Saturday, March 17, 2012

February Industrial Production: Strong Gains for Business Equipment, Manufacturing, Durables

In yesterday's report on industrial production, the Federal Reserve reported that the production of business equipment increased in February for the tenth straight month and reached a new record high of 104.9 (see chart above).  Compared to February of 2011, business equipment output was 11% higher this year, and for the last two months has been above the previous record high of 104.2 set in March 2008 during the early months of the recession. 

Another highlight of the report:

Manufacturing output in February was 5.2% above its year-earlier level, led by a 8.5% increase in durable manufacturing, with strong gains in durable goods industries like motor vehicles and parts (+13.4%), aerospace and transportation equipment (+14.3%) and fabricated metal products (+10.8%).   More evidence that the manufacturing sector continues to be at the forefront of the economic recovery.

Happy St. Patrick's Day from Guinness

St. Patrick's Day Sheep Dog Trials

In the video above, watch how a highly trained border collie rounds up some mates to ensure they get to the pub on St. Patrick's Day and enjoy a GUINNESS.

Intrade Update: 88.5% Romney, 60.2% for Obama

Odds for Romney to be the Republican nominee remain steady and are close to an all-time high of 88.5%, while Obama's odds to get re-elected remain steady at 60.2%.

Saturday Morning Links

1. Minnesota Moves Forward on a Right-to-Work Ballot Proposal for November, Taps Michigan's Mackinac Center for Bill Wording. 

2. New ADA Rules for Disabled Access to Swimming Pools Go Into Effect, and May Force Some Hotels to Close Their Pools.  (ht/Peter Parlapiano)

3. Manufacturing renaissance: Cheap, abundant natural gas will allow U.S. steelmakers to cut costs and lower selling prices at home, and could help drive greater U.S. steel exports.

4. Larry Kudlow reports that a new Joint Economic Committee study shows that a 10-15% appreciation of the dollar to pre-recession levels would lower gas prices by 42 cents per gallon. 

5. "This American Life" retracts its radio story on the production of Apple's iPad and iPhone in China using outsourcing giant Foxconn, for “significant fabrications.”

Friday, March 16, 2012

Today's Reports on Inflation, Inflation Expectations

Highlights from today's reports on inflation:

1. The BLS reported an annual inflation rate of 2.9% through February, matching the rate from January.  The annual core inflation rate was 2.2%, slightly lower than the 2.3% rate in January.

2. Gasoline prices rose by 6% for the month of February and by 12.6% over the last year.  Partly offsetting those increases were decreases in natural gas prices: -3.4% for the month, and -9.8% for the last year. 

3. The Cleveland Fed's median CPI inflation increased by 2.3% over the year, down slightly from 2.4% in January.

4. The Cleveland Fed also reported that its latest estimate of 10-year expected inflation is 1.38%, up just slightly from 1.34% last month (see chart above).  The Cleveland Fed provides monthly estimates of expected inflation over time horizons from 1 to 30 years, see its methodology here.  Over the next year, inflation expectations are 1.2% and over the next 30 years only 1.95%.

Bottom Line: Except for gasoline prices, there don't appear to be any widespread inflationary pressures building in the economy, and expectations of future inflation according to the Cleveland Fed's model are falling.


Markets in Everything: College Degree for < $10k

Texas Tribune -- "Officials from a few Texas community colleges and universities said that $10,000 bachelor's degrees are available now — and more will be within the year.  At Texas A&M-San Antonio, a bachelor's in information technology with an emphasis on cyber security will cost about $9,700. Starting in 2013, a bachelor's of applied science in organizational leadership will be available for under $10,000 in South Texas College."

With Rising Wages in China, Production is Moving

1. From the WSJ on Wednesday:

"Global companies already have been facing higher labor prices in China over the past year, despite a weak global economy, as workers demand a greater share of the country's economic boom. In recent months, the pressure also has intensified in countries across Southeast Asia that have marketed themselves as alternatives for companies seeking to escape China's rising costs, leaving those companies now with fewer places to move.

Over the past year, for example, U.S. menswear retailer Jos. A. Banks Clothiers has moved some manufacturing from China to cheaper locations in Asia such as Indonesia, as the price of labor and goods increased."

2. And now even Chinese bicycle manufacturers are started to move production overseas:

"Chinese bike manufacturers are beginning to look at expanding into new markets in Southeast Asia in the face of rising labor costs and restrictive export duties to Europe.

Manufacturing has already begun shifting inland from China’s coastal cities as labor costs have risen, and now producers are beginning to look overseas to keep prices competitive on low-end mass production."

HT: Mike Henne

Markets in Everything: Trade Your Car for a Bike

"With gas prices soaring again, car buyers are looking for more fuel-efficient vehicles. The Santa Monica Mountains Cyclery (SMMC), a bike shop in Woodland Hills near Los Angeles, has a different idea – drivers should opt for bicycles instead. And, to facilitate the transition, for a limited time they will accept cars as trade-ins toward new bicycle purchases.

For a limited time from March 19-25, SMMC will work with a local auto dealer, Vista Ford, and accept cars and SUVs in trade toward the purchase of a new bicycle. Consumers will head to SMMC and pick out their new, fuel-efficient bicycle. Then, they’ll go across the street to Vista Ford to have their vehicle evaluated and appraised. They trade the car to Vista Ford and return to SMMC to ride home on their new, truly carbon-friendly ride."

