Saturday, April 28, 2012

Charts of the Day: Oil-Gas Drilling Rig Split Now 68-32 and Net Oil Imports Are at a 20-Year Low

Baker Hughes reported yesterday that the share of U.S. rigs drilling for oil (gas) rose (fell) to an all-time high (low) this week since the oilfield service company starting keeping records back in 1987 (see top chart above, data here).  For the week ending April 27, the oil/gas split was 68.5% to 31.5%.  The pattern displayed in the chart of switching from drilling for gas to drilling for oil started about three years ago, and follows the pattern of rising oil prices and falling natural gas prices since 2009.

Accompanying the shift in the industry towards increased drilling for domestic oil, net oil imports keep falling, and reached the lowest level in the first three months of 2012 (43.4%) in 20 years, since 1992, see bottom chart above (data here).

Update: See new chart below showing the relationship between weekly oil prices and the weekly share of rigs drilling for oil since 2009 (correlation coefficient of 0.89):

Chesapeake CEO on U.S. Industrial Renaissance

"Natural gas is a feedstock in basically every industrial process, and the price of gas in the U.S. is a fraction of what it is in Europe or Asia.  This country has an incredible advantage headed its way as Asian labor costs rise, as the cost to transport goods from Asia to the U.S. rises, as oil prices rise, as American labor costs have stagnated or gone down in the last 10 years. We have a really wonderful opportunity to kick off an industrial renaissance in the U.S." 

 ~Chesapeake Energy CEO Aubrey McClendon in today's WSJ

Friday, April 27, 2012

The Wisdom of Milton Friedman

1. The problem of social organization is how to set up an arrangement under which greed will do the least harm; capitalism is that kind of a system.

2. With some notable exceptions, businessmen favor free enterprise in general but are opposed to it when it comes to themselves.

3. The free man will ask neither what his country can do for him nor what he can do for his country.

4. The case for prohibiting drugs is exactly as strong and as weak as the case for prohibiting people from overeating.
5. If you put the federal government in charge of the Sahara Desert (MP: Or domestic energy resources), in five years there’d be a shortage of sand (MP: Oil, and high oil prices).

6. Only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around.

~From "Remembering Milton" by Allen R. Sanderson, who reflects on the contributions of Milton Friedman on the 100th anniversary of his birth in 1912 and the 50th anniversary of the publication of Friedman's classic "Capitalism and Freedom."  

Chances of Getting a Kidney Are Now Less Than 20%, It's Time to Legalize Donor Compensation

National organ transplant data through the end of 2011 are now available from the U.S. Department of Health and Human Services, and the situation for those unfortunate patients on the waiting list for a kidney transplant has never been more grim.  Here are the depressing facts:

1. There were only 16,812 kidney transplant operations performed in 2011, which was fewer than the 16,899 transplants in 2010 and the 16,829 in 2009, and was even below the 17,094 operations performed in 2006.

2. While the number of kidney transplant operations has remained relatively flat since 2005, the number of registered patients on the waiting list continues to increase.  From about 65,000 registered patients in 2005, the waiting list for a kidney transplant has increased by 42% and by more than 27,000 patients to the current level of more than 92,000.

3. In 1988, there were fewer than two patients on the waiting list for a kidney for every transplant operation, and there are now 5.5 patients per operation.  In other words, patients on the waiting list in the late 1980s had more than a 50% chance of receiving a kidney, compared to patients today who have less than a one-in-five chance of receiving a kidney, and those chances keep diminishing every year.  

4. Based on data from the last few years, there will be about 5,000 registered candidates on the list who will die this year while waiting for a kidney, and another 2,000 who will be removed from the list because they are considered to be too sick to survive a kidney transplant operation.  

Bottom Line: The situation for those with renal failure waiting desperately to receive a kidney continues to worsen every year under the current policy that prohibits donor compensation.  The only realistic, long-term and truly compassionate solution to address America's worsening kidney shortage is to legalize some form of donor compensation.  

Williston, ND May Now Have Highest Wages in U.S.

