Tuesday, April 24, 2012

Another Reason Nat Gas is a Real Game-Changer: It Reduces Carbon Emissions by 300 Million Tons

I've written extensively over the last several years about how the shale gas revolution is transforming the U.S. economy in ways that would have been unimaginable a decade ago.  Descriptions of this revolution include:

Mort Zuckerman: "The good news is that the United States is at the center of a global energy revolution. Our development of innovative shale-gas technology offers the prospect of a huge bonanza of natural gas. It's the most positive event in the country's energy outlook in 50 years. This kind of seismic shift in the energy landscape is rare. 

Robin West, chairman and CEO of PFC Energy:"This shale gale, I describe it as the energy equivalent of the Berlin Wall coming down. This is a big deal."

Scott Grannis: "It's the most dramatic change that is happening beneath the surface of the U.S. economy today. As the rest of the world struggles with oil prices that are very expensive both nominally and in real terms, the U.S., thanks to new fracking technology, is enjoying natural gas prices that are plunging. Even as crude oil prices have surged over the past 13 years from $12/bbl to over $100, natural gas has dropped by an astounding 85% relative to crude oil. We've never seen anything like this.

The U.S. now enjoys an incredible energy price advantage that not only is transforming industries, but that should be an important source of growth for the entire economy. This could be the best reason to be bullish."

And we now have another reason to celebrate the game-changing effects of shale gas from John Hanger - it's good for the environment:

"Natural gas will cut U.S. carbon emissions by at least 300 million tons in 2012 alone. How much is 300 million tons? It is about equal to the entire annual carbon emissions of Pennsylvania or an amount a little less than 1% of annual global emissions. It's a lot. No single change in the energy marketplace [MP: or public policy] in the last decade has yielded more carbon reductions than the displacement of coal generation by natural gas.

The fact that the rise of natural gas has avoided more carbon than any other single change in the marketplace is proving inconvenient to those who bash gas. The rise of gas is also slashing sulfur dioxide, mercury, soot and other emissions that cause hundreds of thousands of illnesses each year. Ignoring these facts betrays our health, environment, and economy."

Traffic Volume Increases in Feb. for Third Month

Despite rising gas prices this year, overall traffic volume increased in both January by 1.6% and in February by 1.8%, compared to year-earlier levels, according to data released this week by the Federal Highway Administration. The 1.8% increase in February was the largest annual gain in monthly travel volume since October 2010.  Perhaps the increase in traffic volume was due to the mild winter weather this year, or maybe it reflects an economic recovery that is gradually gaining momentum?

CA Foreclosures in Q1 Lowest Since Q2 2007

DQ News --"The number of California homes entering the formal foreclosure process during the first quarter declined to its lowest level in almost five years, the result of a more stable economy and housing market, as well as policies that increasingly favor short sales.

A total of 56,258 Notices of Default (NODs) were recorded at county recorders offices during the first quarter of this year. That was down 8.5% from 61,517 for the prior three months, and down 17.6% from 68,239 in first-quarter 2011. Last quarter's tally of 56,258 NODs was the lowest since 53,943 NODs were recorded in second-quarter 2007. NOD filings peaked in first-quarter 2009 at 135,431.

"Prices peaked five years ago and then started to fall off a cliff. Foreclosure activity goes up when property values decline, and the worst of that decline was happening three years ago. Right now, property values in many areas appear flat," said John Walsh, DataQuick president.

"A few years back, there were some breathtakingly negative forecasts making the rounds regarding the foreclosure problem, some of which have played out, and some of which haven't. The 'shadow supply' has yet to result in a second huge wave of foreclosures. The 'reset problem' hasn't really materialized, largely because interest rates are resetting down, not up. And, remarkably, whole batches of presumed 'toxic' mortgages continue to perform. There's no doubt that housing, especially negative equity, is one of the biggest drags on a struggling economy, but it's not necessarily playing out the way some pundits thought," he said."

Quote of the Day

“No one has ever become rich by being a long-term bear on the fortunes of the United States, and I doubt that anyone will do so in the future. This is still the most flexible and innovative economy in the world.”

~Burton Malkiel

The Coming U.S. Shale-Based Economic Boom

Philip Verleger, visiting fellow at the Peterson Institute for International Economics, writing in today's Financial Times

"Today, few realize that the U.S. stands on the cusp of significant economic gains stimulated by low energy costs. Ten years from today, [we will] celebrate a decade of unexpected strong growth, and the credit will go to countrywide gains from the very low energy prices found only in the U.S.. Low-cost energy will have spawned an export surge in all sorts of goods, from chemicals to tires. Fracking and the other technologies that gave us low natural gas prices will have added more than 1 percent a year to U.S. growth. 

Four conditions will contribute permanently to a big improvement in the competitive position of the U.S. 

1. The U.S. has perfected a means of “manufacturing” natural gas from shale, in effect breaking the monopolistic control on hydrocarbon supply once enjoyed by the majors. 

2. This advantage gives manufacturing plants in the U.S. up to an 80 percent cost advantage over those operating in China, Japan, South Korea or European countries. 

3. U.S. financial markets (principally futures markets) enable producers and consumers to lock in profits for years ahead. Low cash prices now do not deter producers that sold today’s production a year ago at much higher and profitable prices. 

4. Competitive and open pipeline systems prevent any single large participant from denying these economic benefits to any producer or consumer. 

No country other than Canada enjoys U.S. competitive conditions. Nor will any other country probably enjoy them in the future. Recognizing this, groups such as Michelin and Shell intend to build plants in the U.S. to take advantage of the country’s permanently lower-cost energy supplies. Steel mills are also being planned. 