HT: Mike Henne

Thursday, March 15, 2012

Fossil Fuel Production (Coal, Oil, Gas) on Federal Lands Falls to Lowest Level in 9 Years, Since 2003

The EIA released data this week on the "Sales of Fossil Fuels Produced from Federal and Indian Lands, FY 2003 through FY 2011," with the following highlights summarized by the Institute for Energy Research:
  • Fossil fuel (coal, oil, and natural gas) production on Federal and Indian lands is the lowest in the 9 years EIA reports data and is 6 percent less than in fiscal year 2010 (see chart above).
  • Crude oil and lease condensate production on Federal and Indian lands is 13 percent lower than in fiscal year 2010.
  • Natural gas production on Federal and Indian lands is the lowest in the 9 years that EIA reports data and is 10 percent lower than in fiscal year 2010.
  • Natural gas plant liquids production on Federal and Indian lands is 3 percent lower than in fiscal year 2010.
  • Coal production on Federal and Indian lands is the lowest in the 9 years of data that EIA reported and is 2 percent lower than in fiscal year 2010.

Markets in Everything: Homeless Hotspots



More from the America Blog -- 

"A PR firm is working with local homeless advocates to help homeless people in Austin make some money by carrying around their own personal mi-fi boxes that they use to sell a few minutes of wireless access to people on the street.  Mi-fi is a kind of portable wi-fi emitter that creates a small bubble of wi-fi that you can use on the go (basically the same way that people can use their cell phones to create a small bubble of wifi for their ipads or their laptops).  It's a small electronic box, maybe the size of a cigarette box but thinner, and it can pick up an Internet signal via the air and emit it as wi-fi for up to 20 or 30 feet or something.  A number of the homeless are walking around Austin with these emitters, and charging people to get the password for 15 minutes or whatever."

HT: Tom Dilling

Cartoon of the Day


Thursday Morning Links

1. World crude steel production rose to a new record high in 2011 of 1,527 megatonnes, a 6.8% increase from 2010.  China produced more than 45% of world steel output in 2011 (695.5 megatonnes), while the U.S. ranked No. 3 with 86.2 megatonnes.

2. Excellent 6-minute animation of hydraulic fracturing and horizontal drilling. HT: Mike Carlson

3. Website that helps you find out which licenses and permits your business needs. 

4. Natural gas is expected to take another 14% of coal's market share in 2012, bringing coal's market share down to 36%.

5. Don Boudreaux's latest letter-writing brilliance about greedy speculators, including consumers who fill up with gas when their tank is more than half full, in anticipation of higher prices later. 

6. New drilling technologies and rising oil prices have generated a boom in drilling - and lots of high-paying jobs.

7.  The Myth of Scarce Oil in America - The U.S. May Have 60 Times More Oil Than Obama Claims, according to John Merline in yesterday's IBD. 

8. A History of U.S. Income Taxes, from Turbotax. 

Today's Economic Reports

1. Seasonally-adjusted weekly initial claims for unemployment fell to 351,000 for the week ending March 10, which is the lowest level in four years, since 347,000 claims for the week ending March 8, 2008. 

2. Year-over-year Producer Price inflation for finished goods was 3.3% for the year ending in February, which was the lowest annual inflation rate since August 2010, and less than half of the 7% average inflation rate for finished goods from May through September last year.

3. Manufacturing activity in New York state continued to expand at a healthy pace and manufacturers in the state remain highly optimistic about activity over the next six months, according to today's Empire State Manufacturing Survey from the NY Fed. 

More evidence of an economy making gradual, but ongoing improvements.  

Housing Affordability Reaches Record High in Jan.

The National Association of Realtors' Housing Affordability Index exceeded 200 in January for the first time ever and reached a new record high of 206.1, meaning that the typical American household has more than double the income needed to qualify for the purchase of a median-priced home.  Based on the hypothetical purchase of the median-priced home of $154,400 in January, financed at the average mortgage rate of 4.37% (with a 20% down payment), the median family income of $60,944 was 206.1% of the $29,568 income required to qualify for the financing and the $616 monthly payments (principal and interest).   

Housing has never been more affordable in U.S. history than it is today, which should translate into robust home sales and an improving real estate market this spring and summer.   

Wednesday, March 14, 2012

So. California Home Sales for Feb. Highest Since 2007; Avg. Payments of $998 vs. $2,800 at Peak

DQ News -- "The Southland housing market posted the highest number of February home sales in five years as record levels of investor and cash buyers helped spur robust activity under $300,000. The median price paid for homes across the six-county region inched up from January but dropped below the year-earlier level for the 12th consecutive month. 

A total of 15,573 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was up 7.2 percent from 14,523 in January, and up 8.4 percent from 14,369 in February 2011. 

Here are some interesting highlights:

1. Sales did not rise across the price spectrum last month. Transactions below $300,000 rose 9.5 percent from a year earlier, while the number of $300,000-$800,000 deals dipped 0.8 percent year-over-year and sales above $800,000 fell 12.6 percent. 

2. Distressed sales continued to make up more than half of the resale market. Foreclosure resales – properties foreclosed on in the prior 12 months – accounted for 32.5 percent of the resale market last month, down from a revised 32.6 percent in January and down from 37.0 percent a year earlier. Foreclosure resales hit a high for the current cycle of 56.7 percent in February 2009 and a low of 31.6 percent last November. 

Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 20.5 percent of Southland resales last month. That compares with 21.1 percent in January, which was a high point for the current real estate cycle, and 19.7 percent in February 2011. 

3.  Absentee buyers – mostly investors and some second-home purchasers – bought a record 29.7 percent of the Southland homes sold in February, up from a revised 28.0 percent in January and 26.4 percent a year earlier.

