Tuesday, June 12, 2012

Manufacturing Profits Are 34% Above 2007 Levels

U.S. manufacturers had another solid quarter of profits in the first quarter of 2012, according to data released this week by the Census Bureau.  The after-tax profits for American manufacturing corporations totaled more than $148 billion from January to March, an increase of $2.8 billion from profits of $145.2 billion in the fourth quarter of 2011, and  $2.6 billion more than the profits of $145.4 billion in the first quarter of 2011.  

Manufacturing profits have ranged between $145 billion and $156 billion over the last five quarters starting at the beginning of 2011, which contributed to record-setting profits in 2011 on an annual basis of almost $600 billion.  In 2007 before the recession started, manufacturing profits were averaging $110.6 billion per quarter, so the recent averages of $148 billion per quarter since 2011 put current manufacturing profits about 34% above pre-recession levels, and provide evidence of an industry that has made a complete recovery from the effects of the Great Recession. 

America's New No. 2 Oil State - North Dakota - Sets More New Oil Production Records in April

The "Economic Miracle State" of North Dakota pumped another record amount of oil during the month of April at a rate of almost 610,000 barrels per day, which was an increase of 5.5% compared to March.  North Dakota's oil production in April was noteworthy for several reasons: a) it was the first time the state's oil output exceeded 600,000 barrels per day, b) it was the largest year-over-year increase in the state's history at 73.5%, and c) it was the second straight month that North Dakota produced more oil than Alaska, after surpassing Alaska in March for the first time to become the country's No. 2 oil state.    

As a result of the ongoing oil boom in the Bakken area, North Dakota continues to lead the nation with the lowest state unemployment rate at four-year low of 3.0% in April, and more than five percentage points below the national average of 8.2%. There were ten North Dakota counties with jobless rates below 2.0% in April, and Williams County, which is at the center of the Bakken oil boom, boasts the lowest county jobless rate in the country at just 0.7%.  The exponential growth in North Dakota oil production has fueled exponential growth in the state's "Natural Resources and Mining" employment, which has tripled in less than three years, and reached almost 22,000 in April.  

Bottom Line: The ongoing record-setting oil production in North Dakota continues to make it the most economically successful state in the country, with record levels of employment and income growth, a labor shortage, increasing tax revenues, the lowest foreclosure rate in the country, a strong real estate market, and jobless rates in ten counties of the Bakken region below 2.0%.  Call it the "Dakota Model" of job creation and economic prosperity.

So That Everybody Gets a Fair Shot, How About a "Workweek and Occupational Fatality Fairness Act"

In a recent CD post, I argued that we could close the gender-pay gap by closing the gender-hours gap.  Another way to close the gender-pay gap would be to close the "occupational fatality-gap."  For as long as the BLS has been keeping records, females have been significantly under-represented in occupational fatalities, by a ratio of about one female death on the job per 12 male deaths in most years.  Men are disproportionately represented in higher-paying, but higher-risk occupations like mining, fishing, farming and construction.    

With that in mind, I had  a little editing fun here with a recent White House press release titled "Fighting for Equal Pay Workweeks and Occupational Fatalities and the Paycheck Workweek and Occupational Fatality Fairness Act:"

"Today, the President continues to advocate for passage of the Paycheck Workweek and Occupational Fatality Fairness Act, a comprehensive bill that strengthens the Equal Pay Workweek and Occupational Death Act of 1963, which made it illegal for employers to pay wages to men and women to work an unequal number of hours per week, or suffer from differences in occupational deaths who perform substantially equal work.   The Paycheck Workweek and Occupational Fatality Fairness Act is commonsense legislation that, among other things, would achieve the following:
  • Better align key Equal Pay Workweek and Occupational Death Act defenses with those in Title VII.
  • Bring remedies available under the Equal Pay Workweek and Occupational Death Act into line with remedies available under other civil rights laws. 
  • Make the requirements for class action lawsuits under the Equal Pay Workweek and Occupational Death Act match those of the Federal Rules of Civil Procedure.    
  • Protect employees who share their own salary workweek or occupational injury or fatality information at work from retaliation by an employer.
The existing legal tools available to remedy pay workweek and occupational fatality discrimination differences by gender are not enough, so Congress needs to pass the Paycheck Workweek and Occupational Fatality Fairness Act now.

From the beginning of his administration, President Obama has worked to ensure that women are paid fairly for their work work exactly the same number of hours per week as men and are exposed to the same work-related fatalities as men. The President is committed to securing an equal pay for equal work workweek and equal occupation death rate for men and women because it’s essential that we build an economy where everyone gets a fair shot at working an equal number of hours regardless of gender and gets an equal chance of getting seriously injured or killed on the job.  American families and the health of our nation’s economy depend on it."

Minneapolis-Area Home Sales Increase by 20.5% in May; 17 Metro Areas Reporting Strong Gains in May

We can now add my hometown of Minneapolis-St. Paul to the growing list of 17 metro areas now reporting strong gains in May home sales, based on today's report from the Minneapolis Area Association of Realtors, here are some highlights:

1. The May sale count of 4,589 homes was 20.5% higher than last year's 3,807.

2. Pending sales in May (5,130) were 27.3% above last year (4,029).

3. The median sales price of $169,000 in May was 10.5% above last year, marking the third consecutive month of double-digit gains for Twin Cities home prices. 

Domestic Crude Oil Lowers the Risk Premium

Mark Maddox, former senior official at the Department of Energy and now an energy fellow at the American Action Forum, makes several good points today in his Washington Examiner editorial:
"In our national debate over domestic oil production, too much time is spent discussing whether more production can lead to oil independence and too little time on the potential impact on liquidity in global oil markets. Lost in the back and forth is the fact that increasing domestic production by any amount increases spare capacity globally and lowers the risk premium.

In the debate over how, when and where to produce energy, it is critical that policymakers ask the right questions. Rather than debate whether America can become an energy island, they should be asking whether we can raise domestic production in order to minimize the inevitable [supply disruptions] and to ensure a relatively stable global supply and price for oil." 

Bottom Line: Supply matters. 

