Saturday, September 25, 2010

Bull Market Rally in Lumber Futures As Economic and Construction Growth May Increase Demand

Sept. 24 (Bloomberg) -- "Lumber futures rose the most allowed by the Chicago Mercantile Exchange, capping the biggest weekly gain since July, as a rebound in demand for U.S. capital equipment bolstered prospects for industrial materials.

Lumber futures for November delivery rose the CME’s $10 limit, or 4.3 percent, to settle at $240.50 per 1,000 board feet at 1:13 p.m. in Chicago. This week, the price jumped 10 percent, the most since the five days ended July 2. The commodity has surged 38 percent in the past year (see chart above, data here).

On Thursday, lumber futures reached $243.50, the highest price since June 4. This week, the Commerce Department reported a jump in U.S. housing starts that revived prospects for construction materials."

Waiting for "Superman" Released Yesterday

"Guggenheim's documentary Waiting for "Superman" (released yesterday) focuses on aspiring students and their parents, mostly minorities, together struggling against the odds to get admitted into urban charter schools. Lacking the money for private schools, or move to the suburbs where the schools are better -- although not always good -- having only neighborhood high schools that are "drop out factories," these Americans have very few options. For many their only option is finding a decent charter school. But the odds for these young students to get selected in the lottery for a charter school is often worse than for students applying to Yale University.

And the film has villains. The clearly marked, cleared attacked villain that stands in the doorway to reforming our failing system of public education. The two major teacher unions! The two major teachers unions that together are the largest contributors to the Democratic Party; the Democratic Party that refuses to support legislation to require teachers to perform better and the Democratic Party that refuses to support legislation for the more innovative, less bureaucratic, effective charter schools.

What "Waiting for Superman" drives home is to improve our education system requires improving our teachers. Requires demanding our teachers get deep in the trenches, be allowed to be flexible and innovative, persist, and to be held accountable. This the teacher unions and the Democratic Party will not accept, even for the sake of our children."

From a movie review by Stewart Nusbaumer.

Filmmaker Davis Guggenheim talks about the movie:

HT: Mike Carlson

Update on the NYC "Taxi Cartel"; Medallion Prices Reach Record Highs in Aug. of $609k and $825k

The "priciest piece of aluminum in NYC" - a taxi medallion to operate a single cab in NYC - reached a new record-high of $609,000 in August for an individual medallion (see chart above, data here), more than double the average prices in 2004. The average price for a corporate-owned taxi medallion reached a new record high in July and August at $825,000. 

Membership in the "taxi cartel" certainly has its privileges: above-market returns of 17% per year for corporate medallions and 15% for individual medallions in a permanent bull market.  Over the same period from 2004 to 2010, the average annual return on the S&P500 was -1.10%.  See previous CD posts here, here and here.

Friday, September 24, 2010

Emerging Stock Markets Hit 2-Year High Today

The MSCI Emerging Markets Index reached a 26-month high today of 1053.3, the highest closing level since July 2, 2008.

For Young Adults, Health Insurance Is Available for About Same Monthly Cost as A Cell Phone

We always hear how medical insurance is expensive and unaffordable, and that's why there are 50 million uninsured Americans (details here). But almost 21 million of those uninsured are between the ages of 18 and 34, which is 41% of all uninsured (see CD post below or here). At least in Michigan for young adults between the ages of 18 and 30, insurance is available for as little as $49.30 per month through Blue Cross-Blue Shield of Michigan, for its Young Adult Blue program (details here), which is about the same monthly cost as a cell phone.

Young Adults Are Key to Health Care Reform; But There Are Strong Incentives to Remain Uninsured

FOX NEWS -- (Note: This is from January 2010, before Obamacare passed.) For the first time ever, the federal government is going to require that everybody obtain health insurance coverage. For those who have insurance through their employers, the so-called individual mandate may have very little impact. But for young adults, many of whom are not currently covered, the health care bill will add a new and costly expense to their budgets.

MP: For the age group below 35 years, there were more than 28 million uninsured Americans in 2009 and that represented 56% of the 50.6 million uninsured (data here), see chart above. For the 18-34 year age group, there were almost 21 million uninsured, which is 41% of the total number of uninsured.

