Tuesday, June 19, 2012

S&P: 2nd Mortgage Defaults at 7-Year Low

Mortgage News Daily -- "Default rates fell in May for all types of loans tracked by the S&P/Experian Credit Default Indices. For most loan types it was the fifth consecutive drop and four loan types posted their lowest rates since the end of the recession.

The national composite default rate declined to 1.62 percent in May from 1.86 percent in April and the first mortgage rate was down to 1.50 percent from 1.76 percent. Second mortgage defaults were at 0.88 percent, compared to 0.93 percent and bank card defaults dropped to 4.35 percent from 4.49 percent. Auto loans fell four basis points to 1.03 percent, a low point in the eight year history of the index.

Second mortgage defaults were at their lowest point in seven years and first mortgage and credit card defaults were the lowest since May 2007 and 2008 respectively.

“May 2012 data show continued improvements in consumer credit quality,” says David M. Blitzer, Managing Director and Chairman of the Index Committee for S&P Indices. “Consumer default rates continue to fall and we are reaching new lows across all the loan types. In the last recession, default rates peaked in the spring of 2009, since then the decline has been bumpy but consistent. Only bank cards remain above their pre-recession lows."

HT: Robert Kuehl

Cartoon of the Day

Visualization of Domino Pizza Delivery in NYC

GPS trails reveal the routes taken by cycling pizza delivery riders on one Friday night in Manhattan. Each rider's shift lasts eight to nine hours, in which time they can deliver between 30 and 40 pizzas all over the city. 

Gas Prices Below $3 per Gallon in S. Carolina

Gas is now below $3 per gallon in most parts of South Carolina and is selling for as low as $2.89 in Greenville, S.C.

Houston Real Estate Market Might Be the Hottest in the Country, As Home Prices Rise to All-Time Highs

Houston Association of Realtors -- "Houston home shoppers went on a buying spree in May, sending sales volume and pricing through the roof and accounting for the 12th consecutive month of positive sales. Average and median prices broke records while volume of sales reached the highest level since June 2008. Local housing inventory is now at its lowest level in more than five years.

May sales of single-family homes soared 23.8 percent versus one year earlier. That marks the biggest monthly increase since last August. 

The May single-family home average price rose 8.5 percent year-over-year to $237,083, the highest level ever in Houston. The median price—the figure at which half of the homes sold for more and half sold for less—rose 7.1 percent to $168,000, which is also a record high."

MP: With home prices at historical highs and sales volume at the highest level in four years, I think we can conclude that the Houston real estate market has made a full recovery from the real estate crash, mortgage meltdown and financial crisis.  

Update: Pittsburgh is not doing too badly either, with homes sales up 18.1% and the total sales volume up 23.3% compared to the same month in 2011. 

Quote of the Day

“The free man owns himself. He can damage himself with either eating or drinking; he can ruin himself with gambling. If he does he is certainly a damn fool, and he might possibly be a damned soul; but if he may not, he is not a free man any more than a dog.”

~G.K. Chesterton

HT: Matticus Rex

Cartel-Buster "Institute for Justice" Goes Up Against Nevada Board of Cosmetology with Legal Challenge

Institute for Justice -- "In Nevada, teaching others how to apply makeup without a government-issued license can subject you to up to $2,000 in fines. Lissette Waugh and Wendy Robin are makeup artists with over 40 years of combined experience. 

Lissette opened L Makeup Institute and Wendy opened Studio W in order to train the next generation of makeup artists in the art and artistry of applying makeup for the entertainment and retail industries. But the Nevada State Board of Cosmetology has threatened to silence the two entrepreneurs by shutting down their businesses. 

Nevada law recognizes that makeup artists are different from cosmetologists—who focus on cutting and styling hair, cleansing and caring for the skin, and manicures—by exempting them from the state’s cosmetology licensing scheme. Yet both women could face fines of up to $2,000 for doing nothing more than teaching makeup artistry without a cosmetology instructor’s license and not operating their makeup artistry schools as state-licensed schools of cosmetology. 

The government cannot require teachers to spend hundreds of hours in a classroom learning skills that have nothing to do with what they teach. Nor can it impose its mandatory curriculum and equipment requirements on schools that do not teach cosmetology. 

That is why on June 19, 2012, Lissette and Wendy teamed up with the Institute for Justice, a national public interest law firm that protects the rights of entrepreneurs, to file a federal constitutional lawsuit against the Nevada State Board of Cosmetology. They seek to vindicate their constitutional rights to teach and to earn an honest living by operating their businesses as they see fit without having to comply with an arbitrarily applied government licensing scheme."

Watch the video above for an overview of the new IJ 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 on the planet 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.   

Broad-Based Real Estate Recovery Taking Hold

1. "For the fourth month in a row, the RE/MAX National Housing Report is showing an increasing Median Home Price. In May, home prices were 6.1% higher than those in May 2011. Home sales also rose above the mark set last year by a significant 12. 8%. With 42 surveyed metros showing increases in BOTH sales and prices, the recovery of 2012 appears to be taking hold in all regions of the country. For 11 months in a row, home sales have exceeded the level of the same month a year ago. Inventory continues to fall significantly lower than the previous year, with a 26.6% drop from May 2011. The related Months Supply and Days on Market figures are also trending lower."

“Clearly, 2012 is the year the housing industry has been waiting for; there’s a broad-based recovery taking hold,” said Margaret Kelly, CEO of RE/MAX, LLC. “This recovery may not bring improvement in all sectors to all markets at the same time, but most markets across the country are experiencing the best selling season they’ve seen in years.”

2. "Sales and prices of existing homes in Wisconsin continued to rebound in May, another indication that the long-languishing housing market is on the mend. Home sales jumped 18.9% in May from May 2011, the 11th consecutive month of a double-digit increase from the same month a year earlier, the Wisconsin Realtors Association said Monday. At the same time, the median home sale price in the state rose 1.5% in May to $138,000. Through May, sales for 2012 are up 20.2% from the same period last year."