Metro Area   Average Annual     
Williston, ND$70,000
San Francisco$64,820
Washington, D.C.$62,890
New York City $58,500
Los Angeles$51,600

From today's Williston (ND) Herald:

"Williston Economic Development’s deputy director has the daunting task of tracking job creation in the Williston area. Shawn Wenko says he likes to see how Williston compares to other cities in the state. And, it’s probably no big shock that Williston leads the state in job growth. Wenko says Williams County created over 12,000 jobs from January 2010 to September 2011.

“That number doesn’t surprise me. If we could have brought housing online faster it would probably be even more. The fourth quarter of 2011 will be faster.” During those same seven quarters Williams County also was number one in business creation - more than 400 new businesses were created.  Wenko says he doesn’t see any stoppage in the future. “It’s a reflection of the economic activity out here – we are number one in every area and it doesn’t look to slow down anytime soon. We will probably pull away even further from the other counties,” Wenko says.

Williams County also led the state in personal income increases at the end of the third quarter in 2011. The average weekly wage was nearly $1,400 in Williams County, just under $71,000 a year.

That’s higher than any other city in the state,” Wenko said."

MP: That might also be higher than any other city or metro area in the entire country, see chart above of average annual wages by metro area based on data from the BLS. So it's not just drill, drill, drill = jobs, jobs, jobs, it's also the case that drill, drill, drill = high-paying jobs, high-paying jobs, high-paying jobs. Note also that the jobless rate in Williston and Williams County is an eye-popping 0.9%. 

Apple Paid Half the Taxes of ExxonMobil in Q1 and Earned Four Times More Per Dollar of Sales

First Quarter 2012 ExxonMobil     Apple  
Revenue (Billions)$124.0$39.2
Income Taxes (billions)$7.7$3.9
Profits (billions)$9.5$11.6
Profit Margin (%)7.6%29.6%

First quarter financial results were reported this week by ExxonMobil and Apple, and a summary of some key statistics are displayed above.  Here's what will probably not be reported by the mainstream media:

1. ExxonMobil paid $7.7 billion in taxes in the first quarter of 2012, which was about double the amount of taxes paid by Apple - $3.9 billion.  

2. Apple earned $11.6 billion in profits during the first quarter, which was 22% more that ExxonMobil's $9.5 billion in profits. 

3. Apple earned $29.60 in profits for every $100 of sales in the first quarter, compared to ExxonMobil's earnings of only $7.60 per $100 in sales revenue, making Apple's profit margin almost four times greater than ExxonMobil's (29.6% vs. 7.6%). 

You probably also won't hear Nancy Pelosi calling for an end to Apple's tax cuts and tax subsidies as a way to finance the $6 billion it will cost to pay for a one-year extension of student loan subsidies.  And it's also unlikely that the Democrats will propose a "Reasonable Profits Board" to regulate the profits of Apple and other computer companies.  It's only Big Oil that gets constantly singled out for that kind of targeted "special" treatment.  Not to give any ideas to Pelosi and the Dems, but it looks like "Big Computer" might be a juicier target now than Big Oil.   

HT: Bob Loftus

Friday Afternoon Links

1. Stunned Home Buyers Find that Bidding Wars Are Back, As Housing Demands Picks Up After Long Six-Year Slump.
2.  Consumers Energy Reduces Natural Gas Prices for 1.7 Million Customers in Michigan to the Lowest Level Since 2003, Saving Consumers $130 Million Over Next Year.
3. Here's a 3-D Home Printer for $500. All you need to do is add a computer and you’ll be off printing almost any object that comes to mind. 
4.  Thanks to abundant and affordable supplies of shale gas, Pennsylvania is poised for a manufacturing renaissance that starts with the chemical industry and ripples through the state’s economy. 
5. ConocoPhillips CEO Jim Mulva says the company this year plans to drill 160 wells in the Eagle Ford shale in South Texas, 300 wells in the Permian Basin in West Texas and up to 30 wells in North Texas’ Barnett shale. “Everyone is going to have to cast aside the old thoughts and the old assumptions of domestic fossil fuels being in short supply,” he said. “That’s simply not the case anymore.”
6. A “perfect storm” of economic and regulatory factors is driving major United States utilities to rapidly switch from coal to natural gas as an electric power source, the top executive of one of the nation’s largest utilities said on Thursday.
7. Markets in Everything: Travel Dating (HT: Tyler)