In short, low-cost energy provided primarily by shale gas production advances will almost certainly contribute to an investment boom across the U.S. economy. As a result of these circumstances, the benefits of low-cost energy supplies will spread throughout the U.S. economy, stimulating exports of goods and services and creating millions of jobs."

ASA Staffing Index Highest Since 2008 for Week 16

The American Staffing Association reported its weekly index today for temporary and contract employment, with the following highlights:

1. The ASA Weekly Staffing Index increased to 91 for the week ending April 15, which was the highest reading this year, and was the highest index for any week during the month of April in four years, going back to April of 2008.

2. The index of 91 for Week 16 was an improvement of 1.84% from the previous week, and a 6.9% year-over-year gain.

3. The April reading of 91 this year was just slightly below the pre-recession index of 93 in the comparable week of 2007.  

Bottom Line: As a leading indicator of future, broader-based labor demand, the upward trend in the Staffing Index for temporary and contract employment this year, and the index's four-year high for the month of April, would suggest that conditions in the overall labor market will continue to improve going forward.  

North Dakota Leads the Country for Annual Growth in State Coincident Index with a 10.7% Increase

The Philadelphia Federal Reserve released data today on state coincident indexes for March, and the booming, energy-rich North Dakota economy led the country with a 10.7% annual gain, and was second in the country with a 2.9% quarterly increase behind energy-rich West Virginia's 3.44% gain in the first quarter of 2012. 

From the Philly Fed:

"The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average)."

Markets in Everything: Super Cruise Technology

"Cadillac's 'Super Cruise' semi-autonomous driving technology is currently undergoing road testing. The Super Cruise technology relies on a combination of radar, ultrasonic sensors, cameras and GPS map data to provide semi-autonomous driving capabilities on the highway even in bumper-to-bumper traffic. Cadillac hopes to have Super Cruise technology ready for its vehicles by mid-decade."


Monday, April 23, 2012

Strong Evidence from Academic Research: Speculation Has Not Driven High Oil, Gas Prices

Economics professor Lutz Killian, University of Michigan, has a research paper titled "The Role of Speculation in Oil Markets: What Have We Learned So Far?" co-authored with Bassam Fattouh and Lavan Mahadeva, here's the abstract (emphasis added):
"A popular view is that the surge in the price of oil during 2003-08 cannot be explained by economic fundamentals, but was caused by the increased financialization of oil futures markets, which in turn allowed speculation to become a major determinant of the spot price of oil. This interpretation has been driving policy efforts to regulate oil futures markets. This survey reviews the evidence supporting this view. We identify six strands in the literature corresponding to different empirical methodologies and discuss to what extent each approach sheds light on the role of speculation. We find that the existing evidence is not supportive of an important role of speculation in driving the spot price of oil after 2003. Instead, there is strong evidence that the co-movement between spot and futures prices reflects common economic fundamentals rather than the financialization of oil futures markets."

Here's the conclusion from a related, slightly less academic article by Professor Killian on the same topic (emphasis added):

"It is sometimes suggested that academics have failed to adequately address the issue of speculation in oil markets and that more research is needed to establish what seems obvious to many policymakers. This is not the case. Rather, extensive research has produced a near-consensus among academic experts that speculation has not been a key driver of recent oil price fluctuations. This finding has important implication for on-going policy efforts to regulate oil futures markets."

And here's from a CNN editorial by Professor Kilian:

"The Obama administration is mistaken in attributing high oil and gas prices to the presence of financial investors in oil futures markets. A popular view among pundits and policymakers has been that the sustained oil price increase between 2003 and mid-2008 could not possibly be explained by economic fundamentals, but must have been brought about by financial investors taking speculative positions in oil futures markets. Recent research has not been kind to this hypothesis. A large number of scientific studies have failed to produce any credible evidence that high oil and gas prices were caused by the presence of financial investors in oil futures markets.

In fact, there are strong indications that recent oil price fluctuations were mainly associated with changes in the global business cycle. Notably, between 2003 and mid-2008, global demand for oil increased faster than global oil production, resulting in a sustained increase in the price of oil. Much of the additional demand for oil came from emerging Asia. No nefarious speculators are required to explain this surge in the price of oil. Indeed, oil futures prices responded to much the same economic forces as prices in the physical market."

Bottom Line: Market forces, not speculators, are the main determinants of oil prices and all other commodity prices.  

Markets in Everything: Pot Vending Machine

You knew this was inevitable......Read full story here.

Speculators Are Driving Natural Gas Prices DOWN, Not Up, Reflecting Market Forces: Supply, Demand

For almost the last year, greedy, destabilizing, market-manipulating speculators in the futures markets have been driving up down the price of natural gas to historically high low levels, see chart above of prices for June 2012 natural gas futures contracts on the CME, which have fallen from about $5 per million BTUs to $2 over the last year. 

Despite claims to the contrary, commodity prices in both the spot market and futures market are ultimately determined by the twin market forces of supply and demand, and cannot easily be manipulated to deviate from the overwhelming, natural and powerful forces of market fundamentals.

When natural gas prices are falling, it's a sure bet that increases in supply and/or decreases in demand, e.g. due to mild weather, are responsible.  When oil prices are rising, it's a sure bet that decreases or potential disruptions in supply and/or rising demand are responsible.  If speculators bet against market forces and the direction of prices resulting from those forces, it's likely they'll get punished with losses.

On the other hand, if they correctly predict the pending effects of market forces on future price changes in oil or gas ahead of other traders, they could be rewarded with gains; but it's because they're betting on the market, not against market forces.  It's also a sure bet that we'd have high spot oil prices and low spot natural gas prices right now due to market forces, regardless of whether the CME offered futures contracts on those commodities. 

