Saturday, January 02, 2010

Cracks Emerge in North Korea's Communist Regime; Capitalism, Market Economy Slowly Take Root

WASHINGTON POST -- Kim's government in the past two years has closed some large markets, shifted Chinese-made goods to state-run shops and ordered that only middle-aged and older women can sell goods in open-air markets, to try to limit the number of North Koreans who abandon government jobs for the private sector. But capitalism seems to have already taken root. U.N. officials estimate that half the calories consumed in North Korea come from food bought in private markets, and that nearly 80 percent of household income derives from buying and selling in the markets, according to a study last year in the Seoul Journal of Economics.

Private markets are flooding the country with electronics from China and elsewhere. Cheap radios, televisions, MP3 devices, DVD players, video cameras and cellphones are seeping into a semi-feudal society, where a trusted elite lives in the capital Pyongyang. Surrounding the elite is a suspect peasantry that is poor, stunted by hunger and spied upon by layers of state security.

In the past year, the elites in Pyongyang have been granted authorized access to mobile phones -- the number is soon expected to reach 120,000. In the border regions with China, unauthorized mobile phone use has also increased among the trading classes. And unlike most of the mobile phones in Pyongyang, the illegal phones are set up to make international calls. Chinese telecom companies have built relay towers near the border, providing strong mobile signals in many nearby North Korean towns. Those phones have become a new source of real-time reporting to the outside world on events inside North Korea, as networks of informants call in news to Web sites such as the Seoul-based Daily NK and the Buddhist aid group Good Friends.

Affordable electronics are also cracking open the government's decades-old seal on incoming information. Imported radios -- and televisions in border areas -- are enabling a substantial proportion of the North Korean populations to tune in to Chinese and South Korean stations, as well as to Radio Free Asia and Voice of America, according to an unpublished survey of newly arrived defectors in South Korea. It found that two-thirds of them listened regularly to foreign broadcasts.

Thanks to Art Little.

Markets in Everything: Cosmetic House Calls

DALLAS, Texas -- Kim Welch and Sally Bradley are two of the best at what they do. They are ... Injectors! And today, they are making a house call.

Patient Shannon Samberson, is one of the first people ever to receive an authorized cosmetic house call, because
Cosmetic Care Concierge says it's the first company ever licensed to make them. Shannon is getting a new Botox alternative called Dysport injected. But what's most important to Shannon is the convenience of being at home and the skill of these women.

Random Roundup

1. Wall Street Journal -- U.S. trade laws aren't about "fair trade" or "leveling the playing field," or the other cliches of protectionists. They have become tools of political income redistribution, protecting certain industries at the expense of others and the larger U.S. economy.

2. Fisher Investments -- The U.S. didn’t achieve its economic strength through fear and resignation—rather, innovation has been and will continue to be a chief driver, spurring recovery and driving us to new heights. While many say capitalism was dealt a blow in recent years, this isn’t so. Capitalism requires busts as well as booms—this is normal. Creative destruction is and will be a vital part of helping capital flow to the most productive areas. But with recession finally behind us, we can enjoy the potential of the decade ahead.

3. Michael Barone -- About one-third of the $787 billion stimulus package was directed at state and local governments, which have been facing declining revenues and are, mostly, required to balance their budgets. The policy aim, Democrats say, was to maintain public services and aid. The political aim, although Democrats don't say so, was to maintain public-sector jobs -- and the flow of union dues to the public employees unions that represent almost 40% of public-sector workers.

Those unions in turn have contributed generously to Democrats. SEIU head Andy Stern, the most frequent nongovernment visitor to the Obama White House, has boasted that his union steered $60 million to Democrats in the 2008 cycle. The total union contribution to Democrats has been estimated at $400 million. In effect, some significant portion of the stimulus package can be regarded as taxpayer funding of the Democratic Party. Needless to say, no Republicans need apply.

Dec. 31 (Bloomberg) -- The Mayo Clinic, praised by President Barack Obama as a national model for efficient health care, will stop accepting Medicare patients as of tomorrow at one of its primary-care clinics in Arizona, saying the U.S. government pays too little. More than 3,000 patients eligible for Medicare, the government’s largest health-insurance program, will be forced to pay cash if they want to continue seeing their doctors at a Mayo family clinic in Glendale, northwest of Phoenix. Mayo’s move to drop Medicare patients may be copied by family doctors, some of whom have stopped accepting new patients from the program.