3.  WASHINGTON(AP) – "Home builders started work on more single-family homes in May and requested the most permits to build homes and apartments in three and a half years.  The increase suggests the housing market is slowly recovering even as other areas of the economy have weakened.  The government also said April was much better for housing starts than first thought. The government revised up the April figures to 744,000 — fastest building pace since October 2008.

And builders are more optimistic about the next 12 months. They requested more permits to build homes, a gauge of future construction. Permits increased to a seasonally adjusted rate of 780,000 — the most since September 2008."

More Than 2X as Many Gang Related Drug Murders in Chicago This Year As Casualties in Afghanistan

(CBS News) -- "There are 228 dead: That's the number of murders this year in Chicago. It's nearly twice as many as the number of Americans lost on the battlefields of Afghanistan over these last six months. And the number of deaths is up 35% over the same period last year. 

Chicago police Superintendent Gary McCarthy believes most of the violent crime in the city is "absolutely" gang-related. He said the problem has a lot to do with drugs, guns and gang wars. 

McCarthy says the data doesn't always show it, but the police are making progress through increasing undercover operations and greater infiltration of the gangs, as well as a crackdown against the narcotics traffic which is the fuel that keeps them going."

MP: In 1972, President Nixon officially declared a "War on Drugs," when he appealed to Congress to give the highest priority to provide funding to the federal government to "destroy the market for drugs," with "increased enforcement and vigorous application of the fullest penalties provided by law" and to "render the narcotics trade unprofitable."  Nixon said that "The final issue is not whether we will conquer drug abuse, but how soon."

Well, it's been 41 years now, and despite the increased drug enforcement that Nixon called for, and despite the billions of dollars spent, and millions of Americans arrested and jailed for drug offenses, and thousands of people murdered, we clearly haven't destroyed the market for drugs, and we've got more drug-related problems today (e.g. murders) than in 1972 when Nixon first declared the War.  

Exhibit A: More drug-related murders this year in one U.S. city, Chicago, than American casualties on the battlefields of Afghanistan, making the term War on Drugs seem even more appropriate and descriptive.

The North Dakota Miracle: Fracking in the Bakken

The recent boom of the Bakken oil fields—made possible by a perfect storm of sensible state regulations, the fracking process, and the fact that most drilling is taking place on private lands—has produced a whirlwind of economic growth in a formerly sleepy corner of northwest North Dakota. Recently, a team from The Heritage Foundation and the Institute for Energy Research (IER) traveled out West to see it for ourselves, watch their video above.

Monday, June 18, 2012

Markets in Everything: Direct Publishing

From the post "How Amazon Saved My Life" by author Jessica Park on the Indie Reader blog:

"I spent months thinking that I needed a big publisher in order to be a writer, to legitimately carry that “author” title. To validate me, and to validate my book Flat-Out Love. I needed a publisher to print my books and stick a silly publishing house emblem on the side of a hard copy. They were the only way to give my books mass distribution, and having them back me would mean that readers would know my book was good.

I also, apparently, thought that I needed to be taken advantage of, paid inexcusably poorly, and chained to idiotic pricing and covers that I had no control over. I was, it seems, deluded.

It turns out that I was entirely wrong. I was missing what I really wanted. One of the major reasons that I write is to connect with readers, not publishers. The truth is that I couldn’t care less whether New York editors and publishers like me. I don’t want to write for them. I want to write for you. The other undeniable truth is that readers could care less that my books aren’t put out by a big publisher. They read for the content, not the publishing house emblem.

One day after I got yet another rejection letter, I got angry. Really, really furious. It clicked for me that I was not the idiot here. Publishing houses were. The silly reasons that they gave me for why my book was useless made me see very clearly how completely out of touch these houses were with readers. I knew, I just knew, that I’d written a book with humor, heart, and meaning. I’d written something that had potential to connect with an audience. As much as I despise having to run around announcing how brilliant I supposedly am and whatnot, I also deeply believed in Flat-Out Love. I knew that editors were wrong.

And I finally understood that I wanted nothing to do with these people. I snatched the book back from my agent and self-published it. With great relief, I should note."

MP: And also with great success, I should note, using Kindle Direct Publishing, which is featured now (along with Jessica Park's story and her book) on the Amazon.com homepage:

"Kindle Direct Publishing empowers serious authors to reach readers, build a following, make a living, and to do it on their own terms. Readers get lower prices, authors get higher royalties, and we all get a more diverse book culture (no expert gatekeepers saying "sorry but that will never work"). KDP is already meaningful--22 of our top 100 best-selling Kindle books so far this year are KDP books--and more great stories are being published every day." 

This is another great example of how technology and the Internet empower individuals, fuel creativity and innovation, and challenge the established status quo by bringing buyers and sellers together without the need for a traditional, and sometimes expensive middleman person (think Matt Drudge as just one example).   

HT: Bob Wright

Builder Confidence Reaches 5-Year High in June; Framing Lumber Prices Are Back to 2006 Levels

"Builder confidence in the market for newly built, single-family homes gained one point in June from a slightly revised level in the previous month to rest at 29 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). This is the highest level the index has attained since May of 2007 (see top chart above). 

“This month’s modest uptick in builder confidence comes on the heels of a four-point gain in May and is reflective of the continued, gradual improvement we are seeing in many individual housing markets as more buyers decide to take advantage of today’s low prices and interest rates,” said Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, Fla."

MP: The top chart above shows the historical relationship between the NAHB/Wells Fargo HMI (blue line, through June) and the number of new, single-family housing starts (red line, through April) back to 1985. Although builder confidence is still far below pre-recession levels, it has been on a definite upward trend since the index dropped to an all-time historical low of 8 in January 2009, and has now rebounded this month to a five-year high. However, the HMI has to rise above 50 before more home builders view conditions as good than poor, so the market for new homes obviously still has a long way to go. 

In another sign that home building is recovering, even if it's at a slow pace, the prices for framing lumber - the wood used for new home construction - have been rising (see bottom chart above, data here).  Weekly lumber prices have increased by about $100 per 1,000 board feet since last winter, rising from $252 in early November to above $340 in each of the last four weeks. Except for an artificial run-up in lumber prices in April 2010 that was related to the home-buyer tax credit that expired in May 2010, lumber prices in recent weeks have returned to the highest levels since the spring of 2006.  The rising lumber prices to six-year highs is possibly reflecting increased demand in recent months for new home-building and other construction projects. 