Markets in Everything: Cities Offering to Pay Off Student Loan Debt to Attract Young Residents

Good Morning America -- "Under the plan in Niagara Falls, NY, graduates who have earned a 2- or 4-year degree in the past two years can apply for up to $3,500 a year (for two years) towards repayment of their student loans. The same deal would be offered to graduate students. Graduates of Niagara University and Niagara County Community College will be targeted at first, though the city hopes eventually to recruit graduates from other parts of the country.

To qualify, applicants will have to rent an apartment or buy a home within a designated downtown area. "We're not talking city-wide. We're taking acres," explains Piccirillo. "There's no doubt in my mind that getting even 100 to 150 people could revitalize the neighborhood."

In rural Kansas, a similar experiment is underway. Fifty counties in the state have established Rural Opportunity Zones (ROZs) authorized to offer one or both of the following financial incentives to new full-time residents: Kansas income tax waivers for up to five years and/or student loan repayments up to $15,000. 

To be eligible for loan repayments, applicants must hold an associate's, bachelor's or post-graduate degree; must have an outstanding student loan balance; and must establish residency in a ROZ county."

Markets in Everything: Smart Beds

Daily Mail -- "The simple act of making a bed is, for most of us, the first chore of each day.  Now the relentless march of technology threatens to bring to an end even this most straightforward of domestic tasks. Spanish firm OHEA has unveiled its Smart Bed, an electronic bed that makes itself (see video above)."

HT: Bill Blake

Taken for a Ride by the NYC Taxi Cartel

In a recent Slate.com article titled "Taken for a Ride," the authors ask a good question: "The taxi medallion system in New York and other cities raises fares, impoverishes drivers, and hurts passengers. So why can’t we get rid of it?"  Here are some excerpts:

"When New York’s Taxi and Limousine Commission held a public hearing last week to consider whether to raise taxi fares by 20 percent, cabdrivers pled poverty and passengers argued that fares are too high. Paradoxically, both groups were right.

This lose-lose scenario is only possible under the taxi medallion system, a regulatory scheme in which the right to operate a taxi is thoroughly divorced from the actual work of driving one. It’s a classic example of the perils of financialization, the process through which economic potential is turned into a liquid and leveraged asset. By converting a portion of cabbies’ future revenue into a freely tradable asset, New York, Chicago, San Francisco, and a host of other cities have created a powerful investor class, medallion owners and financiers, whose interests routinely compete with those of drivers and passengers.

“Compete” may be the wrong word, however, since owners of the aluminum placards don’t have much experience with losing. Over the last decade, their victories have driven the price of a medallion from around $200,000 to more than $1 million in New York (see chart above). Medallion owners from Boston to San Francisco have been similarly fortunate, with medallions in Chicago appreciating even faster than the sustained 16 percent per year gains seen in New York.

New York’s tight limits on the number of medallions in circulation has suppressed the supply of cabs. There are 13,237 medallions now outstanding, a few hundred fewer than in 1937, but a huge supply of drivers competing to lease them.  In practice, a fixed number of medallions is just a fact of the system. In New York, Chicago, and Boston, the number of medallions has barely budged since they were issued in the 1930s. New York went 60 years without issuing new medallions, and it's only been a trickle since.

Restricted supply makes for high medallion prices, and that in turn leads to consolidation in the industry. Only around 18 percent of cabs are owner-operated, putting most medallions in the hands of big taxi fleets or brokers who simply rent them out. The limited number of shifts and oversupply of drivers looking to work means that the fleets only rent out cabs by the shift, the shortest term, most profitable way possible."

MP: The "lose-lose" outcome of a taxi medallion system is a good example of "crony capitalism" that has allowed a private taxi cartel to operate in NYC and restrict the supply of taxis in the same way that OPEC can restrict the supply of oil.  Consumers lose, taxi drivers lose, while the medallion owners prosper.

What are the chances of any major changes to the taxi cartel? Probably none, as public choice economics would predict.  The medallion owners are too well-organized, too entrenched in the status quo, and they have the financial resources available for rent-seeking to protect their cartel status.  Taxi customers are dispersed and disorganized, and have limited resources to fight the cartel, so nothing will change. 

As one report on the industry concluded, “A taxi medallion system is nearly impossible to end even if it proves to be providing unfairly high gains to a limited number of original medallion owners. Medallion owners fiercely resist any possible threat that may challenge their advantage.”

The NYC taxi medallion system cartel is a good example of "government failure" and crony capitalism that harms consumers and impoverishes the citizens of New York City, while enriching a small group of wealthy, politically-connected rent-seekers.  Where's the outrage from the OWS crowd, this seems like it would be a good issue for them? 

Manufacturing, Hiring is Booming in The South

Update: "Exports at BMW’s Spartanburg plant have jumped 80% since 2009, as the German automaker tapped new markets in China, India and South America to offset lagging sales during the recent recession. The plant produced a record 276,000 cars in 2011 — BMW X3s, X5s, X6s — and exported 70% of them, or 192,000. It sold the popular SUVs to 130 countries throughout the world.

Read more here: http://www.thestate.com/2012/06/12/2312060/exports-soar-at-bmws.html#storylink=cpy

BMW exports from South Carolina jumped 52% in 2011, surpassing Michigan for the No. 1 spot among automobile exporters. South Carolina previously ranked first in auto exports in 2009. The state also ranked first among U.S. states in tire exports, holding nearly 30% of the share of U.S.-made exported tires. Michelin and Bridgestone have been stalwart manufacturers in the state for years and have announced expansions and Continental is building a new plant in Sumter County."

HT: Jon Murphy

Read more here: http://www.thestate.com/2012/06/12/2312060/exports-soar-at-bmws.html#storylink=c

Toronto Food Trucks Face Challenges

"In keeping with an exploding North American trend, the appetite for truck grub is increasing in Toronto: over 300 food trucks are licensed to operate, and many trendy ‘gourmet food truck’ businesses have sprung up in the greater Toronto area in the past year or two, offering everything from fish tacos to maple-bacon doughnuts. 

 Website Toronto Food Trucks launched in 2011 to monitor the city’s “developing food truck scene” and provide daily locations, and a handful of trucks were featured earlier this month on street food TV show Eat St."

MP: But there are some pesky regulatory issues.....

"For food truck entrepreneurs, the problem is simple but crippling: there’s almost nowhere to park.