The federal government wants to require young, healthy people to buy insurance because if they don't, premiums for everyone else will go up. Insurance companies need low-maintenance, young customers on their rolls so they can raise money to cover benefits for less-healthy people the health care bill will require them to insure.

"If you don't have a mandate that gets in the young people who are cheaper, you're going to see average premiums rise," said Jim Kessler, vice president for policy with Third Way. "There's no way around that." But both houses passed two other reforms that create an incentive not to buy insurance.

1. The bills allow patients to basically purchase insurance whenever they want.

"You can literally buy an insurance policy in the ambulance on the way to the hospital," said Douglas Holtz-Eakin, former director of the Congressional Budget Office. "You could imagine a situation in which you would pay the fines, stay out of the insurance pool, and at the moment when you need it, you go out and buy it."

2. The other disincentive is that both houses change how much older customers can be charged relative to younger customers. Analysts agree this will drive up the cost for young people, though it's not clear by how much.

"If you charge people a fair price, then a 50-to-60-year-old should pay about six times as much as a 20-year-old," said John Goodman, president of the National Center for Policy Analysis. But he noted that the Senate bill says older people can be charged only three times as much; the House bill says they can be charged two times as much. "So we're going to penalize low-income young people in order to lower the premiums for older wealthier people."

"Young people are going to bear a disproportionate cost in this reform," Holtz-Eakin said. The Senate tries to make it easier on the young by offering them a bare-bones insurance plan that would be less expensive than all the others. This is perhaps the keystone for the entire reform effort, because if young healthy people don't get into the insurance pool, everything else -- especially cost containment -- could fall apart.

MP: In other words, it seems like any real cost containment in the health care overhaul is pure fantasy, and will never happen under any conditions. Either you force 20 million young people to purchase insurance they aren't willing to buy now and overall costs go up, or the young people (and older people as well) pay the fine and remain uninsured until they need insurance (in the ambulance on the way to the hospital) and overall costs go up.

Thursday, September 23, 2010

If You Tax Something, You Get Less of It....

WSJ -- "Last year, Congress sharply increased the federal excise tax on "little" cigars—filtered, often sweetly favored products that are similar in size and shape to cigarettes. Some manufacturers responded by increasing the weight of their little cigars so they qualified as conventional, "large" cigars, which are taxed at lower rates. Now, a surge in sales of the small, inexpensive cigars is attracting the scrutiny of members of Congress and a prominent anti-smoking group, who say that tobacco manufacturers are exploiting this tax loophole.

Currently, little cigars—those weighing three pounds or less per thousand—are taxed at the same rate as cigarettes, about $10.07 per carton. But cigars heavier than three pounds per thousand are taxed at 52.75% of the manufacturer's price, resulting in taxes of only about $2 to $4 per carton for the smaller products in this bracket. Many small cigars already weighed almost three pounds per thousand before the tax increase, so some manufacturers needed only to modestly increase the amount of paper, filter or tobacco in their cigars to meet the higher threshold.

In the 14 months since the excise-tax increase, sales volumes of cigars classified as large more than quadrupled to 12.3 billion units. Sales of products listed as "little" cigars fell by 79% (see chart above)."

MP: This is Econ 101.  Couldn't they have predicted this would happen?  See previous, related CD post here

HT: Jonathan Butcher

Surprise, Surprise, Surprise: Beer Industry Opposes Marijuana Legalization: "This Bud's Not for You"

"The California Beer & Beverage Distributors is spending money in the state to oppose a marijuana legalization proposition on the ballot in November, according to records filed with the California Secretary of State. The beer sellers are the first competitors of marijuana to officially enter the debate; backers of the initiative are closely watching liquor and wine dealers and the pharmaceutical industry to see if they enter the debate in the remaining weeks."

HT: Huffington Post, via Catherine Rampell

Leading Index Improving, But Very Slowly

The Conference Board reported today that the U.S. Leading Economic Index reached a new high of 110.2 in August, and increased for the 15th time in the last 17-month period that started in April 2009 just before the recession ended.  Today's announcement follows recent reports from the Conference Board that its July Leading Indexes increased in Germany, France, Spain, China, and the U.K.; and fell in Korea and Japan in July.  

