Tuesday, February 03, 2009

Michigan Home Sales Increase in 2008

We hear a lot of bad news about the real estate market, and the Michigan real estate market is supposed to be one of the worst in the country. Therefore, you might be surprised to learn that the number of homes sold in Michigan actually increased by +1.43% in 2008, from 99,552 homes sold in 2007, to 100,943 units in 2008 (data here). What makes that even more impressive is that nationally, home sales decreased by -13% in 2008 vs. 2007, and sales in the Midwest declined by -15% (data here).

Of course, the average home price in Michigan declined by -16%, from $140,724 in 2007 to $117,940 in 2008, but that's part of the recovery process - falling home prices eventually stimulate an increase in the number of homes sold, and that's what's happening in the Michigan real estate market.

Fed Model Predicts No Recession By End of 2009

Following up on my earlier post today on the NY Fed's model that predicts the probability of U.S. recession using the Treasury spread, here's a graph above with a "closer look" at the recession probabilities from January 2000 to January 2010 (data here). The shaded area on the left is the 2001 recession (March-November) and the right shaded area is the period from when the current recession started (Dec. 2007) and January 2009.

As the data and graph suggest, there is almost no possibility that the economy will be in recession by the middle of this year according to the Fed's model, which has accurately predicted the last 7 recessions, back to 1960.

Retail Health Clinics Empower Consumers

During the past few years, I've read about retail health clinics being the wave of the future. It wasn't until my son Jeremy visited a new MinuteClinic in a nearby CVS drugstore that I sat up and took notice. He walked in without an appointment and was seen within 15 minutes. They accepted his insurance, diagnosed his problem, wrote a prescription, and had him on his way a few minutes later. When he got a follow-up phone call at home days later to check on his condition, he was sold.

Located in mini-malls and discount stores, this new wave of small clinics is transforming the health care landscape. As we are paying more out of pocket for our medical care, we're approaching health care with more of a consumer's eye. We want to compare prices; we want convenience; and we want great customer service. That's what these clinics have to offer. I was a bit skeptical about treating strep throat just two aisles over from the hair-care products or taking the kids to the drugstore for their camp physicals. Now I'm changing my mind - and fast.

The way I see it, this new move toward retail health clinics empowers consumers by providing us with a new level of convenience and choice for routine and minor medical issues. That can't be a bad thing.

~Mary Hunt in the Pasadena Star-News

NY Fed's Model Predicts End of Recession in 2009

According to the New York Fed, "Research beginning in the late 1980s documents the empirical regularity that the slope of the yield curve is a reliable predictor of future real economic activity."

Yesterday, the
New York Fed released its latest "Probability of U.S. Recession Predicted by Treasury Spread," with data through January 2009 and its recession probability forecast through 2010 (see chart above, click to enlarge). The NY Fed's model uses the difference between 10-year and 3-month Treasury rates to calculate the probability of a recession in the United States twelve months ahead (see chart below of the Treasury spread).

The Fed's data show that the recession probability peaked during the October 2007 to April 2008 period at around 35-40%, and has been declining since then to less than 10% for December 2008 and January 2009. Looking forward through 2009, the Fed's model shows a recession probability of only about 1% on average through the next 12 months, and below 1% by the end of the year (.82% by January 2010). The Treasury spread has been above 2% for the last 11 months, a pattern consistent with the economic recoveries after the 1990-1991 and 2001 recessions.

Bottom Line: The New York Fed's Treasury spread model predicts the end of the recession in 2009.

Thanks to Andrew Greene for the tip.

Update: According to Brian Wesbury and Robert Stein in Forbes, "Some early warning signals suggest an economic recovery should start taking hold by mid-year."

Wal-Mart Is A Better Place to Work Than Both Target and The Small Mom-and-Pop Stores

Charles Platt (picture above) is a journalist, computer programmer and author of over 40 fiction and nonfiction books and was a senior writer at Wired magazine.

Charles moved recently from being a senior writer at Wired magazine to an entry-level position at Wal-Mart, "a company reviled by almost all living journalists," after he read the book "Nickel and Dimed," in which Atlantic contributor Barbara Ehrenreich denounces the exploitation of minimum-wage workers in America. According to Charles, "Somehow her book didn’t ring true to me, and I wondered to what extent a preconceived agenda might have biased her reporting. Hence my application for a job at the nearest Wal-Mart."

Here are some excerpts from his BoingBoing blog post "Life at Wal-Mart":

The job was as dull as I expected, but I was stunned to discover how benign the workplace turned out to be. My supervisor was friendly, decent, and treated me as an equal. Wal-Mart allowed a liberal dress code. The company explained precisely what it expected from its employees, and adhered to this policy in every detail. I was unfailingly reminded to take paid rest breaks, and was also encouraged to take fully paid time, whenever I felt like it, to study topics such as job safety and customer relations via a series of well-produced interactive courses on computers in a room at the back of the store. Each successfully completed course added an increment to my hourly wage, a policy which Barbara Ehrenreich somehow forgot to mention in her book.

My standard equipment included a handheld bar-code scanner which revealed the in-store stock and nearest warehouse stock of every item on the shelves, and its profit margin. At the branch where I worked, all the lowest-level employees were allowed this information and were encouraged to make individual decisions about inventory. One of the secrets to Wal-Mart’s success is that it delegates many judgment calls to the sales-floor level, where employees know first-hand what sells, what doesn’t, and (most important) what customers are asking for.

And here's Charles' most interesting and amazing observation (to me):

Several of my co-workers had relocated from other areas, where they had worked at other Wal-Marts. They wanted more of the same. Everyone agreed that Wal-Mart was preferable to the local Target, where the hourly pay was lower and workers were said to be treated with less respect (an opinion which I was unable to verify). Most of all, my coworkers wanted to avoid those “mom-and-pop” stores beloved by social commentators where, I was told, employees had to deal with quixotic management policies, while lacking the opportunities for promotion that exist in a large corporation.