4. The typical monthly mortgage payment that Southland buyers committed themselves to paying was $998 last month, compared with $983 in January, which when adjusted for inflation was the lowest in DataQuick’s records back to 1988. Last month’s figure was down from $1,174 for the same month last year. Adjusted for inflation, current payments are 56.9 percent below typical payments in the spring of 1989, the peak of the prior real estate cycle. They are 64.7 percent below the current cycle’s peak in July 2007 [of $2,827].

Michigan: Most Improved Economy Since 2010

The chart above shows the monthly difference between the Michigan jobless rate and the national unemployment rate from January 2002 to January 2012.  In January, the monthly difference dropped to 0.70% as Michigan's jobless rate fell to 9% (lowest since September 2008) compared to the national rate of 8.3%.  That's the lowest Michigan-U.S. jobless rate spread since December of 2002, slightly more than nine years ago (see chart).

Over the last year from January 2011 to January 2012, Michigan's jobless rate has dropped by 1.9%, from 10.9% to 9%, which was the largest 12-month decrease among all of the U.S. states over that period.  And Michigan has gone from having the highest state jobless rate, or being among the top three states for most of the 2007-2009 recession, down to a rank of #40 out of #51 states and the District of Columbia in January.

I nominate Michigan as the most improved state economy since the recession ended. 

Chart of the Day: Rig Count Reversal Since 2010

The chart above displays updated data from Baker Hughes on rig counts for oil  and natural gas drilling in the U.S.  Over the last two years, there's been a complete reversal of the share of rigs drilling for oil vs. gas.  In March 2010, there were almost two rigs drilling for oil (926 rigs out of 1,392 total, or 66%) for every rig drilling for natural gas (466 rigs, or 34%), and now that's completely reversed, with 1,296 rigs drilling for oil out of 1,973 total rigs (66% of total) and 670 rigs drilling for natural gas (34% of total), for a ratio of almost 2:1 in favor of oil.

Overall, the number of drilling rigs has increased by 581 over the last two years from 1,392 to 1973, which is an increase of 42%.   

North Dakota Now No. 3 State for Oil Production

The EIA released monthly oil production data today by state through the end of 2011, confirming that for the first time ever, North Dakota's oil production in December (535,000 barrels per day) surpassed California  (531,000 barrels per day).  Based on December production, North Dakota is now the country's third-largest oil producing state behind Alaska and Texas.   

Markets in Everything: College Price Discrimination

Santa Monica College to offer two-tier course pricing"The school's governing board has approved a plan to offer certain high-demand classes for a higher price when the regular classes have filled up. It's believed to be the first such scheme in the nation.

Faced with deep funding cuts and strong student demand, Santa Monica College is pursuing a plan to offer a selection of higher-cost classes to students who need them, provoking protests from some who question the fairness of such a two-tiered education system.

Under the plan, approved by the governing board and believed to be the first of its kind in the nation, the two-year college would create a nonprofit foundation to offer such in-demand classes as English and math at a cost of about $200 per unit. Currently, fees are $36 per unit, set by the Legislature for California community college students. That fee will rise to $46 this summer."

HT: Mike LaFaive

With Car Sales Surging, Auto Parts Suppliers in Michigan Are Booming, Adding Thousands of Jobs

From Michigan Public Radio:

"Detroit automakers are creating thousands of new jobs amid a sales boom. And as they expand, their suppliers are racing to keep up, adding tens of thousands of new jobs.  In a dramatic reversal, many suppliers, after improving efficiency — through downsizing and buyouts — find themselves short-handed.

With the memory of the Great Recession still so fresh, companies are still wary about hiring too freely. But Sean McAlinden, economist with the Center for Automotive Research, says there actually is a danger of having a shortage of parts and workers. He says the supplier industry will need 174,000 additional workers by 2015, and the pace of hiring right now appears to be too slow.

Even when suppliers intend to hire right away, it's not easy. When all those supply companies went dark, many skilled tradesmen, machinists and engineers moved on." 

MP: Quite a reversal from a few years ago that auto parts suppliers in Michigan might now be facing a worker shortage

Creative Destruction: $7 iPad App Replaces $15,000, 20 Pound Communication Device

Bloomberg -- "Emma Edwards, 26, has no control over the fine motor muscles in her hands, which stay tightly and awkwardly clenched. She also can’t talk, walk or move her arms more than 20 inches at a time. Edwards, who suffered brain damage in 2001, can write e- mails, though, and she’s revisiting a favorite pastime, sketching, for the first time in a decade, thanks to her iPad and software applications that can cost as little as $7. 

 That’s a switch from the $15,000 communication device she had tried, a 9-pound machine approved by her insurer that tracks eye movement on a special grid corresponding to the alphabet. That device kept her tied to those in the room around her. The iPad, along with several other consumer-driven apps, has reopened the world to her. 

RJ Cooper & Associates, a closely held maker of software, accessories and applications for disabled people, has seen 85 percent of its business switch to the iPad in the past two years since Cupertino, California-based Apple introduced the tablet, according to R.J. Cooper, the Laguna Niguel, California-based company’s founder."

“The consumers took the lead this time,” Cooper said. “Parents are hiring people to create apps because they’re sick and tired of what’s available: 20-pound devices they can’t take to the playground.” 

HT: Gale Pooley

Tuesday, March 13, 2012

Creative Destruction: Encyclopedia Britannica RIP

R.I.P. Encyclopedia Britannica (print edition): 1768 - 2012

The Washington Post reports that Encyclopaedia Britannica will stop publishing its 32-volume, $1,400 print edition, but will continue its digital version. 

