Monday, May 24, 2010

Conflict of Vision: Free Enterprise v. Gov't. Control

In his Washington Post commentary yesterday “America’s New Culture War: Free Enterprise vs. Government Control,” AEI President Arthur Brooks writes:

"In one [vision], America will continue to be an exceptional nation organized around the principles of free enterprise—limited government, a reliance on entrepreneurship and rewards determined by market forces. In the other, America will move toward European-style statism grounded in expanding bureaucracies, a managed economy and large-scale income redistribution. These visions are not reconcilable. We must choose."

According to the “Kauffman Index of Entrepreneurial Activity,” a study released last Thursday by the Kauffman Foundation, there is some new evidence that many Americans are moving in the direction of the first vision. The Kauffman report finds that entrepreneurial activity in the United States reached a 14-year high in 2009, measured by the number of new businesses created. From the press release:

"Rather than making history for its deep recession and record unemployment, 2009 might instead be remembered as the year business startups reached their highest level in 14 years—even exceeding the number of startups during the peak 1999-2000 technology boom (see chart above). In 2009, the 340 out of 100,000 adults who started businesses each month represent a 4 percent increase over 2008, or 27,000 more starts per month than in 2008 and 60,000 more starts per month than in 2007."

Read more here at the Enterprise Blog.

March Traffic Volume Highest Increase Since 2006

According to data released today by the Department of Transportation, travel on all U.S. roads and streets increased by +2.33% (5.8 billion vehicle miles) in March 2010 compared to March last year.  That increase is the largest monthly gain since a 3.8% increase in January 2006, more than four years ago.  And the March increase in travel happened during a month with gas prices rising to 18-month highs, and with prices at the pump about $1 per gallon higher than March 2009, so it will be interesting to see if the increased traffic volume continues through the summer now that gas prices are falling and the economy is expanding. 

As I reported recently,  truck tonnage jumped 7.5% in March, which was the largest year-to-year monthly increase since January 2005.  America's moving again. 

Examples of Why Price Controls Are Evil

1. "Preventive confiscation" of 120 tons of food in Venezuela to allegedly "avoid the phenomenon of empty shelves at grocery stores," which are actually caused by the price controls Chavez imposed in 2003. 

2. Rent Control Is a Vanishing New York Treasure -- "Outside of prime neighborhoods, the restricted rents are not such a great bargain, in many cases barely cheaper than what the apartments could fetch on the open market. These deteriorating low-priced apartments still exist partly because landlords have little financial incentive to make renovations or apply for rent increases." 

Maybe rent control isn't really such a "treasure" after all.  And maybe, just maybe, and I could be wrong here, but maybe the food shortages and empty shelves in Venezuela, and the shortage of affordable apartments in NYC are actually caused by price controls?

American Express Declines N.C. Tax Incentives

Last week I featured the latest CEO survey results on the Best and Worst States for Business 2010, and North Carolina ranked #2 for the best state business climate (behind #1 Texas) with B+ grades for both "taxation and regulation" and "workforce quality" and a grade of A- for "living environment."  

Now comes this AP story:

"American Express is planning to bring a $400 million data services center to North Carolina, and it will do so without the types of incentives many companies look to pry from state and local governments.  American Express already has a Greensboro call center that employs 2,000 workers. Local officials had considered offering up to $13 million in incentives to entice another facility."

From The Tax Foundation:

"A common perception among lawmakers is that companies don’t care about good tax policy. If forced to choose between broad-based, low-rate, neutral taxes, or special targeted tax incentives that benefit only their company, conventional wisdom is that companies prefer targeted tax carve-outs every time.

But this is often not true. Many large companies are well aware of the dual-edged nature of special targeted tax incentives. Tax preferences designed to boost corporate investment may provide short-term advantages to some companies—and allow lawmakers to take credit for new jobs in campaign speeches—but in the long run they add enormous complexity to the code, and ultimately transform the tax system into an economic minefield of narrow bases and punitively high rates."

MP: In this case, it looks like the overall low-tax, business-friendly climate of North Carolina was more important to American Express in the long run for its facility expansion decision, than the short-run tax benefits it was offered.  Maybe more states should follow top-ranked states like Texas and North Carolina and create a permanent, ongoing favorable business climate with low taxes, small government and right-to-work laws, rather that try to offset their generally anti-business environments with some publicity-generating targeted tax incentives (like 49th ranked Michigan and its generous 40% refundable tax credits for making films in the state).     

HT: Tax Foundation

Chicago Fed Index At Highest Level Since 2006

"Led by continued improvements in production- and employment-related indicators, the Chicago Fed National Activity Index increased to +0.29 in April, up from +0.13 in March. April marked the highest level of the index since December 2006 and the third time in the past four months that the index indicated above-average economic activity. Three of the four broad categories of indicators that make up the index made positive contributions in April, while the consumption and housing category made the lone negative contribution.

The index’s three-month moving average, CFNAI-MA3, increased to –0.03 in April from –0.09 in March, reaching its highest level since February 2007. April’s CFNAI-MA3 suggests that growth in national economic activity was very near its historical trend. With the index still slightly below trend, there remains some economic slack, suggesting subdued inflationary pressure from economic activity over the coming year."

MP: More evidence here of the ongoing V-shaped economic recovery. 

Sunday, May 23, 2010

Obama Appoints Golf Czar

Obama has recently appointed a Golf Czar and major rule changes in the game of golf will become effective June 01, 2010.  This is only a preview as the complete rule book is being rewritten as we speak.  Here are a few of the changes...

Golfers with handicaps:
- below 10 will have their green fees increased by 35%.
- between 11 and 18 will see no increase in green fees.
- above 18 will get a $25 check each time they play.

The dollar amount placed in bets will be as follows:
-for handicaps below 10, an additional $10.
-between 11 and 18, no additional amount.
-above 18, you will receive the total amount in the pot even if you do not play.