MP: Isn't it interesting that Target escapes most of the vilification and attacks that Wal-Mart regularly receives, and yet workers seem to prefer working at Wal-Mart over Target. And the small downtown merchants that Wal-Mart (but never Target) is routinely accused of destroying, also seem to offer inferior employment opportunities compared to Wal-Mart.

HT: Newmark's Door

Cartoon of the Day

Protectionism = Economic Crack Cocaine

WASHINGTON (Reuters) -- Dallas Federal Reserve President Richard Fisher warned on Monday against "Buy America" provisions in a proposed fiscal stimulus law and said it could lead to devastating trade protectionism.

"Let me just be blunt. Protectionism is the crack cocaine of economics. It may provide a high. It's addictive and it leads to economic death," Fisher told C-Span television in an interview for its "Washington Journal" program.

President Barack Obama seeks a $825 billion stimulus plan to end the country's yearlong recession. U.S. lawmakers are debating rules that will insist that public money is spent on U.S-made products, although the White House has already said it will review any Buy America provisions.

"We just cannot afford to go down that path and I hope our senators, Democrats and Republicans, will be very sensible on that front," said Fisher, who is not a voting member of the Fed's policy-setting committee this year.

"Our job is to maintain price stability while we engender the growth and employment of the United States ... It is a very difficult balancing act, but it can only be done if it is buttressed by sensible fiscal policy," Fisher said.

HT: Dennis Gartman

Monday, February 02, 2009

Politically Incorrect Questions


1. 74% of the U.S. population is white and 13.4% is black (

2. About 90% of NBA players are black (

3. About 70% of the players in the NFL are black, but out of the league’s 32 teams, only six African Americans are head coaches. The situation is worse in the executive box – three black general managers. As poor a record as this is, black representation in the ranks of college football coaches makes the NFL coaching fraternity look like the Harlem Globetrotters. Only six of 117 NCAA head football coaches are African American, according to the Black Coaches Association, even though 50% of the college players are black.


1. Compared to their percentage of the overall population (13.4%), black players are significantly over-represented as players in the NBA (90%) and NFL (70%), and significantly under-represented as coaches.

2. Compared to their percentage of the overall population (74%), white players are significantly under-represented as players in the NBA (10%) and NFL (30%), and significantly over-represented as coaches.

Politically Incorrect Questions: Why is it that so many people think that the under-representation of black coaches is a problem, but very few think the under-representation of white players is a problem? Shouldn't they both be a problem, or neither be a problem? If efforts are made to increase the percentage of black coaches, why not an equivalent effort to increase the percentage of white players?

Comments welcome.

Things We Can’t Live Without: Luxury or Necessity?

As Americans navigate increasingly crowded lives, the number of things they say they can’t live without has multiplied in the past decade, according to a new Pew Research Center survey that asks whether a broad array of everyday consumer products are luxuries or necessities.

For example, the percentage of American adults who describe microwave ovens as a necessity rather than a luxury has more than doubled in the past decade, to 68%. Home air conditioning is now considered a necessity by seven-in-ten adults, up from half (51%) in 1996. And more than eight-in-ten (83%) now think of a clothes dryer as a necessity, up from six-in-ten (62%) who said the same in a survey a decade ago.

The two most ubiquitous products of the information era -- home computers and cell phones -- are currently situated in the middle of the consumer-necessity pack, with the public evenly divided about their status as a necessity rather than a luxury.

The survey finds that computers are deemed a necessity by 51% of the adult public, and cell phones by 49% (see chart above, click to enlarge). But both of these products are making a swift climb up the necessity scale. A decade ago, just 26% of adults considered the home computer a necessity, and back in 1983, when computers were still a novelty, only 4% felt that way. Meantime, cell phones were still so exotic in 1996 that they weren't even placed on the survey.

These findings serve as a reminder that throughout human history, from the wheel to the computer, previously unimaginable inventions have created their own demand, and eventually their own need. But you don’t have to take our word for it — just ask the American public.

Buy American=Declaration of War on Rest of World

The odious U.S. House of Representatives has tagged a Buy American clause onto the Obama administration’s $819 billion (or more) fiscal stimulus bill. If this were to become law, U.S. federal spending would, wherever possible, be restricted to goods and services produced by U.S. companies. The main promoter of this act of global economic vandalism was the U.S. steel industry, but other import-competing industries have lobbied also. It is quite likely that the Buy American net will be cast even more widely when the Senate gets its turn at the fiscal stimulus act.

There is little doubt that if the Buy American provisions of the Economic Stimulus Package were to become law, this would amount to an economic declaration of war on the rest of the world. The response of the assembled non-U.S. finance ministers in Davos made this clear. Retaliation from the EU countries and the rest of the world would follow swiftly. Because this disastrous U.S. Congressional action follows so closely on Treasury Secretary Geithner’s declaration that China is manipulating its currency, it is essential that the Obama administration draw a clear line in the sand.

If anything like the Buy American clause inserted by the House survives in the bill president Obama gets on his desk, he must veto it. The questionable value of the fiscal stimulus is overwhelmed by the unquestionable domestic and global harm caused by the Buy American clause. If president Obama fails to veto a protectionism-laced bill, it will be clear that we have a wuss in the White House. If such is the case, God help us all.

~Willem Buiter in the Financial Times, "YES WE CAN!! Have a Global Depression If We Really Continue to Work At It…"

Natural Gas Glut Could Hit U.S., Prices Are Already at A 7-Year Low, Lowest Since December 2002

HOUSTON CHRONICLE -- As many as seven massive natural gas export terminals are expected to start up overseas this year, expanding worldwide capacity by 20% and flooding markets with new supplies of the key power plant and heating fuel. Dozens of new tankers capable of carrying natural gas in a liquefied form are slated to hit the seas. Just as these new supplies come on line, worldwide demand is expected to drop as the global recession deepens.

Operators of these new facilities are unlikely to cut back production, however, so shipments of liquefied natural gas will most likely head to the deepest markets with the greatest amount of natural gas storage capacity — the United States.