Humor: Why Men Shouldn't Write Advice Columns

Click to enlarge.
HT: R_Adams

Green Technology is a Scarce Resource Hog; And Moves Dependence from Saudi Arabia to China

Rare Earth Element (RRE): Neodymium

William Jacobsen at the Legal Insurrection blog writes:

The whole "green" revolution is based on the false assumption that the technology does not use scarce resources. In fact, "green" technology is a "scarce resource hog," and he points to an article in UK's
The Independent:

Britain and other Western countries risk running out of supplies of certain highly sought-after rare metals that are vital to a host of green technologies, amid growing evidence that China, which has a monopoly on global production, is set to choke off exports of valuable compounds. Failure to secure alternative long-term sources of rare earth elements (REEs) would affect the manufacturing and development of low-carbon technology, which relies on the unique properties of the 17 metals to mass-produce eco-friendly innovations such as wind turbines and low-energy light bulbs.

After decades in which they were considered little more than geological oddities, rare earths have recently become a boom industry after the invention of a succession of devices, including iPhones and X-ray machines, which rely on their specific properties. Global demand has tripled from 40,000 tons to 120,000 tons over the past 10 years, during which time China has steadily cut annual exports from 48,500 tons to 31,310 tons.

Once extracted and refined, the rare earth metals can be put to a dizzying range of hi-tech uses. Neodymium (pictured above), one of the most common rare earths, is a key part of neodymium-iron-boron magnets used in hyper-efficient motors and generators. Around two tons of neodymium are needed for each wind turbine. Lanthanum, another REE, is a major ingredient for hybrid car batteries (each Prius uses up to 33 lbs.), while terbium is vital for low-energy light bulbs and cerium is used in catalytic converters.

As William pointed out on another post:

The green revolution which is the centerpiece of Obama's economic plan essentially relies on substituting our dependence on Saudi oil with a dependence on Chinese metals.

Friday, January 01, 2010

2009 Bull Market: +20% Real Return Ranks #12

Click to enlarge.

The chart above shows annual, inflation-adjusted real returns for the Dow Jones Industrial Average (DJIA) over the last sixty years from 1950 to 2009 (data here and here). Some highlights:

1. The real return on the DJIA for 2009 was 20.62%, ranking #12 for annual returns over the last sixty years.

2. The 2009 return was the highest in five years, and the second highest over the last ten years behind the 23.02% real return in 2003.

3. The DJIA return in 2009 was almost 16% above the average real return over the last sixty years of 4.77%.

What makes the 2009 bull market even more interesting is that it seems to somewhat contradict all of the ongoing reports during 2009 about how we were in the "worst economy since ______" (fill in the blank) and many reports suggested we were almost on the verge of slipping into Great Depression II, etc.

Interestingly, if you do a Google search over the past year in the U.S., you'll find far more results for the term "2009 bear market" (11,800) than for "2009 bull market" (only 355); that's a bear to bull ratio of 33.2 to 1, despite the fact that 2009 obviously now qualifies as a bull market.

Likewise, the Google Trends chart below for the last year shows that the search volume for "bear market" in the United States was higher than the search volume for "bull market."

Bottom Line: The U.S. stock market performed better in 2009 than many people probably realize, and certainly better than most people expected - after all, a real return of more than 20% ranking 12th highest for the last 60 years is pretty good. And since stock markets and stock prices are forward-looking, 2010 might also be a much better year than many people are expecting.

Thursday, December 31, 2009

Trade Protection = Economic War on Yourself

The chart displays the volume of U.S. exports of goods and services, in inflation-adjusted dollars, annually from 1929 to 1945 (data from Global Financial Data, subscription required), showing that U.S. exports fell roughly the same percentage amount from the combined effects of the Great Depression and the Smoot-Hawley Tariff Act of 1930 (-46% from 1929 to 1932) as from the effects of WWII (-44.3%).

Protectionism is doing to ourselves in peacetime what our enemies do to us in wartime (cutting off trade and moving a country in the directon of self-sufficiency)."

The MSCI Emerging Markets Stock Index Closes Out the Year At 17-Month High, +108% from March Low

The Morgan Stanley Capital International (MSCI) Emerging Markets Index closed out the year today at a new 17-month high, going above 989 points for the first time since August 11, 2008.  From the early March low of 475.08, the Emerging Markets Index is up by 108.3%, and from the first of the year by 74.50%. 

Labor Market Turns a Corner: New Jobless Claims Fall to 18-Month Low, Lowest Since July 2008

1. The number of people filing new claims for unemployment benefits in the U.S. unexpectedly fell in the latest week to its lowest level in 18 months, a sign the labor market may be turning a corner. Initial claims for unemployment benefits fell by 22,000 to a seasonally adjusted 432,000 in the week ended Dec. 26, the lowest level since July 19, 2008. Economists surveyed by Dow Jones Newswires had forecast claims would rise by 3,000.