Anecdotally, I just heard about a cabin owner in northern Minnesota whose property is located 100 miles from the North Dakota border, and the person is getting bids for a new garage.  The local builders said that lumber is hard to get, and also very expensive, partly because of the building boom going on in North Dakota.  So there are some hopeful signs of a real estate recovery, and we'll find out more on Thursday when the National Association of Realtors reports on existing-home sales for May.  

Update: A few related comments about today's NAHB report, from the WSJ:

Joshua Shapiro, economist, MFR Inc.: “The cumulative 15-point gain reported in the nine months to May had lifted this index to its best level since May 2007. These recent results would seem, therefore, to point to significant gains in single-family housing starts, something that so far has not occurred even with record warmth this past winter. The next few months will be critical in determining to what degree homebuilders follow their more optimistic talk with action.”

Cooper Howes, economist, Barclays Capital: “This report is in line with our view of a continued housing recovery in 2012, and we expect this year to be the first since 2005 in which residential investment will provide a positive contribution to real GDP growth.”

Cartoon of the Day

Monday Afternoon Links

1. Robert Samuelson in today's Washington Post: "President Obama committed a colossal error of judgment in making health-care “reform” a centerpiece of his first term."

2. The case for economic optimism despite gloomy headlines, from "heartland economist" Jim Paulsen of Wells Capital Management in Minneapolis.

3. Photos: The 25 best skylines in the world. (ht/Craig Newmark) 

4. Iowa consumers benefit from lower natural gas prices and utility rates.

5.  Sunday Washington Post article on the U-VA Kerfuffle: Ousted President Teresa Sullivan Has Hired a Lawyer, and the Board Has Hired a PR Firm.  That's not a good sign.

6.  Small businesses that make machines and components for other manufacturers are experiencing an upswing that could be a sign of things to come for the broader economy.

Are Real Estate Commissions Fixed?

Steven Landsburg points to an economic riddle about real estate commissions:

"In many real estate markets (including the one where I’m currently shopping), the agent’s commission is equal to a fixed percentage of the sale price. (Typically it’s 6%, though this is split evenly between the buyer’s and seller’s agents, each of whom gives a cut to their respective agencies, so either agent’s take-home is more on the order of 2%).

This means that if you sell a million-dollar house, you earn TEN TIMES the commission of your identical twin who sold a hundred-thousand-dollar house, though I doubt very much that you did ten times the work or bore ten times the expense.

Now, plenty of hundred-thousand-dollar houses are being sold, which means that plenty of agents are settling for the relatively dinky commissions. Question: Why are those agents not attempting to steal some of the high-end business by offering to accept a smaller percentage? After all, 1% of a million is still a lot more than 2% of a hundred thousand.

You might say that the agencies collude to restrain them — but what stops a rogue agency from busting the cartel?

So what’s going on? I see something that looks a lot like a competitive labor market where different workers receive substantially different wages for doing pretty much the same thing. Economic theory says that under very general circumstances, that can’t happen. Why is this market different from all other markets?"

Here are some related questions/puzzles:

1. Why is the 6% real estate commission typically fixed, regardless of whether the house sells in the first hour or day after being listed, or is sold only after a year of marketing, advertising, holding numerous open houses, etc.?  

2. Why is the 6% real estate commission typically fixed, regardless of whether two agents are involved (one working with the buyer and one representing the seller), or whether a single agent is involved, e.g. selling a home at an open house to buyers who are not represented by a real estate agent, in which case one agent gets to "hog" both sides of the commission?

So I guess the basic question is: In a competitive market, and especially during a slow market like during the last three years, why don't we see more competitive and creative fee arrangements that might include adjustments for: a) the price of the house, b) the time it takes to sell the house, and c) whether one or two agents are involved in the transaction?

Some of the commenters on Steve Landsburg's blog point out that there are typically two agents involved in a transaction, and if the listing agent agrees to a commission below 6%, the agents working with buyers might be reluctant to show those houses.  That seems plausible, but I thought I'd add some additional questions, and see what CD readers have to say.  Perhaps there are some companies out there with fee arrangements challenging the status quo?  

Factual Free-Market Fairness

Deidre McCloskey defends the free market and makes the important point that "Efficiency is not the chief merit of a market economy: innovation is," along with providing many examples of "government failure" and "unintended consequences," here's a sample:

"In the 19th and 20th centuries ordinary Europeans were hurt, not helped, by their colonial empires.  Economic growth in Russia was slowed, not accelerated, by Soviet central planning.  American Progressive regulation and its European anticipations protected monopolies of transportation like railways and protected monopolies of retailing like High-Street shops and protected monopolies of professional services like medicine, not the consumers.  “Protective” legislation in the United States and “family-wage” legislation in Europe subordinated women.  State-armed psychiatrists in America jailed homosexuals, and in Russia jailed democrats.  Some of the New Deal prevented rather than aided America’s recovery from the Great Depression.

Unions raised wages for plumbers and auto workers but reduced wages for the non-unionized.  Minimum wages protected union jobs but made the poor unemployable.  Building codes sometimes kept buildings from falling or burning down but always gave steady work to well-connected carpenters and electricians and made housing more expensive for the poor.  Zoning and planning permission has protected rich landlords rather than helping the poor.  Rent control makes the poor and the mentally ill unhousable, because no one will build inexpensive housing when it is forced by law to be expensive.  The sane and the already-rich get the rent-controlled apartments and the fancy townhouses in once-poor neighborhoods.

Regulation of electricity hurt householders by raising electricity costs, as did the ban on nuclear power.  The Securities Exchange Commission did not help small investors.  Federal deposit insurance made banks careless with depositors’ money.  The conservation movement in the Western U. S. enriched ranchers who used federal lands for grazing and enriched lumber companies who used federal lands for clear cutting.  American and other attempts at prohibiting trade in recreational drugs resulted in higher drug consumption and the destruction of inner cities and the incarcerations of millions of young men.  Governments have outlawed needle exchanges and condom advertising, and denied the existence of AIDS."