“I licensed it, the city took my money, then they said I couldn’t park it anywhere,” said Tony Vastis, owner and operator of a Greek food truck, Blue Donkey Streatery. “I don’t know what the thought process was there.” The city’s municipal code prohibits the trucks from setting up shop on city streets and limits parking on licensed premises, such as parking lots, to 10 minutes."

HT: Marc Purcell

Monday, June 11, 2012

Active Fund Management Is A Loser's Game

CBS Money Watch:  "Twice each year, Standard & Poor's puts out its active versus passive investor scorecard, reporting on how actively managed funds have done against their respective benchmark indexes. Every time, the results are pretty much the same, demonstrating that active management is a loser's game -- in aggregate those playing leave on the table tens of billions of dollars forever seeking alpha (outperformance, adjusted for risk)."

The following is a summary of the latest scorecard's findings:
  • For the five years ending March 2012, only 5.23% of large-cap funds, 5.46% of mid-cap funds and 5.14% of small-cap funds maintained a top-half ranking over five consecutive 12-month periods. Random expectations would suggest a rate of 6.25%.

  • Looking at longer-term performance, 5.97% of large-cap funds with a top-quartile ranking over the five years ending March 2007 maintained a top-quartile ranking over the next five years. Only 4.35% of mid-cap funds and 15.56% of small-cap funds maintained a top-quartile performance over the same period. Random expectations would suggest a repeat rate of 25%.
Obviously, the majority of investors in active funds are taking all the risks of investing and not being properly rewarded for taking those risks, transferring tens of billions from their accounts to the wallets of active managers. The question is why do they keep doing this? Evidence suggests that one explanation is that they are simply unaware of how poorly they are doing."
MP: After considering risk, expenses, turnover, and tax efficiency, most investors will be much better off investing in a passively-managed, indexed funds (or ETFs) than investing in actively-managed funds.  In most cases, you'll be paying the managers of the actively-managed fund to lose money for you, compared to a low-cost, low turnover, tax efficient indexed fund.  My advice is to avoid most actively managed funds, and instead invest your money in low-cost index funds with Vanguard or Fidelity.

For example, with a minimum $10,000 investment in the Vanguard S&P 500 Index Fund Admiral Shares, the fund's expense ratio is only 0.05% - that's just 1/20th of 1%, or $5 per $10,000 per year (that's basically free). The average annual expense ratio for an actively managed large-blend mutual fund is about 1.22%, or more than 24 times higher than the expense ratio of the Vanguard fund.  And in almost all cases, those actively managed funds will underperform the benchmark indexes like the S&P500.  Over long periods of time, the S&P 500 has consistently outperformed something like 94-97% of actively managed mutual funds, which as the article above points out, is a "loser's game."   

When the choice is between: a) passively-managed index funds with expenses that are almost zero, and with higher returns on average than actively-managed funds over long periods of time, and b) actively managed funds with very high management fees and lower returns than passive funds over time, it is almost a mystery why active funds can survive and remain so popular? 

May Real Estate Blowout Continues

1. "Home sales in the metro Milwaukee area increased 30.1% in May compared with the same month of 2011, marking 11 consecutive months of homes sales increasing at least 10%.  The May sales numbers join a string of positive data in the residential industry, including a 39.8% increase in the Milwaukee area in April."

2.  According to the Charleston Trident Association of REALTORS, 994 homes sold at a median price of $200,000 in May.  Sales volume last reached this level in June 2010, when the homebuyer tax credit was in place; the last time this happened in a non-incentivized market was August 2007.  May home sales were 24% above the same month last year, and the median home price in May was up by 11% in May year-over-year. 

3. Baltimore-area home sales rose 13% in May, while prices saw a boost of 8%.

That brings the number of metro area markets reporting double-digit sales gains in May to 14, see the full list here.

Markets in Everything: Hospital at Home

"Soon, Dr. Elizabeth Ward was managing a "hospital at home" admission for patient Frank Blondin -- an arrangement allowing him to receive intensive care and medical monitoring in the quiet of his own bedroom. Medical supplies and medications would be delivered as soon as possible.  A nurse would come within the hour, take laboratory samples, and return later that afternoon and in the days to come.  Dr. Ward would check in by phone, visit daily, and help would be available 24/7 if required.

"Hospital at home" programs fundamentally refashion care for chronically ill patients who have acute medical problems -- testing traditional notions of how services should be delivered when people become seriously ill.  Only a handful of such initiatives exist, including the Albuquerque program, run by Presbyterian Healthcare Services, and programs in Portland, Ore., Honolulu, Boise, Idaho, and New Orleans offered through the Veterans Health Administration.

But the concept – which has been adopted in Australia, England, Israel and Canada -- is getting attention here with increased pressure from the national health overhaul to improve the quality of medical care and lower costs. Hospital at home programs do both, according to research led by Dr. Bruce Leff, the director of geriatric health services research at Johns Hopkins School of Medicine in Baltimore who pioneered the concept."

HT: John Goodman via Peter Parlapiano

Fracking Prosperity Spreads Across Ohio

Bloomberg -- "Hydraulic fracturing is bringing new development to the Midwest, creating demand for commercial real estate in the region even as landlords struggle to pay off earlier property loans. Chesapeake Energy, the second- largest U.S. natural-gas supplier, has acquired $2 billion in land leases comprising 1.35 million acres in Ohio and contributing to the beginnings of an economic recovery in the state.

“Thank God for the oil and gas business,” said Tim Putnam, president of Putnam Properties Inc., a commercial real estate company based in Canton, about 60 miles south of Cleveland. “It’s created a lot of optimism among people who live here.” 

Energy production in the state may add $4.9 billion to Ohio’s economy in 2014, according to a study by researchers from Cleveland State University, Ohio State University and Marietta College."

Markets In Everything: Sheboygan Food Trucks

"[Food trucks] are becoming increasingly popular in Sheboygan (Wisconsin), where at least a half dozen mobile food trucks are now operating and several more are looking to start, mirroring a similar trend in recent years in other U.S. cities. In Sheboygan, there are now food trucks serving pizza, ice cream, hot dogs, gyros, and tacos, along with Fleck's, which serves fish, shrimp, brats, burgers and other food. 