Private Real GDP Grew at 3.4% in First Quarter, Twice the 1.76% Average Growth Rate Since 2000

The BEA reported today that the overall economy (real GDP) grew by 2.2% at an annual rate in the first quarter of 2012. However, the private components of GDP (personal consumption expenditures, gross private domestic investment, and net exports) grew by 3.4% from January-March, following a 4.6% increase in  Q4 2011 (see chart above). In contrast, there was a 3.1% decline in "government consumption expenditures and gross investment" in Q1, which created a drag on overall economic growth and brought real GDP growth down to 2.2%.  The decrease in government spending was driven by a 12.1% decline in first quarter spending on national defense and ongoing cuts in state and local government spending (-2.2% in Q1).   

The average growth rate in private real quarterly GDP since 2000 has been 1.76%, so the private sector of the U.S. economy expanded in the first quarter of 2012 at twice the average rate over the last 12 years (see chart).  And going back to 1947, private real GDP has grown at an average rate of 3.27% per quarter, so the expansion of private GDP in the first quarter is slightly above the long-term historical average.

Bottom Line: Perhaps today's GDP report is actually better than what is being reported, as the private sector of the U.S. economy grew at a rate slightly above the historical average, and twice the average rate since 2000.  

Thursday, April 26, 2012

Interesting Fact of the Day

In 1989, only 1 in 230 homebuyers bought a house with a down payment of 3% or less.  In 2003, the ratio was 1 in 7.  By 2007, it was 1 in 3.

Phenomenal Gains in Manufacturing Productivity

Today's factory workers produce more output in an hour than workers in the 1940s produced in a day.
The chart above shows annual real manufacturing output per worker from 1947-2011 using data released today by the BEA for GDP by industry, and data from the BLS on manufacturing employment. In 1950, the average U.S. factory worker produced $19,500 (in 2011 dollars) of output, and by 1976 the amount of output per worker had doubled to $38,500. Output per worker doubled again to $74,400 (in 2011 dollars) by 1997 (21 years later) and then doubled again to $152,800 by 2010, but it only took 13 years for the last doubling because worker productivity has been accelerating.  Last year, manufacturing output per worker increased to a new record high of $156,500 (see chart), and almost ten times the output per worker in 1947.  In other words, the average American factory worker today produces more output in an hour than his or her counterpart produced working almost a ten hour day in 1947 - and that's why we're producing record levels of output with fewer workers.   

This is an amazing story of huge increases in U.S. worker productivity in the manufacturing sector. In fact, the growth in manufacturing worker productivity more than doubled from 2.63% per year in the period between 1950 and mid-1970s to 5.42% annually between 1997 and 2011. Whereas it took 26 years for output per worker to double during the first period (1950-1976), it only took 13 years during the more recent period (1997-2010).

We are constantly inundated with bad news about the decline in the number of manufacturing jobs in the U.S., but we never hear the good news about why that is happening: Manufacturing workers in America keep getting more and more productive, which then allows us to produce more and more output over time, with fewer and fewer workers. That's a great story about an American industry that is healthy, successful and thriving, and not an industry in decline.

By continually increasing worker productivity and productive efficiency, the American manufacturing sector has been hugely successful at achieving one of the most important economic outcomes of being able to "produce more with less." In the process, those efficiency and productivity gains have helped conserve scarce resources, including human resources, more effectively than almost any other industry, except maybe farming. It's hard to overstate how much the efficiency gains achieved by U.S. manufacturing have contributed to the improvements in our standard of living by making manufactured goods more affordable over time. We should spend less time complaining about fewer workers in manufacturing, and more time celebrating the phenomenal gains in manufacturing worker productivity.

Update: The chart below shows annual real manufacturing output and annual manufacturing employment between 1947 and 2011.  Note that manufacturing employment dropped by one-third from 17.56 million jobs in 1998 to 11.52 million in 2010.  