The term "gimme" will be changed to "entitlement" and will be used as follows:
-handicaps below 10, no entitlements.
-handicaps from 11 to 17, entitlements for putter length putts.
-handicaps above 18, if your ball is on green, no need to putt, just pick it up.

These entitlements are intended to bring about fairness and, most importantly, equality in scoring.  Read more here.  (HT: Mike Carlson)
See related CD post here on bowling.

Top Recipients of Public Pensions in New York Would Rank as 178th Largest Economy in World

NY Times -- "Roughly 3,700 retired public workers in New York are getting pensions of more than $100,000 a year. The New York Times collected this public information from the state’s two pension funds and four of the five city funds. The pension plan for the city's firefighters has yet to provide information, as required under public information laws. Some pension funds said they could not provide figures like job title or final salary; the N.Y.P.D. Pension Fund wouldn't not disclose names."

See list here and related article here.  

MP: There are more than 22 retirees receiving more than $200,000 per year, and one receiving more than $300,000.  In total, New York taxpayers are paying more than $370 million per year to just this partial group of retired New York public workers, which doesn't include those receiving less than $100,000 per year and doesn't include New York firefighters.  If this group of retired workers on the NY Times list was considered as a separate national economy, it would rank as the 178th largest country in the world by GDP.  Also, note that most of the listed annual pension amounts are roughly 80% of the workers' final year salaries. 

Update: New York ranks #4 on this list of states most likely to default. 

Saturday, May 22, 2010

Net Worth of the U.S. Presidents

From The Atlantic: "Having examined the finances of all 43 presidents, we calculated the net worth figures for each in 2010 dollars. Because a number of presidents, particularly in the early 19th Century, made and lost huge fortunes in a matter of a few years, the number for each man is based on his net worth at its peak.

We have taken into account hard assets like land, estimated lifetime savings based on work history, inheritance, homes, and money paid for services, which include things as diverse as their salary as Collector of Customs at the Port of New York to membership on Fortune 500 boards. Royalties on books have also been taken into account, along with ownership of companies and yields from family estates.

The net worth of the presidents varies widely. George Washington was worth more than half a billion in today's dollars. Several presidents went bankrupt."

MP: What's interesting is that George Washington was probably the wealthiest U.S. president with $525 million of net worth, depending on how you count the entire Kennedy family estate of $1 billion towards JFK's net worth.  Also, it's pretty amazing that Bill Clinton's net worth of $38 million is almost as much as the combined net worth of both Bush Presidents together ($43 million total), see chart above.   

What Shortage? Engineering Degrees and Graduate School Enrollment Are at Record High Levels

There's a critical shortage of scientists and engineers in the United States, right?  We hear that all the time, and that's what I thought.  Until I checked the data.  

According to Department of Education data, there was a record high number of engineering degrees granted in 2008 (most recent year available, see chart above), a total of 126,612 (83,853 bachelor's degrees, 34,592 master's, and 8,167 doctor's), which is an increase of more than 18 percent from 2002.  Bachelor's degrees in engineering are down from the peak years of 1984-1987, when more than 90,000 students were graduating with undergraduate engineering degrees, but graduate degrees have increased dramatically - Master's degrees in engineering have doubled since 1981 and doctor's degrees have doubled since 1987.

Data for enrollment in graduate engineering programs show a similar upward trend, with a record high 131,676 graduate engineering students in 2007 (most recent year available, see chart).  With record high graduate enrollment, there should be a continuation of the ongoing increases in engineering graduate degrees. 

If you do a Google search for "shortage of engineers," the top links are for articles with titles like "There is NO Engineering Shortage," "What Shortage of Scientists and Engineers?", "Study: There is No Shortage of U.S. Engineers," and "Scientist Shortage? Maybe Not."

So I guess I'm coming late to the discussion here, but this is my contribution to the myth-busting about the mythical "engineering shortage."  

Friday, May 21, 2010

Markets In Everything: Cash-Based Medicine

WEEKLY STANDARD -- "On a wall inside Dr. Brian Forrest’s medical office in a suburb of Raleigh, North Carolina, is something you won’t find in most doctors’ offices, a price list:

Office visit: $49

Wrist splint: $41

Pap-smear: $51.

Those are the prices patients pay for the services, and they pay on the spot. Forrest doesn’t take insurance. If he did, the prices would be far higher and not nearly as transparent. He says listing prices up front is about trying to do business in a straightforward way, “like a Jiffy Lube.”

Forrest’s practice, Access Healthcare, was born out of his frustration with the bureaucratic system run by major health care providers and insurance companies. His epiphany came about 10 years ago, as he was completing his family medicine residency at Wake Forest University. “I was basically being told I needed to see 30 patients a day every day, and that’s what we had to do,” he recalls, speaking with a soft drawl. He didn’t care for that pace, preferring to spend 45 minutes to an hour with each patient.

At one job interview, he was told he would be required to sign a contract saying he’d see a patient every seven minutes or have his pay cut. Most new physicians sign those contracts. Forrest, 38, wouldn’t. “I’ll borrow a term from McCain: I’m ‘mavericky,’ ” he says. “I like to fix things that are broken.”

He spent some time researching alternative business models and found inspiration in People magazine, of all places, which profiled a Vermont doctor who carried a stopwatch, charged patients $2 a minute, and didn’t take insurance.

Forrest decided to take a similar approach—minus the stopwatch. Clients pay him cash when they’re seen, known in the industry as “fee-for-service.” He sees a maximum of 16 patients a day and leaves the office at 5 p.m. Because he doesn’t have to file insurance forms, he only needs a single office assistant, and the low overhead allows him to charge less than other doctors. Occasionally, his charges wind up being less than just the co-pays for Medicare or private insurance."