HT: Morgan Frank

Sunday, June 17, 2012

Classic Milton Friedman on the Minimum Wage

"The minimum wage law is most properly described as a law saying that employers must discriminate against workers who have low skills."

Update: The minimum wage illustrated (ht/VangeIV):

The Deflating Newspaper Bubble: Most Major U.S. Daily Newspapers Could Be Dead Within Five Years

The Newspaper Association of America (NAA) recently released data on newspaper advertising revenue for the first quarter of 2012, and the steep decline continues (see chart above).  Total print advertising in U.S. newspapers dropped to $4.36 billion from January to March, which was 8.2% below the same period last year, and fell to the lowest level of advertising revenue since the third quarter of 1982.  Adjusted for inflation, the advertising expenditures in the first quarter reached the lowest level since the NAA started tracking quarterly advertising expenditures in America's newspapers back in 1971.  Compared to the peak of $18.26 billion (in 2012 dollars) in 2000, advertising revenues have fallen by more than 75%, and appear to be on a sharp downward trajectory.

Jack Shafer calls this steep decline in ad revenue the "popping of the newspaper bubble" in a Reuters editorial on Friday, and he makes a pretty dire prediction:

"Unlike the tech bubble, the newspaper bubble won’t come back because it can’t. Many of the businesses that once supported newspapers with ads don’t exist on the same level anymore (such as competing department stores and grocery stores) or have found better places to put their ad dollars (the Web, television and Craigslist) or have discovered that they don’t need to spend ad dollars anymore to sell their goods and services (Craigslist again).

The expired bubble won’t take all newspapers down with it immediately. One theory (pdf) gaining currency is that because the current generation of print newspaper readers isn’t being replaced, major U.S. print dailies will be dead in five years with only small-town newspapers and the national dailies surviving."

Former L.A. Cop Calls for Legalizing Drugs, "There's Not One Metric Showing the Current Policy Works"

LA Times -- "The way former LA cop Stephen Downing sees it, the war on drugs hasn't reduced drug use and the violence that accompanies it; it's made matters worse. Law enforcement and the drug lords have been in an arms race for more than 40 years, perpetuating their own existence in a never-ending escalation that has bloated prison budgets and robbed us of funding for education and basic human services. The killing fields hold the bodies of cops, dealers and innocent victims. And still, after incalculable costs in blood and money, neither the supply nor the demand has abated.

 "We had a police officer shot in crossfire on a drug raid, and he went into a wheelchair for life, and I'm thinking, 'Wow, this guy's like this because he was trying to keep an addict from getting his heroin?' We had another cop killed in a buy-bust.... He shot him in the face. And this weighs on you, and you ask, 'What is the value of what we're doing?' "

Since then, California's prison population has exploded, gangs still control drug trade from inside and outside of prison, Mexican cartel violence has become all the more savage and law enforcement policy remains largely unchanged. Part of the reason, Downing suspects, is that law enforcers have gotten dependent on the asset seizures that are divvied up among various agencies and used to keep the whole thing humming along.

"There is not one metric that says this policy approach is working," said Downing, who believes decriminalization would lower drug prices and profits and defang criminal enterprises. He noted that the leaders of several Latin American countries have begun calling for an exploration of legalization."

Markets in Everything: Online Personal Assistants

Fancy Hands is a team of personal assistants ready to work for you right now. You should focus on what's important, let them focus on the rest. 

What are people asking them to do?

How San Francisco Rent Control Laws Distort the City's Housing Market and Benefit the Rich

SF Chronicle -- "Well-to-do people are taking advantage of San Francisco's long-protected practice of limiting rent increases to preserve affordable housing by using their cheap apartments as weekend getaways. Attorney Andrew Zacks represents landlords who work with the city to push out these cheaters. He says these tenants are cynically playing the system.

"You have this class of very rich, elite people benefiting from rent control," he said. "They have a good deal on a $500 or $800 place on Nob Hill and they use it as a pied-a-terre when they come into the city."

The situation is so out of whack it has accomplished the nearly impossible - some people are actually feeling sorry for landlords."

Oil Patch Airport Boom in North Dakota

May boardings were up by 26% at North Dakota's eight commercial airports.  The airports at Bismarck, Dickinson and Williston had all-time record boardings in May, while Grand Forks and Minot set boarding records for the month.

Foreign Direct Investment, 1990-2011

The chart above shows cumulative Foreign Direct Investment (FDI) from 1990 to 2011.  Over the last 22 years, Americans have invested roughly $4 trillion in foreign-based companies and foreigners have invested about $3.2 trillion in American-based companies.  

Saturday, June 16, 2012

Maps of the Day: Eagle Ford Shale Rigs

The maps above show the active drilling rigs in the Eagle Ford Shale area of Texas, from Baker-Hughes interactive maps.   

Here's some background information on Eagle Ford:

"The Eagle Ford has gone from obscurity in 2008 to now being the #3 play in all the United States (based on number of rigs drilling), after the Permian Basin in southwest Texas and the Bakken in North Dakota.

Pioneer Natural Resources (PXD-NYSE) says they get a 70% pre-tax rate of return at Eagle Ford.  EOG Resources (EOG-NYSE) says it’s 80% for them. Marathon Oil (MRO-NYSE) says it’s over 100% for them on some condensate wells (condensate is a Natural Gas Liquid that’s really more like a very light oil and often gets a better price than oil).

The formation is 400 miles long and 50 miles wide with an average thickness of 250 feet—thicker than the North Dakota Bakken. It is estimated that the Eagle Ford formation has a total recoverable resource of roughly 3 billion barrels of liquids (that’s oil and some NGLs) with a potential output of 420,000 barrels a day (bopd)."

Offsetting America's Trade Deficit, We've Attracted $7.6T in Net Foreign Investment Since 1990

The Wall Street Journal reported on Friday that:

"Foreigners are stepping up investment in the U.S. after retreating during the depths of the financial crisis, with the latest flurry spurred partly by Europeans seeking havens amid the Continent's debt crisis. The U.S. attracted $28.7 billion in foreign direct investment between January and March, the 12th consecutive quarter of positive flows, the Commerce Department said Thursday.