2. Meantime, the Labor Department said in its weekly report Thursday that the number of people collecting jobless benefits for more than a week also continued to decline.The tally of continuing claims, or those drawn by workers collecting benefits for more than one week, fell by 57,000 to 4,981,000 in the week ended Dec. 19.

3. The four-week average of new claims, which aims to smooth volatility in the data, dropped by 5,500 to 460,250 -- marking its 17th consecutive drop. That was the lowest level since Sep. 20, 2008 (see chart above).

Wall Street Journal

WSJ's "Chinese Slapped in Steel Dispute" Rewrite: "Americans Slapped in Steel Dispute"

WALL STREET JOURNAL -- U.S. steelmakers won U.S. consumers who purchase products made with steel and American companies (and their employees) that purchase steel as an input lost a case over Chinese steel imports, as the U.S. International Trade Commission voted that the domestic industry has been damaged industries that use steel have been subsidized too generously by cheap steel from China Chinese producers.

The ruling Wednesday will result in duties of taxes on American companies (and their shareholders, employees and consumers) of between 10% and 16% on future imports of Chinese steel pipes used to extract natural gas and oil. It is the latest in a string of trade decisions against China, the U.S.'s largest trading partner the American consumer and U.S. companies that voluntarily purchase products from China for their low cost and high quality.

On Tuesday, the U.S. imposed preliminary antidumping duties taxes on Americans who purchase steel-grate products imported from China, prompting strong reaction from the Chinese, who said it sent a "wrong, protectionist signal." Earlier this year, the Obama administration imposed tariffs taxes of 35% on middle- and lower-income American consumers who purchase tires from China, which was answered by a Chinese probe into whether U.S.-made autos were being dumped in China at unfairly low prices.

Wednesday, December 30, 2009

Markets in Everything: Refrigerators $69 to $15k

Possibly the world's cheapest refrigerator, the $69 ChotuKool refrigerator above is being taken for field testing in rural India (it's scheduled for release in March 2010). The portable, top-opening unit weighs only 17 pounds, uses high-end insulation to stay cool for hours without power and consumes half the energy used by regular refrigerators. To achieve its efficiency the ChotuKool doesn't use a compressor, instead running on a cooling chip and a fan similar to those used in computers, so like computers it can run on batteries. It's engineering credentials are further boosted by the fact that it has only 20 parts, as opposed to more than 200 parts in a normal refrigerator. The ChotuKool was co-designed with village women (a "reverse engineering of sorts,” according a spokesman for the manufacturer) to assure its acceptability.

The quality and quantity of power these people have access to is very poor and consequently the country has very little development happening in rural areas. The power situation in rural India cannot be fixed overnight and until it is, products like this are needed to make people's lives a little better. Effective refrigeration in rural areas can help people extend their access to not only food, but also essential drugs.


Possibly the world's most expensive refrigerators, the LG Internet Refrigerator pictured below has the coolest set of features ever seen in the kitchen. It is a 730 litre, stainless-steel, side-by-side fridge, with an in-built computer which can be accessed via a 15-inch touch-screen LCD monitor mounted on the fridge door. Users can watch TV, listen to MP3 music, take and store digital photos, make a video phone call, use the fridge as a message board or surf the web.

It also has VCR and DVD ports, a microphone and speakers. Information about food in the fridge can be stored and a map of the fridge allows the owner to keep an inventory of what foods are in each section and how long they have been there. It's biggest advantage will be its functionality as a food management system. It also has an inbuilt hard drive and modem, so that the appliance can be 'connected' by simply running a phone connection into it. $15,000 is the anticipated RRP when it's released later this year.

Bronze Age Orientation Day: Creative Destruction

The forces of Schumpeterian creative destruction have been around for thousands and thousands of years.....
HT: Lee Coppock

Everything's Amazing but Nobody's Happy

I've featured this before, but it's a classic and worth viewing again - comedian Louis C.K. on Conan O'Brien.

Markets in Everything: Free Econ/Bus. Textbooks

Free and Open Content Textbooks now available on the Internet:



2,000 Pages: Is it the New 25 Pages?

Nick Schulz at the Enterprise blog reports on the number of pages in various pieces of important U.S. legislation from the 1800s (Homestead Act with 9 pages) through the current heathcare bill (about 2,000 pages), see summary in the graph above.