Ken Goldstein, economist at The Conference Board, said: “While the recession officially ended in June 2009, the recent pace of growth has been disappointingly slow, fueling concern that the economic recovery could fade and the U.S. could slide back into recession. However, latest data from the U.S. LEI suggest little change in economic conditions over the next few months. Expect more of the same – a weak economy with little forward momentum through 2010 and early 2011.”

MP: Looking at the chart above, there were several periods in mid-2002 and early 2003 when the economy was in recovery from the 2001 recession, but the LEI was flat for several months in a row, similar to the flattening in recent months.  

Weekly Rail Traffic Continues to Improve, Container Volume Sets a New All-Time Record High

"The Association of American Railroads (AAR) today reported solid gains in weekly rail traffic (see chart above), with U.S. railroads posting the highest intermodal volume for 2010 and the highest container count on record. For the week ending Sept. 18, 2010, intermodal traffic on U.S. railroads totaled 240,013 trailers and containers, up 16.9 percent from the same week in 2009, and up 2.4 percent compared with 2008. Container volume last week increased 18.8 percent compared with 2009, and rose 11.4 percent compared with 2008. Trailer volume last week rose 6.5 percent compared with 2009, but dropped 30.8 percent compared with 2008.

U.S. railroads originated 304,679 carloads for the week, up 8.1 percent compared with the same week in 2009, but down 2.4 percent from the same week in 2008. In order to offer a complete picture of the progress in rail traffic, AAR reports 2010 weekly rail traffic with comparison weeks in both 2009 and 2008."

MP: To quote Brian Wesbury and Bob Stein from their report yesterday on the positive news about housing starts in August, the ongoing increases in weekly rail traffic are "Another dagger to the heart of the case for a double dip recession."

Indexing Capital Gains Tax for Inflation Protection

Tourism Spending and Jobs Are Coming Back

The BEA reported today that real spending on travel and tourism in the U.S. increased at an annual rate of 3.0% in the second quarter to $597 billion, the highest level since the third quarter of 2008 (see chart above).  This follows an increase of real tourism spending of 5% in the first quarter, and marks the fourth quarterly increase in the last five quarters. 

Other highlights include:

1. Passenger air transportation spending increased 3.9% in the second quarter following a 4% increase in the first quarter.

2. Spending on accommodations increased by 6.1% in 2010:2 after increasing 13.4% in 2010:1.

3. After eight consecutive quarters of declines, direct tourism-related employment increased 2.2% in the second quarter.

Wednesday, September 22, 2010

Minnesota's Exports Soar 19% in QII

STAR TRIBUNE -- "Minnesota manufacturers reported a 19 percent year-over-year jump in exports in the second quarter, enough to nearly match the state's record high exports of two years ago.  The performance provided another sign the anemic economic recovery may be gaining traction."

HT: J. Howe

Random Roundup

1. Christina Sommers in today's NY Times on the proposed "Paycheck Fairness Bill," which would make it easier for women to file class-action, punitive-damages suits against employers they accuse of sex-based pay discrimination. Q: Now that young, childless, single women earn 8 percent more than their male counterparts in large metro areas (21% more in Atlanta), couldn't men also file class-action lawsuits if this bill passes?

2. "Medical Tourism: Have Insurance Card, Will Travel." Medical tourists are going abroad for treatments that can cost up to 80 percent less than at home.

3. Thanks to smartphones and laptops, people now spend one-half of their waking days interacting with media, and have increased media consumption by an hour per day over the last two years. 

4. Hispanic-Owned Businesses Increased (44%) at More Than Double the National Rate (18%) between 2002 and 2007, according to a new Census report. 

5. Because government electronic benefits cards get activated at the beginning of the month, Wal-Mart sales increase significantly in the first few hours after midnight on the first day of each month.

The Architecture Billing Index (A Leading Indicator) Improves in Aug. and In 6 Out of the Last 7 Months

The American Institute of Architects (AIA) just released its monthly Architecture Billings Index (ABI) for August, which improved to 48.2 last month compared to 47.9 in July, and
was the sixth monthly increase during the last seven months of the leading economic indicator for construction activity.  Except for a slightly higher reading of 48.4 in April of this year, the August reading of the ABI was the highest index level since January 2008 (see chart above).