Speculators Are Driving Down Oil Futures Prices

In anticipation of rising future supply and/or declining future demand, oil speculators are now driving oil prices down for December 2016 crude oil futures contracts.  In just the last three weeks, futures prices for delivery in 2016 have fallen by more than 5%, from $94.75 per barrel in early April to below $90 in recent trading.  

Are these the same destabilizing, market-manipulating oil speculators who are supposedly to blame for oil prices rising in the short term?  Or are these the "good" speculators whose trading leads to falling prices, as opposed to the "bad" speculators whose trading raises prices? 

Look Out Bakken, Here Comes Eagle Ford, Where Oil Production Has Almost Tripled in the Last Year

Just in from the EIA:

New well starts in the Eagle Ford region in Texas increased 110% from January through March 2012 compared to the same period in 2011, according to BENTEK Energy.

Other key findings include:
  • Operators started drilling 856 new wells in January-March 2012 compared to 407 in January-March 2011.
  • In early April 2012, the Eagle Ford active rig count set a new high of 217 units.
  • Increased drilling translated into higher crude oil production, which is projected to average over 500,000 barrels per day (bbl/d) in April, up from 182,000 bbl/d in April 2011, an increase of 175% in just one year.
  • Current Eagle Ford area natural gas production is about two billion cubic feet per day.
  • Horizontal wells accounted for nearly all of the new well starts so far in 2012.
  • Bentek estimates that in March 2012, Eagle Ford crude oil production was approaching crude oil production in the North Dakota part of the Bakken formation.

BPP@MIT Inflation Is Lowest in Two Years at 2.2%

The Billion Prices Project @ MIT recently released daily online price index data through March 31, and annual inflation rates for the last two years are displayed in the chart above.  According to this real-time measure of major inflation trends in the U.S., inflationary pressures have been subsiding since last summer, and the annualized inflation rate of about 2.2% through the entire month of March (flat area in the graph) is at the lowest level in more than two years.  

Update: The chart below shows that over the last four years, MIT's online price index has tracked the CPI pretty closely.  Despite the fact that the online price index doesn't capture all of the items in the CPI, it's still a useful alternative measure of inflationary pressures in the U.S. economy that gives us additional information about the trends in consumer prices and inflation.

Markets in Everything: Medical Tourism is Starting to Take Off in Las Vegas, Nevada

Can Las Vegas, a city of excess, become a health destination?

"Medical tourism has been on Southern Nevada’s radar for more than a decade, but only recently have the medical community and the tourism industry coordinated efforts well enough to begin turning the concept into reality and make medical tourism into a bona fide piece of Gov. Brian Sandoval's economic diversification package.  

By most accounts, Las Vegas can’t truly consider itself a hub for medical tourism just yet, but progress made in the last year indicates it’s on its way."

Now That Gas and Oil Prices Are Falling, Do Speculators Get Any Blame or Credit for That?

Retail gasoline prices have been steadily declining for about the last three weeks, falling by more than six cents per gallon and almost 2%, since early April, see top chart above from Gasbuddy.com.   The falling gas prices follow falling oil prices, which have dropped almost 5% since the late February peak.

And on Intrade, speculators have been driving down the chances of gas reaching $4.50 per gallon by December 2012 from about 60% at the end of March to less than 35% in recent trading, see bottom chart. 

Quote of the Day

"It is amazing that people who think we cannot afford to pay for doctors, hospitals, and medication somehow think that we can afford to pay for doctors, hospitals, medication and a government bureaucracy to administer it."

HT: Larry Reed

Sunday, April 22, 2012

U.S.-Based Mayo Clinic Offers Three Medical Insurance Programs for Canadian Patients

The Mayo Clinic in Rochester, MN, has introduced two new insurance programs. That wouldn't be very newsworthy except that the insurance programs aren't being offered to Americans, they're being offered to Canadians, who already have access to "free" medical care in their home country.

 With the addition of the two new programs, the Mayo Clinic will now be marketing three insurance programs to Canadians:

MyCare Insurance for individual Canadians, which was introduced in May 2011 to supplement Canada's "free" medical care.

• MyCare Health Benefit Option for employees allowing a Canadian patient's doctor to consult with Mayo experts.

• MyCare Advantage Insurance, an optional upgrade that provides full medical treatment at Mayo.

According to the Mayo Clinic, 25% of the international patients they serve every year are from Canada. And why is an American hospital/clinic serving so many Canadians?

According to this news report about Mayo's insurance programs for Canadians, "the publicly funded health system in Canada decreases the choices available to patients, and can also result in delayed diagnosis and treatment. That's why, within the national system, it's good to offer choices for those who need diagnosis confirmation or even treatment for serious illness."  

MP: Where will Americans go when/if we adopt Canadian-style medicine?

HT: Ryan Lais

Despite Its Oil Wealth, Venezuela Has Chronic Food Shortages Due to Government Price Controls

From the New York Times, an article about how despite all of Venezuela's oil wealth at a time of rising oil prices, there are chronic food shortages, empty shelves and long lines, as a direct result of government price controls (see photo above):

"Venezuela is one of the world’s top oil producers at a time of soaring energy prices, yet shortages of staples like milk, meat and toilet paper are a chronic part of life here, often turning grocery shopping into a hit or miss proposition.

Some residents arrange their calendars around the once-a-week deliveries made to government-subsidized stores like this one, lining up before dawn to buy a single frozen chicken before the stock runs out. Or a couple of bags of flour. Or a bottle of cooking oil. The shortages affect both the poor and the well-off, in surprising ways. A supermarket in the upscale La Castellana neighborhood recently had plenty of chicken and cheese — even quail eggs — but not a single roll of toilet paper. Only a few bags of coffee remained on a bottom shelf. 