By the way, here's what 2,000 pages looks like, it's Ford's 2007 master contract with the UAW and totals 2,215 pages:

Compare that to the 24 page 1941 Ford-UAW contract below, which coincidentally was about the same size as the National Labor Relations Act of 1935 (25 pages):

Tuesday, December 29, 2009

Nov. Trucking Volume Highest Level in a Year

ARLINGTON, VAThe American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 2.7% in November, following a 0.2% contraction in October. The latest gain boosted the SA index from 103.6 (2000=100) in October to 106.4, its highest level in a year. Compared with November 2008, SA tonnage fell 3.5%, which was the best year-over-year showing in twelve months. In October, the index was down 5.2% from a year earlier.

ATA Chief Economist Bob Costello said that tonnage is moving in the right direction. “Slowly, but surely, truck freight has started the recovery process and November’s solid increase is a very positive sign,” Costello noted. He said that November’s tonnage levels were pushed higher by improved economic activity, as well as by an inventory correction that is near completion. “Truck freight had been hurt by both slow economic output and bloated inventories; however, we now have evidence that the inventories are in much better shape, which will not be such a drag on truck freight volumes.”

Markets Fail. That's Why We Need Markets.

This seemingly paradoxical view is based on several overlapping strands of research in economics as it pertains to development, history, technology, business expansion, and new-firm formation. According to this view, entrepreneurs at work in the economy – in finance, high tech, manufacturing, services, and beyond – are constantly experimenting, creating new business models, techniques, and technologies that upend the established order of things.

Some new technologies and innovations are genuine improvements and are long-lasting welfare enhancers. But others are the basketball equivalent of pump fakes – they look like the real deal and prompt market actors to leap hastily into action, only to realize later that their bets were wrong.

Given this dynamic, markets are unpredictable, prone to booms and busts, characterized by bouts of exuberance that are rational or irrational only in hindsight. But markets are also the only reliable mechanism for sorting out this messy process quickly. In spite of the booms and busts, markets drive genuine long-run innovation and wealth creation.

When innovation-driven excesses and imbalances are recognized in the marketplace, the system can correct itself quickly. This is less the case when government policy failure occurs. Because political failure is less publicly tolerable than market failure, the temptation becomes for policymakers to avoid acknowledging their role in creating or perpetuating problems. Or they double down on bad bets. So rather than recognize the government’s central role in the housing boom and bust and quickly changing its ways, we see the federal policy apparatus continuing to throw good money after bad in the mortgage market and on Wall Street.

Markets fail; but they learn from their failures. That’s why we need markets. Government can promise to guarantee our prosperity; but only markets can really deliver.

~Arnold Kling and Nick Schulz in the
Christian Science Monitor

Related: In today's WSJ,
Gregg Easterbrook reminds us that "capitalism is the only economic system in history that is rendered stronger by its own instability." In other words, markets fail; that's why we need markets.

Monday, December 28, 2009

Why We Have a Health Care Cost Problem and Why It Will Only Get Worse: Other People's Money

The chart above shows why we have a health care cost problem. Patients have little direct connection in paying for their care, and their role has fallen significantly. Meanwhile, the government's involvement has grown, as has that of the insurance industry.

Because so many Americans rely on an insurance policy or a government program to pay their health care bills, the internal governors that temper the rest of their purchases are turned off. When a visit to the doctor's office or a diagnostic test costs them a mere $10 or $20 co-payment out of pocket — or there is no charge at all — cost has little impact on their decision to see a doctor. "By not knowing the full costs associated with health care, consumers demand more and 'overuse' it," Kenneth E. Thorpe explained a few years back in Health Affairs.

Americans would be more judicious in seeking health care — they would self-ration — if the right incentives were in place. An effective way to cut overuse and bring down costs would be to encourage through public policy the use of health savings accounts. If consumers used HSAs to pay the full amount for medical care at the point of service rather than letting employer-funded insurance or a government program pay the bills, the demand would fall.

The Democrats' health care legislation, however, puts more distance between Americans and the payment process and promotes dependence on government. That will only drive down consumers' out-of-pocket expenses even further and force overall health care spending upward. Under such a regime, the system will be worse off than it is now.

~Investor's Business Daily

Global Bull Market Rally: MSCI World Stock Market Closes at 15-Month High, Up 71% from March Low

The MSCI World Stock Market Index reached 1,176.35 today, the highest closing index value since October 1, 2008, almost 15 months ago. From the March low of 688.64, the benchmark world stock index is up by almost 71%, and from the first of the year by almost 28%.

