, then, is: What nonmarket factors are distorting supply and demand? If they sought an honest answer, they would discover that much of the blame lies with Congress itself.

Read more here.

Housing Affordabilty Remains High in April

The National Association of Realtors released its latest report today on the Housing Affordability Index (HAI) for April, showing a slight decline to 129.4 from the March level of 130 (see chart above) due to a slight increase in median-price home in April.

A composite HAI of 129.4 means that a family earning the median family income in April ($60,185) had 129.4%% of the income necessary to qualify for a conventional loan (at 6.03%) covering 80% of a median-priced existing single-family home in April ($200,700).

Since July 2007 when the HAI was at only 103.6 (due to higher home prices and interest rates, $228,500 and 6.8% respectively), the 25.8 point increase in housing affordabilty to 129.4 in April should continue to play an important role in the recovery process for the slumping real estate market. It's a buyer's market.

Blame Congress for High Oil Prices

Despite its pious denunciations of the behavior of U.S. investor-owned oil companies (IOCs), Congress by its actions over the years has ensured the economic viability of the foreign national oil company cartel (which control nearly 80% of world petroleum reserves).

It has done so by preventing the exploitation by IOCs of reserves available in nonpark federal lands in the West, Alaska and under the waters off our coasts. These areas hold an estimated 635 trillion cubic feet of recoverable natural gas – enough to meet the needs of the 60 million American homes fueled by natural gas for over a century. They also hold an estimated 112 billion barrels of recoverable oil – enough to produce gasoline for 60 million cars and fuel oil for 25 million homes for 60 years.

If Congress really cared about the economic well-being of American citizens, it would stop fulminating against IOCs and reverse current policies that discourage, indeed prohibit, the production of domestic oil and natural gas. Even the announcement that Congress was opening the way for domestic production would lead to downward pressure on oil prices.

From today's WSJ

.9% Real GDP Growth in QI = NO Recession

WASHINGTON -- The U.S. economy was stronger than first thought because of a better trade balance and stronger business spending.

Gross domestic product rose at a seasonally adjusted 0.9% annual rate January through March, the
Commerce Department said in the second estimate of first-quarter GDP (see chart above). Originally, in a report a month ago, Commerce said GDP increased 0.6% in the first quarter -- the same, rate of growth achieved in the fourth quarter.

Bottom Line: With GDP growth of almost 1% in the first quarter, there is almost 0 probability that the NBER could determine that the U.S. economy was in recession in 2008, at least not during the first quarter.

Demand Curves Slope Downward, Except in Politics

How is it that everyone complaining about high gas prices can see this simple relationship:

increased gas prices = people buy less gas [corollary: people buy more fuel efficient cars]

but they cannot see these relationships:

increased minimum wage = people buy less minimum wage labor

increased business taxes = less business

increased capital gains taxes = less capital

~Comment from Bob Wright on this CD post

Wednesday, May 28, 2008

Chart of the Day: It Could Be Worse. A Lot Worse

In terms of inflation, the last 25 years since 1983 has been the most stable period in the last 200 years.

Let Wal-Mart Fix U.S. Health Care. Seriously.

The discount retailer already has made major inroads into accessible, affordable care through lower drug prices, walk-in clinics and electronic record-keeping. Why stop there?

Wal-Mart has done more to expand coverage and lower costs in the past year than any government program to come out of Washington in the past 10 years. And I'd bet the new programs that this company has announced in the past year will do more to expand coverage and cut costs than anything likely to come out of a McCain, Clinton or Obama first term.

Read more here.

Index Funds Rise to 11.5% of Equity Mutual Funds

The chart above is based on data in the recently released 2008 Investment Company Fact Book from the Investment Company Institute, showing the rise in the popularity of indexed mutual funds from less than 1% of all equity mutual fund assets in 1987 to 11.5% in 2007.

Although the expense ratio for actively-managed equity mutual funds has declined to a record low of 1.02% in 2007 (compared to 2.32% in 1980), that is still 4 times the average expense ratio of .25% for indexed funds, and almost 6 times the expense ratio of the Vanguard 500 Index Fund (data here for index funds).

Fact of the Day: Twice As Many Funds As Stocks

Total Number of publicly traded U.S. companies on the NYSE (2,764), NASDAQ (3,200) and AMEX (883): 6,847

Number of U.S. equity mutual funds: 12,833

Number of U.S. hybrid funds: 1,340

Total number of mutual funds holding equities: 14,173

Ratio of mutual funds with equity holdings to publicly traded companies: 2 to 1

Bottom Line: There are about twice as many mutual funds that hold stocks as indvidual stocks.

Source for Fund Info: 2008 Investment Company Fact Book

Retirement Assets Increase By $1.1 Trillion in 2007 to Almost $160,000 Per U.S. Household

Washington, DC -- Americans held $17.6 trillion in retirement assets at the end of 2007, up $1.1 trillion from year-end 2006 (see chart above), according to the Investment Company Institute (ICI). In the first comprehensive look at the scope of the nation's retirement market for the full year, ICI found that strong growth in Individual Retirement Accounts (IRAs) and employer-sponsored defined contribution plans, powered the 7% increase.