While LNG generally is sold in contracts between importers and exporters, its price is influenced by the price of natural gas traded on the New York Mercantile exchange, which closed Friday at 7-year low of $4.42 per million Btu (see chart above, data here).

The More Things Change....

The psychic effect of the depression, it seems to me, is generally a good one.... It has taught people the difference between speculative values and real values. It has hastened the death of sick industries, and proved the vigor of sound ones. It has blown up the old delusion that the amount of money in the world is unlimited, and that every American is entitled to a police captain's share of it. Best of all, it has taught millions that there is really no earthly reason why there should be two cars in every garage, and a chicken in the pot every day.

A few years back we were all leaping along after the pacemakers, and making shining fools of ourselves. Life in America had become an almost unanimous effort to keep up with the Joneses, and what the Joneses had to offer by way of example was chiefly no more than a puerile ostentation. So many luxuries became necessities that the line separating the one from the other almost vanished. People forgot altogether how to live well, and devoted themselves frantically to living gaudily.

It seems to me that the depression will be well worth its cost if it brings Americans back to their senses. Once they rediscover the massive fact that hard thrift and not gambler's luck is the only true basis of national wealth, they will discover simultaneously that a perfectly civilized and contented life is possible without the old fuss and display.

~From H. L. Mencken's essay "What Is Going On In the World," published in 1933


The Economy is Brutal, but Some Businesses Boom

USA TODAY -- Even as the nation's automakers, big banks, retailers and others are laying off hundreds of thousands of workers and fighting for survival, some companies large and small quietly are setting sales records and even expanding because they provide products or services that worried, cost-obsessed consumers are willing to pay for.

A few of the recession's beneficiaries are big public companies with household names: Wal-Mart, McDonald's, Family Dollar. They earned profits last year, and their stock prices soared because they kept doing what they do well: selling stuff that everyone needs, cheaply.

But many businesses that are thriving during the recession are not big or famous.

"They are small or midsize companies with few levels of management that can make changes quickly," says Mark Perry, an economics professor at the University of Michigan-Flint.

"The role of entrepreneurs might be even more important during a recession," he says. "Their ability to be nimble and innovative and adapt to change become key advantages."

History seems to bear that out: Many long-standing businesses and jobs have been created during and right after a downturn. Monopoly, which owner Hasbro says is the world's most popular board game, was patented during the Great Depression. Microsoft, which made co-founder Bill Gates the world's richest man, was launched in 1975, after the 1970s recession.

"I Want Some TARP," They're Giving Money Away

HT: Tony Caporale

Real Disposable Income, Saving Rate UP in Dec.

Buried in today's BEA report on Personal Income is some good news in "Table 10. Real Disposable Personal Income and Real Personal Consumption Expenditures: Percent Change From Month One Year Ago," see chart above. Following two months of negative growth in August and September 2008, real disposable personal income increased in each month of the last quarter, ending in December 2008 with 1.3% growth compared to December 2007. Maybe 1.3% growth in real disposable personal income is not great, but at least it's positive and at least the trend is going in the right direction: up.

The personal saving rate has increased in each of the last four months and reached a 7-month high of 3.6% in December (see chart below), as consumers were able to save $378.6 billion in December (on an annual basis), an amount approximately equal to the annual savings for consumers from falling gas prices.

The Real Estate Crash of the 1980s

In a previous post, I wrote about how the housing market crashed in the early 1980s under the crushing weight of the 17-18% mortgage rates, and about we seem to have forgotten how bad the real estate market suffered during that period. We hear a lot though about the "worst economy since the Great Depression©," but nothing about the "worst real estate market since the 1980s."

The graph above tells the story of how bad it really was back then. From the peak of 4 million existing-home sales in 1978, there was -50% drop in home sales over the next four years, so that by 1982 only 2 million homes were sold (data here, Table 7). It took almost two decades, or until 1996, before home sales exceeded the 1978 level of 4 million units.

So before we compare today's economic conditions to the Great Depression, we might want to stop off in the 1980s before we go all the way back to the 1930s.

With All Due Respect Mr. President......

"There is no disagreement that we need action by our government, a recovery plan that will help to jumpstart the economy."


With all due respect Mr. President, that is not true. There is no disagreement that we need action by our government, a recovery plan that will help to jumpstart the economy. Notwithstanding reports that all economists are now Keynesians and that we all support a big increase in the burden of government, we the undersigned do not believe that more government spending is a way to improve economic performance. More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan’s “lost decade” in the 1990s. As such, it is a triumph of hope over experience to believe that more government spending will help the U.S. today. To improve the economy, policymakers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.

MP: Thanks to The Cato Institute, this appeared last week as a full-page in the New York Times and Washington Post, and is scheduled to appear in the Los Angeles Times, Chicago Tribune, and Washington Times. The full text with the 200 economists (including Nobel laureates) who signed the statement is available here. Here's another version, with an additional 100 economists.

Sunday, February 01, 2009

Your Tax Dollars At Work, Saving Jobs in Brazil: GM to Invest $1 Billion of Bailout Money in Brazil

WASHINGTON POST -- The stimulus bill passed by the House contains a controversial provision that would mostly bar foreign steel and iron from the infrastructure projects laid out by the $819 billion economic package. A Senate version, yet to be acted upon, goes further, requiring, with few exceptions, that all stimulus-funded projects use only American-made equipment and goods.

Proponents of expanding the "Buy American" provisions enacted during the Great Depression, including steel and iron manufacturers and labor unions, argue that it is the only way to ensure that the stimulus creates jobs at home and not overseas.

LATIN AMERICAN HERALD TRIBUNE -- General Motors plans to invest $1 billion in Brazil to avoid the kind of problems the U.S. automaker is facing in its home market, said the beleaguered car maker. According to the president of GM Brazil-Mercosur, Jaime Ardila, the funding will come from the package of financial aid that the manufacturer will receive from the U.S. government and will be used to "complete the renovation of the line of products up to 2012."