“This has nothing to do with Wikipedia or Google,” Encyclopaedia Britannica President Jorge Cauz said. “This has to do with the fact that now Britannica sells its digital products to a large number of people.”

MP: Isn't that like saying that declining classified revenues for newspapers has nothing to with Craig's List or eBay?


N. Dakota Bakken Shale Boom is Visible from Space

From the SkyTruth Blog:

"NOAA's National Geophysical Data Center provided us with this very interesting satellite image composite above of the upper Midwest, made from nighttime satellite images collected by the U.S. Air Force's Defense Meteorological Satellite Program.  State outlines are superimposed on the image.  

Multiple cloud-free images collected over several years have been combined to make this picture: 1992 is shown in blue, 2000 in green, and 2010 in red.  Places that had lots of light in all three years show up bright white (equal amounts of blue, green and red) -- that basically shows established cities and towns (like the Twin Cities) that haven't changed much over that time period.

But whoa, check out that big patch of red in the northwest corner of North Dakota.  That indicates an area of bright lights in 2010 that was dark in 2000 and 1992.  What could this be? Here's a hint:  a map showing the extent of the red-hot Bakken Shale oil-drilling boom that got underway a few years ago. Oil is being produced from the Bakken by drilling and hydraulically fracturing long horizontal wells. 

So why is this area all lit up at night?  Well, the rigs and other facilities are highly illuminated because drilling is a 24/7 proposition - time is money so there is no 'down time.'"


Shale Gale Makes US World's No. 1 Producer of Gas

The EIA reported today that the U.S. surpassed Russia as the world's No. 1 producer of consumer-grade, dry natural gas in both 2009 and 2010 (see chart).  Based on actual U.S. production in 2011 and an estimate of Russia's production for last year, it's also likely that the U.S. was the world's leading producer of natural gas in 2011 as well, see chart above. 

In 2005, Russia produced 17% more natural gas than the U.S. when the U.S. was using conventional drilling, but then U.S. production increased by 18% between 2005 and 2010, mostly because of the growth in shale gas production from the increased use of advanced hydraulic fracking technology and horizontal drilling over that period.  

Until Math Do Us Part: John Tierney's Refined Prediction Model for Celebrity Marriages

Click to enlarge.
In 2006, New York Times columnist John Tierney published the equation above that was developed to calculate the probability that a celebrity couple would stay married.

The variables in the mathematical model included: the relative fame of the husband and wife, their ages, the length of their courtship, their marital history, and the sex-symbol factor (determined by looking at the woman’s first five Google hits and counting how many show her in skimpy attire, or no attire). 

Now, with more than five years of follow-up data and empirical testing, John Tierney reported in yesterday's New York Times that there is firm statistical support for the "Sundem/Tierney Unified Celebrity Theory." For example:

"The 2006 equation correctly predicted doom for Demi Moore and Ashton Kutcher; Pamela Anderson and Kid Rock; and Britney Spears and Kevin Federline. It also forecast that Will Smith and Jada Pinkett would probably not make it to their 15th anniversary, in December 2012; so far, they’re still married, but gossip columns are rife with reports of a pending split.

On a happier note, the 2006 equation identified two couples with a good chance to make it to their fifth anniversary, in 2010: Ben Affleck and Jennifer Garner, and Matt Damon and Luciana Barroso. Sure enough, they made it (and are still married)."

But now Tierney and his co-author Garth Sundem have updated and refined the celebrity marriage prediction formula, and believe it now has even greater predictive power.  John explains:

"Whereas the old equation measured fame by counting the millions of Google hits, the new equation uses a ratio of two other measures: the number of mentions in The Times divided by mentions in The National Enquirer.

“This is a major improvement in the equation,” Garth says. “It turns out that overall fame doesn’t matter as much as the flavor of the fame. It’s tabloid fame that dooms you. Sure, Katie Holmes had about 160 Enquirer hits, but she had more than twice as many NYT hits. A high NYT/ENQ ratio also explains why Chelsea Clinton and Kate Middleton have better chances than the Kardashian sisters.”

Garth’s new analysis shows that it’s the wife’s fame that really matters. While the husband’s NYT/ENQ ratio is mildly predictive, the effect is so much weaker than the wife’s that it’s not included in the new equation. Nor are some variables from the old equation, like the number of previous marriages and the age gap between husband and wife.

In the fine tradition of Occam’s razor, the new equation has fewer variables than the old one. Besides the wife’s tabloid fame, the crucial ones are the spouses’ combined age (younger couples divorce sooner), the length of the courtship (quicker to wed, quicker to split), and the sex-symbol factor (defined formally as the number of Google hits showing the wife “in clothing designed to elicit libidinous intent”)."

Here is a list of some of the predictions using the new model, e.g. Prince William and Kate Middleton have a 71% chance of being married in 15 years, while Jennifer Lopez and Ojani Noa have only a 1% chance.   

HT: Morgan Frank

Law School Deans May Have Committed Federal Felonies, Conspiracy, Wire Fraud and Racketeering

Here's the abstract of a paper by two professors at Emory University School of Law, provocatively titled "Law Deans in Jail":

"A most unlikely collection of suspects - law schools, their deans, U.S. News & World Report and its employees - may have committed felonies by publishing false information as part of U.S. News' ranking of law schools. The possible federal felonies include mail and wire fraud, conspiracy, racketeering, and making false statements. Employees of law schools and U.S. News who committed these crimes can be punished as individuals, and under federal law the schools and U.S. News would likely be criminally liable for their agents' crimes.