At the heart of the debate is President Hugo Chávez’s socialist-inspired government, which imposes strict price controls that are intended to make a range of foods and other goods more affordable for the poor. They are often the very products that are the hardest to find." 

MP: As economic theory would predict in the graph below, when prices are set below the market-clearing level by government edict, shortages are guaranteed, along with empty shelves and long waiting lines.  

What Can Onions Teach Us About Oil Speculators?

Onions have no futures market, yet their price volatility makes the swings in oil prices look tame.
Fortune Magazine (June 30, 2008) -- "Before the government starts scrutinizing the role that speculators may have played in driving up fuel and food prices, investigators may want to take a look at price swings in a commodity not in today's news: onions.

The bulbous root is the only commodity for which futures trading is banned. Back in 1958, onion growers convinced themselves that futures traders were responsible for falling onion prices, so they lobbied an up-and-coming Michigan Congressman named Gerald Ford to push through a law banning all futures trading in onions. The law still stands.

And yet even with no traders to blame, the volatility in onion prices makes the swings in oil and corn look tame, reinforcing academics' belief that futures trading diminishes extreme price swings."

MP: The chart above shows the monthly percent changes in spot prices for crude oil and onions between January 2000 and March 2012.  During that period, onion prices have been about 7 times more volatile than oil prices, based on the differences in: a) mean monthly price changes (7.7% for onions vs. 1.3% for oil), and b) the standard deviations of monthly price changes (59.4% for onions vs. 8.6% for oil).   

Update: The chart below compares the monthly percent changes in spot prices for onions and corn over the same period as onions and oil prices above, as an exercise in comparing the volatility of the prices of two agricultural commodities.  One might argue that a comparison of oil and onion prices might not be valid if there are differences in agricultural commodity prices and energy prices.  The fact that the volatility of onion prices is so much greater than the volatility of corn prices lends further statistical support to the notion that markets with futures trading like corn have lower price volatility than markets without futures contracts like onions. 

Bringing Market Forces to Medicine: Exporting Patients, Importing Doctors

 From the article "Club Med" by James Surowiecki in the New Yorker:

"If more Americans sought care abroad, it wouldn’t just save them money; it could also help control medical costs at home. Medical tourism can be considered a kind of import: instead of the product coming to the consumer, as it does with cars or sneakers, the consumer is going to the product. More medical tourism would increase free trade in medical services, something there has not been much of in the past. The U.S. has been religious about breaking down barriers to free trade, especially in manufacturing and service industries, exposing ordinary workers to foreign competition. But health care has been insulated from the forces of globalization. This has been great for hospitals and doctors, but less good for consumers. It’s one reason that the cost of health care has risen so much faster than that of almost everything else.

There are other ways to bring free trade to medicine, too. As the economist Dean Baker has argued, making it easier for foreign doctors who met standardized requirements to practice in the U.S. would hold down costs and improve service. In addition to exporting patients, we could import doctors. Politically speaking, of course, this all seems improbable, because the medical industry is a powerful lobby and uninterested in competition. But the reality is that, unless we find some other way to rein in health-care costs, the logic of free trade in medicine is going to become harder to resist."

The Top Five Special Interest Groups That Want America's War on Drugs To Continue Forever

From The Republic Report:

"Last year, over 850,000 people in America were arrested for marijuana-related crimes. Despite public opinion, the medical community, and human rights experts all moving in favor of relaxing marijuana prohibition laws, little has changed in terms of policy.

There have been many great books and articles detailing the history of the drug war. Part of America’s fixation with keeping the leafy green plant illegal is rooted in cultural and political clashes from the past.

However, we at Republic Report think it’s worth showing that there are five entrenched interest groups that are spending large sums of money to keep our broken drug laws on the books."

MP: You can probably guess which special interest groups benefit from the War on Drugs War on Peaceful Americans Who Voluntarily Choose To Use Intoxicants Not Currently Approved of by the Government, Who Will Put Users in Cages if Caught, and have no interest in declaring a "cease fire."

See the list here.
HT: Jim Forrest

Visualizing Ocean Shipping 1750-1850

Detailed historical ship log data have been digitized for climatological purposes, which allowed the video above to be created by Ben Schmidt at the Sapping Attention blog.  The visualization shows 100 years of ocean shipping paths, as recorded in hundreds of ships' log books, by hand, one or several times a day, from 1750-1850.   

Saturday, April 21, 2012

Median Florida Home Prices Increased by 10% in March from a Year Ago, Condo Prices Gain 21%

"Florida’s housing market had increased pending sales, higher median prices and a reduced inventory of homes for sale in March, according to Florida Realtors latest housing data.

“With the continued steep decline of inventory, historically low interest rates and buyers no longer willing to wait on the sidelines, Florida’s real estate market continues on its road to recovery,” said 2012 Florida Realtors President Summer Greene, regional manager of Better Homes and Gardens Real Estate Florida 1st in Fort Lauderdale. “The latest numbers show that pending sales are up almost 30 percent for single-family homes and almost 20 percent for townhomes and condos.”Pending sales refer to contracts that are signed but not yet completed or closed; closed sales typically occur 30 to 90 days after sales contracts are written.

The statewide median sales price for single-family existing homes in March was $139,000, up 10.3 percent from the year-ago figure. The statewide median for townhome-condo properties was $105,000, up 20.8 percent over March 2011."


HT: Gary Lyle

Oil Speculator Smackdown: Kennedy vs. Hamilton

In a recent New York Times op-ed, Joseph Kennedy (D-MA) explained why he believes that speculators are responsible for high oil prices, and why pure speculation should be "eliminated":

"Today, speculators dominate the trading of oil futures. According to Congressional testimony by the commodities specialist Michael W. Masters in 2009, the oil futures markets routinely trade more than one billion barrels of oil per day. Given that the entire world produces only around 85 million actual “wet” barrels a day, this means that more than 90 percent of trading involves speculators' exchanging "paper" barrels with one another.