"It wouldn't be logical to withdraw the investment from where we're growing, and our goal is to protect investments in emerging markets," he said in a statement published by the business daily Gazeta Mercantil.

MP: I guess "Buy American" or "Invest in America" wasn't part of the GM loan package?

The Cultural and Social Effects of Recessions

When all is said and done, something terrible has happened in the United States economy, and no one should wish for such an event. But a deeper look at the downturn, and the social changes it is bringing, shows a more complex picture.

In addition to trying to get out of the recession — our first priority — many of us will be making do with less and relying more on ourselves and our families. The social changes may well be the next big story of this recession.

~George Mason economist Tyler Cowen in the NY Times

FlowingData: "Strength in Numbers"

Watch the amazing video map of Wal-Mart's expansion across the U.S. from 1962-2008.

Watch the growth of Target stores from 1962-2008.

Both are from the website FlowingData, which "explores how designers, statisticians, and computer scientists are using data to understand ourselves better - mainly through data visualization."

HT: Coyote Blog

Here's another Wal-Mart expansion video from a few years ago.

BBC's "Britain From Above" Series

Air Traffic over Britain

Ships Crossing the English Channel

more videos here. BBC's "Britain from Above" website.

Saturday, January 31, 2009

Superbowl Tickets $1000 Less Than Last Year

Superbowl tickets on StubHub:

TAMPA, FL -- Sean Pate is with StubHub, an online ticket marketplace where people list tickets for sale. He says tickets for the Super Bowl are selling for about a thousand dollars less on average than they did a year ago.

"Last year, when it was the Giants versus the Patriots, tickets went for about $3,500. This year, however, with the recession and the opponents that are in the game, tickets have been going for about $2,400 on an average. That means on the low end you're finding tickets going for about $1,400 and they're going to be coming down even farther as the weekend goes on," said Pate.

Pate says there are more than 2,000 Super Bowl tickets for sale on StubHub's web site, so there's a lot of competition among sellers to get rid of those tickets by Sunday (see chart above, tickets start at $1545).

Trade Lessons of the 1930s Unheeded

WASHINGTON POST -- The stimulus bill passed by the House Wednesday contains a controversial provision that would mostly bar foreign steel and iron from the infrastructure projects laid out by the $819 billion economic package. A Senate version, yet to be acted upon, goes further, requiring, with few exceptions, that all stimulus-funded projects use only American-made equipment and goods.

Proponents of expanding the "Buy American" provisions enacted during the Great Depression, including steel and iron manufacturers and labor unions, argue that it is the only way to ensure that the stimulus creates jobs at home and not overseas. Opponents, including some of the biggest blue-chip names in American industry, say it amounts to a declaration of war against free trade. That, they say, could spark retaliation from abroad against U.S. companies and exacerbate the global financial crisis.

CATO INSTITUTE (Dan Ikenson) -- For all practical purposes there is no difference between the Smoot-Hawley tariff bill of 1930 and the “Buy American” provisions in the $819 billion spending bill that passed the House Wednesday.

Smoot-Hawley was the catalyst for a pandemic of tit-for-tat protectionism around the world, which helped deepen and prolong the global depression in the 1930s. “Buy American” provisions will no doubt inspire similar trade barriers abroad and will have the same effect of reducing global trade—and therefore prospects for economic recovery. It is not unreasonable to say that U.S. policymakers are on the verge of taking us down that same disastrous path.

HT: Paul Sebastian

Housing Market: 1981 vs. 2009

Have people forgotten how bad the real estate market crashed in the early 1980s? Apparently so. Here's a brief overview:

Mortgage rates (30-year fixed) peaked in October 1981 at 18.45%, see chart below:

What effect did historical high mortgage rates have on the housing market and housing affordability? The graph below (courtesy NY Times) tells the story: Housing Affordability dropped to an all-time low of around 62 in the early 1980s as mortgage rates soared to record-high levels.

Bottom Line: As bad as the troubles in today's real estate market are, they were certainly just as bad, if not worse back in the early 1980s. A Housing Affordability Index of 62 means that the typical American household in the early 1980s had only 62% of the income necessary to qualify for a mortgage to purchase the median-priced home. The record-high mortgage rates of 17-18% simply priced most Americans out of the housing market, and depressed home sales for years.

Between 1978 and 1981, existing-home sales fell by -50%, from 3.986 million homes in 1978 to 1.990 million homes by 1981 (data here), and new home sales and building permits fell by similar amounts. Unemployment rate for construction workers peaked at 22.6% in October 1982. Simply put, the housing market crashed under the weight of the 17-18% mortgage rates.

In contrast, mortgage rates are at record-low levels and housing affordability is at all-time historical high, factors that will hopefully provide a foundation for recovery in the real estate market and overall economy.

Cartoons of the Day: Pork Edition

The Case for Foreclosures: Foundation of Recovery

Preventing foreclosures has become a top priority of politicians, economists and regulators. In fact, allowing foreclosures to happen has merit as a free-market solution to the crisis.

If the intent is to help homeowners, then foreclosure is undoubtedly the best solution. Household balance sheets have been destroyed by taking on too much debt via the purchase of inflated assets. With so little savings, a household with negative equity almost implies negative net worth. Walking away from the mortgage immediately repairs the balance sheet.

Credit may be damaged, but homeowners can rebuild it. And by renting something they can afford, instead of the McMansion they cannot, homeowners are most likely to have some money left over each month that they can save toward a down payment on a house they can eventually afford. If the intent is to help the credit markets, then foreclosure is undoubtedly the best solution.

Foreclosures provide the foundation of recovery, both for Main Street and Wall Street. As properties are foreclosed, they can move from weak hands to strong hands. Households that have been foreclosed upon today are the buyers of tomorrow, when given a chance to recover.

~"Why Be a Nation of Mortgage Slaves?" in today's WSJ, Ramsey Su

Friday, January 30, 2009

GDP Is Down 1% — Not 3.8%

Cato's Alan Reynolds explains why here.