Although the ABI has still not risen above the benchmark level of 50 which signals overall expansion of billings, the leading indicator has been on an upward trend since early 2009 when the ABI hit a recession-low of 33.9, and has now risen by 14.3 points.  This upward trend is evidence of a gradual and steady improvement in billings, and a signal of future improvements in construction activity.   

Among the various components of the ABI that are above 50 and signal expansion include the Northeast average for billings (50.9), billings for commercial and industrial (50.6), and the Project Inquires Index (54.6).   

According to the AIA:

"Still not entering into the positive phase, the Architecture Billings Index (ABI) increased for the third straight month in August. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the August ABI score was 48.2, up slightly from a reading of 47.9 the previous month. This score reflects a continued decline in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was also up, moving from 53.1 to 54.6."

Tuesday, September 21, 2010

Important Distinction: Giving People Tax Cuts Is NOT Giving People Money; It's ***THEIR*** Money

HT: Paul Ringstrom

Temporary Help Index Continues to Improve

The American Staffing Association (ASA) Staffing Index for temporary and contract employment activity improved by 24.7% for Week 37, the first week of September (data here). This marks the 21st week in a row with percentage gains in the staffing index above 20% compared to the same week in 2009 and the 30th straight week of double-digit percent increases vs. 2009.

The ongoing gains in the ASA Staffing Index in every single week this year compared to 2009 for this leading labor market indicator predict future broader-based, full-time permanent employment growth. 

California Business Exodus: If You Tax Something...

From Joseph Vranich:

"California is in serious trouble because many people refuse to admit to one of our big problems - the flight of businesses, capital and jobs to other states and nations. Businesses are shrinking their California footprint because high taxes and intense regulation damage their ability to compete.

Good information about the phenomena is hard to come by. Hence, out of frustration, a year ago I began compiling a list of what I call "California Disinvestment Events." The new compilation shows that 144 companies have fully or partially engaged in such events during the first three quarters of 2010, nearly triple the 51 companies discovered for all last year. You can see the list of companies that disinvest along with explanatory context here.

Such events are found in public documents. The real exodus is incalculable because so many are carried out without public notice. I think that for every one that becomes public knowledge, another dozen or more occur. Of course, many are small companies, but as they grow the economic benefits will be reaped elsewhere.

The top states gaining our businesses since January 2009 show Texas in the top spot, followed by Arizona, Colorado, Nevada, Virginia and Utah. Also, companies have moved functions to Taiwan, Mexico, Brazil and Chile. The jobs include R&D, which used to be a California hallmark. Now we're seeing unusual losses."

MP: More evidence of the anti-business, anti-growth effects of high taxes and onerous regulations, and companies voting with their feet.  

U-Haul Update: The cost for a one-way 26-foot truck rental from LA to Houston is $2,279, more than 2.5 times the cost for a truck going in the opposite direction ($892), suggesting that there are a lot more people moving out of California to Texas, than from Texas to California.    

The Daily Show: Working Stiffed

The Daily Show With Jon StewartMon - Thurs 11p / 10c
Working Stiffed
Daily Show Full EpisodesPolitical HumorTea Party

The United Food and Commercial Workers of Nevada pays temporary, non-union workers minimum wage (with no benefits) to protest and demand fair treatment and wages from Wal-Mart.

Monday, September 20, 2010

Cartoon of the Day

HT: Junkyard Hawg1985

U.S. Poverty Rate: 1959 to 2009

According to the recent Census Bureau report (historical data here), the poverty rate in the U.S. increased to 14.3% in 2009 from 13.2% in 2008 and 12.5% in 2007 (see chart above).  A few items of interest:

1. The poverty rate in 2009 (14.3%) was below the poverty rates in 1992 (14.8%), 1993 (15.1%) and 1994 (14.5%) following the 1990-1991 recession.  

2. The poverty rate in 2009 was below the rate in 1982 (15%), 1983 (15.2%) and 1984 (14.4%) following the 1980 and 1981-1982 recessions. 

3. The increase in the poverty rate (Table 5 in the report) associated with the recessions of the early 1980s was 3.8 percentage points (11.4% in 1978 to 15.2% in 1983), which is more than twice the 1.8 percentage point increase from 2007 (12.5%) to 2009 (14.3%).    