Eliminating pure speculation on oil futures is a question of fairness. The choice is between a world of hedge-fund traders who make enormous amounts of money at the expense of people who need to drive their cars and heat their homes, and a world where the fundamentals of life — food, housing, health care, education and energy — remain affordable for all."

James Hamilton responds:

"Last Friday, 227,000 contracts were traded corresponding to 227 million barrels of oil, which is indeed a large multiple of daily production. But it is worth noting that at the end of Friday, total open interest-- the number of contracts people actually held as of the end of the day-- was only 128,000 contracts, much smaller than the total number of trades during the day, and not much changed from the total open interest as of the end of Thursday. Many of the traders who bought a contract on Friday turned around and sold that same contract later in the day. If the purchase in the morning is argued to have driven the price up, one would think that the sale in the afternoon would bring the price back down. It is unclear by what mechanism Representative Kennedy maintains that the combined effect of a purchase and subsequent sale produces any net effect on the price.

It's also worth noting that on that same day, there were 146,000 May natural gas contracts traded, which if held to maturity would call for delivery of natural gas at Henry Hub in Louisiana. A single contract represents about 10 million cubic feet, so Kennedy's calculations would invite us to compare the 1,146 billion cubic feet of "paper" natural gas traded on Friday with the total of 78 billion cubic feet of natural gas that the U.S. physically produced on an average each day in 2011. Once again, the vast majority of Friday's natural gas futures trades were matched by an offsetting trade during the same day so as to have little effect on end-of-day open interest.

By what mysterious process can all this within-day buying and selling of "paper" energy be the factor that is responsible for both a price of oil in excess of $100/barrel and a price of natural gas at record lows below $2 per thousand cubic feet? I suspect the reason that Kennedy does not explain the details to us is because he does not have a clue himself."

MP: Great question, Professor Hamilton!

Glenn Greenwald on Drug Legalization

Salon columnist, blogger and constitutional lawyer Glenn Greenwald discusses drug legalization/decriminalization with Reason.tv and at the Cato Institute.

Saturday Morning Links

1. Strong earnings reports from Union Pacific and CSX suggest that the U.S. economy is continuing its long, slow recovery. 

2. Let's Be Blunt: It's Time to End the Drug War

3.  Get ready for a third industrial revolution that is coming from the digitization of manufacturing - it will completely transform the way goods are made.  

4. Almost 50% of Large U.S. Manufacturers Are Planning to Move Production Back from China to the U.S.

5.  Abundant, Cheap Shale Gas Could Spark a U.S. "Manufacturing Renaissance," says Dow Chemical CEO Andrew Liveris on CNBC.

6. California Home Sales Increase to the Highest Level for the Month of March Since 2007.

7.  Ohio fracking for oil and gas could lead to economic recovery.

8. The boomerang effect: As Chinese wages rise, some production is moving back to the rich world.

9.  Let's Legalize Skyscrapers in the Nation's Capital: D.C.’s height restrictions on buildings are raising rents and hurting America. 

10. Defying the Naysayers, U.S. Manufacturing is Booming in the Greenville/Spartanburg, South Carolina corridor.

Previously posted on Twitter, follow me on Twitter here.  

Chart of the Day: Drill, Drill, Drill= Jobs, Jobs, Jobs

The chart above displays monthly "natural resources and mining" employment levels in North Dakota (blue line, right scale) and Pennsylvania (red line, left scale) over the last ten years (data here). After more than a decade of flat employment levels for energy-related jobs in both states, employment levels recently have been booming, along with the Bakken oil boom in North Dakota and the Marcellus natural gas boom in Pennsylvania.

In just the last three years, energy-related jobs have almost tripled in North Dakota and almost doubled in Pennsylvania.  And while the "Great Recession" crippled the U.S. labor market with job losses approaching 8 million, the recession had almost no effect on the shovel-ready, job-creating labor market for energy jobs in North Dakota and Pennsylvania.

Update: Here's the same data graphed on the same scale, for Larry G. 

U-Haul Rates Confirm The Great California Exodus

U-Haul rates for one-way 26 foot truck rentals in May:

From Sacramento to Houston: $2,370
From Houston to Sacramento: $1,007

From San Francisco to San Antonio: $2,214
From San Antonio to San Francisco:  $1,069

Dynamically-determined U-Haul rates reflect the differences in relative demand for one-way truck rentals between any two U.S. cities.  The 2:1 California-Texas price ratios above suggest that demand for trucks leaving California is roughly double the demand for trucks coming into the Golden State.  In other words U-Haul's one-way truck rental rates provide empirical evidence of "The Great California Exodus" discussed in yesterday's WSJ interview with demographer Joel Kotkin.  Here's an excerpt:

"The Golden State's fastest-growing entity is government and its biggest product is red tape. The first thing that comes to many American minds when you mention California isn't Hollywood or tanned girls on a beach, but Greece. Many progressives in California take that as a compliment since Greeks are ostensibly happier. But as Joel Kotkin, one of the nation's premier demographers notes, Californians are increasingly pursuing happiness elsewhere.

Nearly four million more people have left the Golden State in the last two decades than have come from other states. This is a sharp reversal from the 1980s, when 100,000 more Americans were settling in California each year than were leaving. According to Mr. Kotkin, most of those leaving are between the ages of 5 and 14 or 34 to 45. In other words, young families.

Part of California's dysfunction, he says, stems from state and local government restrictions on development. These policies have artificially limited housing supply and put a premium on real estate in coastal regions.