Some law schools and their deans submitted false information about the schools' expenditures and their students' undergraduate grades and LSAT scores. Others submitted information that may have been literally true but was misleading. Examples include misleading statistics about recent graduates' employment rates and students' undergraduate grades and LSAT scores.

U.S. News itself may have committed mail and wire fraud. It has republished, and sold for profit, data submitted by law schools without verifying the data's accuracy, despite being aware that at least some schools were submitting false and misleading data. U.S. News refused to correct incorrect data and rankings errors and continued to sell that information even after individual schools confessed that they had submitted false information. In addition, U.S. News marketed its surveys and rankings as valid although they were riddled with fundamental methodological errors." 

From the paper's conclusion:

"It could be that none of these acts are crimes. But the evidence of possible crimes is sufficiently compelling, the relevant federal statutes have been applied so expansively, and the harm done for many years to thousands of people has been so severe, it should not be hard to recognize the need for investigations by federal authorities to determine whether crimes have been committed. This is not a game."

HT: Fred Dent


Energy Cartoons from IBD's Michael Ramirez

Click to enlarge.


Institute for Justice Goes Up Against the IRS


The video above features the Institute for Justice's latest heroic effort to defend small businesses and entrepreneurs against economic protectionism, empower individuals to earn an honest living, and promote economic liberty.  Here's a summary:

"Congress never gave the IRS the authority to license tax preparers, and the IRS can’t give itself that power. But last year the IRS imposed a sweeping new licensing scheme that forces tax preparers to get IRS permission before they can work. This is an unlawful power grab that exceeds the authority granted to the IRS by Congress.

That is why on March 13, 2012, three independent tax preparers joined the Institute for Justice in filing suit against the IRS in the U.S. District Court for the District of Columbia. This lawsuit challenges the IRS’s statutory authority to impose this licensing scheme, and seeks to overturn regulations that would affect an estimated 350,000 tax return preparers, forcing many of them to stop working in the occupation of their choice."

Chart of the Day: Natural Gas Prices Fall to Fresh Record Low vs. Oil on an Energy-Equivalent Basis

Here's an update of a chart I've featured before comparing prices for oil and natural gas on an energy equivalent basis.  To compare oil (priced in dollars per barrel) and natural gas (priced in dollars per million BTUs) on an energy equivalent basis, natural gas prices have to be increased by a factor of 5.8, because one barrel of oil produces 5.8 million BTUs of energy. 

With natural gas selling for about $2.30 per million BTUs, its  equivalent price for the same energy as a barrel of oil would be $13.34, or 87% below the price of  WTI oil at $104.71 per barrel.  When measured on an energy equivalent basis, natural gas has never been cheaper than oil than it is today.  

Related: Forbes reports that major oil and gas companies Chevron and Exxon Mobil will continue drilling for natural gas, even with record low prices, with Chevron planning to double its production in the Marcellus region:

"Despite low natural gas prices, Chevron looks intent on pushing into the natural gas market in the U.S. The company plans to double its drilling in the Marcellus play this year while also drilling a few exploration wells in the Utica play despite gas prices touching their lowest point in a decade, making shale exploration less profitable. Chevron’s decision to press on with shale exploration mirrors that of rival Exxon Mobil, which has decided against production cuts."

In that case, we can expect natural gas prices to remain low. 

Thomas Sowell on The Big Hoax

"The biggest hoax of the past two generations is still going strong -- namely, the hoax that statistical differences in outcomes for different groups are due to the way other people treat those groups.

The latest example of this hoax is the joint crusade of the Department of Education and the Department of Justice against schools that discipline black males more often than other students. According to Secretary of Education Arne Duncan, this disparity in punishment violates the "promise" of "equity."

Just who made this promise remains unclear, and why equity should mean equal outcomes despite differences in behavior is even more unclear. This crusade by Attorney General Eric Holder and Secretary of Education Arne Duncan is only the latest in a long line of fraudulent arguments based on statistics.

If black males get punished more often than Asian American females, does that mean that it is somebody else's fault? That it is impossible that black males are behaving differently from Asian American females? Nobody in his right mind believes that. But that is the unspoken premise, without which the punishment statistics prove nothing about "equity."

Too many of the intelligentsia -- both black and white -- jump on the statistical bandwagon, and see statistical differences as proof of maltreatment, not only in schools but in jobs, in mortgage lending and in many other things."


Monday, March 12, 2012

Has the Real Estate Market Finally Bottomed Out?

Following this CD post from last Saturday "Has the Real Estate Market Finally Bottomed Out?" comes this WSJ article "Rise in Phoenix Housing Shows Path for Other Cities":

"As home prices continue to drop in most cities, a nascent real-estate rebound here holds lessons for the rest of the country. This sprawling desert metropolis was one of the hardest hit housing markets during the bust. Phoenix home prices declined 55% from 2006 through the end of 2011, and Arizona's foreclosure rate jumped to No. 3 in the nation in 2009. Hundreds of thousands of homeowners are underwater, meaning they owe more than their homes are worth.

"Now real-estate economists across the country are studying an early but surprisingly broad Phoenix turnaround. The sharp drop in home prices has brought new buyers into the market. Unlike other markets where housing recoveries have been snuffed out by big overhangs of homes for sale and foreclosed properties, inventories are lean here.

"Phoenix has hit a bottom," says Thomas Lawler, an independent housing economist who was one of the first to warn six years ago that prices in overbuilt metros were poised to fall.

The nation's hard-hit housing markets face a tough act: engineering a housing recovery without traditional trade-up buyers, many of whom are either unwilling or unable to sell because of huge price declines.