4. The poverty rates in recent years, and even the 15-year high of 14.3% rate in 2009, have been below the rates from the late 1950s to the mid-1960s. 

Forget Obamacare, Here Comes Wal-MartCare

"Local hospitals or hospital systems are extending their reach by agreeing to run retail clinics at Walmarts (NYSE: WMT) in their communities.  Hospital officials see the clinic as a way to reach customers who need affordable care during extended hours and give those who do not have a family physician access to care."


Traffic Volume Reaches 21-Month High in July; Highest July Travel Volume on Record

The Federal Highway Administration reported today that travel on all roads and streets in the U.S. increased by +0.8% in July 2010 compared to the same month last year. Total travel for the month of July was an estimated 270 billion vehicle miles, the highest travel volume for the month of July on record. On a moving 12-month total basis, the annual vehicle-distance traveled through July was 2,983 billion miles, the highest 12-month total since September 2008, 22 months ago (see chart above).

Following a sharp decline in traffic volume that coincided almost perfectly with the recession that started in December 2007 and ended in June 2009 (it's now official, see shaded area in chart), the economic recovery that started last summer has been accompanied by a gradual increase in traffic volume as both personal and commercial travel on U.S. roads and highways have rebounded.

Forced Government Recycling is Garbage; It Wastes Scarce, Valuable Resources and Lowers Our Wealth

From Jeff Jacoby:

"Unlike commercial and industrial recycling — a thriving voluntary market that annually salvages tens of millions of tons of metal, paper, glass, and plastic — mandatory household recycling is a money loser. Cost studies show that curbside recycling can cost, on average, 60 percent more per ton than conventional garbage disposal. In 2004, an analysis by New York’s Independent Budget Office concluded, according to The New York Times, that “it cost anywhere from $34 to $48 a ton more to recycle material, than to send it off to landfills or incinerators.’’

“There is not a community curbside recycling program in the United States that covers its cost,’’ says Jay Lehr, science director at the Heartland Institute and author of a handbook on environmental science. They exist primarily to make people “feel warm and fuzzy about what they are doing for the environment.’’

Mandatory recycling programs “force people to squander valuable resources in a quixotic quest to save what they would sensibly discard,’’ writes Clemson University economist Daniel K. Benjamin. “On balance, recycling programs lower our wealth.’’

Don Boudreaux responds:

"When materials are worth recycling, markets for their reuse naturally arise. For materials with no natural markets for their reuse, the benefits of recycling are less than its costs – and, therefore, government efforts to promote such recycling waste resources.

Everyday experience should teach us this fact. The benefits of recycling clothing, for example, are large enough to prompt us to buy costly clothes-recycling machines that we routinely use to recycle for tomorrow the clothes we wear today. We call these machines “washers and dryers.” And when American families no longer want their clothing, organizations such as Goodwill come by to gather the discarded garments to recycle them for use by poor people.

People also recycle their homes. The one I own and live in was previously owned by a family who recycled it – which included refurbishing it – rather than simply discarding it when they moved to another town. Many people also drive recycled (“used”) cars, stock their homes with recycled (“antique”) furniture, listen to recycled (“used”) CDs, and read recycled (“used”) books.

Markets promote conservation when it’s worthwhile; government promotes it when it’s wasteful."

MP: Remember that "time" is our most valuable and scarce resource, and that is usually one of the biggest costs of recycling (as Clarence "Gatemouth" Brown reminds us in a classic blues song: "My time is expensive, I gotta make it last"); but it almost never gets accounted for in most cost-benefit analyses of recycling.

Rising Income Inequality Has Been Exaggerated: 2X

From the paper "The Welfare Implications of Rising Price Dispersion" by Chicago economists Christian Broda and John Romalis:

"This paper uncovers a new fact: non-durable inflation for poorer households has been substantially lower than for richer households.

Using scanner data on household consumption of non-durable goods between 1994 and 2005, we document that the relative prices of low-quality products that are consumed disproportionately by low-income households were falling over this period. This implies that non-durable inflation for the 10th percentile of the income distribution has only been 4.3 percent between 1994 and 2005 (0.4 percent per annum), while the non-durable inflation for the 90th percentile has been 11.9 percent (1.0 percent annually), and 13.4 percent (1.2 percent annually) for the richest 5 percent of households in the sample (see chart above)."