Interestingly, the OECD (and most European countries I think) does NOT annualize quarterly GDP growth rates, and reports only the quarterly, non-annualized rate. For example, the OECD reports here that US real GDP growth in QII 2008 at .70%, and not 2.8% (the way it gets reported here, annualized).

What Detroit Can Learn From Google

Carmakers need to let go of their musty business models and start thinking like 21st century companies—like Google.

Google listens to us and trusts us when it releases unfinished products as "betas" so we can tell them what to do next. That's the approach behind Google News, Gmail, and the new Chrome browser. The company also lets us tailor searches so we turn up only images or book excerpts. And Google pays attention to us by using our clicks and links to determine rank in search results. The more people who connect to a blog post on the best recipe for lamb tagine, the more prominent Google will make that Web site when people hunt for dinner ideas.

Google wants us involved in the creative process; Detroit doesn't. Richard Florida, author of Who's Your City?, said Detroit's car companies were "destroyed" by "a management mind set that said, 'We know it all, we don't need anyone other's ideas, and we can do anything we want with our companies.' "

~Jeff Jarvis in Business Week

Related: "What Detroit Can Learn from Bangalore," from Reason Magazine, June 2006

Housing Affordability Surges to Record High in Dec.

The National Association of Realtors (NAR) released its latest Housing Affordability Index (HAI) today, showing that housing affordability reached an all-time record high of 158.8 in December (see chart above).

A HAI of 158.8 would mean that the typical household earning the median family income of $61,058 in December would have 158.8% of the qualifying income to purchase a median-priced existing single-family house ($174,700) with a 20% down payment, which would be the highest level of housing affordability since the NAR started reporting housing affordability in 1971. Since mid-2006, the HAI has risen by almost 60 points, from 100 to 158.8 (see chart).

Stated differently, the annual qualifying income required to purchase a median-price house (with a 20% down payment) is only $38,448, with monthly payments based on a 5.59%, 30-year fixed-rate mortgage ($801 per month for principal and interest). Given the median family income of about $61,058, the typical family would have 158.8% of the income required to qualify for the mortgage to purchase the $174,700 home.

Hopefully, the increase in housing affordability and new record-high will play an important role in the real estate market's recovery. Interestingly, the record-high level of housing affordability has not yet been reported, or at least I couldn't find a single news report on this topic.

Bad and Really, Really, Really Bad

Living with double-digit interest rates in Brazil.

It could be worse, try living in Zimbabwe with 230,000,000% inflation.

What About Exxon's Extraordinary Taxes?

HOUSTON -- Exxon Mobil reported a profit of $45.2 billion for 2008, breaking its own record for a U.S. company, even as its fourth-quarter earnings fell 33% from a year ago. The previous record for annual profit was $40.6 billion, which the world's largest publicly traded oil company set in 2007. The extraordinary full-year profit wasn't a surprise given crude's triple-digit price for much of 2008, peaking near an unheard of $150 a barrel in July.

As usual, Exxon's "extraordinary" profits in 2008 will receive a lot of media attention, but what won't receive much attention is the "extraordinary" amount of taxes paid and collected by Exxon in 2008. According to Exxon's
income statement, it paid $36.53 billion in 2008 income taxes, and its effective income tax rate increased to 47% from 44% in 2007. Exxon also reported $34.5 billion in sales-based taxes, and $45.2 billion in other taxes, for a total $116.2 billion taxes paid and collected in 2008 (see chart above).

$646,214 Per Government Job

House Democrats propose to spend $550 billion of their two-year, $825 billion "stimulus bill" (the rest of it being tax cuts). Most of the spending is unlikely to be timely or temporary. Strangely, most of it is targeted toward sectors of the economy where unemployment is the lowest.

The December unemployment rate was only 2.3% for government workers and 3.8% in education and health. Unemployment rates in manufacturing and construction, by contrast, were 8.3% and 15.2% respectively. Yet 39% of the $550 billion in the bill would go to state and local governments. Another 17.3% would go to health and education -- sectors where relatively secure government jobs are also prevalent.

If the intent of the plan is to alleviate unemployment, why spend over half of the money on sectors where unemployment is lowest?

~Cato's Alan Reynolds' article "$646,214 Per Government Job"

Thursday, January 29, 2009

Significant Turnover in the Top 400 U.S. Earners

The IRS has a new report on the 400 taxpayers reporting the highest adjusted gross incomes (AGI) from 1992 to 2006, summarized in the table above. The 6,000 tax returns (400 highest earners x 15 years) from 1992 to 2006 represented 3,305 unique, individual taxpayers, since some taxpayers made it into the top 400 earner group more than one year. The data show that:

1. Of the group of 3,305 top earners from 1992-2006, 2,394 individuals made it into the top 400 only one time during the 15-year period. Those 2,394 one-timers represent 72.44% of the total (3,305), so only 27.56% made it into the top 400 more than once (see columns 2 and 3).

2. Moreover, 2,394 earners made it into the top 400 once (72.44%), and another 408 (12.34%) made it into the top group twice. So 84.78% made it into the top group either once or twice, and only 15.22% made it into the top group more than twice (see columns 2 and 3).

3. There were only 8 taxpayers out of 3,305 (1/4 of 1%) who were in the top 400 in all of the 15 years.

4. In any given year, on average, about 40% of the returns were filed by taxpayers that are not in any of the other 14 years (see columns 4 and 5).

According to the IRS, "the data shown in the table mostly represent a changing group of taxpayers over time, rather than a fixed group of taxpayers."

Tax Foundation

Best Economic Indicator You've Never Heard Of

Both Dennis Gartman and Larry Kudlow have reported recently on the recovery in the London-based Baltic Dry Index (BDI), "an assessment of the price of moving the major raw materials by sea. Taking in 26 shipping routes measured on a timecharter and voyage basis, the index covers Handymax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain."

A few years back, Slate Magazine called BDI the "The best economic indicator you've never heard of."