HT: Russel Harris

Minnesota Farms Fight Protectionist Nitwitery

According to the Institute for Justice (a national public interest law firm that has filed a federal lawsuit in U.S. District Court challenging Lake Elmo’s trade ban as a violation of fundamental constitutional rights): "Lake Elmo, Minn., forbids farmers from selling agricultural products from their own land unless the products are grown within the city limits. If a Lake Elmo farmer grows some of his crops in another town or another state, he cannot sell them from his Lake Elmo farm. Products grown in town are allowed; products from elsewhere are not."

Why stop there? Why not apply this same trade ban to grocery stores, gas stations, restaurants, car dealers, clothing stores, and movie theaters in Lake Elmo?  That is, if self-sufficiency for agricultural products is good for Lake Elmo, wouldn't self-sufficiency for all products be even better? 

And if self-sufficiency for the entire community is good, wouldn't self-sufficiency for neighborhoods within Lake Elmo be even better?  Why should residents of the west side of Lake Elmo patronize businesses, restaurants and farms on the east side of Lake Elmo by buying their agricultural products, food and other items - doesn't that take away jobs from the west side and export them to the east side of the city? 

But then why not self-sufficiency at the household level, wouldn't that be even better?  Why should you export your family's jobs to your neighbors across the street by buying their tomatoes?  Why buy any "out-of-household" goods or services - doesn't that just  take away jobs from your own household? 

This kind of protectionist self-sufficiency at the city level simply doesn't make any economic sense - it will impoverish the Lake Elmo residents, not make them better off, just like self-sufficiency doesn't make sense at the national level, household level, or any level.  
HT: Veronique de Rugy

Market Capitalization: Apple v. Wal-Mart, Microsoft

Apple's (AAPL) market capitalization (~$218.2 billion today) has been higher than Wal-Mart's (~$191.5 billion) for about the last three months (see chart above), which is especially interesting considering that Apple's market cap was less than $10 billion in late 2003 when Wal-Mart's value was almost $200 billion. 

Apple hasn't quite caught up yet to Microsoft's market capitalization, but it's getting pretty close - they're only about $15 billion apart now; $233.3 billion for Microsoft vs. $218.2 billion for Apple (see chart below).  

Everyday Low Prices Could Get Even Lower

May 21 (Bloomberg) -- "Wal-Mart Stores Inc., the world’s largest retailer, is seeking to take over U.S. transportation services from suppliers in an effort to reduce the cost of hauling goods.  The company is contacting all manufacturers that provide products to its more than 4,000 U.S. stores and Sam’s Club membership warehouse clubs, said Kelly Abney, Wal-Mart’s vice president of corporate transportation in charge of the project. The goal is to take over deliveries in instances where Wal-Mart can do the same job for less and use those savings to reduce prices in stores, he said.

“It has allowed our suppliers to focus on what they do best, manufacturing products for us,” Abney said in a telephone interview yesterday from Bentonville, Arkansas, where Wal-Mart is based. “With lower costs usually comes increased sales.”

Under the program, Wal-Mart is increasing the use of contractors, as well as its own private fleet of trucks, to pick up products directly from manufacturers and transport the goods to its distribution centers and stores. The retailer currently moves most goods only from its distribution centers to stores. The plan allows Wal-Mart’s fleet of 6,500 trucks and 55,000 trailers to carry more per truck and improve on-time delivery rates, said Leon Nicholas, a director at consulting firm Kantar Retail. Wal-Mart would also have more sway in negotiating fuel prices."

MP: Another example of why Wal-Mart is the world's leading retailer and how its relentless pursuit of supply chain efficiencies and other cost-cutting measures allows Wal-Mart to keep lowering prices to consumers, and in the process make millions of Americans better off.  In Wal-Mart's world, the consumers reign as the kings and queens, and there's probably no better example of consumer sovereignty than Wal-Mart.

Thanks to Norman Berger for the Wal-Mart link.

Good News: Mortgage Rates and Gas Prices Falling

McLean, VA – "Freddie Mac yesterday released the results of its Primary Mortgage Market Survey in which the 30-year fixed-rate mortgage (FRM) averaged 4.84 percent with an average 0.7 point for the week ending May 20, 2010, down from last week when it averaged 4.93 percent. Last year at this time, the 30-year FRM averaged 4.82 percent. Once again, the 30-year FRM has not been lower since the week ending December 10, 2009, when it averaged 4.81 percent."

MP: Except for a four-week period in November-December 2009 when rates were 4.83%, 4.78%, 4.71% and 4.81%, the 30-year mortgage rate has never been lower than 4.84%, going back to at least the mid-1960s.  The record-low mortgage rates should help keep the real estate recovery moving forward, and could also benefit homeowners who take the opportunity to refinance this spring or summer.  The record-low 30-year rates are also more evidence that inflationary pressures are non-existent right now.  

In other good news for American consumers, gas prices have fallen over the last two weeks by about 11 cents on average, which could act like a huge tax cut if the prices at the pump keep falling.  For every one penny per gallon decrease in gas prices, consumers save between $1.42 billion and $1.71 billion annually, see this CD post for the math.

Following A Record 12-Mo. Increase of 11.5 Points, Leading Index Falls One-Tenth of One Point in April

Following 12 consecutive monthly increases from April 2009 to March 2010 in the Leading Economic Index, which was: a) the first such string of 12 straight increases in six years (since 2004), and b) the largest 12-month increase (11.5 points) in the history of the Leading Economic Index (back to 1959), the index slipped in April to 109.3 from 109.4 in March, according to the Conference Board report yesterday.  