The authors conclude that:

"A large literature has focused on the rising inequality observed in official statistics, but have mostly abstracted from the fact that these official measures are based on a single price index for a representative consumer. This assumption is not crucial in a world with a stationary relative price distribution or where an identical basket of goods is consumed by different income groups. However, using household data on non-durable consumption, we document that the relative prices of low-quality products that are consumed disproportionately by low-income consumers have been falling over this period.

This fact implies that measured against the prices of products that poorer consumers actually buy, their “real” incomes have been rising steadily. As a consequence, we find that around half of the increase in conventional inequality measures during 1994–2005 is the result of using the same price index for non-durable goods across different income groups. Moreover, given that the increase in price dispersion does not seem to be specific to our sample or time period, the overstatement in the increases in inequality from official measures can be even more significant, changing our view of how progress has been distributed in recent decades substantially."

MP: In other words, by using a single price index to adjust incomes for inflation, the findings of rising income inequality have been exaggerated. Because non-durable inflation (food, clothing, fuel, cosmetics, paper, etc.) for consumers in the 10th percentile was 7.6 percent lower than inflation for the 90th percentile between 1994-2005, and 9.2% lower than for the 95th percentile, about half of the increase in income inequality during this period was the result of using the same price index for all income groups.

Sunday, September 19, 2010

Women Are Not WorthLess

According to this video, "Women today make just 77 cents for every dollar a man makes — that's an average of $10,622 in lost wages every year. For many women and their families, ending the wage gap would buy a year's supply of groceries, three months of child care, or six months of health insurance. It's time to stop discounting women's voices and paychecks."

I guess that means that every business in America could save 23% on its wage costs starting tomorrow by firing all male workers and simply replacing them with equally-qualified women at wages of 23% less.  But wait a minute, that's illegal according the Equal Pay Act of 1963. 
Thanks to Christina Sommers for the link to the video.

Will Higher Inflation Help the Economy?

In today's NY Times, Tyler Cowen presents a case for monetary expansion as a way to help the economy recover:

"The Federal Reserve, pondering what to do to stimulate the economy, has a number of tools at its disposal. But if it could just convince Americans that it was committed to monetary expansion and economic growth, it would help the economy pick up speed.

Yet that is easier said than done. Here’s the problem: The economy needs help, but monetary policy, which is the Fed’s responsibility, has not been very expansionary. This is true even though the Fed has increased the monetary base enormously since the onset of the financial crisis.

How can this be? Supplying more money did not actually result in enough additional spending. The debilitating financial shock of the last few years convinced many consumers and businesses that they needed to save more. So they are holding on to much of the new money.

Given this problem, there is a logical and seemingly simple move available to the Fed: just make people believe that it is seriously committed to increasing the rate of inflation.

As high unemployment continues, more and more people, including top economists, are asking the Fed to promise a credible commitment to a more expansionary monetary policy. This approach will work only if the Fed finds a way to be bold — and if we find a way to believe in it."
MP: The graph above shows that we may be getting some of the monetary expansion Tyler is advocating.  In the first week of September, M2 grew at an annual rate of 3.2%, the highest growth  in the money supply since mid-December of last year (data).  Given the low growth in real output (1.6% in QII 2010), we might have the ingredients necessary for some inflationary pressures, and according to Tyler an improvement in economic growth. 

Ten Reasons to Buy a Home: Houses Are Cheap

Enough with the doom and gloom about homeownership. Brett Arends in the WSJ presents  10 reasons why it's a good time to buy a home.  Reason #1 is that you can get a great deal and Reason #2 is that mortgages are cheap.  In other words, relative to income levels, housing affordability remains at historically high levels (see chart above).  In July, a potential home buyer with the median family income of $60,498 had about 161% of the qualifying income necessary ($37,392) to qualify for a 30-year fixed rate mortgage at 4.9% and purchase the median priced existing single-family home at $183,400, with a 20% down payment.  Monthly payments for that hypothetical home would be only $779 (principal and interest), see details here.