Foreign direct investment (FDI) includes long-term bets by companies and individuals such as corporate acquisitions and real estate, but not purchases of Treasury bonds and other U.S. securities. Foreign investment in the U.S. last year totaled $234 billion, a 14% jump over $205.8 billion in 2010, with around two-thirds of the cash coming from Europe. Foreign investment in the U.S. has now exceeded its average of the past 10 years in 2010 and 2011, suggesting America's lure for capital has recovered from the crisis.

The pickup in foreign direct investment in the U.S. has boosted stock prices and employment in the manufacturing sector, a cornerstone of the recovery. Overseas investment collapsed in 2009 as economic turmoil froze global capital flows."

Don Boudreaux responds in a Letter to the WSJ:

"Because increased foreign investment in the U.S. requires that foreigners spend a smaller portion of their dollars on buying American exports, a rise in foreign direct investment in the U.S. necessarily increases the U.S. trade deficit (or reduces the U.S. trade surplus).  As your report makes clear, however, such foreign investment is a boon to the U.S. economy and is no drain on jobs here.

Alas, you can be sure that this fact will be ignored the next time – which I guarantee will be soon – some politician or pundit takes to the airwaves to “explain” that America’s trade deficit is a symptom and source of U.S. economic decline or of foreign-government perniciousness (or both)."

MP: As the chart above shows, America's "trade deficit" in every year is always offset by equal dollar amount of "capital inflow" or "foreign investment surplus," such that the overall "Balance of Payments" for the U.S. is always zero.  Last year, there was a $556 billion "trade deficit" on America's "current account" for international transactions involving goods and services, which was exactly offset by a $556 billion surplus on our "capital account" for international transactions involving financial assets, which could also be described as a "foreign investment surplus" for the U.S. 

Of the $556 billion capital inflow to the U.S. last year, $234 billion was for foreign investment directly into acquiring U.S. firms, investing in joint ventures with U.S. firms, or expanding operations of existing U.S.-based operations (e.g. BMW building a new factory in South Carolina).  The other $322 billion was for indirect "portfolio investments" into U.S. stocks, bonds and other securities. 

While most of the media attention focuses on America's "current account deficit" ("trade deficit") for goods and services, a more complete analysis reveals offsetting surpluses for international transactions involving financial assets, which results in a "balance" of our total payments (cash outflows) and receipts (cash inflows) with the rest of the world.   Because international transactions are calculated using double-entry bookkeeping accounting, international payments HAVE TO BALANCE, and the balance of payments has to equal ZERO. 

Since 1990, the cumulative capital inflow from foreigners investing in the U.S. (FDI + indirect portfolio investments) has totaled to $7.6 trillion, which has provided valuable investment capital to the U.S. economy that has financed the  expansion of U.S.-based business, and in the process has boosted U.S. stock prices and supported million of jobs.  But all we ever hear from the media, politicians and pundits is hand-wringing over America's supposed economy-draining "trade deficit," with no recognition of the offsetting, economy-energizing capital inflow.  

Oil Boom Comes to Rural Kansas

The Number of U.S. Oil Rigs Has Increased by 7X in 3 Years, Bringing U.S. Production to a 14-Year High

1. The top chart above shows the remarkable switch over the last several years in the number of U.S. rigs drilling for crude oil compared to the number of rigs drilling for natural gas.  The number of natural gas rigs fell to almost a 13-year low of 562 this week, which is only about one-third of the gas rigs of more than 1,600 at the peak in the summer of 2008, and the lowest for any week since September of 1999.  Meanwhile, the number of oil rigs has skyrocketed, from fewer than 200 in the summer of 2009, to more than 1,400 this week, an amazing seven-fold increase in less than three years.   

Obviously the dramatic switch from gas to oil drilling has been motivated by: a) the record-high supplies of natural gas that have brought prices to record-lows, and b) high oil prices, and is example of how market prices transmit information about relative scarcity, which then automatically bring about changes in behavior by suppliers (find and produce more oil, produce less gas) and consumers (use more natural gas, less oil).  Notice also that there was no national energy policy that facilitated the switch, and neither politicians nor the Department of Energy was involved; it happened naturally and automatically due to the economic principles of market prices, profit maximization, and the invisible hand.   

2. The bottom chart shows the relationship since 2000 between the number of U.S. oil rigs and the price of crude oil (WTI).  As U.S. oil rigs increased 7 times over the last three years, it brought U.S. crude oil production to a level we haven't seen since 1998, fourteen years ago. Note that the record high number of oil rigs and increased oil production has also been associated with a period of fairly stable, and now falling oil prices over the last three months.

Has the remarkable increase in U.S. oil production had any moderating impact on crude oil prices?  Probably.

As energy expert Daniel Yergin pointed out in the NY Times last Sunday:

"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."

In other words, supply matters.  The increased supply of domestic natural gas certainly had an effect on gas prices, and the increased supply of domestic crude oil is likely also having an effect on oil and gas prices.  

Friday, June 15, 2012

Markets in Everything: Eulogy Writing Service

From Minneapolis Craigslist:

"I have a gift of crafting eulogies for funerals.

Based on a 30 minute phone conversation / interview I can create a 5 - 10 minute eulogy that you, or someone close to you, can deliver at a funeral. I will deliver an electronic copy of the eulogy to you within 24 hours of our phone conversation.

My focus will be to craft a thoughtful and sincere message about someone you have loved dearly. I will use your stories, your words, and your insights to weave a biography that will provide an honor-filled memory for your family and those who attend the funeral service or reviewal.

I charge a flat fee of $299. You retain all future rights to the eulogy. Please simply respond to this ad with a phone number or email address or visit my Eulogy Creations business website."

HT: Curtis Purington

Markets in Everything: Christianity to Save Money

Jesus Saves: Cambodians choose Christianity over animism, Buddhism to avoid costly animal sacrifices.
Phnom Penh Post -- "At upwards of $500, the cost of slaughtering a buffalo to revive a relative condemned to ill-health by the spirits has pushed the Jarai indigenous minority residents of Somkul village in Ratanakkiri, Cambodia to a more affordable religious option: Christianity.