That means that there was a statistically insignifcant drop of one-tenth of 1 point in April's Leading Economic Index, hardly the kind of decline that should cause any concerns about the future direction of the U.S. economy.  And yet according to the headlines, the economic recovery is about to be derailed:

"Key US indicators point to economic recovery losing steam"

"Leading indicators drop, experts still expect “sluggish” economic growth"

"US Economy: Leading Index Signals Recovery to Cool"

"Uh oh: Leading economic indicators slip in April"

"US: Leading Index Dips; Slower Growth Ahead"

How about something more realistic like:

"Following A Record 12-Month Increase, Leading Index in April Falls By Insignificant One-Tenth of One Point: No Change Signalled in Economic Recovery"

Catching Up From From Yesterday: Philly Fed Index Positive for 9th Month and Jobless Claims Flat

"According to the firms polled for this month’s Philadelphia Federal Reserve Business Outlook Survey, regional manufacturing activity continues to expand. Firms reported some expansion of overall employment again this month. The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased slightly from 20.2 in April to 21.4 in May. The index has now edged higher for four consecutive months and has remained positive for the ninth consecutive month (see chart above)."

MP: More evidence of a V-shaped economic recovery in the Philadelphia Fed region for manufacturing output. 

From the Department of Labor report yesterday: In the week ending May 15, the advance figure for seasonally adjusted initial claims was 471,000, an increase of 25,000 from the previous week's revised figure of 446,000. The 4-week moving average was 453,500, an increase of 3,000 from the previous week's unrevised average of 450,500 (see chart below).

Comment yesterday from Scott Grannis about jobless claims: "No sign of a recession here." (Thanks to Morganovich for the suggestion to update jobless claims.)

Thursday, May 20, 2010

CA Home Prices Increase for 6th Straight Month

Highlights from the DQNews report on California Home Sales in April:

1. An estimated 37,481 new and resale houses and condos were sold statewide last month. That was up 0.5 percent from 37,295 in March, and down 1.3 percent from 37,967 for April 2009 (see chart above).

2. The median price paid for a home last month was $255,000, unchanged from March, and up 15.4 percent from $221,000 for April a year ago (see chart above). The year-over-year increase was the sixth in a row, following 27 months of year-over-year decline. The median peaked at $484,000 in early 2007.

3. Of the existing homes sold last month, 38.1 percent were properties that had been foreclosed on during the past year. That was down from a revised 40.3 percent in March and down from 54.6 percent in April a year ago. The all-time high was in February 2009 at 58.8 percent.

MP: The sixth monthly year-over-year increase in California home prices in April starting last November (following 27 monthly declines) suggests that home prices in California bottomed in late 2009, and have been gradually moving up.  This home price recovery in California is consistent with the MacroMarkets prediction  that "the onset of price recovery in U.S. single family real estate is widely expected by 2011, and home prices will increase by more than 12.4% between 2010 and the end of 2014."

Due to Popular Demand: Update on the TED Spread

Five-year view (suggested by Gherard L).

Anonymous: What about the TED spread? It's not looking good lately.

Morganovich: you [sic] will not hear MP discuss the TED spread again as it no longer agrees with his position and i [sic] fear that his use of data is quite selective.  but [sic] TED is telling us something (especially with m3 [sic] in deep contraction): welcome to liquidity crunch part 2.

Therefore, by popular demand, the TED Spread is presented in the two charts above.  The TED spread is currently at 32.89 basis points as of today, about the same level as the spring of 2007 three years ago, and far, far below the triple-digit levels that prevailed betwen mid-2007 and early 2009.  If  there's any major credit risk concerns in the U.S. economy, it's sure not showing up yet in the TED spread, which continues to "look pretty good lately."

Anonymous: "The market is not worried about the US. It's worried about Europe. Check 1 month LIBOR. It's heading back up past the summer levels last year."

Here's one month LIBOR, it's close to a 20-year low:

MacroMarkets Survey of 92 Experts Shows Housing Price Recovery Widely Expected by 2011

From MacroMarkets yesterday:

"According to a new monthly survey, the onset of price recovery in U.S. single family real estate is widely expected by 2011, and home prices will increase by more than 12.4% between 2010 and the end of 2014. The survey also revealed that home prices nationwide are expected to have risen 4.9% in the 12-month period ended March 2010, but fallen 0.4% during the most recent quarterly period measured. These conclusions reflect an average of the 92 responses received during the first half of this month from an expert panel of more than one hundred economists, housing analysts, investment and market strategists."

“The survey results are important because they represent a consensus view among experts with rich and diverse knowledge. In the May survey they see only the slightest hint of a downdraft in home prices this year, and after that a respectable uptrend in prices, well ahead of the likely inflation rate,” said Robert Shiller, MacroMarkets co-founder and Chief Economist. “However, there were a number of panelists more or less sanguine than average, some significantly so, and this reflects continuing volatility and risk in the U.S. housing market. The expectations within this first survey were provided following the end of the homebuyer tax credit and of the Federal Reserve’s $1.25 trillion mortgage-backed securities purchase program. It will be interesting to see how panelist views evolve in future months.”

HT: Tony Hull

America's Moving Again: Rail Traffic Last Week Reached The Highest Level Since Fall 2008

From today's Association of American Railroads report:

"Intermodal volume on U.S. freight railroads for the week ended May 15, 2010, reached its highest level since the 47th week of 2008. Carloadings last week also saw gains, with 18 of 19 commodity groups showing increases from the comparable week in 2009.  U.S. railroads originated 290,263 carloads during the week ended May 15, up 16.6 percent from the comparable week in 2009, but down 11.9 percent from 2008. 

Intermodal traffic totaled 218,206 trailers and containers, up 15.2 percent from last year but down 6.7 percent from 2008. Compared with the same week in 2009, container volume increased 16.8 percent while trailer volume rose 6.9 percent. Compared with the same week in 2008, container volume was up 0.8 percent while trailer volume fell 34.6 percent.

Of the 18 carload commodity groups showing increases from last year, 14 experienced significant percentage gains, led by a 140.9 percent increase in loadings of metallic ores. Loadings of metals were up 82.9 percent, coke jumped 49 percent and waste and scrap rose 31.1 percent. Other notable increases included motor vehicles, up 59 percent; crushed stone, sand and gravel, up 20.1 percent; grain up 14.8 percent; chemicals, up 12.1 percent; and coal, up 9.5 percent. Pulp, paper and allied products each declined by 2.8 percent."