Interest in opening mobile food trucks has been running so high that the Common Council last month passed an ordinance aimed at bringing some order to a trend that seems to have popped up overnight."

HT: James Testwuide

The "You Are Not Special" Commencement Address

The video above is the teacher address at this year's Wellesley High School (Massachusetts) commencement, given by English teacher David McCullough Jr.  Some excerpts are featured below from what is being called the "You're Not Special Commencement Address" (full text available here):

"Each of you is dressed, you’ll notice, exactly the same. And your diploma… but for your name, exactly the same. All of this is as it should be, because none of you is special. You are not special. You are not exceptional.  

Contrary to what your soccer trophy suggests, your glowing seventh grade report card, despite every assurance of a certain corpulent purple dinosaur, that nice Mister Rogers and your batty Aunt Sylvia, no matter how often your maternal caped crusader has swooped in to save you… you’re nothing special. 

Yes, you’ve been pampered, cosseted, doted upon, helmeted, bubble-wrapped. Yes, capable adults with other things to do have held you, kissed you, fed you, wiped your mouth, wiped your bottom, trained you, taught you, tutored you, coached you, listened to you, counseled you, encouraged you, consoled you and encouraged you again. You’ve been nudged, cajoled, wheedled and implored. You’ve been feted and fawned over and called sweetie pie. Yes, you have. And, certainly, we’ve been to your games, your plays, your recitals, your science fairs. Absolutely, smiles ignite when you walk into a room, and hundreds gasp with delight at your every tweet. And now you’ve conquered high school… and, indisputably, here we all have gathered for you, the pride and joy of this fine community.

But do not get the idea you’re anything special. Because you’re not.

You see, if everyone is special, then no one is.  If everyone gets a trophy, trophies become meaningless. In our unspoken but not so subtle Darwinian competition with one another–which springs, I think, from our fear of our own insignificance, a subset of our dread of mortality — we have of late, we Americans, to our detriment, come to love accolades more than genuine achievement. We have come to see them as the point — and we’re happy to compromise standards, or ignore reality, if we suspect that’s the quickest way, or only way, to have something to put on the mantelpiece, something to pose with, crow about, something with which to leverage ourselves into a better spot on the social totem pole. No longer is it how you play the game, no longer is it even whether you win or lose, or learn or grow, or enjoy yourself doing it… Now it’s “So what does this get me?” 

As a consequence, we cheapen worthy endeavors, and building a Guatemalan medical clinic becomes more about the application to Bowdoin than the well-being of Guatemalans. It’s an epidemic — and in its way, not even dear old Wellesley High is immune… one of the best of the 37,000 nationwide, Wellesley High School… where good is no longer good enough, where a B is the new C, and the midlevel curriculum is called Advanced College Placement. 

The sweetest joys of life, then, come only with the recognition that you’re not special. Because everyone is."

Sunday, June 10, 2012

George Will on Subprime College Education

George Will writes in his column today about the higher education bubble, subprime college education and "administrative sprawl":

"In his book “The Higher Education Bubble,” Reynolds writes that this bubble exists for the same reasons the housing bubble did. The government decided that too few people owned homes/went to college, so government money was poured into subsidized and sometimes subprime mortgages/student loans, with the predictable result that housing prices/college tuitions soared and many borrowers went bust. Tuitions and fees have risen more than 440 percent in 30 years as schools happily raised prices (see chart above) — and lowered standards — to siphon up federal money.

 The budgets of California’s universities are being cut, so recently Cal State Northridge students conducted an almost-hunger strike (sustained by a blend of kale, apple and celery juices) to protest, as usual, tuition increases and, unusually and properly, administrators’ salaries. For example, in 2009 the base salary of UC Berkeley’s vice chancellor for equity and inclusion was $194,000, almost four times that of starting assistant professors. And by 2006, academic administrators outnumbered faculty.

So taxpayers should pay more and parents and students should borrow more to fund administrative sprawl in the service of stale political agendas? Perhaps they will, until “pop!” goes the bubble."

HT: Warren Smith

America's New Energy Reality of Increased Domestic Production, Thousands of New "Shovel-Ready" Jobs and "Energy Less Dependent"

Daniel Yergin writes in today's NY Times about America's new energy reality and he hits on many key points: a) how technology brought us the shale revolution of increased domestic production of natural gas and oil, b) how that increased production has brought us thousands of "shovel-ready jobs" and a powerful "energy stimulus" to the economy, c) how cheap, abundant natural gas is sparking a U.S. manufacturing renaissance with billions of dollars of new investment capital and thousands of new jobs, and d) how increased domestic energy production is moving us towards being "energy less dependent." Here are some excerpts:

"America needs a new political discourse on energy. This would recognize the emerging reality that the United States has turned around as an energy producer and is on a major upswing. And the impact will be measured not just in energy security and the balance of payments. Energy development also turns out to be an engine for job creation and economic growth.

The oil story is being rewritten. Net petroleum imports have fallen from 60 percent of total consumption in 2005 to 42 percent today (see chart above). Part of the reason is on the demand side. The improving gasoline efficiency of cars will eventually reduce oil demand by at least a couple of million barrels per day.

The other part is the supply side — the turnaround in United States oil production, which has risen 25 percent since 2008. It could increase by 600,000 barrels per day this year. The biggest part of the increase is coming from what has become the “new thing” in energy — tight oil. That is the term for oil produced from tight rock formations with the same technology used to produce shale gas.

Tight oil is redrawing the map of North American oil. At the beginning of this year, North Dakota overtook California as the nation’s third largest oil-producing state. It didn’t stop there. It just overtook Alaska, to become No. 2 after Texas. Tight oil could reach more than four million barrels per day by 2020. 

According to the old script, United States oil production was too marginal to affect world oil prices. But the gap today between demand and available supply on the world oil market is narrow. The additional oil Saudi Arabia is putting into the market will help replace Iranian exports as they are increasingly squeezed out of the market by sanctions that start later this month. But if America’s increase of 1.6 million barrels per day since 2008 had not occurred, then the world oil market would be even tighter. We would be looking at much higher prices — and voters would be even angrier. 