In the village in O’Yadav district’s Som Thom commune, about 80% of the community have given up on spirits and ghosts in favor of Sunday sermons and modern medicine.

Sev Chel, 38, said she made the switch because when she used to get sick, it could cost her hundreds of dollars to appease the gods with a sacrificial package that might include a cow or buffalo, a chicken, bananas, incense and rice wine.

Klan Ly, 56, said she had completely abandoned her fears of black magic after making the conversion. “When my family believed in Christianity, my old Buddha could not use the black magic on us anymore, because Jesus protected us,” she said. With the money she has saved using Western medicine instead of performing sacrifices, Klan Ly said she had been able to construct a house."

HT: Steve Spero

ExxonMobil Spends $100M Every Day for Capital and Exploration, On Our Behalf as Consumers

"Big Oil" has to make "Big Investments" in exploration and capital equipment to earn those "Big Profits"

We hear a lot from the media and politicians about the "big profits" of "Big Oil" companies like ExxonMobil, which earned $9.45 billion in the first quarter of 2012, and $41 billion last year.  But the media never covers the "big investments" companies like ExxonMobil make, which are almost equal to the profits it earns.

For example, ExxonMobil spent almost $9 billion on "capital and exploration" from January to March this year (compared to $9.45 billion in profits), and almost $37 billion last year (compared to $41 billion in profits).  In other words, ExxonMobil spends $100 million every day trying to find more oil and natural gas in North America, but also in remote parts of the world like Western Siberia in Russia.  And then once it discovers new energy resources, companies like ExxonMobil have to invest billions of dollars in expensive, sophisticated capital equipment to drill and extract the oil, and then billions more transporting and refining crude oil, with the ultimate goal being to provide you with affordable gasoline when you stop at your local gas station to fill up.  

Here's a WSJ news report today that highlights ExxonMobil's ongoing efforts to find additional oil and gas around the world, largely on your behalf as a consumer of ExxonMobil's products:

"Exxon Mobil said Friday it agreed to develop so-called tight oil reserves in Western Siberia with Russian state oil and gas company Rosneft, in the Texas company's latest effort to replicate the U.S. shale boom globally and gain access to one of the world's largest untapped oil fields. Exxon and Rosneft would use technology that the U.S. oil company already employs in unconventional oil and gas formations in the U.S. and Canada. The companies expect to approve in the near future geological studies and drilling for selected blocks in the Bazhenov and Achimov reservoirs.  The Bazhenov Shale is believed to hold many times more oil than the prolific Bakken Shale in North Dakota and it has the potential to be one of the world's largest sources of shale oil.

Exxon Mobil will finance the geological studies and exploratory drilling, which is expected to begin in 2013. The agreement is the latest chapter in a long-term strategic deal that includes offshore exploration of massive energy reserves in Russia's Arctic Sea and the Black Sea. The venture comes at a time when Exxon has been increasing its foothold on unconventional oil and gas development, not only in North America, but all over the world.

The company--which is exploring for shale oil and gas in Germany and Argentina--recently revealed it will also develop tight oil in Colombia and that it was evaluating the potential of shale oil and gas in China. Exxon has said a key component of its $25 billion acquisition of shale producer XTO Energy in 2010 was transferring the know-how that allowed the company to unlock vast new reserves of natural gas in the U.S. via hydraulic fracturing."

Bottom Line: When we think about "Big Oil" and their big profits, we shouldn't neglect the "Big Investments" those companies have to make to be able earn those profits. In just the few minutes it took you to read this post, just the one "Big Oil" company ExxonMobil Corporation spent about one-quarter of a million dollars on "capital and exploration," basically on your behalf as a consumer, and on the behalf of your children and your grand-children as consumers, to ensure that American consumers will have a constant, dependable supply of affordable energy for many generations in the future. 

The Economic Miracle State of North Dakota

More good news from North Dakota, the most economically successful state in the country, thanks in large part to its booming energy sector:

1. The BLS reported today on Regional and State Employment and Unemployment for May, and North Dakota once again leads the country with: a) the lowest state jobless rate of 3.0% (more than 5 percentage points below the 8.2% national average and more than a point below second-placed South Dakota's 4.3% jobless rate), and b) the highest employment growth over the last year of almost 7%.  As I reported recently, for the month of April there were ten North Dakota counties in the oil patch with jobless rates below 2%.    

2. Jamestown Sun -- "The story of North Dakota’s envious economy just keeps getting bigger, with all of the state’s largest cities contributing to eye-popping growth. The state’s taxable sales and purchases increased 39 percent from 2010 to 2011 to more than $19 billion. North Dakota had double-digit increases in recent years, but nothing that rivals 40 percent. The 2011 annual report includes taxable sales and purchases statistics for the largest 200 cities in the state.

Williston surpassed Fargo in taxable sales and purchases by $100 million in 2011.  Tax Commissioner Cory Fong called the victory of the oil city over the state’s largest city “the big news of this report.” Fargo’s total was $2.4 billion compared to Williston’s $2.5 billion. Williston had 88.5 percent growth from 2010 to 2011, compared to Fargo’s 10 percent."

Robotic Grippers Can Pick Up Anything

Here's a good example of the "ultimate resource": human ingenuity, innovation, know-how and creativity, which is the one resource that is truly infinite and unlimited.  

New Major Shale Gas Discovery in Canada

The  Calgary Herald is reporting today that the Apache Corporation has just discovered a huge shale gas reservoir in northern British Columbia.

"Apache, the second largest U.S. independent oil and natural gas producer by market value, said the tests suggest it has 48 trillion cubic feet of marketable gas within its Liard Basin properties. 

The company is calling it the best and highest quality shale gas reservoir in North America, based on the volume of gas three test wells are producing."
MP: The "shale revolution" is just beginning. 

HT: John Sturges

It's the 41st Anniversary of Our Shameful, Deadly and Costly War on Drugs. Can We Call a Cease-Fire?