Wednesday, May 19, 2010

Interesting Fact of the Day

SF Chronicle -- 6.7% of world population has a college degree, and that means only about one out of every 15 people in the world has graduated from college.

The Coming Gold Bust: $800 Per Ounce?

CNN Money -- "Barclays Wealth in London predicts gold will fall to a fair value of $800 an ounce by 2012, as investors eventually dump it for riskier trades; Societe Generale, the French bank, in April 2009 predicted $800 gold by the end of 2010, though it has reversed its stance since then. Analyst John Nadler of gold deal Kitco predicts gold will fall to $900 in 2011. Their reasoning is simple: investors are keeping prices high even as demand from non-investors is cratering.

Take gold jewelry, which accounts for more than half of the world's gold market. Demand there fell 8% in the fourth quarter of 2009 and is likely to continue to fall amid high prices that turn off shoppers. For example, in India, the largest gold buying country, high gold prices this week kept Indians from purchasing metal for the gold-buying festival of Akshaya Tritiya, which in turn drove down prices.

Then there's price pressure from the supply side. Higher gold prices mean miners work overtime. The supply of mine gold around the world jumped 7% last year to 2,572 tons-the second largest increase in history.

Gold bullion dealer Kitco says places like China and Russia will help boost the amount of gold from mining by 4% to 6% a year through 2014. Because it costs miners about $480 on average to extract an ounce of gold, they plow ahead when prices are high, eventually leading to an oversupply situation."

Octopus vs. Shark: Who Will Win?

John Goodman

CEOs Give the Unionacracy of California an F

In the latest issue of “Chief Executive” magazine, results were published for the “Best and Worst States for Business 2010,” based on a January survey of 651 CEOs from around the country. The business leaders rated the business climates of all 50 states and the District of Columbia on: a) taxation and regulation, b) quality of workforce, and c) living environment. For the second year in a row, Texas ranked #1 in the country while California ranked dead last at #51 for the second straight year. California was the only state in the nation to get a letter grade of “F” from the CEOs for the category “Taxation and Regulation.”

The trends in employment levels in California and Texas support the stark differences in the CEOs’ rankings of the two states. California lost more than a million jobs during the recent 2008-2009 recession, and there are actually fewer jobs in the Golden State today than there were ten years ago (see chart above). In contrast, job creation in Texas barely even slowed during the worst recession in a generation, and Texas has 151,000 more jobs today than when the recession started in December 2007, and 1.11 million more jobs than a decade ago.

Bottom Line: The new CEO survey provides insights into the dramatic differences between the economies of our two largest states. The low-tax, business-friendly, right-to-work state of Texas gets high marks from CEOs and provides a model for how a state can attract jobs, businesses and economic development. On the other hand, the high-tax, big-government, forced unionism approach of California has been a prescription for high unemployment and a net outflow of jobs, people and businesses. If the unionacracy of California wants to rescue its economy from being the “Venezuela of North America,” it should look to Texas for lessons on how to do it.

See longer post at the Enterprise Blog.

Cleveland Fed Video on Inflation

Median CPI on the Drawing Board: Really bad drawings…real simple explanations.

Median CPI Annual Inflation Falls for 19th Straight Month to a Record Low of 0.5% = No Inflation

According to the Cleveland Fed's report today, the median CPI increased by 0.50% in April over the last year, the 19th consecutive monthly drop in the median CPI annual inflation rate, and the lowest year-to-year inflation rate in the history of the Cleveland Fed's series back to 1984 (see chart above). In contrast, the regular CPI has increased by 2.2% over the last year (April 2009 to April 2010).

Historically, the median CPI has been 50% more accurate at gauging future inflation than the traditional CPI (based on the
Cleveland Fed's research), and the median CPI is certainly not now showing any signs of inflationary pressures. In fact, a stronger case could be made for deflation right now than inflation, according to: a) the median CPI, and b) the decelerating growth of the money supply, see this CD post from yesterday.

According to "inflation skeptic" Bob McTeer (former Dallas Fed president): "To repeat the obvious, because others won’t, money growth is almost flat. Flat money growth does not cause inflation—especially when we have enormous slack in the economy along with rapid productivity growth and declining unit labor cost. We may get inflation in the next few years, but, if so, it will be based on money growth yet to happen. It hasn’t happened yet."

"Big Short" Paulson Now Going "Big Long"

CNBC -- John Paulson, the hedge fund manager who reaped billions from the infamous ‘Big Short” against the subprime housing market and the American financial system, is now increasing his bet on their recovery, according to recent filings.

The manager of $29 billion at New-York based Paulson & Co. added to his Bank of America stake last quarter, bringing his total holdings in the TARP recipient to 168 million shares. He also increased his stake in Hartford Financial, the insurance firm whose exposure to AIG and Lehman Brothers caused its shares to plummet during the credit crisis, from about 3 million shares to more than 12 million. The hedge fund manager, who counts Citigroup among his three biggest holdings, even bought a new stake in a homebuilder, picking up 5 million shares of Atlanta-based Beazer Homes.

“Once again he’s going for the biggest bang for his buck by betting on areas that people hate,” said Pete Najarian, co-founder of and a ‘Fast Money’ trader. “The guy is betting on the big beta stuff.”

HT: Mike LaFaive

Confidence in Government from the Right and Left

"[Conservatives like] Charles Krauthammer are just as willing to take over people's lives and rule it for them regarding their use of drugs as the likes of Keynesian economist Paul Krugman do when it comes to people's economic activities. Which confirms just how widespread the impulse is to rule other people, both from the Right and the Left. Neither shows much confidence in human beings – what is odd is that they do show confidence in the most dangerous human beings, governments, who hold guns in their hands."

~Tibor Machan

Tuesday, May 18, 2010

Ex-Dallas Fed President is a Fellow Inflation Skeptic

From Bob McTeer (former Dallas Fed president):

"What am I missing? I keep hearing people on financial TV say things like “The Fed keeps pumping out the dollars,” “The Fed keeps monetizing the debt.”