"Basically, if you don't own a piece of Facebook or Google and you haven't robbed a bank and don't have rich parents, then your chances of being able to buy a house or raise a family in the Bay Area or in most of coastal California is pretty weak," says Mr. Kotkin.

While many middle-class families have moved inland, those regions don't have the same allure or amenities as the coast. People might as well move to Nevada or Texas, where housing and everything else is cheaper and there's no income tax."

Friday, April 20, 2012

George Carlin on Environmentalism and Earth Day

Classic George Carlin on "Saving the Planet," featured annually on Carpe Diem around Earth Day (some profanity).

On Earth Day 2012, Let's Celebrate our Abundant Domestic Energy Treasures from Mother Earth

Fossil Fuels: Reliable Energy of the Past and the Future

According to Wikipedia, Earth Day is a "day early each year on which events are held worldwide to increase awareness and appreciation of the Earth's natural environment." 

We're coming up on Earth Day this Sunday, and it might be a good time to celebrate the fact that we still get most of our plentiful, affordable energy directly from Mother Earth in the form of fossil fuels (coal, natural gas and petroleum) that helps to fuel our vehicles and airplanes, and heat and light our homes, businesses and factories.  Shouldn't that be part of the "awareness and appreciation of Earth's natural environment," to celebrate the Earth's bountiful natural resources in the form of fossil fuels? 

The two charts above illustrate the fact that despite Obama's claims that oil and fossil fuels are "energy sources of the past," they are still very much the primary energy sources for both domestic production and consumption (EIA data here) of energy, and will likely remain so for many generations to come. Despite all of the billions of dollars in government taxpayer subsidies of renewable energy, they provided only 9.3% of energy consumption in 2011, which was barely more than the 8.9% share in 1983, almost 30 years ago - that's not a lot of progress for the politically popular renewables.  And when it comes to solar and wind, together combined they provided only 1.6% of the total energy produced in the U.S. in 2011 - an almost insignificant amount.  Given the abundance of shale oil and gas in the U.S. it's highly likely that fossil fuels will continue to fuel our economy and continue to be our dependable, affordable "fuels of the future." 

The theme of 2012 Earth Day is "Mobilize the Earth," and I suggest we recognize the significant increases in recent years mobilizing our country's energy treasures in the Bakken Formation of North Dakota, the Marcellus Formation in Pennsylvania, and the Eagle Ford Formation in Texas.  On Earth Day, we should also celebrate the fact that extracting oil and gas from the earth creates thousands of jobs for Americans.  We now have more direct jobs in the domestic oil and gas industry (193,000) than at any time since 1988, and the industry has been creating more than 100 new jobs every day for the last year. 

Happy Earth Day 2012~!

More Creative Destruction for Traditional University Education, This Time From Within

Michigan, Stanford, Penn and Princeton have teamed up to offer free online college-level courses (not for credit) in a wide variety of disciplines, here's a link to their "Coursera" website. 

Intrade Speculators Predict Obama Re-Election

The greedy, market-manipulating, market-destabilizing speculators on Intrade are favoring an Obama re-election with odds of 60.4%, see chart above.  Will Obama call for an investigation? Probably not, since Intrade is based in Ireland.

Thursday, April 19, 2012

America Revealed: Made in the USA

PBS has started airing its four-part series titled "America Revealed," based upon the BBC’s award-winning Britain From Above.  Episode #4 of America Revealed is titled "Made in the USA," and I served as a consultant for that segment. Here's a preview:

"American manufacturing has undergone a massive revolution over the past 20 years. Despite all the gloom and doom, America is actually the number one manufacturing nation on earth. Yul Kwon crosses the nation looking at traditional and not-so traditional types of manufacturing.
Along the way, he meets the men and women who create the world’s best and most iconic products, engineers who are reinventing the American auto industry, steelworkers who brave intense heat to accommodate radical new ideas about recycling, and engineers who are re-imagining the microchip. He visits one of the most innovative manufacturers on earth: a small start-up company that is building personalized robots – machines that may one day reshape our homes and offices, driving our revolution further forward.

Yul further explores the emerging notion that manufacturing itself is changing from a system based on the movement and assembly of raw materials like steel and plastic to a system in which ideas and information are the raw materials of a new economy based around communications and social connections via companies like Facebook and Google."

This episode premieres May 2nd, 2012Check Local listings.

Natural Gas Spot Prices Now Below $2: Adjusted for Inflation, That's the Lowest Since the Mid-1970s

Natural gas prices continue to fall, and spot prices have been below $2 per million BTUs for the last week, trading as low as $1.87 last Friday (see chart above, EIA data here).  The last time natural gas prices were consistently below $2 was in the spring of 1999, thirteen years ago.  Adjusted for inflation, those 1999 prices would be about $2.75 in today's dollars, so the current string of prices below $2 might be the lowest inflation-adjusted natural gas prices in modern U.S. history.

Update: EIA spot price data only go back to 1997, but another data source, Global Financial Data, has natural gas prices back to 1930, at least annually for all those years. Natural gas prices were pretty low between 1930 and the mid-1970s, with nominal prices ranging between $0.05 and $0.30 per million BTUs during that period.  Adjusted for inflation, those prices were below $1 per million BTUs in some years, so today's prices haven't yet reached those lows.  Thanks to Benjamin, who pointed this out in a comment below.  I stand corrected.  