Almost half of all U.S. inmates in federal prisons are serving time in cages for drug offenses.

This Sunday will mark the 41st anniversary of President Richard Nixon's declaration of America's War on Drugs Peaceful Americans Who Voluntarily Choose To Use Intoxicants Not Approved of by the Government, Who Will Put Users in Cages if Caught. On June 17, 1971 Richard Nixon delivered a "Special Message to the Congress on Drug Abuse Prevention and Control," where he appealed to Congress to give the highest priority to provide funding and authority to the federal government to "destroy the market for drugs," with "increased enforcement and vigorous application of the fullest penalties provided by law" and to "render the narcotics trade unprofitable."

Specifically, Nixon asked Congress to "authorize and fund 325 additional positions within the Bureau of Narcotics and Dangerous Drugs to increase their capacity for apprehending those engaged in narcotics trafficking here and abroad and to investigate domestic industrial producers of drugs." 

In addition, Nixon asked Congress to provide $45 million in funding for America's new war ($255 million in today's dollars) "to enable the Bureau of Customs to develop the technical capacity to deal with smuggling by air and sea, to increase the investigative staff charged with pursuit and apprehension of smugglers, and to increase inspection personnel who search persons, baggage, and cargo entering the country. Funding of $7.5 million would permit the IRS to intensify investigation of persons involved in large-scale narcotics trafficking."

"These steps would strengthen our efforts to root out the cancerous growth of narcotics addiction in America. It is impossible to say that the enforcement legislation I have asked for here will be conclusive--that we will not need further legislation. We cannot fully know at this time what further steps will be necessary. As those steps define themselves, we will be prepared to seek further legislation to take any action and every action necessary to wipe out the menace of drug addiction in America. But domestic enforcement alone cannot do the job. If we are to stop the flow of narcotics into the lifeblood of this country, I believe we must stop it at the source."

Nixon concluded his special message with this prediction: "The final issue is not whether we will conquer drug abuse, but how soon. Part of this answer lies with the Congress now and the speed with which it moves to support the struggle against drug abuse."

MP: It's been 41 years since Nixon declared a "War on Drugs," and we know now that it has been a failed mission.  We haven't conquered drug abuse with an expensive, 41-year "War on Drugs," just like Prohibition didn't conquer alcohol abuse.  What the War has done is dramatically increase the number of Americans jailed for drug offenses, as the chart above shows.  As of the end of May, almost half (48.2%) of all inmates in federal prisons are serving time for drug offenses.   We've also exported our "War on Drugs" to other countries like Mexico, which has resulted in 55,000 drug-related murders there, almost as many war casualties as the U.S. experienced during the Vietnam War.  

And even though we Americans take great pride in our +200-year history of "economic and political freedom," we should be ashamed of our War on Drugs, and our status as the "World's Number One Jailer," part of which is the result of our drug war.  According to the International Center for Prison Studies, the United States leads the world with an incarceration rate of 730 prisoners per 100,000 population, see table below and full list here. By comparison, Canada's incarceration rate is 117 per 100,000 population,  Germany's rate is 83, and Japan's rate is 53.

Here's one comparison: How does the U.S., which ranks No. 10 in the world for economic freedom, compare to the ten least economically free countries in the world (according to the Heritage Foundation's 2012 Index of Economic Freedom), for incarceration rates?  The table below shows that comparison.  It should be embarrassing that none of the ten most economically repressed countries in the world have incarceration rates anywhere close to the United States, except maybe Cuba with 510 prisoners per 100,000 population.  So as much as we think of America as the "land of the free and the home of the brave," and despite our high ranking for economic freedom, our record of putting people in cages for using intoxicants not approved of by the government tarnishes America's great legacy of freedom.     

Isn't it time to call a truce or cease-fire on our shameful, deadly, expensive and failed War on Drugs?  

CountryEconomic Freedom
Prison Population
Prison Population
per 100,000
United States101730
Timor Leste16921920
Equatorial Guinea17020639

Thursday, June 14, 2012

CA Real Estate Market Heats Up in May

LA Times -- "Home sales and prices strengthened throughout the Golden State in May, providing the latest evidence housing might be snapping out of its long slumber. Sales popped 9.3% from April and jumped 17.6% from May 2011 to total 41,790 new and previously-owned houses bought statewide.  The state’s median home price hit $270,000, rising 2.3% from the prior month and up 8.4% from May 2011.

“It’s not exactly a stampede, but people are starting to move off the housing market sidelines in numbers we haven’t seen in quite a while,” DataQuick President John Walsh said. “And it’s not just first-time buyers and investors. There are more move-up buyers in mid- to high-end coastal counties.”

Home sales in the Golden State have posted year-over-year gains for 10 consecutive months and foreclosures have steadily been making up a smaller share of the market. Sales of distressed homes made up just 46.2% of the market, the lowest figure since April 2008."

Markets in Everything: Vending Machine Pizza

LA Times -- "Get ready for Let's Pizza, a pizza vending machine that promises to deliver a piping hot pizza pie made from scratch in less than three minutes. The pizza arrives in an insulated take-away box. The machine takes cash and credit cards. A 10-inch pizza will sell for about $5.95. Americans can expect to see the new machines at malls, airports, hospitals, restaurants, hotels, supermarkets, universities, gas stations and bus stations."

Prediction: Obesity Czar Bloomberg will ban these in NYC. 

Freelance Nation: The Boom in Online Workers

NY Times -- "Global networks make it possible to obtain work anywhere, enabling companies to hire many specialists for specific tasks at fixed amounts. Chances are this is only getting started, and there are profound implications for things as diverse as corporate structure, employment, job skills and even taxation.

On Wednesday, Elance ("Instant Access to Great Talent"), a company that brokers often sophisticated short-term work online, released a survey of its customers’ hiring plans. The company asked what percentage of their work force would, in five years, consist of online temps. On average, the customers projected that more than half of their work force, 54% of all workers, would be these outsiders from around the globe.