Obama Justice and Medical Marijuana

Glenn Greenwald writing in

"The same person who directed the DOJ to shield torturers and illegal government eavesdroppers from criminal investigation, and who voted to retroactively immunize the nation’s largest telecom giants when they got caught enabling criminal spying on Americans, and whose DOJ has failed to indict a single Wall Street executive in connection with the 2008 financial crisis or mortgage fraud scandal, suddenly discovers the imperatives of The Rule of Law when it comes to those, in accordance with state law, providing medical marijuana to sick people with a prescription."

If Separate, America's Manufacturing Sector Would Rank as the Tenth Largest Economy in the World

 Rank  Country GDP in 2011
Millions ($)
1United States $15,094,025
2China $7,298,147
3Japan $5,869,471
4Germany $3,577,031
5France $2,776,324
6Brazil $2,492,908
7United Kingdom $2,417,570
8Italy $2,198,730
9Russia $1,850,401
10U.S. Manufacturing$1,837,031
11Canada $1,736,869

The BEA released data today on "GDP by industry" for 2011, and reported that U.S. manufacturing output last year reached $1.837 trillion, which was a new record for current-dollar manufacturing output.  In constant dollars, last year's manufacturing output was just slightly below the record $1.856 trillion manufacturing value-added in 2007. 

If American manufacturing were counted as a separate economy, it would rank as the tenth largest national economy in the world, see chart above (IMF data here for GDP in 2011), with output just slightly below the entire economy of Russia and ahead of Canada's total GDP.  

Bottom Line:  American manufacturing is alive and well and poised for even greater growth in the future.  Flush with record-level profits, the manufacturing sector has never been financially healthier that it is today and the future of American manufacturing has never looked brighter. After years of negative reports about the decline of American manufacturing, it’s now time to recognize and celebrate a great turning point, as America’s industrial sector moves in a new direction that many are now calling a “manufacturing renaissance.”

Markets in Everything: Slugging Goes Digital

Slugging to work? There's an app for that.
The "slugs" (pictured above) are part of the informal Washington, D.C.-area commuting phenomenon in which drivers heading into the city pick up riders ("slugs") along Interstate 95 so they can take the faster, 3-person, high-occupancy lanes.  Here's a website,, with more information. 

The Washington Examiner reports today that "Slug lines are moving into the virtual age":

"Technology is helping companies and the government drag carpools -- and Washington's commuting slug lines -- into the 21st century. A new concept -- called real-time ridesharing -- allows riders to use a smartphone app to find all the drivers already heading their way and ask for a ride in exchange for gas money. And instead of handing over cash, riders can pay drivers online through one of the new websites targeting the commuter market., due to launch in the D.C. area this year, will use the new carpool techniques in combination with a website that lets riders and drivers view the other's online profile to help them choose people with whom they can share the commute."

Michigan's Economy Shifts Into High Gear: February Economic Activity Index Highest Since 2005

From Comerica Bank: "Michigan Economic Activity Index increased by four points in February, spiking to a level of 102. The February index level is 42 points, or 70 percent, above the index cyclical low of 60. February marks the highest index reading since April 2005 (see chart above). Year-to-date the index has averaged 100 points, nine points above the index average for all of 2011.

“Our Michigan Economic Activity Index has broken sharply higher, showing rapid gains in the Michigan economy in early 2012. We are seeing broad-based gains in economic activity, showing that the revitalization of the auto industry is having a fundamental positive impact on the state economy,” said Robert Dye, Chief Economist at Comerica Bank. “Threats to the Michigan economy are still visible in the form of challenging global macroeconomic conditions and expected cuts in federal defense spending. Recently softer U.S. economic data is not expected to significantly impair domestic auto sales.”

(Note: The Michigan Economic Activity Index consists of seven variables, as follows: nonfarm payrolls, exports, sales tax revenues, hotel occupancy rates, continuing claims for unemployment insurance, building permits, and motor vehicle production. All data are seasonally adjusted, as necessary, and indexed to a base year of 2004. Nominal values have
been converted to constant dollar values.)

Gas Prices Are Falling, But Media Has Had 65 Times Greater Coverage of Rising Prices Over Last Month?