Oil Shipments by Rail Up, Coal Shipments Down

More evidence of the decline of coal....
RankCarload Commodity Group2012 YTD2011 YTD% Increase
1Petroleum Products129,25699,89029.4
2Motor Vehicles235,296199,72117.8
3Metallic Ores92,88479,99016.1
5Lumber and Wood45,59341,5179.8
6Stone, Clay and Glass105,34497,6947.8
7Crushed Stone, Sand, Gravel246,869229,2837.7
9Pulp and Paper91,55489,3902.4
10All Other Carloads69,62368,4301.7
11Iron and Steel Scrap73,34572,6750.9
12Forest Products22,63122,5560.3
13Waste and Nonferrous Scrap44,63644,5880.1
15Food Products97,09598,364-1.3
16Grain Mill Products142,419144,430-1.4
17Nonmetallic Minerals66,34769,873-5
18Coal 1,770,1571,983,041-10.7
20Farm Products12,02613,866-13.3

The table above shows the carload commodity group rankings for rail traffic through April 14 (week 15) of this year, according to data released today by the American Association of Railroads.  Note that Petroleum Products have experienced the biggest percentage increase in rail shipments over last year at 29.4%, followed by Motor Vehicles and Equipment at a 17.8% increase.  In contrast, coal shipments have decreased by 11.3% this year compared to last year, because of the shift from coal to natural gas for electricity generation.  

These new rail statistics support recent data from the EIA that: a) U.S. carloads of coal by rail during the first quarter of 2012 fell to the lowest level for any quarter since the beginning of 1994, and b) coal's share of monthly power generation in the United States dropped below 40% in November and December 2011 for the first time since March 1978, see recent CD post

Thursday Energy Links

1.  Chesapeake Energy Corp. CEO Aubrey McClendon in a speech Tuesday in Oklahoma City,"In my opinion, natural gas is no bridge. It is absolutely the foundation of our economy for decades."

2. "The nation's drilling boom has lowered the price of natural gas dramatically. It costs less than half what it did just a year ago. That's cut heating bills and brought some unexpected savings to a lot of families. It's also good news for plenty of businesses, as NPR's Chris Arnold reports from Boston.  A recent study by IHS found that the average household disposable income in the near term was nearly $1,000 higher because of these lower prices of natural gas."

3. Hydraulic fracturing and natural gas development, well under way in Ohio and Pennsylvania, may soon come to Illinois, the latest state to experience an energy rush.  Brad Richards, vice president of the Illinois Oil and Gas Association, said southern Illinois is in the midst of an oil and natural gas lease boom.

"In places like Wayne, Hamilton and Saline counties, there have been tens of millions, perhaps even a hundred million or more spent to acquire these leases," Richards said. The leases are being bought up in the hope that companies could soon start developing shale formations. The formations are part of a large basin that straddles the Illinois, Kentucky and Indiana borders, said to hold up to 87 trillion cubic feet of natural gas.

4. Why Shale Gas Matters to U.S. Manufacturing: New steel mills, chemical plants and jobs could be coming to a shale field near you.

5. Dow Chemical Co. will build a multibillion-dollar plant to convert natural gas into the building blocks of plastic in Freeport, Texas, becoming the latest chemical maker to capitalize on the abundant gas supplies that are helping spur a renaissance in U.S. manufacturing. Even as natural-gas producers cut back drilling in response to the low prices, chemical firms are increasing their manufacturing investments. Dow's new plant here will create 2,000 jobs at the peak of construction, the company says, and is scheduled to be completed in 2017.

Wednesday, April 18, 2012

World's Ten Most Resource-Rich Countries

No. 1 is Russia with an estimated $75.7 trillion of natural resources, according to this list from 24/7 Wall Street, and the U.S. is No. 2 with $45 trillion. 

Markets in Everything: 3D Printer for Medicine

YahooNews -- "From creating intricate guitars to delicious pieces of chocolate, 3D printing is moving beyond the realm of making simple models and into the realm of creating useful things. And thanks to researchers at University of Glasgow, this cutting-edge technology could take an incredible new turn that could save millions of lives: A 3D printer capable of creating drugs.

Professor Lee Cronin and his team introduced the tech in a research paper, published in Nature Chemistry. The researchers modified a currently available 3D printer they purchased for $2,000, adding vessels with chemicals in them. In doing so, they created what they call "reactionware," a far cheaper, smaller scale version of incredibly expensive chemical engineering equipment.

According to Cronin, "we could use 3D printers to revolutionize access to health care in the developing world, allowing diagnosis and treatment to happen in a much more efficient and economical way than is possible now." The innovation could expand access to expensive cancer drugs, allowing pharmacies to fill prescriptions for patients on demand or even allowing patients to print their own medicine from home."

Next "Equal Occupational Fatality Day" in 2021

Yesterday was Equal Pay Day, which supposedly represents how far into 2012 the average woman has to work to make the same pay that the average man earned in 2011. The National Committee on Pay Equity started Equal Pay Day in 1996 as “a public awareness event to illustrate the gap between men’s and women’s wages.”

In 2010, I created “Equal Occupational Fatality Day” on the Enterprise Blog and started an annual tradition:
Inspired by Equal Pay Day, and in recognition of the significant gender differences in workplace deaths, let me propose the creation of “Equal Occupational Fatality Day.” That date symbolizes how long women will have to work before they experience the same loss of life from work-related deaths that men experienced in a given year. Because most women work in much safer occupations than men, they must work longer than men to experience the same number of occupational fatalities.  Equal Occupational Fatality Day is being originated to illustrate the gap between men’s and women’s occupational deaths, and bring awareness to the fact that closing the pay gap would also close the work-related death gap and expose thousands of women to occupational fatalities each year.
Now that another year has passed, and with new data on occupational fatalities from the Bureau of Labor Statistics, I hereby declare that the next “Equal Occupational Fatality Day” will occur on October 11, 2021. In 2010 (the most recent year available), 4,192 men died from fatal injuries while working compared to only 355 women (see chart below), so that women would have to work for almost the next decade to experience the same loss of life on the job as men in just one year.