America’s new story for energy is still unfolding. It includes the continuing development and expansion of renewables and increased energy efficiency, both of which will be essential to our future energy mix. But what is striking is this great revival in oil and gas production in the United States, with wide impacts on jobs, economic development and the competitiveness of American industry. This new reality requires a new way of thinking and talking about America’s improving energy position and how to facilitate this growth in an environmentally sound way — recognizing the considerable benefits this will bring in an era of economic uncertainty."

MP: Yergin makes a key point that without increased domestic crude oil production, oil and gas prices might have risen much higher than they did in the last few years, and might be much higher today.  In other words, "Supply Matters."   

Saturday, June 09, 2012

Deposits Skyrocket at Eagle Ford-Area Banks

Houston Chronicle --  "South Texas landowners getting fat checks from energy companies for drilling on their land have been a boon to banks based in the Eagle Ford Shale. Deposits at most of those banks have surged. The influx of deposits has left the Eagle Ford-area banks with something of a challenge: how to deploy that money.

For example, Karnes County National Bank's deposits rocketed 110 percent to almost $168 million from the end of 2009 through the first quarter of this year. Eleven other institutions registered jumps in deposits that ranged from 46.8 percent to 82.7 percent. By comparison, domestic deposits at U.S. banks increased 14.7 percent during that time.
"It's a problem, but it's a good problem," said H.B. "Trip" Ruckman III, president and chairman of the Karnes County National Bank in Karnes City. Its deposits rose by $88 million from the end of 2009 to March 31, while its loans rose by $19 million.

"We have had depositors come in with more than a million dollars at a whack. So it is a challenge to keep the money invested, he added."

HT: Stephen Taylor

Unfamiliar Feeling for Housing: Optimism, as 11 Markets Report Double-Digit Gains in May Sales

"The small businesses that drive the housing market are reporting signs that the industry may be experiencing a real comeback.

At the beginning of the spring selling season, real-estate agents and homebuilders were optimistic about the growing number of prospective buyers showing up at open houses and calling to inquire about listings. Now, it appears that interest has translated into sales.

"We had a terrific March, better April, and May is going to be the best closing month since 2006," says Mark Prather, whose real-estate agency, ERA Buy America Real Estate Services is in La Palma, Calif. Closings are up 50 percent this year from the same period of 2011.

It's a similar story across the country. Business is being driven by pent-up demand — many people had put off buying since before the recession. Prices are lower after plunging during the housing crisis. Rising rents are making buying more attractive.

On top of all of that, financing is cheap. Mortgage rates are at record lows — 3.75 percent for a 30-year fixed mortgage as of last week. In some areas, people are even saying it's becoming a sellers' market.

The Seattle area has shared in the rebound. More than 2,000 houses sold in King County in May; the last time that happened was August 2007. And the median sale price was up nearly 5 percent from May 2011, the biggest year-over-year increase since the market crashed."

2. The number of metro areas (and states) reporting double-digit increases in May home sales is now up to 11 (most with gains at 20% or higher), with Birmingham reporting a 21% increase in May sales, and statewide sales in Iowa increasing by 14%, along with a 7.2% increase in median home prices.   

New Book: "Back from Serfdom: Restoring American Prosperity with a Pro-Market New Deal"

New book now available from Amazon "Back from Serfdom: Restoring American Prosperity with a Pro-Market New Deal," by Robert Dell (and just a little help from Mark J. Perry), here's a description:

"Government is essential to our well-being. But most government expansion since the Coolidge era has been shown to be politically motivated and economically counterproductive. Even a large number of progressive economists find no sound economic or moral basis for many important federal policies and would drastically restructure the ones whose ends they favor. U.S. citizens, including conservatives, do not appreciate the nature and extent of government failure or the toll it imposes on the general prosperity.

Combining business, economics, history and politics, Back from Serfdom aims to empower citizens in their civic and political discourse by deepening their understanding of the most problematic government policies. A modern antithesis to A New Deal, the popular 1932 polemic that served as a public blueprint for government growth under the Roosevelt Administration, this book argues for market-based banking, health care, federal downsizing and tax reforms by appealing to classical liberal, egalitarian and pragmatic concerns."

Thomas Sowell Illustrates "Ceteris Paribus"

Thomas Sowell's recent column about the "Fair Pay Act":

"The old -- and repeatedly discredited -- game of citing women's incomes as some percentage of men's incomes is being played once again, as part of the "war on women" theme.

Since women average fewer hours of work per year, and fewer years of consecutive full-time employment than men, among other differences, comparisons of male and female annual earnings are comparisons of apples and oranges, as various female economists have pointed out. 

When you compare women and men in the same occupations with the same skills, education, hours of work, and many other factors that go into determining pay, the differences in incomes shrink to the vanishing point -- and, in some cases, the women earn more than comparable men."

Friday, June 08, 2012

How Sweatshops Help The Poor Escape Poverty

Here's a new Learn Liberty video featuring Professor Matt Zwolinski from the University of San Diego.


Prosperity from U.S. Shale Revolution Spreads to Poor Indian Farmers Growing Beans for Fracking

WSJ -- "From its place on humble Indian tables, a little-known Indian bean called “guar” is making the fortunes of poor farmers. The demand for guar has soared since gum made from guar seeds started being used to extract shale gas late last year.

Mostly grown in the heart of India’s desert lands, the price of the vegetable has jumped from about 40 rupees ($0.70) a kilogram at the time of the September-October harvest to around 300 rupees ($5.40) per kilogram today. As a result, barefoot farmers who until recently struggled to make a living are now riding cars and motorbikes and carefully locking the seeds away.

Around 80% of the 1.2 million tons of guar that were harvested last season were snapped up for oil and gas drilling. India produces 80% of the global guar crop. Pakistan and the U.S. are a distant second and third, and all are trying to increase production."

HTs: Marginal Revolution and Energy-in-Depth

Bakken and Eagle Ford Oil Help Push U.S. Crude Oil Production in Q1 2012 to the Highest in 14 Years

As I reported recently on CD, U.S. crude oil production is booming and reached a 14-year high in the month of March, see chart above.  The EIA is now also reporting this today as its "Today in Energy" feature:

"Strong growth in U.S. crude oil production since the fourth quarter of 2011 is due mainly to higher output from North Dakota, Texas,and federal leases in the Gulf of Mexico, with total U.S. production during the first quarter of 2012 topping 6 million barrels per day (bbl/d) for the first time in 14 years.