The survey was unscientific and polled mostly small companies. Only 2.3% of the 1,500 companies surveyed had more than 100 employees. It is, however, another indicator that cloud-computing-based employment brokers like Elance, ODesk and Freelancer.com are gaining acceptance.

These companies allow easy hiring and collaboration between, say, a software developer in Russia and a marketing specialist in England on a project for a firm based in the United States. Job candidates present portfolios of past work, bid on listed jobs and are rated, much like the sellers of goods on eBay."

SF Home Sales Highest for a May Since 2006

LA Times -- "The San Francisco Bay Area's housing market strengthened in May as sales leaped, pricier homes were bought and fewer foreclosures sold. Bay Area sales were at a six-year high for a May last month while sales of homes costing more than $500,000 surged, real estate information firm DataQuick reported.

Sales were up 14.8% from last month and 26.1% from May last year to total 8,810 newly built and previously owned homes sold in the Bay Area last month. The Bay Area median home price rose 2.6% from last month and was up 7.5% from May last year to hit $400,000." 

MP: With both home sales increasing (by 26.1%) in May and median prices increasing (by 7.5%), following an 8.3% increase in median prices in April, I think you've got the ingredients for a real estate recovery in San Francisco.

Mortgage Applications Highest in Three Years

"Mortgage applications increased 18% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 8.

The Market Composite Index, a measure of mortgage loan application volume, increased 18% on a seasonally adjusted basis from one week earlier to the highest level since May 2009.  On an unadjusted basis, the Index increased over 30% compared with the previous week.  The Refinance Index increased over 19% from the previous week to the highest index level since April 2009." 

MP: More evidence that the real estate market is making consistent gains, and in a gradual recovery mode. 

Today's CPI Report: Falling Natural Gas Prices

From today's CPI report, Table A:

Over the last year (May 2011 to May 2012), the category with the biggest drop in price was  "Utility (piped) gas service" (residential natural gas), which has decreased by -14.9% over the last 12 months.

Thanks to the shale revolution and falling natural gas prices, U.S. consumers have saved $35 billion in 2009, 2010 and 2011, and  it looks like those savings will continue in 2012.  

Q1 Gain in Home Equity Highest in 60 Years

Bloomberg -- "Americans are digging themselves out of mortgage debt. Home equity in the first quarter rose to the highest level since 2008 as homeowners taking advantage of record-low borrowing costs to refinance their loans brought cash to the table to pay down principal. The gain in percentage terms was the biggest jump in more than 60 years, according to an analysis by Bloomberg of Federal Reserve data. 

It’s the strongest sign yet that Americans’ home-loan debt burden is beginning to ease after the record borrowing that created, and ultimately popped, the housing bubble, leaving almost a quarter of homeowners with mortgages owing more than their properties were worth, said Richard DeKaser, deputy chief economist at Parthenon Group LLC in Boston. Half the mortgages refinanced in the fourth quarter reduced loan size, a record, according to Freddie Mac, the government-owned mortgage buyer. 

“The willingness of homeowners to carry housing debt has been radically altered,” said DeKaser, chairman of the American Bankers Association’s Economic Advisory Council. “When the market was booming, a mortgage was used as a leveraging tool, and now it’s seen as a risk.”

Measured as a share, rather than in dollars, homeowner equity was 41 percent of U.S. residential property value in the first quarter, including homeowners who don’t have mortgages, according to the Fed study released last week. The last time the share was that high was in the third quarter of 2008."

Let's Legalize It: Bone Marrow

NBC'S "Rock Center with Brian Williams" features a segment on tonight's show (10 p.m.) about the Institute for Justice's legal challenge to the outdated federal law (National Organ Transplant Act in 1984, sponsored by Al Gore and Orrin Hatch) that makes it illegal to receive compensation for bone marrow. 

Watch a preview above.  

Note: Bone marrow isn't even an organ, it's a "sponge-like tissue found in the center of certain bones"; so why was it even included in the "National Organ Transplant Act" in the first place? And unlike organs, bone marrow regenerates within a matter of weeks.

HT: Don Boudreaux

Wednesday, June 13, 2012

Rapper Grammar Lesson on You're vs. Your

In the video above, Rapper Mac Lethal gives us a NSFW grammar lesson on the difference between "your" and "you're" - one is possessive and the other is a contraction. Could I commission him to do another one on "its" vs. "it's"?

HT: Josh Abell

Shale Boom Will Create 1.5M New Jobs by 2035 and Generate $1.5T in Tax and Royalty Revenue

From the IHS study released this week titled "The Economic and Employment Contributions of Unconventional Gas Development in State Economies":

"Unconventional gas activity is having a dramatic impact on employment and economic growth across the U.S. lower 48 states, in terms of jobs and its contribution to gross state product (GSP) and, by extension, U.S. gross domestic product (GDP). This reflects the significant capital intensity required to develop unconventional gas resources, the ability to source inputs from a coast-to-coast network of suppliers and professional services around the United States, and the high quality of the jobs created by this activity.

Unconventional gas is expected to lead future growth in U.S. natural gas productive capacity. By 2015, the share of U.S. natural gas produced from unconventional sources will increase to 67% and, by 2035, will reach 79%. Increased unconventional gas activity will contribute to capital investment, job opportunities, economic growth, government revenue, and lower prices across the country including:

• Nearly $3.2 trillion in investments in the development of unconventional gas are expected to fuel the increase in production between 2010 and 2035.
• In 2010, unconventional gas activity supported 1 million jobs; this will grow to nearly 1.5 million jobs in 2015 and to over 2.4 million jobs in 2035 (see chart above).
• By 2015, unconventional gas activities will contribute nearly $50 billion in federal, state and local government tax and federal royalty revenue; between 2010 and 2035, continued development of unconventional gas will generate a cumulative total of nearly $1.5 trillion in federal, state, and local tax and royalty revenue.

These economic contributions will be largely driven by activity in the 20 producing states with both new well completion and production or existing production. However, the 28 non-producing states that do not include projected unconventional gas development will still contribute nearly one in every five jobs to the overall economy."

Bottom Line: Drill, drill, drill = investment, investment, investment = jobs, jobs, jobs = government revenue, revenue, revenue = win, win, win.