VIX Below 20 for 3 Days, 1st Time Since May 2008

The CBOE Volatility Index (VIX) fell below 20 last week for the first time since August 28, 2008, almost sixteen months ago, and closed below 20 for three days in a row for the first time since late May 2008 (see chart above). See Forbes story below:

CHICAGO (Reuters) - The VIX, Wall Street's favorite measure of investor anxiety, ended last Tuesday (Dec. 22) at the lowest levels since before last year's implosion of Lehman Brothers sparked the worst financial crisis in more than 70 years.

The decline in the Chicago Board Options Exchange Volatility Index, which came as the Standard & Poor's 500 index hit a 14-month closing high, underscores how the fear that gripped markets throughout late 2008 and early 2009 has dissipated in favor of a sunny outlook for 2010. "As investors gear up for year-end, they only see good things for the first quarter of 2010 and, as such, see fewer swings in the stock market," said Andrew Wilkinson, senior market analyst at Interactive Brokers Group.

Unwinnable War on Drugs: 6k Murders in Mexico

1. WALL STREET JOURNAL -- In the 40 years since U.S. President Richard Nixon declared a "war on drugs," the supply and use of drugs has not changed in any fundamental way. The only difference: a taxpayer bill of more than $1 trillion. A senior Mexican official who has spent more than two decades helping fight the government's war on drugs summed up recently what he's learned from his long career: "This war is not winnable."

Growing numbers of Mexican and U.S. officials say—at least privately—that the biggest step in hurting the business operations of Mexican cartels would be simply to legalize their main product: marijuana. Long the world's most popular illegal drug, marijuana accounts for more than half the revenues of Mexican cartels.

WASHINGTON POST -- Senior Mexican officials have begun a sweeping review of the military's two-year occupation of this dangerous border city (Ciudad Juarez), concluding that the U.S.-backed deployment of thousands of soldiers against drug traffickers has failed to control the violence and crime, according to officials in both countries. "The most terrifying question that everyone asks is, 'If the army comes in and can't control the situation, what happens to us now?'" asks sociology professor Hugo Almada.

With more than 2,500 homicides, Juarez accounts for more than one-third of the 6,000 drug-related murders in Mexico this year; since April, when a surge of federal troops brought a brief lull in the death toll, the city has resumed a pace of eight to 10 murders a day. The violence has also spilled over into the suburban neighborhoods of El Paso. In a macabre daily ritual, assassins now appear to time their killings so that they get play on the afternoon and evening television news shows. The city estimates that the violence has created 7,000 orphans and displaced 100,000 people, many of whom have fled across the Rio Grande to Texas.

EU Green Protectionism = Economic Madness

Click to enlarge.
Some excerpts from the new study "Green Protectionism in the European Union: How Europe’s Biofuels Policy and the Renewable Energy Directive Violate WTO Commitments" from the European Center for International Political Economy:

Biofuels production in Europe is heavily subsidized. Support has also been increasing in the past years and today stand at approximately EUR4 billion ($5.76B). Another way to look at subsidies is that every litre of ethanol consumed in Europe gets 0.74 EUR (about $4 per gallon) and every litre of biodiesel 0.5 EUR ($2.72 per gallon). The effective rate of assistance to biofuels (taking account of all measures of support) adds up to more than 250% for ethanol (see chart above). Biodiesel, and especially rapeseed crops, have lower effective rates of assistance (up to approximately 60%).

This structure of support and protection is not economically sustainable. It is rather close to economic madness to pursue the sort of self-sufficiency or industrial policy ambitions that have guided EU policy towards biofuels. The total cost of every unit of biofuel becomes far too high, which slows down the readiness to shift away from fossil fuels.

The biofuels policy in the European Union is a classic example of “green protectionism” – protectionism that is not motivated for the benefit of the environment, but which uses environmental concerns to pursue non-environmental objectives. The European Union runs an extensive policy for subsidies to biofuel production. Border protection increases the level of subsidy by giving a market support from consumers to producers. Standards are used to favour domestically produced biofuels. It is difficult to escape the picture of a policy driven by industrial ambitions rather than environmental concerns. The intention and/or the effect of Europe’s policy is associated with beliefs of self-sufficiency. Obviously, trade is not considered to be an integral part of an environmental ambition to shift from fossil fuels to biofuels.

A serious policy to move towards an increased share of biofuels in Europe’s energy mix needs to reconsider the role of trade in achieving this ambition. A shift dependent on domestic production would increase the welfare cost: expensive local biofuels are favored; cheaper foreign biofuels are restricted. Such a policy borders on economic madness; Europe simply does not have the resources to finance all the domestic production needed. Nor does it have comparative or competitive advantages in producing biofuels.

Sunday, December 27, 2009

2009 Global Stock Market Rebound

Year-to-date returns for the MSCI Emerging Markets (data here).