From the full report: Retirement market assets are held in a variety of tax-advantaged plan types. The largest components are Individual Retirement Accounts (IRAs) and employer-sponsored defined contribution plans, holding $4.7 trillion and $4.5 trillion, respectively, at year-end 2007.

Eighty-two million, or 71% of, U.S. households report they had employer-sponsored retirement plans, IRAs, or both in May 2007. Sixty-one percent of U.S. households report that they had assets in defined contribution plan accounts, were receiving or expecting to receive benefits from defined benefit plans, or both. Forty percent of households report having assets in IRAs. Thirty percent of households had both IRAs and employer-sponsored retirement plans.

Note: The $1.1 trillion increase in retirement assets during 2007 is an increase in about $10,000 per household (number of households is about 110 million, data here), and represents an average of almost $160,000 in retirement savings per household.

The way the recessionistas and media tell the story, the U.S. economy is on the verge of another Great Depression. The facts tell a different story - despite subprime mortgage and housing problems, the U.S. economy generated more than $1 trillion in retirement wealth during 2007!

Quote of the Day II: Relentless Pursuit of Efficiency

"Lowering prices is easy. Being able to afford to lower prices is hard."

~Jeff Bezos, Amazon CEO

Pharmaceutical Facts

Time to develop and market a new drug: 10-15 years

Average Cost to develop a new drug (2006): $1.318 billion

Total R&D spending on drugs in 2007: $58.8 billion

Generic share of market in 2007: 67%

Percent of marketed drugs that cover R&D costs: Only 20%

Total number of drugs approved in 2007: 23

R&D as a percent of U.S. sales: 18.7%

Average effective patent life for major drugs: 11 years

Medicines currently in development: 2,700 compounds

For every 5,000-10,000 compounds tested, the number that make it to clinical trials: 5

For every 5 compounds that make it to clinical trials, the number that get FDA approval: 1

Probability that a compound tested eventually gets FDA approval: .01% (1/100th of 1%) to .02% (1/50th of 1%)

Source: Pharmaceutical Industry Profile 2008

Quote of the Day

"The college idealists who fill the ranks of the environmental movement seem willing to do absolutely anything to save the biosphere, except take science courses and learn something about it."

~P. J. O'Rourke

Climate Alarmism: Czech President Compares Global Warming Propoganda to Communism

Washington -- Czech President Vaclav Klaus said Tuesday he is ready to debate Al Gore about global warming, as he presented the English version of his latest book that argues environmentalism poses a threat to basic human freedoms.

Klaus, an economist, said he opposed the "climate alarmism" perpetuated by environmentalism trying to impose their ideals, comparing it to the decades of communist rule he experienced growing up in Soviet-dominated Czechoslovakia.

"Like their (communist) predecessors, they will be certain that they have the right to sacrifice man and his freedom to make their idea reality," he said.

"In the past, it was in the name of the Marxists or of the proletariat - this time, in the name of the planet," he added. "It could be even true that we are now at a stage where mere facts, reason and truths are powerless in the face of the global warming propaganda."

(HT: Clover Aguayo)

If You Tax Something, You Get Less of It Part II

The latest news of Michigan's deepening budget woe is a national warning of what happens when you raise taxes in a weak economy (see chart above, Michigan's jobless rate vs. national).

Officials in Lansing reported this month that the state faces a revenue shortfall between $350 million and $550 million next budget year. This is a major embarrassment for Governor Jennifer Granholm, the second-term Democrat who shut down the state government last year until the Legislature approved Michigan's biggest tax hike in a generation. Her tax plan raised the state income tax rate to 4.35% from 3.9%, and increased the state's tax on gross business receipts by 22%. Ms. Granholm argued that these new taxes would raise some $1.3 billion in new revenue that could be "invested" in social spending and new businesses and lead to a Michigan renaissance.

Not quite. Six months later one-third of the expected revenues have vanished as the state's economy continues to struggle. Income tax collections are falling behind estimates, as are property tax receipts and those from the state's transaction tax on home sales.

From today's WSJ

ECN 101: If You Tax Something, You Get Less of It

Leave it to the Democratic majority in Congress to fight rising gas prices and growing dependence on foreign oil by imposing a windfall-profits tax on U.S. petroleum companies, while refusing to let them tap America's vast oil and gas reserves in the Alaskan wilderness and offshore.

From my editorial in yesterday's Investor's Business Daily

Tuesday, May 27, 2008

Inflationary Expectations Are Deflating?

The chart above shows inflationary expectations from January 2004 to April 2008, calcuated as the spread between: a) the yield on regular 10-Year Treasury notes (constant maturity, data here) and b) the yield on 10-Year Treasury Inflation-Indexed Securities (data here). The data suggest that a) inflationary expectations are going down, not up (see trend line above) and b) inflation expectations were much higher in 2004, 2005 and 2006 than in 2007 and 2008?