Phoenix has found a viable formula. Low prices are igniting demand from first-time buyers and investors who are converting the homes to rentals. The local economy is on the upswing with several big employers like Amazon.com Inc. and Intel Corp. hiring again, which is further increasing demand for housing. And the region is benefiting from a surge of buyers from Canada who are using their favorable exchange rate to scoop up bargains in the desert."

How Housing Policy Caused the Financial Crisis


Reason.tv -- "AEI's Peter Wallison argues in the video above that the financial meltdown was largely a consequence of government housing policy that underwrote unsustainable economic activity. He draws heavily on the research of Fannie Mae's former chief credit officer, Edward Pinto (now at AEI), which found that federal housing agencies drastically underreported the number of high-risk mortgages on their books. According to Wallison and Pinto, there were about 28 million high-risk mortgages in the U.S. in 2008; roughly 70 percent of those mortgages were owned by government-sponsored enterprises such as Fannie Mae and Freddie Mac."

California Declares War on Raw Dairy Farmers

Natural News -- "65-year-old senior citizen James Stewart, a California farmer with no criminal history, was nearly tortured to death in the LA County jail this past week. He survived a "week of torturous Hell" at the hands of LA County jail keepers who subjected him to starvation, sleep deprivation, hypothermia, loss of blood circulation to extremities, verbal intimidation, involuntary medical testing and even subjected him to over 30 hours of raw biological sewage filth containing dangerous pathogens."

MP: What was his alleged criminal activity?  Selling fresh, unpasteurized raw milk.  Bail for "The Milk Man" was set at $1 million.  By comparison, bail for alleged child rapist Jerry Sandusky, former Penn State sports coach, was set at $100,000.
"NaturalNews is calling upon Amnesty International and the American Civil Liberties Union to intervene in this extraordinary violation of basic human rights. For the record, James Stewart has no criminal record and is a permaculture farmer and fresh food advocate. His "crime" consists entirely of arranging for the distribution of raw milk to customers who actually line up to access this nourishing food (people love it!)."

Meanwhile, Natural News is reporting separately that:

"France, on the other hand, has embraced the health benefits of raw milk. There, innovative dairy farmer Michel Cantaloube has created a raw milk vending machine (see photo above). The vending machine is a tastefully-designed kiosk that blends right into the urban setting, allowing it to be set up on a street corner on a French town or even a major metropolitan area."

MP: Isn't this backwards?  We always hear about France being an example of heavy-handed government bureaucracy and "European-style socialism," but that seems to more accurately describe California's approach in this case while France takes the "laissez-faire" approach. 

UpdateGreat comment from morganovich, "Raw milk is illegal due to health fears but cigarettes, one of the biggest health risks in the country, are one of the most widely distributed products in the U.S.?"


Manufacturing Boom in Michigan, Partly Due to Reshoring; U.S. Factories are Competitive Again



Michigan-based Collegiate Bead Company, manufacturer of college and sorority beads, bracelets, and charms, is featured in the CBS Evening News segment above, and in this Detroit Free Press article.  It's an example of the reshoring trend now underway in the U.S. where manufacturing production and jobs are being brought back to the U.S. from China and other low-wage countries.  

Reasons? China's cost advantages are shrinking due to rapidly rising costs there for wages, inputs, and commercial real estate, along with higher oil prices that have increased shipping costs.  Then you add in quality issues (Collegiate Bead was rejecting up to 30% of the Chinese-made products), delivery delays, time and language differences, poor safeguards for intellectual property rights and American manufacturers are finding that China is not such a great deal any more, and manufacturing goods for the U.S. market at home now makes more sense than in a generation.   

Fear Has Vanished from the Market

The CBOE Volatility Index (VIX) closed today at 15.64, a drop of 8.6% from yesterday's close at 17.11, and the lowest closing value since May 31 of last year.  It's also at close to the lowest level at any time during the last four years (see chart).  

See WSJ article "Fear Has Vanished from the Stock Market."  

Oil Price Increases in Dollars, Swiss Franc and Yen

West Texas Intermediate
Brent Europe
The top chart above shows the percentage changes in the price of oil (WTI) since January 2010, measured in U.S. dollars (30.7% through February), Swiss francs (15.2%) and Japanese yen (12.6%).  Isn't this evidence that at least part of the increase in the dollar price of oil is due to the depreciation of the U.S. currency?  When priced in Swiss francs, oil prices have only increased by half of the dollar price increase, and when priced in yen, oil has gone up less than half the dollar price increase.

In dollars, the price of oil per barrel went from $78.22 in January 2010 to $102.25 in February 2012, for a 30.7% increase.  Based on the 15.2% oil increase measured in Swiss francs, that would be equivalent to a dollar price of only about $90 per barrel, and based on the 12.6% increase measured in yen, it would be equivalent to a dollar price of $88. 

Update: The bottom chart shows the percentage changes for brent crude oil, with basically the same results as for WTI: dollar-priced oil has increased by 56.5% per barrel since January 2010, compared to increases of 38.1% for Swiss-franc-priced oil and 34.9% for yen-priced oil.  

Comments welcome. 

Shale Gas Brings Prosperity to Appalachia

Reuters -- "Appalachia has fallen from its prime when steel mills and coal mines anchored middle-class communities and offered hope there always would be enough work to go around. In this historically poor region nestled in the misty mountains of the eastern United States, most steel mills shut down long ago and the coal workforce has shrunk by 90 percent in the past 40 years.