The chart above displays the BDI over the last three months, and shows the strong 34% increase in the BDI since its low in mid-December. Could this be a recovery "mustard seed?"

Real Estate Agents Say Home-price Tide Has Turned

CHICAGO TRIBUNE -- Chicago-area real estate agents, who have been pleading for months with stubborn sellers to lower their prices, say the tide has finally turned and sellers are capitulating. Price reductions totaling $25,000 or more are becoming commonplace, and homes that have been relisted after several months off the market are being offered for significantly less.

"We're essentially at fair market value," said Jack Ablin, chief investment officer of Harris Private Bank. While he said he believes the worst is behind the market, he added: "Given the credit conditions and the environment, it wouldn't be a surprise to me if we shot below fair market value."

Related: December new home sales report from First Trust.

Beware of the False Claims About Jobless Claims

WASHINGTON, Jan 29 (Reuters) - The number of people remaining on the unemployment benefits roll after drawing an initial week of aid, or continued claims, rose 159,000 to a higher-than-forecast 4.776 million in the week ended Jan 17, the most recent week for which data is available. The Labor Department said this was the highest reading since its records on this series began in 1967.

MP: There's a little problem here. The size of the labor force has doubled since 1967, which distorts the comparison of today's continued claims to past years (the chart above illustrates this issue using the labor force vs. initial jobless claims). Consider 1982, when there were 4,713,000 continued claims (lower than today), but there was also a much smaller labor force (110.744 million) than today (154.447 million). As a percent of the labor force, the continued claims in 1982 represented 4.256% of the labor force. Given our labor force today, it would require 6.57 million continued claims to reach the same 4.256% level as 1982, or an additional 1.8 million people.

Bottom Line: Adjusted for the size of the labor force, we're still nowhere close to a record for continued unemployment claims. But that reality won't stop the media from reporting "record jobless claims," there are already
dozens of new stories with that "false claim" about "record claims."

1982 Jobless Claims = 937,000 Jobless Claims in '09

The Department of Labor just released its weekly update on jobless claims, reporting that:

For the week ending Jan. 24, the advance figure for seasonally adjusted initial claims was 588,000, an increase of 3,000 from the previous week's revised figure of 585,000. The 4-week moving average was 542,500, an increase of 24,250 from the previous week's revised average of 518,250.

MP: In December 2008, weekly initial claims (4-week moving average) averaged 549,062, compared to the January 2009 average of 526,625. That decline of -22,438 on a monthly average basis represents the largest monthly decline since November of 2005 (-50,425).

The chart above shows average monthly initial claims as a percent of the labor force, from January 1980 to January 2009. (For January 2009, I have assumed that the labor force remained at the same level as December 2008, 154.447 million). In previous posts (here and here), I have documented how the increasing size of the labor force over time distorts the frequent comparisons of today's jobless claims to the number of claims in previous years. For example, the labor force has increased +45% since 1980, from 106.78 million in 1980 to 154.5 million today, an increase of more than 48 million workers.

As bad as the average 526,625 jobless claims in January might seem, we're still nowhere near the jobless claim levels of 1982 or 1991, as a percent of the labor force. In 1991, jobless claims as a percent of the labor force peaked at .3915%, which would be the equivalent today of 604,660 jobless claims. And to be equivalent to the .6067% reached in 1982, we'd have to have 937,000 claims today, or almost double our current level.

Those Merciless, Greedy Consumers Run The Show

The consumers are merciless. They never buy in order to benefit a less efficient producer and to protect him against the consequence of his failure to manage better. They want to be served as well as possible. And the working of the capitalist system forces the entrepreneur to obey the orders issued by these consumers.

~Ludwig von Mises from "Bureaucracy" (via today's The Gartman Letter)

Here's a dirty little secret about capitalism: consumers, not corporations, run the show. If you find something about the marketplace objectionable, it would be more appropriate to blame those who actually call the shots: the ruthless, cutthroat, and disloyal American consumers.

Consumers are the kings and queens of the market economy, and ultimately they reign supreme over corporations and their employees. When corporations make mistakes and introduce products that consumers don't want, which happens frequently, you can count on consumers voicing their opinions forcefully and immediately by their lack of spending.

In a market economy, it is consumers, not businesses, who ultimately make all of the decisions. When they vote in the marketplace with their dollars, consumers decide which products, businesses, and industries survive—and which ones fail (see chart above of the 1.5 million business bankruptcy filings since 1980). It is therefore consumers who indirectly but ultimately make the hiring and firing decisions, not corporations. After all, corporations can make no money, hire no people, and pay no taxes unless somebody, sooner or later, buys their products.

What consumer sovereignty in a free marketplace translates into is each person husbanding his resources for the greatest benefit to himself and his family, which in turn translates into the greatest efficiency in the consumption of the world's scarce resources. If you don't like the message of the marketplace, don't assume that corporations and greed are to blame while consumer behavior and consumer greed play no role in the outcome. We should be thankful, in fact, that the marketplace puts consumers on such a powerful pedestal.

Wednesday, January 28, 2009

Capitalism and Markets Fuel Economic Growth

The chart above (click to enlarge) shows annual real GDP per capita (in 2004 dollars) from 1800 to 2008 (data from Global Financial Data, paid subscription required). Between 1800 and 1904, real GDP per capita grew in the U.S. at 1.5% per year, a sustained, positive growth rate in real output over an entire century that was likely historically unprecedented until the 19th Century, and even then a phenomenon isolated to only America and Western Europe. The 1.5% annual growth translated into almost a 5 time increase in per capita real GDP between 1800 and 1904, from $1,069 to $5,202.

As impressive as the 1.5% real annual growth was in the 19th Century, the average growth rate in the 20th Century increased by more than a third, to above 2% per year from 1904-2008, an increase in the growth trend clearly observable in the chart above (blue line). Because of the higher growth rate, real GDP increased more than 8 times between 1904 and 2008, from $5,202 in 1904 to $42,675 in 2008.