Read more here at The Enterprise Blog

Architecture Billings Index Positive for 5th Month

Washington, D.C. – April 18, 2012 – "The commercial sector continues to lead the Architecture Billings Index (ABI) which has remained in positive territory for the fifth consecutive month (see chart above). 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 March ABI score was 50.4, following a mark of 51.0 in February. This score reflects a slight increase in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 56.6, down from mark of 63.4 the previous month."

“We are starting to hear more about improving conditions in the marketplace, with a greater sense of optimism that there will be greater demand for design services,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “But that is not across the board and there are still a number of architecture firms struggling so progress is likely to be measured in inches rather than miles for the next few months.”

Tuesday, April 17, 2012

Garth Brooks Show Sells Out in 58 Seconds = Tickets Were Undersupplied and/or Underpriced

Calgary Herald -- "Some 15,322 tickets to country superstar Garth Brooks' highly anticipated July 12 show went on sale at 10 a.m. last Saturday and were snapped up in 58 seconds — the fastest sellout in the Calgary Stampede’s 100-year history.

Country music fans vented on social media. Indeed, by mid-morning, “Garth Brooks” was trending Canada-wide on Twitter. Fan frustration was mostly directed at online resale sites. Prices for single tickets on StubHub, for example, ranged from $275 to $4,500 a piece — much higher than their original $62 cost. That had music lovers like D.J. McMillan of Calgary crying foul about rampant ticket scalping."

MP: Fan frustration shouldn't be directed at online ticket websites, but at those ultimately responsible for creating a ticket shortage, which then creates a market for ticket resales: Garth Brooks and the concert promoters.  Obviously, the artist and promoter failed to both: a) price the tickets according to market demand, and b) supply the appropriate number of tickets to satisfy fan demand.  By under-supplying and under-pricing Garth Brooks tickets, it was the artist and promoter who guaranteed a secondary market for tickets above face value.  The secondary market can easily be eliminated by: a) raising the face value of tickets and/or b)  adding additional shows and increasing the number of tickets for sale.  

Basic Economics: Since the artists and/or promoters  have direct control over P (price) and Q (quantity supplied), simple economics tells us that it's the actions of the suppliers (artists and promoters) that create ticket shortages and ticket re-selling.  Eliminating ticket re-sales can easily be eliminated: simply raise P or raise Q and most of the secondary market and "ticket shortage" would disappear.   

Today is Tax Deadline: Bring Us Back to 1913 (Or Better Yet, Take Us Back to Pre-Income Tax 1912)

This post has become an annual tradition at CD around April 15.  

Page 1 of the original IRS 1040 income tax form from 1913 appears above. There were only four pages in the original 1040 form, including two pages of worksheets, the actual 1040 form above, and only one page of instructions, view all four pages here. In contrast, just the current 1040 instructions, without any forms, runs 189 pages.

Individual income tax rates started at 1% in 1913, and the maximum marginal income tax rate was only 7% on incomes above $500,000 ($11.6 million in today's dollars). The personal exemption was $3,000 for individuals ($69,500 in today's dollars) and $4,000 for married couples ($92,700 in today's dollars), meaning that very few Americans had to pay federal income tax since the average income in 1913 was only about $750. The Tax Foundation has historical federal income tax rates for every year between 1913 and 2011 here.

Chart of the Day: New Records for Oil/Gas Split

A new record was set last week when the share of U.S. rigs drilling for natural gas fell to only 32%, which was the lowest percentage since Baker Hughes started keeping records of the oil/gas split in 1987 (see chart above).  The previous record low share of rigs drilling for natural gas was 32.5% in September 1987.  As natural gas prices keep falling to record lows at the same time that oil prices are rising, the industry has shifted drilling activities from gas to oil, bringing the share of rigs drilling for oil from below 20% as recently as May 2009 to a record high of 68% last week.

This shift from gas to oil drilling illustrates how the price system transmits valuable information about relative scarcity, and brings about an automatic reallocation of productive resources by suppliers in response to price changes.  The power of the market, the invisible hand, and the profit motive in action....

Monday, April 16, 2012

Monday Afternoon Links

1.Recycling America’s Abandoned Auto Plants: Shuttered U.S. auto plants aren't eyesores, they're valuable assets worth saving and recycling.

2. Exxon's Big Bet on Shale Gas: ExxonMobil now produces about as much natural gas as it does oil, and CEO Rex Tillerson thinks the fracking party has just begun.

3. Hitchhiking in Cuba: It's about the only way to get around outside Cuban cities. Gasoline costs about what it does in the United States. Most Cubans don’t have cars. Most earn a monthly government salary of less than $20.

4. EveryHeartBeat.org: An online network into which anyone can record their medical data through a wireless phone.

5. George Will in The Washington Post asks "Should the U.S. Legalize Hard Drugs?" and I think his answer is Yes. 

6. Netflix's Unlimited Employee Vacation Policy; Why It Works

7. Indian Farmers Use Cell Phones to Pre-Purchase Solar Energy on a "Pay-As-You-Go" Basis.

8. Racial racketeer Marion Barry demonstrates the black racism against Asians that tends to get ignored. 

All originally sent through Twitter, follow me here

Energy Facts of the Day: The "Decline of Coal"

1. "Total U.S. carloads of coal by rail during the first quarter of 2012 fell to 1.55 million carloads, the lowest level for any quarter since the beginning of 1994, as demand for coal by the U.S. electricity sector decreased." Source: EIA

2. "Although still the largest single fuel for electricity generation, coal's share of monthly power generation in the United States dropped below 40% in November and December 2011. The last time coal's share of total generation was below 40% for a monthly total was March 1978. A combination of mild weather (leading to a drop in total generation) and the increasing price competitiveness of natural gas relative to coal contributed to the drop in coal's share of total generation." Source: EIA