The chart above from shows that the national average retail gas price has been falling slowly, but steadily over the last three weeks, from about $3.92 per gallon in early April to $3.82 today, which is a 2.5% decline.    

Where's the news coverage of falling gas prices?  There's almost none.  A Google News search for the phrase "falling gas prices" over the last month produced only 24 results, compared to 1,550 results for the phrase "rising gas prices," for a ratio of almost 65 news stories about rising gas prices for every one story about falling gas prices.  And that's during a 30-day period when gas prices have been falling, not rising!

This seems like a pretty convincing example of how the media gives much greater coverage to bad news than good news - "if it bleeds, it leads."  At least the attacks on oil speculators seems to have decreased significantly with the falling gas prices.   

Cartel-Buster Institute for Justice Goes Up Against the Portland Taxi Cartel with A Legal Challenge

Portland, Ore. -- "Can the government protect you from cheap fares and innovative service merely to shield politically connected businesses from competition? 

That is the question the Institute for Justice and its clients want answered in a federal lawsuit filed today in Portland, Ore, in the U.S. District Court for the District of Oregon. Their lawsuit challenges the constitutionality of Portland's limousine and sedan regulations, which punish small limo and sedan companies that offer discounted rides through online deal sites like 

In 2009, the city passed a law requiring a $50 minimum fare for limousine and sedan rides to or from Portland International Airport. The law imposes a city-wide minimum fare that requires limos and sedans to charge at least 35 percent more than what taxis would charge for the same route and imposes a minimum wait time of at least one hour before customers can be picked up. 

"These laws amount to nothing more than naked economic protectionism; they are designed to protect the profits of Portland's taxicab companies, and now they are being enforced at everyone else's expense," said Institute for Justice Attorney Wesley Hottot, which represents the plaintiffs. "Portland's minimum-fare law and minimum wait time have nothing to do with protecting the riding public. They have everything to do with protecting the city's taxicab companies from competition and driving up prices for consumers." 

Portland's Revenue Bureau recently targeted two limo and sedan companies— and Fiesta Limousine, both of which joined IJ to file suit against the city—for offering promotional fares on the daily deal website When the companies offered their customers $32 one-way trips to the airport, city enforcers immediately threatened them with a combined $895,000 in fines and suspension of their operating permits. The companies canceled the promotions and refunded their customers."

Watch video above for an overview of the case.  

MP: Kudos to the Institute for Justice for its ongoing "cartel busting" efforts on behalf of small business owners in America. There is probably no other organization anywhere in the entire world that is doing greater work defending small businesses and entrepreneurs against economic protectionism, empowering individuals to earn an honest living, and promoting economic and social justice.   

Wednesday, April 25, 2012

Gender-Wage Gap = Gender-Hours Gap

Manhattan Institute fellow Kay Hymowitz in today's WSJ:

"Most people have heard that full-time working American women earn only 77 cents for every dollar earned by men. Yet these numbers don't take into account the actual number of hours worked. And it turns out that women work fewer hours than men.

According to the Labor Department, almost 55% of workers logging more than 35 hours a week are men. In 2007, 25% of men working full-time jobs had workweeks of 41 or more hours, compared with 14% of female full-time workers. In other words, the famous gender-wage gap is to a considerable degree a gender-hours gap."

MP: When comparing wages between two groups, there's always that inconvenient, pesky "ceteris paribus" condition to consider, e.g. hours worked.  The gender activists always seem to want to go directly to "any disparity-proves-discrimination" dogma, without the inconvenience  of having to control for all of the relevant variables that explain differences in wages.        

Harvard Challenges Academic Publishing Cartel

The Guardian -- "Exasperated by rising subscription costs charged by academic publishers, Harvard University has encouraged its faculty members to make their research freely available through open access journals and to resign from publications that keep articles behind paywalls. A memo from Harvard Library to 2,100 teaching and research staff called for action after warning it could no longer afford the price hikes imposed by many large journal publishers, which bill the library $3.75m a year.

The extraordinary move thrusts one of the world's wealthiest and most prestigious institutions into the center of an increasingly fraught debate over access to the results of academic research, much of which is funded by the taxpayer. The outcome of Harvard's decision to take on the publishers will be watched closely by major universities around the world and is likely to prompt others to follow suit.