How much better off are we today because of the acceleration of economic growth from 1.5% per year in the 19th century to 2% in the 20th century? The dashed brown line above tells the story. If annual growth had continued at 1.5%, real GDP per capita today would be only $24,475 (about the level back in 1982); instead it's actually 74% higher at $42,675.

We hear a lot lately about the defects and flaws of the market economy, and the death of capitalism, etc., but as the
Adam Smith Institute points out "Capitalism is the only economic system ever to manage a consistent and long lasting rise in the average standard of living." As bad as economic conditions might appear today, the trend in economic growth over the last 200 years, largely as a result of capitalism and markets, suggests that we still have a lot to be thankful for. Capitalism works.

Wingsuit Base Jumping: These Boys Are Crazy


HT: Mark Schrantz

Stimulated vs. Unstimulated

(Click to enlarge.)
Any so-called stimulus program is a ruse. The government can increase its spending only by reducing private spending equivalently. Whether government finances its added spending by increasing taxes, by borrowing, or by inflating the currency, the added spending will be offset by reduced private spending. Furthermore, private spending is generally more efficient than the government spending that would replace it because people act more carefully when they spend their own money than when they spend other people's money.

~George Mason economist Richard Wagner

In stimulus package language, if Congress taxes to hand out money, one person is stimulated at the expense of another, who pays the tax, who is unstimulated.

~George Mason economist Walter Williams

Internet Doesn’t Give a Damn About the Recession

In 2008 the stock market fell into shambles, the real estate market tumbled, big companies announced big layoffs, venture capital investors became more careful, and the entire world economy went downhill. It’s enough to put a sour face on the most optimistic person.

But now contrast this with what happened to the Internet in 2008:

  • The number of websites increased by 20%.

  • The number of domain names increased by 19%.

  • Not to mention that there were more than 1.4 billion people on the Internet, a number that will keep growing.
So, while everything else shrinks and decreases, the Internet just keeps growing. It probably isn’t growing as fast as it would if the overall world economy was blossoming, but it IS growing at a healthy rate. This would indicate that the Internet as a whole operates on a separate level from the general economy.


Take A Free Finance Course From Robert Shiller

Academic Earth provides thousands of free video lectures from the world's top scholars at Harvard, Yale, MIT, Berkeley, Princeton, Stanford and Yale on a wide variety of subjects(sciences, law, math, philosophy, religion, history, computer science, economics, etc.). From its website:

Academic Earth is an organization founded with the goal of giving everyone on earth access to a world-class education. As more and more high quality educational content becomes available online for free, we ask ourselves, what are the real barriers to achieving a world class education? At Academic Earth, we are working to identify these barriers and find innovative ways to use technology to increase the ease of learning.

We are building a user-friendly educational ecosystem that will give Internet users around the world the ability to easily find, interact with, and learn from full video courses and lectures from the world’s leading scholars. Our goal is to bring the best content together in one place and create an environment that in which that content is remarkably easy to use and in which user contributions make existing content increasingly valuable.

Example: A 25-lecture course (about 1.25 hours each) in Financial Markets, taught by Yale economist Robert Shiller, supplemented with guest lectures by Larry Summers, Carl Icahn, Stephen Schwarzman (co-founder of The Blackstone Group), Andrew Redleaf (hedge fund manager, Whitebox Advisors) and David Swensen (Yale's Chief Investment Officer).

There's also a 24-lecture course on Game Theory, taught by Yale economics professor Benjamin Polak.

Thanks to Ben Cunningham.

There's No Such Thing as "Free" Growth

You've probably heard of TANSTAAFL? University of Mississippi economics professor William Shughart explains why there's no so such thing as "free" growth (TNSTAFG):

News that Toyota will delay indefinitely construction of its yet-unfinished North American plant in Blue Springs, Miss., provides further proof, if any is needed, that government should not be in the economic development business. It also makes plain that government "investments" in infrastructure, green technology and other public works, as proposed in President Obama's stimulus package, will be little different than other government spending programs, funneling taxpayer money to favored special interests.

There is no such thing as "free" growth. Even in the rare case where public subsidies actually do attract new business, additional public services will be needed to accommodate the business and its employees. New classrooms will have to be built and new teachers hired, highway budgets will have to be increased to maintain more heavily used roads and bridges, more sanitation workers will be needed, and so on. The extra burden on the public sector needs to be factored in. When the new company has been granted relief from state and local taxes, the higher tax bill falls on existing residents and businesses, possibly destroying as many or more jobs as the politicians pompously credit themselves for creating in the first place.

The truth is: It is not government's function to create jobs. Putting people to work is easy, as demonstrated by FDR's Depression-era Works Progress Administration, more accurately known as "WPA: We Piddle Around." The bigger challenge is to create wealth. Toyota failed to foresee the economic events that caused its expansion plans to unravel.

Keep this in mind when Congress and the White House are selecting economic stimulus projects to fund this year. If highly successful private firms like Toyota - with their extraordinary market research and years of savvy and experience - sometimes embark on projects that turn sour, how can we expect politicians, most of whom have no such business know-how, to pick winners? There is a difference, however. Companies usually risk their own money. In Washington, the politicians will be risking ours.

Tuesday, January 27, 2009

Luxury 50 Yardline Suite Superbowl Tickets: $150k

Luxury Suite on the 50 yard line offered by owner of suite-- 8 tickets, 3 parking passes, 6 flat screen TVs, private restroom, private bar & lounge area, & full catering. Tickets may be purchased in pairs for $37,500.00 per pair - or best offer.

"Buy it Now" price on Ebay: $150,000

See more Superbowl 2009 listings here on Ebay.

Sowell Makes The Case For Tax Cuts

Out of $355 billion newly appropriated, the Congressional Budget Office estimates that only $26 billion will be spent this fiscal year and only $110 billion by the end of 2010. Using long, drawn-out processes to put money into circulation to meet an emergency is like mailing a letter to the fire department to tell them that your house is on fire.