Then I go look up money-growth charts. I can’t find all this excessive money creation that is monetizing the debt and is about to create a breakout in inflation. Not M1; not M2. Where is all this money we keep hearing about?"

MP: This is actually a point that I have been making for awhile now, see CD posts
here, here and here. Along with Bob, I too remain an "inflation skeptic," and the chart above (data here) provides empirical evidence to suggest that money growth is very low and there is just no convincing evidence to suggest that there is any inflationary pressure building in the economy.

Inexcusable: Obama's Failure to Pass the FTAs

In President Obama's State of the Union address in January, he outlined his plan to help U.S. businesses double exports over the next five years and in the process add two million American jobs. Further, Obama warned that “If America sits on the sidelines while other nations sign trade deals, we will lose the chance to create jobs on our shores.”

Well, that's exactly what’s happening , but it’s not the good part about doubling exports and adding U.S. jobs, it’s the bad part about the U.S. sitting on the sidelines while Colombia and Panama negotiate free trade agreements (FTAs) with the European Union and Canada, and while Korea finalizes an FTA with the European Union. Meanwhile, America’s FTAs with Colombia, South Korea and Panama, all signed back in 2006 or 2007, are now languishing into their fourth year awaiting Congressional approval.

What makes those delays especially inexcusable is that the Colombian and Panama FTAs have support from
1,200 American companies, associations, farm and ranch groups, and chambers of commerce, as well as support from the editorial boards of almost every major U.S. newspaper including the Wall Street Journal, L.A. Times, Washington Post, Miami Herald, Chicago Tribune, Detroit News, and even the New York Times, which wrote in 2008, “We don't say it all that often, but President Bush is right: Congress should pass the Colombian free-trade agreement now. We believe that the trade pact would be good for America's economy and workers.”

Adding to the inexcusability is the fact that the main beneficiaries of the stalled free trade agreements with Colombia and Panama would actually be American companies and workers, because the agreements would open up those markets to U.S. exports by eliminating the stiff tariffs currently imposed on our products (while 90 percent of Colombian and Panamanian imports currently enter the U.S. duty-free).

And what makes the situation worse yet is that Colombia’s economy and stock market are booming like never before. After stagnating for a decade between 1993-2003, Colombian stocks have increased more than eight-fold since early 2004, and have more than doubled over the last two years (see chart above). The failure to pass the Colombian FTA means that U.S. exporters are missing out on a golden opportunity to gain from Colombia's thriving economy.

With incredible export opportunities awaiting U.S. manufacturers in booming, emerging markets like Colombia, with the huge potential to create much-needed jobs for America’s workers, and with universal support from almost every sector of the economy, what could possibly be holding up the FTAs with Panama, Colombia and Korea?

Apparently just one group: U.S. labor unions, with the support of their Democratic enablers in the White House and Congress.
Recent polls show that public support of unions is at a 72-year low, so it's especially puzzling that this one group can still exercise such political power to withhold thousands of jobs from fellow Americans by stopping the FTAs, even during and following such a severe economic downturn when job creation is so critical. Despite his political rhetoric, President Obama seems perfectly content so far to sit patiently on the sidelines along with his union supporters and watch Panama, Colombia and Korea sign free trade deals with the European Union and Canada, while preventing our FTAs with these countries from passing, and in the process watch thousands of potential U.S. jobs evaporate. It's inexcusable.

Cross-posted on the Enterprise Blog.

Fewer Cows, More Milk and Lower Real Prices


MP: The Tableau interactive graph above presents an amazing story of increased productivity in milk production over time, from an average of 5,410 pounds per cow in 1924 to 20,079 pounds in 2009, for a percentage increase of 271%. Or we could say that today's cows produce 3.7 times as much milk as cows in the 1920s. It's also true that we are producing record levels of milk in the U.S. with record low numbers of cows, and the significant improvements in milk productivity have dramatically lowered the real price of milk over time. Wholesale milk prices (adjusted for inflation) today are about 75% lower than in the early 1930s, less than half the prices of the early 1980s, and are now close to the lowest level in history.

This dramatic increase in the productivity of milk production is probably similar to productivity gains in most other U.S. agricultural products, and explains why we only spend 9.6% of our disposable income today on food (2008 is most recent year), compared to the 25.2% of disposable income spent on food by Americans in 1933. The productivity gains in farm production also explain why we now only have 2.6% of our labor force working on farms to produce record levels of agricultural output, whereas it used to require 90% of the labor force in farm production in the late 1700s to feed the country (see CD post here for data).

Monday, May 17, 2010

Credit Card Delinquencies Fall 4th Straight Month and Credit Card Debt Falls to 45-Mo. Low in March

(Reuters) - "U.S. credit card delinquencies fell for the fourth straight month in April, the latest indicator that Americans are recovering from the worst economic downturn since the Great Depression. While charge-offs remained high, delinquencies are a better gauge of future loan performance. With fewer consumers late on their bills, the outlook for credit losses over the summer may be improving."

HT: Benny The Man and Junkyard Hawg

Update: See chart above showing that revolving consumer credit (credit card debt) fell in March to a 45-month low of $852.6 billion, the lowest level since July 2006.

May Empire Manufacturing Survey Mixed, But Employment, Cap. Expenditures at Multiyear Highs

"The Empire State Manufacturing Survey indicates that conditions for New York manufacturers continued to improve for a tenth consecutive month in May, albeit at a slower pace than in April. The general business conditions index fell 13 points, to 19.1 (see top chart above). Similarly, the new orders and shipments indexes also moved lower but remained at positive levels. The inventories index dropped back to a level near zero after rising into positive territory in March and April.