Residents are now counting on cheap natural gas from the massive reserves in the Marcellus and Utica shale rock formations, which lie under a swathe of the north-eastern United States, to reinvigorate the region's economy. In the Northern Appalachia area alone, where West Virginia, Ohio and Pennsylvania converge, billions of dollars of investment is planned by major companies, including most recently Royal Dutch Shell, to recover the gas and build new chemical plants.

With new natural gas supplies, Appalachia, known for decades for getting government hand-outs, is beginning to emerge as an international manufacturing hub.  Caiman Energy LLC, Chesapeake Energy Corp and other natural gas drillers and pipeline operators have already hired hundreds of workers in the region. Dominion Resources Inc is building a plant to separate ethane from natural gas for use in chemical manufacturing.

Shell's chemical complex, which was announced last summer and will take four years to build on 200 acres, will turn ethane from natural gas into ethylene. Shell will then turn the ethylene into the lucrative chemical polyethylene, used to make packaging, cushions and clothing.

Supporters say Shell's chemical plant and others expected to be built in the region will help make permanent a financial bubble brought by drillers, guaranteeing a solid tax base for at least the next half century with hundreds of high-paying jobs.

Appalachia is geographically well placed as a chemical manufacturing site because 45 percent of U.S. demand for polyethylene is concentrated in north and northeastern states from Maine to Minnesota. Appalachia also has an extensive network of pipelines and railway tracks, and sits on the Ohio River, a tributary of the Mississippi River and a major transportation route."

Monday Morning Links

1. Brazil's new consumer class flocks to the U.S. to shop and planes returning to Brazil need extra fuel to accommodate all of the overweight baggage. 

2. Institute for Justice to file federal lawsuit tomorrow challenging IRS/Federal licensing of tax preparers. 

3. Interesting Blog: "100 Reasons NOT to Go to Graduate School;"  Reason #75: You Can Make More Money As a Schoolteacher. Reason #76: There is a culture of fear.

4.  Jeff Jacoby on the Boston Taxi Cartel: $500,000 taxi medallions shackle cabbies and make them modern day sharecroppers.



Monster Employment Index Gains 11% in February

Highlights of the February Monster Employment Index for online job demand:

1.  The Monster Employment Index registered a double-digit gain of 11 percent in February compared to a year-ago (see chart above), the 25th consecutive positive monthly percentage increase versus a year earlier, going back to February 2010.
     
2. Nineteen of the 20 industries monitored by the Index showed positive annual growth, with only Public Administration declining, by 8% year-over-year.

3. All 28 metro markets recorded positive annual growth in February, with the strongest gains in Baltimore (24%), Kansas City (24%) and Orland0 (23%).


Employment Trends Index Reaches 3.5 Year High

"The Conference Board Employment Trends Index (ETI) increased 1.38 percent in February to 107.46, from the revised figure of 105.99 in January. The February figure is also up 6.1 percent from the same month a year ago (see chart above).

“The acceleration in the ETI suggests that rapid job growth is likely to continue in the next several months, despite modest improvements in Demand and Production,” said Gad Levanon, Director of Macroeconomic Research at The Conference Board. “In the past year output per hour of work grew very slowly. If this trend continues, employment growth could remain robust even if GDP continues to grow at a modest 2 to 2.5 percent, as we expect.”

February’s growth in the ETI was driven by positive contributions from seven of the eight components. The improving indicators – beginning with the largest positive contributor – were Percentage of Respondents Who Say They Find “Jobs Hard to Get”, Number of Employees Hired by the Temporary-Help Industry, Initial Claims for Unemployment Insurance, Industrial Production, Real Manufacturing and Trade Sale, Part-Time Workers for Economic Reasons, and Job Openings. The only negative contributor this month was Percentage of Firms With Positions Not Able to Fill Right Now."

MP: The February ETI was at the highest level since August 2008, more than 3-1/2 years ago, and has increased in 29 out of the last 32 months since the end of the recession in June 2009.

Sunday, March 11, 2012

Real Natural Gas Prices Lowest Since July 1995

Last week the spot price of natural gas (Henry Hub Gulf Coast) fell to $2.30 per million BTUs, which is the lowest inflation-adjusted price since July 1995, more than 16 years ago when the price was slightly lower at $2.17.  Without adjusting for inflation, it was the lowest price in a decade, since January 2002.  Welcome to the game-changing, shale gas revolution.

As Scott Grannis commented, "If there is any reason to be optimistic about the future of the U.S. economy, [falling natural gas prices] is arguably the best."

Measured in Gold, the Price of Oil is Below Average

From the Forbes article by Louis Woodhill "Gasoline Prices Are Not Rising, the Dollar Is Falling":

"As this is written (2/22/2012), West Texas Intermediate crude oil (WTI) is trading at $105.88/bbl. All this means is that the market value of a barrel of WTI is 105.88 times the market value of “the dollar.” It is also true that WTI is trading at €79.95/bbl, ¥8,439.69/bbl., and £67.13/bbl. In all of these cases, the market value of WTI is the same. What is different in each case is the value of the monetary unit (euros, yen, and British pounds) being used to calculate the ratio that expresses the price.

In terms of judging whether the price of WTI is high or low, here is the price that truly matters: 0.0602 ounces of gold per barrel (which can be written as Au0.0602/bbl). What this number means is that, right now, a barrel of WTI has the same market value as 0.0602 ounces of gold.

During the 493 months since January 1, 1971, the price of WTI has averaged Au0.0732/bbl. It has been higher than that during 225 of those months and lower than that during 268 of those months. Plotted as a graph, the line representing the price of a barrel of oil in terms of gold has crossed the horizontal line representing the long-term average price (Au0.0732/bbl) 29 times.