The memo from Harvard's faculty advisory council said major publishers had created an "untenable situation" at the university by making scholarly interaction "fiscally unsustainable" and "academically restrictive", while drawing profits of 35% or more. Prices for online access to articles from two major publishers have increased 145% over the past six years, with some journals costing as much as $40,000, the memo said.

More than 10,000 academics have already joined a boycott of Elsevier, the huge Dutch publisher, in protest at its journal pricing and access policies. Many university libraries pay more than half of their journal budgets to the publishers Elsevier, Springer and Wiley."

Gasoline-Futures Prices Tumble 16 Cents in Last Week, Due to Market Forces: Increased Oil Supply

Well now those greedy, market-destabilizing, market-manipulating speculators have changed course, and they're now driving gasoline futures prices down, see chart above from the CME.  From today's WSJ:

"U.S. gasoline-futures prices have dropped 16 cents a gallon over the past eight trading days, as more U.S. crude becomes available for refining into gasoline and fears about a shortage of refining capacity fade.

Helping to spur the downturn is the reversal of a pipeline's flow that will give refiners in the Gulf Coast region greater access to crude, the basic feedstock for gasoline. North Sea Brent crude, the European benchmark which holds sway over gasoline prices, already has fallen by more than $7 a barrel this month, partly on this development."

MP: In other words, the price of gasoline is actually being determined by market forces, specifically an increase in the supply of oil, and not by speculators.  

Wednesday Afternoon Links

1. US Steel Posts Q1 Profit on Lower Natural Gas Prices, Higher Steel Prices, Strong Sales from Auto and Oil Industries. 

2. Economic Optimism Increases Across Minnesota as 40% of Businesses Plan Increased Hiring in Q2 2012, Up from 39% in Q1 2012 and 29% in Q4 2011.

3. Ohio steel industry is expanding, led by a drilling boom in the gas and oil industry and strong demand for cars and light trucks.    

4. Nine project sponsors seeking Federal approval to export LNG produced from cheap, abundant domestic natural gas.

5. South Dakota prepares for an oil boom as the North Dakota oil boom moves south.

6.  WSJ: U.S. Manufacturers Regain Swagger as Earnings Topple Expectations.  

Manufacturing Doesn't Need Special Tax Treatment

Nobel economist Gary Becker on why special treatment for manufacturing is misguided:

"U.S. President Barack Obama, in his State of the Union address, advocated special tax breaks and support for the manufacturing sector. I do not see any more convincing case for subsidies to manufacturing than there was for the special treatment of agriculture during the long decline in farm employment. 

Most of the arguments made in support of privileges for manufacturing could be made for services and other sectors of the economy. For example, although certain manufacturing industries have had high rates of productivity advance, so too has mining, such as through the development of fracking techniques. The most important technological advance of the past several decades has been the computer and the Internet, for these gave birth to email, word processing, apps, online sales and social networks like Facebook and Twitter. 

Instead of singling out manufacturing for special privileges, the U.S. government should get behind certain general policies. High on the list would be raising the rate of growth of the American economy, for this will tend to create jobs in most sectors of the economy. More government support may be justified for basic research in science and other areas that would also benefit all sectors, not just manufacturing. Local and state governments, along perhaps with the federal government, could try to reduce the dismally high dropout rates from American high schools. Dropouts have trouble finding good jobs even in the best of times, and they suffer the most during recessions. 

Many other steps can be taken to help the American economy, especially by limiting the growth of entitlements and the federal budget. None of the steps to improve the economy involve favoring manufacturing employment and the manufacturing sector. The call by many for special treatment of manufacturing jobs is basically misguided." 

MP: Another reason that special treatment (e.g., tax breaks) for the manufacturing sector is misguided is that the industry earned record profits last year, see chart above.  When some industries like major integrated oil and gas earn record profits, there are calls in Washington for "windfall profits taxes," so the typical political logic would now be calling for higher taxes on manufacturers, not special tax breaks.  But then the term "political logic" is probably an oxymoron. 

HT: Dan Greller

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   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