The prices paid index continued to climb, reaching its highest level of the year, while the prices received index was little changed and positive. The index for number of employees rose for a fifth consecutive month, reaching its highest level since 2004 (see bottom chart above). Future indexes suggest that activity is expected to expand further in the months ahead, but the level of optimism was noticeably lower in May than in recent months (see top chart). The capital expenditures index advanced several points to 38.2, a multiyear high (see bottom chart)."

MP: While the May manufacturing report for the New York Fed region was somewhat mixed, the employment and capital expenditure indexes were especially strong in May, with the employment index reaching a six-year high, and the capital expenditure index at the highest level since late 2006. Since concerns about employment remain elevated, this strong reading for manufacturing employment in the NY Fed area suggests that jobs are slowly, but consistently returning to the manufacturing sector.

GM's Business is Booming in India

Car sales in India have increased 25.4% over the last year, sales of trucks and buses by 171%, the Indian economy continues to grow at 8% annually, and GM's vehicle business in India is booming.

GM's sales in India have increased by 10 times over the last decade, and its workforce by more than five times. Its Pune plant is adding a third shift to keep up with the growing demand in India for GM vehicles like the Beat and Spark.

Read more in the Washington Post.

Sunday, May 16, 2010

Food Exports ($13b), Food Trade Surplus ($10b) w/China Set Record Highs in 2009; Is It Beholden?

There are a lot of articles like this one that say things like:

NEW YORK ( -- "It looks as if China still can't get enough of one of America's finest exports: our debt. Some worry that the U.S. is becoming too beholden to China. Some have speculated that a trade war with China could result in China selling some of its U.S. Treasury stake as retaliation for any further tariffs on goods imported from China."

But there's another one of America's finest exports that China can't get enough of: U.S. food.

According to USDA data, the Chinese purchased more than $13 billion worth of U.S. food in 2009, and surpassed Mexico and Japan to become the second-largest destination for American food exports behind Canada. In 2008, China surpassed the European Union in U.S. food exports for the first time ever, and took over the fourth place ranking for U.S. food exports. In just the last three years, U.S. food exports to China have doubled from $6.7 billion in 2006 to more than $13 billion last year, and there is no other country whose appetite for U.S. food exports is growing faster than China's.

Our food trade surplus with China topped $10 billion last year for the first time, and has almost doubled in the two years since 2007, when the food trade surplus was $5.4 billion (see chart above). We hear a lot about our overall trade deficit with China, especially for manufactured goods, but there's been almost no attention paid to our large and growing trade surplus with China for agricultural products.

Q: As China increases its reliance on U.S. farms to feed its growing population of 1.3 billion, will it worry that it is becoming "beholden to the U.S." as a food source?

Actually, a better way to look at international trade is that is generates interdependence, cooperation, peace and goodwill among trading partners, and not the "dependence" that "beholden" implies.

Plummeting Marijuana Prices In California

NPR -- "Legal pot, under the guise of the California's medical marijuana laws, has spurred a rush of new competition. As a result, the wholesale price of pot grown in California is plunging.

Prices are now much less than $2,000 a pound, according to interviews with more than a dozen growers and dealers. Sheriff Tom Allman of Mendocino County says some growers can't get rid of their processed pot at any price."

Markets In Everything: $545,000 Barbie

Rarest and most expensive Barbie ever made for $545,000.

Saturday, May 15, 2010

US War on Drugs Has Cost $1 Trillion and Ten Times More Deaths Than 9-11 and Met None of Its Goals

MEXICO CITY — After 40 years, the United States' war on drugs has cost $1 trillion and hundreds of thousands of lives (MP: 28,400 in Mexico alone in just the last five years, more than ten times the number of casualties in 9-11, see chart above, data here), and for what? Drug use is rampant and violence even more brutal and widespread. Even U.S. drug czar Gil Kerlikowske concedes the strategy hasn't worked.

"In the grand scheme, it has not been successful," Kerlikowske told The Associated Press. "Forty years later, the concern about drugs and drug problems is, if anything, magnified, intensified."

Friday, May 14, 2010

Cellphones Now Used More for Data Than for Calls

NY Times -- "Although almost 90 percent of households in the United States now have a cellphone, the growth in voice minutes used by consumers has stagnated. This is true even though more households each year are disconnecting their landlines in favor of cellphones.

Instead of talking on their cellphones, people are making use of all the extras that iPhones, BlackBerrys and other smartphones were also designed to do — browse the Web, listen to music, watch television, play games and send e-mail and text messages. The number of text messages sent per user increased by nearly 50 percent nationwide last year, according to the CTIA, the wireless industry association.
And for the first time in the United States, the amount of data in text, e-mail messages, streaming video, music and other services on mobile devices in 2009 surpassed the amount of voice data in cellphone calls, industry executives and analysts say.

“Originally, talking was the only cellphone application,” said Dan Hesse, chief executive of Sprint Nextel. “But now it’s less than half of the traffic on mobile networks.”

MP: Isn't it interesting that historically the telephone replaced the telegraph, and talking on the phone replaced sending telegrams as the preferred method of communication. Now with the popularity of using phones for text messages and emails, it's almost like going back to sending telegrams by phone instead of talking on the phone.

Buying Spree: Discounted Land Prices, Long-term Real Estate Potential Are Attracting Developers

RISMEDIA, May 14, 2010 -- "Residential developers and homebuilders who survived the housing bust now are feasting on the remains of those who didn’t. They’ve been on a buying spree, using cash savings to acquire finished, but unbuilt lots and subdivisions that have been stalled or lost to foreclosure or bankruptcy. They’re paying up to 75 percent off peak land prices during the housing boom, and planning to succeed where others have struggled or failed.

All say discounted land prices attracted them, but it was the local housing market’s long-term potential that made them buy."

HT: John Jarrard

The Myth/Lie of "Government Job Creation"

From Ken Green's post on today's Enterprise Blog:

In the real world, jobs are not magically “created” when some central planner in the Politburo decides everyone needs new shoes, windmills, solar panels, tiny electric cars, fluorescent light bulbs, recycled paper underwear, or Rahm Emanuel action figures. Jobs are created when consumers decide they want to spend money to buy stuff. That means that: a) consumers have to have money to spend, b) they have to be confident enough in the future of the economy to be willing to spend their money, and c) they have to be able to afford the stuff for sale.