At Au0.0602/bbl, today’s WTI price is only 82% of its average over the past 41+ years. Assuming that gold prices remained at today’s $1,759.30/oz, WTI prices would have to rise by about 22%, to $128.86/bbl, in order to reach their long-term average in terms of gold. As mentioned earlier, such an increase would drive up retail gasoline prices by somewhere between $0.65 and $0.75 per gallon.

At this point, we can be certain that, unless gold prices come down, gasoline prices are going to go up—by a lot. And, because the dollar is currently a floating, undefined, fiat currency, there is no inherent limit to how far the price of gold in dollars can rise, and therefore no ultimate ceiling on gasoline prices."

MP: Measured in terms of a stable commodity in relatively fixed supply like gold, the price of oil now is below its historical average, as the chart illustrates, and suggests that the falling value of the U.S. dollar is contributing to record high gas and oil prices, when measured in dollars. Measured in gold, oil and gas are now historically "cheap," not expensive.

HT: Juandos


Penn Sounds Off on Daylight Savings Idiocy


Penn Jillette sounds off on daylight savings idiocy, government meddling, and the ratchet effect. Warning: Some strong language.


Daylight Savings Time Costs $2 Billion per Year

This is a slightly revised post from exactly a year ago.....

In 2008, economist William F. Shughart did a back-of-the envelope calculation and estimated that the opportunity cost of daylight savings time was $1.7 billion per year: 

"Although it is unclear what benefit Americans derive from adjusting their timepieces twice a year, the costs they bear are clear. As the Benjamin Franklin adage goes: Time is money, and time spent resetting clocks and watches is time that cannot be devoted to other, more valuable uses. Switching between daylight saving and standard time has what economists call an ‘‘opportunity cost.’’

Economists typically value the opportunity cost of a person’s time at his or her wage rate. The U.S. Department of Labor’s Bureau of Labor Statistics reports that the average American’s hourly wage was $17.57 in September 2007. Assuming that it takes everyone 10 minutes to move all of their clocks and watches forward or backward by an hour, the opportunity cost of doing so works out to $2.93 per person. Multiplying that number by the total U.S. population (excluding Arizona) yields a one-time opportunity cost for the nation of just under $860 million—or, to be more precise, $858,274,802. Since clocks must be changed twice every year, this back-of-the-envelope calculation must be doubled, to approximately $1.7 billion annually."

MP: Since 2008, the average hourly wage has increased about 10%, and the U.S. population has increased about 2.9%, so that would put the annual cost today of changing clocks twice a year at almost $2 billion ($1.92 billion).

Note: If we adjust the time cost of ten minutes per each housing unit (130 million)  instead of for each person, the cost would obviously be less - about $836 million.

Update: Tim Worstall points out by email that another cost to the U.S. DST is that we are not synchronized with Europe, partly as a result of the "Energy Policy Act of 2005."  We used to switch on the first Sunday in April and the last Sunday in October, which was  only one week different than Europe - last Sunday in March and last Sunday in October.  Following the 2005 legislation, we now switch on the second Sunday of March and the first Sunday in November.  So for the next two weeks, and for the first week of November, the U.S. will be on DST, but Europe will remain on regular time.  This lack of coordination for three weeks every year likely imposes additional costs on both the U.S. and European economies.  

Here's a detailed discussion of Daylight Savings Time at Wikipedia, which includes the world map above (click to enlarge).


More on Regional Disparities in Gas Prices


More on the regional disparities in gas prices from yesterday's NY Times (see previous CD post here):

"The price of gasoline is rising, but the nation isn’t sharing the pain equally (see map above from GasBuddy).

The average price of a gallon of regular was $3.76 a gallon on Friday — up 8 percent in the last month — a tabulation that masks significant regional disparities, said Avery Ash, manager of federal relations for the AAA.

A gallon of regular was only $3.33 in Colorado, for example, and in Wyoming it was $3.28, the lowest in the nation. Along the Gulf of Mexico, the price was a bit higher: $3.59 in Texas, $3.60 in Alabama and $3.62 in Louisiana. For nastier numbers, turn to the Northeast and the West Coast: $3.99 in New York and Connecticut and a whopping $4.35 in California.

Global energy markets determine the national trend for oil and gasoline prices, and those markets have been rattled by tensions with Iran. Yet energy markets are also resiliently local, as the patchwork quilt of gasoline prices illustrates. A flood of relatively cheap oil and gasoline is washing through parts of the American heartland, but it’s barely reaching consumers in the rest of the nation.

The price for Brent crude, widely viewed as the global benchmark for oil, was about $126 a barrel on Friday, far higher than for West Texas Intermediate, often called the American benchmark, which was about $107.  The gap has been widening. North American oil “is trading at a discount to world prices, because it is landlocked and can’t easily be transported to world markets” — or to refiners in the Northeast or the West Coast, said Andrew J. Black , president of the Association of Oil Pipe Lines. And East Coast gasoline prices reflect the higher Brent crude price, said Tom Kloza, chief oil analyst for the private Oil Price Information Service. 

Crude oil production has increased sharply in Canada and in the central United States in recent years — including initial production from the Bakken Shale, an oil-rich deposit in North Dakota. This has created what the White House calls a bottleneck in Cushing, Okla., the midcontinent storage hub."

Welcome Univ. of Michigan-Flint MBA Students

To the students in the NetPlus! MBA program at the University of Michigan, Flint campus, who are enrolled in MGT 551 (Business Economics) for the spring term 2012 which started last Saturday (March 3):

WELCOME TO CARPE DIEM!

Professor Perry