Singapore Healthcare Model: Patients and Doctors Make Decisions, Not Government Bureaucrats

Why hasn’t the United States adopted the same healthcare system as Europe, Canada, and nearly all the rest of the developed world? While the United States is portrayed as the outlier, the truth is that another developed nation has eschewed the European government-payer model—with a great deal of success. That nation is Singapore, a city-state with a population of just 4.6 million but a lot to teach America.

Singaporeans are considerably healthier than Americans, yet pay, per person, about one-fifth of what Americans pay for their healthcare (see some comparative statistics above). A major reason is that Singapore’s system does not focus on the question that seems to preoccupy both Europe and America: who pays? Ultimately, whoever signs the checks, the money comes out of the pockets of individuals. Singapore takes a different tack.

What’s the reason for Singapore’s success? It’s not government spending. The state, using taxes, funds only about one-fourth of Singapore’s total health costs. Individuals and their employers pay for the rest. In fact, the latest figures show that Singapore’s government spends only $381 (all dollars in this article are U.S.) per capita on health—or one-seventh what the U.S. government spends (see chart above).

Singapore’s system requires individuals to take responsibility for their own health, and for much of their own spending on medical care. As the Health Ministry puts it, “Patients are expected to co-pay part of their medical expenses and to pay more when they demand a higher level of service. At the same time, government subsidies help to keep basic healthcare affordable.”

The reason the system works so well is that it puts decisions in the hands of patients and doctors rather than of government bureaucrats and insurers. The state’s role is to provide a safety net for the few people unable to save enough to pay their way, to subsidize public hospitals, and to fund preventative health campaigns.

From The American

World Clock

Check out the World Clock here, to view updated statistics on world births, deaths, traffic accidents, abortions, marriages, divorces, U.S. prison population, cars produced, fires, etc.

If you click on "Day," you'll get today's stats, if you click on "Now," it will re-set all values to zero.

Thanks to Grant "Big Daddy" Leonard for the pointer.

Hope On The Horizon: The Case for Optimism

MIT Researchers Point to Potential Economy-boosting Technologies (link)

As the economy appears to falter and as more Americans fear that the country is on the wrong track, here's something to keep in mind: There is hope on the horizon.

History is filled with examples of how technology helped usher in new eras of prosperity. The rise of the Internet is a good case in point: Few people who experienced the economic recession of the early 1990s could have foreseen how the Web and related information technologies would improve their lives and unleash whole new industries within a few short years.

To help build the case for optimism, the MIT News Office asked a collection of MIT faculty and researchers for their thoughts on the potentially life-altering technologies that lie just around the corner. Here's a sample of what they said:

Biosolar Cells
Digital Fabrication
Electrochemical Energy
Embedded Electronics
Life Extension
Mitigating Autism
Problem Solving
Sustainable Cities
Transcending Technology

Thanks to Craig Newmark for the pointer

Sweden: Image and Reality

Interesting post here about Sweden from Lane Kenworth, Professor of Sociology, University of Arizona:

Surprises for the Left about Sweden:
1. Strong work ethos
2. Embrace of globalization
3. School choice
4. Partially privatized pensions

Surprises for the Right about Sweden:
1. Competitive economy
2. High degree of mobility (income and wealth)
3. Poor are well-off
4. Heterogeneous population

Winner's Curse? Gift Certificate Scalping?

Puzzle: Why are Amazon gift certificates selling for more than their face value on Ebay?? For example the Ebay auction above shows a $280.13 Amazon.com gift certificate, with 9 bids, a high bid of $294, and more than 5 days to go until the auction ends?

Check out more examples here, here, here and here.

Comments welcome.

Monday, May 26, 2008

Back to Basics: Suddenly, A Bright Future for Old-Economy Firms in Industries Like Steel and Mining

LA Times -- The price of U.S. Steel's stock has shot up 1,000% in recent years (from $16 in 2003 to more than $180 this month, see chart above) as industrial America has been resurrected to meet the needs of a feverishly industrializing world.

"We're in the midst of 2 to 3 billion people around the world rising out of abject poverty and demanding they have a better living standard," said Daniel R. DiMicco, head of Nucor Corp., America's largest steel company. "That means we've got a 20- to 30-year bull market in basic stuff."

The new vitality is reflected in a major surge in exports of U.S. goods, up about 80% over the last five years, to $316 billion in the first quarter of 2008 from $176 billion in the first quarter of 2003, government figures show.Foreign demand has helped drive U.S. Steel from a loss of $420 million five years ago to a nearly $880-million gain last year. Mining giant Freeport-McMoRan's profit is up 1,539%, from $181.7 million to nearly $3 billion. Fertilizer maker Mosaic Co.'s earnings went from $54 million for all of 2003 to $521 million for just the three months ended in February.

Perhaps the most fiercely held assumption about the economy has been that U.S. manufacturers could never compete globally because Americans earned vastly more than foreign workers. During the last several decades, though, the wages of many American workers have not grown at anything like the rates they used to. In the last decade, they haven't grown at anything like wages in much of the emerging world. So the wage gap is narrowing.