After remaining steady between 5.5 million and 5.6 million bbl/d during each of the first three quarters of 2011, EIA estimates that U.S. average quarterly oil production grew to over 5.9 million bbl/d during the fourth quarter and then surpassed 6 million bbl/d during the first quarter of 2012, according to the latest output estimates from EIA's May Petroleum Supply Monthly report (see chart below). The last time U.S. quarterly oil production was above 6 million bbl/d was during October-December 1998."

MP: The chart below shows how the strong growth in oil production in North Dakota and  Texas is translating into strong growth in "shovel ready" jobs in the oil and gas industries in those states (blue line is Texas and red line is North Dakota), and these are just the direct jobs in "natural resources and mining," and don't include all of the indirect jobs being created in the Bakken and Eagle Ford Shale areas.   

To Close the Gender Pay Gap, How About an "Equal Workweek Act" or a "Workweek Fairness Act"

It's been well-documented that one factor that explains the "gender-pay gap" is the existence of a "gender-hours gap."  According to the BLS, men worked on average about five more hours per week in 2009 (40.2 hours) than women on average (35.3 hours), and that "gender-hours gap" has persisted over time.   

Two recent academic research studies have found evidence of significant "gender-hours gaps" in both the legal profession and the medical profession.

1.  In the article "Are Women Overinvesting in Education? Evidence from the Medical Profession" two professors in the Yale School of Management find that:

"In our data, the median male physician with 10 years of experience works 11 hours per week more than the median female physician in our sample with 10 years of experience. Simply put, the majority of women physicians do not appear to work enough hours earning the physician-wage premium to amortize that profession’s higher upfront investments."

2. In another research paper, "Gender Gaps in Performance: Evidence from Young Lawyers," the authors find that some of the gender wage gap for young lawyers is explained by the fact that male lawyers in the group studied worked an average of more than 54 hours per week compared to their female counterparts, who worked less than 49 hours per week on average. 

MP: Despite many empirical studies showing that the large majority of gender differences in pay can be explained by hours worked and individual career and family choices made by men and women, the myth of a gender wage gap due to systematic workplace discrimination persists.  Even though the Equal Pay Act of 1963 prohibits sex-based wage discrimination, new legislation in the form of the Democratic-sponsored Paycheck Fairness Act was passed in the House of Representatives in 2008 was considered in the Senate this week.  The legislation failed to generate enough votes in the Senate on Tuesday, and so its future is now uncertain.

Maybe another approach should be considered.  Since some of the gender wage gap results from differences in hours worked, perhaps federal legislation could be introduced to eliminate the unfair "gender-hours gap," e.g. what about the "Equal Workweek Act" or the "Workweek Fairness Act"?  Closing the "gender-hours gap" by forcing women to work longer hours (or men to work fewer hours) would go a long way towards closing the "gender pay gap."

Big Farm Raked in Record Profits of Almost $100B in 2011, But They Harvested $20B from Taxpayers' Pockets, Isn't It Time To End This Crony Capitalism?

According to the USDA, the net income from U.S. farms set a new record last year of almost $100 billion on record cash receipts of $363 billion.  The record-high farm income last year was 24% above income in 2010.  The USDA is also reporting that the total value of farm real estate (and total farm equity) exceeded $2 trillion last year for the first time, and increased by 6% from the previous year.  Even with record-level income, revenues and farm land values, U.S. farmers also "harvested" more than $21 billion in subsidies last year from the pockets of U.S. taxpayers, including more than $10 billion in direct government taxpayer payments according to the USDA.  Next year, the USDA is forecasting another "bumper crop" of taxpayer money for wealthy U.S. farmers, who are scheduled to harvest almost $22 billion from the pockets of Americans in 2012.       

Whenever oil prices and "Big Oil" profits are high, politicians call for imposing "windfall profits taxes" and ending oil subsidies (even though oil companies don't actually get any direct government payments from taxpayers and generally only get the same tax deductions and cost recovery allowances that are available to all U.S. manufacturers), so maybe it's time for equal treatment of Big Farm.  Well, that's not likely to happen, is it?  

Farmers have been a protected political class going back to when farm subsidies started during the Great Depression, and they will apparently continue to be the recipients of crony capitalism and generous corporate welfare payments extracted coercively from the pockets of taxpayers, no matter how wealthy and profitable they become.   

Mercatus Center economist Veronique de Rugy argues in today's Washington Examiner that it's time to end Depression-era farm subsidies, here are the opening and closing paragraphs:

"Cronyism is the practice by which government officials provide preferential treatment (such as loans, subsidies or regulatory preferences) to handpicked firms or industries. It is a bipartisan practice, as we may once again find out if lawmakers reauthorize most of the farm bill currently moving through Congress. There is no justification for extending our current regime of agricultural subsidies -- a clear example of cronyism.

But this cronyism isn't good for taxpayers. Nor is it good, in the long run, for the industry it supports. Congress must put an end to farm subsidies and all other preferential treatments that farmers have been receiving for years."

Markets in Everything: Books of Blog Posts

You can turn your blog into a book here, here and here.

Darrell Issa Explores the Administration's Definition of "Green Jobs" at the House Oversight Committee

It turns out that according to the administration, “green jobs” include: college professors teaching classes on environmental studies, clerks at bicycle repair shops, antique dealer employees, Salvation Army workers because they are selling used clothing, stores selling rare books and manuscripts, consignment shop workers, used record shop employees, garbage disposal workers, and even oil lobbyists if they are engaged in advocacy related to environmental issues.

Thursday, June 07, 2012

Household Wealth Increases in Q1 By $2.8T

The Federal Reserve reported today that U.S. household net worth increased in the first quarter of 2012 to $62.85 trillion, the highest quarterly level since the last quarter of 2007 when the recession started.  Household wealth increased $2.82 trillion during the January to March period this year, which was the largest quarterly increase in more than five years, going back to the last quarter of 2004.

Here are news reports from Bloomberg and Fortune.  

Early Reports: May Real Estate Market is Hot; 17 Major Metro Areas Reporting 20+% Sales Gains

Early reports are just starting to come in for May real estate sales, and it's already starting to look like a blockbuster sales month.