If you cut taxes tomorrow, people would have more money in their next paycheck, and it would probably be spent by the time they got that paycheck, through increased credit card purchases beforehand. If all this sound and fury in Washington was about getting an economic crisis behind us, tax cuts could do that a lot faster.

~Thomas Sowell

Pimp My Farm: Lusting After Taxpayer Money

Members of Congress are less like whores than they are like pimps for persons unwillingly conscripted to perform unpleasant services.

Consider, for example, agricultural subsidies. Each year a handful of farmers and agribusinesses receive billions of taxpayer dollars. These are dollars that government forcibly takes from the pockets of taxpayers and then transfers to farmers.

The customers, in this case, are the farmers and agribusinesses. The suppliers of the services performed for these customers are taxpayers, for it's the taxpayers who possess the ultimate asset -- money -- that farmers and agribusinesses lust after. And the intermediaries who oblige the suppliers to satisfy the base lusts of the customers are politicians. Just as pimps facilitate their customers' access to prostitutes' assets, politicians facilitate their customers' access to taxpayers' assets.

~Donald Boudreaux, chairman of the Department of Economics at George Mason University

The Central Defect of Bailouts and Stimulus Plans

The central defect of government bailouts and stimulus packages is that the money is allocated through a political process. It goes to recipients who have the most political influence. Private entrepreneurs and even big business, by contrast, employ investment to earn a profit. The record shows that the latter yields greater economic efficiency, and hence creates real jobs.

The new stimulus package pays lip service to aiding the private sector with various tax incentives for hiring and investing capital. It acknowledges, just barely, that the private sector will be the engine for recovery if recovery is to be had. But the record for such measures is about as dismal as the one for short-term supplements to consumer income. They do very little to change the decisions or behavior of the recipient. If the recipient is wary and uncertain about the future, he or she will probably remain so.

Socialist economies, where governments decide how to allocate resources, are notoriously less efficient than market-capitalist economies. As in Washington, every politician demands his share. The late Abram Bergson of Harvard concluded that the old Soviet Union -- the ultimate in socialism -- employed capital only about half as efficiently as the U.S. That is one reason the Soviets collapsed from economic exhaustion.

Democrats are putting a lot of faith, to the tune of over $1.5 trillion, in economic policies with dodgy track records. At this time of a new president and great expectations, one hopes the political class will succeed better with massive spending than it has in the past. But don't bet the farm.

~George Melloan in yesterday's WSJ

Harvesting Cash: Corporate Welfare for Farmers

Consider these facts. Ninety percent of all subsidies go to just five crops: corn, rice, cotton, wheat, and soybeans. Two thirds of all farm products—including perishable fruits and vegetables—receive almost no subsidies. And just 10% of recipients receive 75% of all subsidies. A program intended to be a “temporary solution” has become one of our government’s most glaring examples of corporate welfare.

U.S. taxpayers aren’t the only ones who pay the price. Cotton subsidies, for example, encourage overproduction which lowers the world price of cotton. That’s great for people who buy cotton, but it’s disastrous for already impoverished cotton farmers in places such as West Africa.

U.S. farm programs cost taxpayers billions each year, significantly raise the price of commodities such as sugar (which is protected from competition from other producers in other countries), undermine world trade agreements, and contribute to the suffering of poor farmers around the world. It’s bad public policy, especially in these troubled economic times.

From a new report and video from Reason "Agricultural Subsidies: Corporate Welfare for Farmers," (link here).

MP: As the chart above shows, another fact to consider is that average 2007 household farm income ($86,223) was 27.5% higher than U.S. average household income ($67,609), according to the USDA.

Monday, January 26, 2009

Is China Manipulating the Yuan? Should We Care?

According to Treasury Secretary Timothy Geithner (in his testimony before the Senate Finance Committee):

President Obama - backed by the conclusions of a broad range of economists - believes that China is manipulating its currency. President Obama has pledged as President to use aggressively all the diplomatic avenues open to him to seek change in China's currency practices. While in the U.S. Senate he cosponsored tough legislation to overhaul the U.S. process for determining currency manipulation and authorizing new enforcement measures so countries like China cannot continue to get a free pass for undermining fair trade principles. The question is how and when to broach the subject in order to do more good than harm.

Q1: Why does everybody complain that China "manipulates" its currency, but nobody complains that Hong Kong "manipulates" its currency, even though Hong Kong has used a currency board to fix the Hong Kong dollar at the same level for the last 25 years (see chart above back to 2000 - Hong Kong dollar has been at the same level since 1984)?

Q2: Is it fair to accuse China of "manipulating" its currency when the yuan has appreciated by -17% since 2005 (see chart above)?

Q3: If China is "manipulating" its currency, the manipulation is to keep the dollar artificially high. Why should we complain about a strong dollar, when that translates into lower dollar prices for American consumers and businesses buying Chinese products? What if China sent us its goods for free, as a form of foreign aid? That would be even better than an artificially strong dollar, but an artificially high dollar and "everyday low prices" for China's products aren't so bad.

Global Internet Users Now Top 1 Billion, China's #1

LONDON, U.K., January 23, 2009comScore, Inc. (NASDAQ: SCOR), a leader in measuring the digital world, today reported that total global Internet audience (age 15 and older from home and work computers) has surpassed 1 billion visitors in December 2008, based on data from the comScore World Metrix audience measurement service.

“Surpassing one billion global users is a significant landmark in the history of the Internet,” said Magid Abraham, President and Chief Executive Officer, comScore, Inc. “It is a monument to the increasingly unified global community in which we live and reminds us that the world truly is becoming more flat. The second billion will be online before we know it, and the third billion will arrive even faster than that, until we have a truly global network of interconnected people and ideas that transcend borders and cultural boundaries.”

China represented the largest online audience in the world in December 2008 with 180 million Internet users (see chart above from The Economist), representing nearly 18% of the total worldwide Internet audience, followed by the U.S. (16.2% share), Japan (6.0%), Germany (3.7%) and the U.K. (3.6%).