Instead of helping to create those conditions, the president and his allies in Congress are doing exactly the opposite. By layering massive regulatory burdens across the economy, they are increasing the costs of doing business; increasing barriers to entry; increasing the costs of goods and services; and destroying, not creating, jobs. By forcing windmills, solar cells, and biofuels into the energy supply, and by slapping “research delays” on everything having to do with fossil fuel production, they’re going to raise the costs of energy, and the costs of goods and services made with that energy (including food), suppressing consumer demand, and killing, not creating, jobs. And if they go ahead with the Kerry-Lieberman energy rationing plan deceptively named “The American Power Act,” they’ll make all of that significantly worse.

“Government job creation” is a myth bordering on a “Big Lie.”

Oil Boom in N. Dakota; March Output Sets Record

North Dakota crude oil production reached a new record high of 277,407 barrels of oil per day in March 2010 (see chart above, data here), with most of the increased oil production coming from the Bakken and Three Forks Sanish oil formations (source).

Oil production in North Dakota is growing exponentially and has now doubled over the last two years from fewer than 138,000 barrels per day in February 2008, and tripled over the last five years from 92,500 barrels per day in February 2005.

Associated Press -- "At the current pace, North Dakota is quickly gaining ground on California, the nation's third-biggest oil producer. (MP: North Dakota ranked ninth in 2006, and recently surpassed Louisiana to become the fourth largest oil-producing state.) Lynn Helms, director of the state Department of Mineral Resources, said North Dakota's 4,736 active oil wells pumped an average of 277,407 barrels a day in March, the latest figures available. The state was producing about 150,000 barrels a day in April 2008.

The record 8.6 million barrels produced in March was up from the previous high of 7.3 million barrels in February. Production could hit 300,000 barrels daily this summer, and 350,000 barrels next year."

Industrial Production Growth Highest in 10 Years

May 14 (Bloomberg) -- "Industrial production in the U.S. rose in April by the most in three months, indicating factories keep powering an economic recovery that’s becoming broad-based.
Output at factories, mines and utilities increased 0.8 percent last month after a 0.2 percent gain, figures from the
Federal Reserve showed today. Production at manufacturers rose 1 percent for a second month.

Spending by companies and consumers is spurring production at the same time factories are scrambling to replenish inventories. The combination of manufacturing growth and a pickup in Americans’ purchases is helping sustain the economy’s expansion."

MP: On an annual basis, industrial production increased by 5.2% in April, the highest growth rate in almost ten years, going all the way back to a 5.5% growth rate in June 2000 (see chart above). The manufacturing component of industrial production grew by 6% compared to April of last year.

Thursday, May 13, 2010

Glass Ceiling Has Been Shattered for CEO Pay

From Bloomberg:

Chief executive officers’ pay is shattering the glass ceiling. Boosted by a $47.2 million package for Carol Bartz of Yahoo! and $26.3 million for Irene Rosenfeld of Kraft Foods, compensation for woman CEOs at the biggest U.S. companies is booming.

Sixteen women heading companies in the Standard & Poor’s 500 Index averaged earnings of $14.2 million in their latest fiscal years, 43 percent more than the male average, according to data compiled by Bloomberg News from proxy filings. The women who were also CEOs in 2008 got a 19 percent raise in 2009 -- while the men took a 5 percent cut.

“When you see numbers like this, one can truly say that the glass ceiling in corporate America has been shattered,” said Frank Glassner, CEO of San Francisco-based Veritas Executive Compensation Consultants LLC. “I don’t remember seeing women ever getting paid more than men.”

HT: Morganovich

Continued Improvements in Global Shipping

Scott Grannis posted an update yesterday on the continuing improvement in various global shipping indexes, which provide more support that a global economic rebound in underway. A new report from the Port of Los Angeles provides additional support that both global shipping and the global economy are rebounding. On a three-month moving average basis, outbound export containers reached a 19-month high in April of 156,000 TEUs, the highest level since September 2008 (see chart above). Other highlights of yesterday's L.A. Port report for April:

1. Overall shipping volume is up 11.9% vs. April 2009.

2. Volumes are returning back to the Port following the economic downturn in 2008-09. While volumes are encouraging, it's important to note that total cargo volumes are still off significantly from 2007 highs.

3. Imports are climbing, leading to the need to replace and vacate empty containers from Los Angeles. Exports are up due to the value of the U.S. dollar.

4. New services and larger vessels are being added by the shipping lines.

Get Ready, The Recovery is Already Happening!

From today's NY Times, by Jack Stack, President of SRC Holdings:

"After spending the last six months on the road talking to hundreds of business owners around the country, I have come to a conclusion that might surprise you: the economic recovery is already well under way. And, if you don’t start putting a strategy in place to take advantage of it, you’re risking the future of your company.

I’ve been speaking eyeball-to-eyeball with entrepreneurs all across the country — in places like Pittsburgh, New York City, Richmond, Va., and Fresno, Calif. — and when I ask them how they did in the fourth quarter of 2009 or the first quarter of 2010, I keep getting responses like, “amazing,” “fantastic,” “record-breaking” and even “best we’ve done in years.”

The funny thing is that despite their recent success, most of these folks seem reluctant to acknowledge that things have gotten better. Why? Well, I have two theories about that: one, people feel so burned by the last few years that they still fear a double dip — and they’re still waiting for another shoe to drop. Two, I think some people are staying quiet because they don’t want to give anyone in Washington credit for the recovery. They feel that they have recovered due to their own innovation, creativity and hard work and not due to anything related to the stimulus.

But regardless of why no one is talking about it, the recovery is happening."

Thanks to Colin Grabow for the link.