Double-digit sales gains have been reported so far in:

1) Seattle by 23% vs. last year ("The most dramatic we’ve seen in at least five years. While home sales have been on the rise for months, the previous gains in homes prices had been minor. May’s real estate statistics have solidified the trend and pushed it into overdrive."),

2) Pittsburgh by 20%,

3) Albuquerque by 29%,

4) the Denver-area by 24%,

5) the Memphis area by 25%,

6) Chicago by 19.2%,

7) Nashville by 28.5%,

8) Boston by 28%,

9) Charlotte by 18.2,

10) Iowa by 14%,

11) Birmingham by 21%,

12) Milwaukee by 30%, 

13) Charleston by 24%,

14) Baltimore by 13%,

15) Minneapolis by 20.5%,

16) Des Moines by 18%,

17) Champaign County (IL) by 26%.

And land sales in the Las Vegas Valley hit a two-year high in the first quarter with $40.3 million in total sales volume, a 38 percent increase from $29.1 million in the year-ago quarter.

It's starting to look like there might actually be a housing recovery underway; we're certainly past the bottom of the market.   

Unintended Consequences/Perverse Incentives

Some great examples of unintended consequences from the Wikipedia listing for "Perverse Incentives":

1. In Hanoi, under French colonial rule, a program paying people a bounty for each rat pelt handed in was intended to exterminate rats. Instead, it led to the farming of rats.

2. 19th century palaeontologists traveling to China used to pay peasants for each fragment of dinosaur bone (dinosaur fossils) that they produced. They later discovered that the peasants dug up the bones and then smashed them into many pieces, greatly reducing their scientific value, to maximize their payments.

3. Opponents of the Endangered Species Act in the US argue that it may encourage preemptive habitat destruction by landowners who fear losing the use of their land because of the presence of an endangered species, known as "shoot, shovel, and shut up."

Update: Here's another example from one of James Gwartney's books:

4. In the former Soviet Union, managers and employees of glass plants were at one time rewarded according to the tons of sheet glass produced. Not surprisingly, most plants produced sheet glass so thick that one could hardly see through it. The rules were changed so that the managers were rewarded according to the square meters of glass produced. The results were predictable. Under the new rules, Soviet firms produced glass so thin that it was easily broken. 

And here's another:

5. Private companies were paid to transport convicts/prisoners from the U.K. to Australia during the late 1700s and the early 1800s.  The first payment schedule was based on the number of prisoners who boarded ships in the U.K.  As you might imagine, there was no incentive to deliver living prisoners to Australia, and many of them died during the trip, due to overcrowding, lack of food and water, unsanitary and unsafe conditions, untreated diseases, etc.  The payment schedule later changed, and was subsequently based on the number of living prisoners delivered to Australia. Result?  Fewer prisoners died during transport.

Wednesday, June 06, 2012

Climate Change Stunner: U.S. Leads the World in CO2 Reductions Since 2006, Thanks to Natural Gas

The Vancouver Observer reports

"The Americans? Really? Every year the International Energy Agency (IEA) calculates humanity's CO2 pollution from burning fossil fuels. And once again, the overall story line is one of ever-increasing emissions:
"Global carbon-dioxide emissions from fossil-fuel combustion reached a record high of 31.6 gigatons in 2011."
The world has yet to figure out how to stop the relentless increase in climate pollution. But mixed in with all the bad news there was one shining ray of hope. One of the biggest obstacles to climate action may be shifting. As the IEA highlighted:
"US emissions have now fallen by 430 Mt (7.7%) since 2006, the largest reduction of all countries or regions. This development has arisen from lower oil use in the transport sector … and a substantial shift from coal to gas in the power sector."
How big is a cut of 430 million tons of CO2? It's equal to eliminating the combined emissions of ten western states: Alaska, Washington, Oregon, Idaho, Montana, North Dakota, South Dakota, Wyoming, Utah and Nevada.

It seems the planet's biggest all-time CO2 polluter is finally reducing its emissions. Not only that, but as the chart above shows, US CO2 emissions are falling even faster than what President Obama pledged in the global Copenhagen Accord.

Here is the biggest shocker of all: the average American's CO2 emissions are down to levels not seen since 1964 -- almost half a century ago."

Top 400 Taxpayers Paid Almost As Much in Federal Income Taxes in 2009 as the Entire Bottom 50%

We hear all the time that the "rich don't pay their fair share of taxes" (123,000 Google search results for that phrase).  Here's an analysis using recent IRS data that suggests otherwise.

1. In 2009, the top 400 taxpayers based on Adjusted Gross Income earned $81 billion as a group, and paid $16.1 billion in federal income taxes (see chart above).

2. In 2009, the bottom 50% of taxpayers, a group totaling 69 million, earned collectively more than $1 trillion and paid $19.5 billion in federal income taxes (see chart above).

Bottom Line: A small group of 400 of America's most successful earners in 2009, about the number of residents living in a typical apartment building in Washington, D.C., paid almost as much in federal income taxes as the entire bottom half of America's 138 million tax filers, which is a population equivalent to the combined number of residents living in America's 29 least populated states, plus the District of Columbia.  What makes this disparity possible is the fact that an estimated 47% of individual income tax returns filed in 2009 had a zero or negative tax liability.

When you have only 400 Americans paying almost as much in federal income taxes as the entire bottom 50% of American filing income tax returns, I think we can dismiss any notion of the rich not paying their fair share of taxes.  In fact, the IRS should publish the names and addresses of the Top 400 (or to protect anonymity, agree to provide a forwarding service), so that we can all send them "Thank You" letters to express our gratitude for shouldering such a disproportionate share of our collective tax burden.

Significant Turnover in the Top 400 U.S. Earners; From 1992-2009, 85% Were in Just 1 or 2 Years

Number of Years in Top 400Number of Taxpayers in GroupPercent of Taxpayers Represented by Each GroupNumber of Returns in total Top 400 over 18-year PeriodPercent of Returns Represented by Each Group
10 or more872.251,14715.93

The IRS has a new report on the 400 taxpayers reporting the highest adjusted gross incomes (AGI) from 1992 to 2009, and the table above shows the frequency of appearing the "Fortunate 400" over the entire period (Table 4 in the IRS report). The 7,200 tax returns (400 highest earners x 18 years) from 1992 to 2009 represented 3,869 unique, individual taxpayers, since some taxpayers made it into the top 400 earner group more than one year. The data show that:

1. Of the group of 3,869 top earners from 1992-2009, 2,824 individuals made it into the "Fortunate 400" only one time during the 18-year period. Those 2,824 one-timers represent about 73% of the total (3,869), so only about one out of every four, or 27% of the total, made it into the top 400 more than once between 1992 and 2009 (see columns 2 and 3 above).

2. Moreover, 2,824 earners made it into the top 400 once (73%), and another 458 ( about 12%) made it into the top group twice. So 85% made it into the "Fortunate 400" group either once or twice, and only about 15% made it into the top group more than twice.

3. There were only 87 taxpayers out of the 3,869 total taxpayers in the group (2.25%) who were in the top 400 in 10 or more years.

4. Of the 7,200 total returns filed over the 18-year period, 2,824 represent one-timers, so on average in any given year, about 40% of the returns are filed by taxpayers who are not in the "Fortunate 400" in any of the other 17 years (see last two columns).  And more than half of the total 7,200 "Fortunate 400" returns between 1992-2009 (3,740 and 52%) were filed by taxpayers whose returns only appeared in one or two of the 17 years.  

According to the IRS, "The data reveal a mostly changing group of taxpayers over time. In fact, there were 3,869 different taxpayers represented in total for the 18-year period. Of these, a little more than 27 percent appear more than once and slightly more than 2 percent were represented in 10 or more years."

MP: Whenever we hear commentary about the top or bottom income quintiles, or the top or bottom X% by income, or the top 400 taxpayers, a common assumption is that those are static, closed, private clubs with very little turnover - once you get into a top or bottom quintile, or a certain income percent, or the top 400, you stay there for decades. 

But reality is very different - people move up and down the income quintiles and percentage groups throughout their careers and lives. The top or bottom 1/5/10%, just like the top or bottom quintiles, are never the same people from year to year, because there is constant, dynamic turnover as we move up and down the income categories.  As the new IRS data show, almost three out of every four members of the ever-changing, dynamic "Fortunate 400" over the last 18 years were only "members" of that group for a single year.    

Stocks Predict Presidential Elections @ 88%

The chart above displays the S&P 500 Index and Intrade odds for Obama to be re-elected, on a daily basis back to December 2010. The two series have moved pretty closely together over the last 18 months, with a correlation coefficient of 0.78.

Business Insider featured a similar graph as its Chart of the Day on Monday (ht/Craig Newmark), and also linked to this article about the relationship between the stock market and presidential elections, featuring Sam Stovall, chief investment strategist for Standard & Poor's Equity Research Services, who wrote this in a recent S&P newsletter:

"The S&P 500's price performance during the three calendar months leading up to the presidential election has been a good predictor of whether the president or his party would be re-elected or replaced. An S&P 500 price rise from July 31 through October 31 traditionally has predicted the reelection of the incumbent person or party, while a price decline during this period has pointed to a replacement. Since 1948, this election-prognostication technique did an excellent job, in our view, recording an 88% accuracy rate in predicting the re-election of the party in power (it failed in 1968). 

What's more, it recorded an 86% accuracy rate of identifying when the party in power would be replaced (it failed in 1956). Therefore, pay attention to the market's performance in the three months leading up to the presidential election, as it will probably do a better job than the plethora of political pundits prognosticating on the presidency."

The View from Houston: The U.S. Energy Industry Will Lead the U.S. Into a New Era of Prosperity

From a staff editorial in today's Houston Chronicle:

"The term of art widely used to describe today's struggling economy is that it's "facing headwinds."

It's good to be in Houston, where a dynamic energy industry is successfully navigating these headwinds and actually tacking ahead to a future where fairer winds may prevail. The latest example is Exxon Mobil's decision to expand its petrochemical complex in Baytown, creating 10,000 construction jobs and 350 permanent jobs at the plant. This follows similar recent decisions by Chevron Phillips and Dow Chemical to expand at Old Ocean and Freeport in Brazoria County and elsewhere along the Gulf Coast.

The common denominator driving these projects is the abundance of natural gas from shale rock that has dramatically changed the nation's energy picture over the past several years. The availability of cheap natural gas has also made possible the export of liquefied natural gas from domestic gas reserves.

These decisions to push ahead not only reflect positive changes in the natural gas sector, but the kind of boldness and calculated risk-taking for which the oil patch has long been known. As Houstonians, we applaud these choices, not only for the benefits they bring to the regional economy, but for the larger benefit they will bring to a recovering national economy.

It seems clear to us that the energy industry is positioning itself to lead the United States out of economic quagmire and into a new era of prosperity built on the wise use of abundant domestic fuel resources.  The industry deserves support for this bold approach, not the political pillorying it regularly receives."

The Twisted World of Kidney Harvesting

"The severe shortage of viable organs for transplantation in the U.S. has led a transplant surgeon to propose harvesting kidneys from people who are not dead yet. Dr. Paul Morrissey, an associate professor of surgery at Brown University's Alpert Medical School, wrote in The American Journal of Bioethics that the protocol known as donation after cardiac death -- meaning death as a result of irreversible damage to the cardiovascular system -- has increased the number of organs available for transplant, but has a number of limitations, including the need to wait until the heart stops. 

Because of the waiting time, Morrissey said that about one-third of potential donors end up not being able to donate, and many organs turn out to not be viable as a result. Instead, he argues in favor of procuring kidneys from patients with severe irreversible brain injury whose families consent to kidney removal before their cardiac and respiratory systems stop functioning."

The article was sent to me by frequent CD commenter Methinks, who provided these insightful comments by email about kidneys:

"It strikes me as odd that it's okay for the unwitting donor's family and his doctor to make the decision to remove his kidneys (both, as it turns out) without his consent, but it is not okay for the donor to decide to sell his own organs. If nothing else, it illustrates the desperate need for organs, but the obvious solution still eludes them. For some reason, theft is considered ethical, but a voluntary sale of one's organs is not. It is ethical for other people to decide for you what should be done with your vital organs when you are incapacitated, but it is not okay for you to decide for yourself when you are in command of your faculties. It's a twisted world."