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
Rank
Prison Population
Rank
Prison Population
per 100,000
United States101730
Turkmenistan16859224
Timor Leste16921920
Equatorial Guinea17020639
Iran17129333
Congo17221333
Burma173124120
Venezuela174149149
Libya17519845
Cuba1767510
Zimbabwe177124121

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.  

Detroit vs. Williston ND: Homes for $2,900

What can you get for $2,900 in Detroit vs. Williston?
The 4-bedroom, 2-bath Detroit home above (pictured above on the left) is going for $2,900, the same as the 3-bedroom home near Williston, North Dakota (on the right).   

The difference?  $2,900 is the list price to buy the home in Detroit, and $2,900 is the monthly rent for the home in North Dakota near the oil patch.  

Just One Word: Plastics


"Now it’s clear that the potential influence of shale gas on the North American plastics industry is amazing. The full impact hasn’t been felt yet. But if you’ve been paying attention, you can see it on the horizon.

Dow Chemical, Formosa Plastics and and Chevron Phillips already have announced North American expansion plans. ExxonMobil Corp. joined the party June 1, when it disclosed it is considering building two new polyethylene (PE) lines in Mont Belvieu, Texas, as well as a new ethane cracker in Baytown, Texas. ExxonMobil’s new PE lines alone will have combined annual capacity of almost 3 billion pounds.

Just five years ago, experts were predicting that North America was destined to be a net importer of PE. Resin manufacturers were chasing low-cost feedstocks in the Middle East and growing markets in Asia. No one was building new capacity in North America. Now economists talk about how low-cost North American resin could help the economy, including plastics processors."

HT: Joe Lais 

Update: Mr. McGuire must have had a vision of the shale gas future when he told Benjamin in the movie "The Graduate" (see below):

"Just one word: Plastics.  There's a great future in plastics, Ben.  Think about it."


Real Estate Rebound in Southern California

1. Home sales in San Diego County jumped by 21.5% in May, compared to the same month a year ago, while prices rose 3.2%. 

2.  L.A. County home sales jumped 25.3% in May compared with a year earlier.

3. For all of Southern California, home sales increased in May by 20.6%, and the median price increased by 5.4% from $280,000 to $295,000. 

That now makes about 20 local markets that are reporting double-digit gains in May home sales, and most gains are 20% or higher, so I think we've got a real recovery taking place for the U.S. real estate market.   

Will the Senate Vote to End 200+ Years of Protectionism for the U.S. Sugar Cartel? Not Today

Due to import quota restrictions that limit the amount of imported sugar coming into the U.S. at the much-lower world price, American sugar growers are protected from more efficient foreign sugar farmers who can produce cane sugar in Central America, Africa and the Caribbean at half the cost of beet sugar in Minnesota and Michigan. This sweet trade protection comes at the expense of American consumers and U.S. sugar-using businesses, who have been forced collectively to pay 29 cents per pound for domestic sugar on average since 1982 (and now closer to 50 cents), or more than twice the 14 cent average for world sugar over that period (now about 25 cents), see chart above.  How much does this trade protection cost Americans? Almost $4 billion last year, as I calculated back in January 

U.S. sugar policy has a long history, going back to 1789 when the First Congress of the United States imposed a tariff upon foreign sugar, and is a perfect illustration of trade protection that ignores the viewpoint of disorganized, dispersed consumers, in favor of the concentrated, well-organized interests of producers. And with that record of protectionism going back to the 18th century, the U.S. sugar farmers have certainly by now achieved the status of being the most successful and entrenched special interest group government-sponsored cartel in U.S. history, and the beneficiaries of the greatest coerced transfer of wealth from consumers to producers in the history of the republic.  But maybe there's hope......

The WSJ editorial staff is reporting today that: 

"For the first time in memory, there is a real chance of reining in this agribusiness welfare [for U.S. sugar farmers], which imposes a complicated system of domestic price supports coupled with domestic and import quotas that restrict the supply of lower-priced sugar.

The Senate amendment to reform this program is sponsored by Republicans Richard Lugar of Indiana and Pat Toomey of Pennsylvania and Democrats Jeanne Shaheen of New Hampshire and Richard Durbin of Illinois. They have the support of dozens of groups on the left and right, from Americans for Tax Reform to the National Wildlife Federation.

This is bipartisan cooperation that the good-government media types ought to be celebrating. Reforming Washington's corporate welfare culture will require victories on votes like this. Senators who protect the sugar program are voting for the 0.001%."

Update from the Coalition for Sugar Reform:
 
“Although members of the Coalition for Sugar Reform are disappointed that the Senate voted today to table the Shaheen amendment by a 50-46 vote, we are encouraged that on a bipartisan basis, nearly half the Senate clearly sees the need to debate and reform current U.S. sugar policy.

The coalition appreciates the support of 46 Senators who voted to reform U.S. sugar policy. The leadership of Sens. Shaheen, Lugar, Kirk, Toomey, Durbin, Coats and others has been outstanding, and gives us hope that the Congress will ultimately reform these outdated subsidies."

"Truthland: The Factual Alternative to “Gasland”


About the movie "Truthland" (view the trailer above, watch the full movie here): 

"In the HBO movie “Gasland,” New York City filmmaker Josh Fox tried to scare people into thinking that natural gas development and hydraulic fracturing are new, unregulated and dangerous. It made one Pennsylvania mom living atop the Marcellus Shale wonder what she was getting into. She asked environmentalists, academics and everyday people what they think. Nobody got paid to talk — all they were asked was to tell the truth."

Should It Really Be Illegal to Braid Hair Without First Getting a License from the Government?

NPR's Planet Money reporter Jacob Goldstein explains "Why It's Illegal To Braid Hair Without A License" on the NPR website, and in a longer NY Times Magazine article, with the following disturbing factoids:

"In 1950, fewer than 5 percent of Americans worked in jobs that required licenses. Today, it’s roughly 30 percent, and that number is likely to grow. 

There are more than 1,000 licensed professions in the United States. As the country industrialized, state governments wanted to protect their citizens and create standards not just for lawyers and doctors but also for basic services. It didn’t take long for professional groups to find that they also stood to benefit from the regulations. Over the years, more and more started to lobby for licensing rules, often grand­fathering in existing professionals while putting up high barriers to new competitors. In fact, businesses contorting regulation to their own benefit is so common that economists have a special name for it: regulatory capture."

MP: And along with regulatory capture and occupational licensing, we get concentrated, well-organized "industry cartels" that devote resources towards rent-seeking to protect and expand their cartel power, inevitably with outcomes that damage consumers. For example, according to University of Minnesota professor Morris Kleiner, who is mentioned in the NY Times article, licensed workers earn 15% more on average than their unlicensed counterparts, a premium that raises prices to consumers and adds more than $100 billion a year to the cost of those services to consumers.

Producer Price Inflation Eases to Only 0.7% in May, The Smallest Annual Increase in More Than 3.5 Yrs.


The BLS reported today on producer prices for May, here are some highlights:

1. Prices for finished goods fell 1% in May from April, and increased annually by only 0.7% through May, the eighth straight month of slowing year-over-year producer inflation following a 7% increase for the 12 months through September 2011.  It was the smallest annual increase in producer price inflation for finished goods since October 2009 more than three and-a-half years ago (see brown line in chart above). 

2. Intermediate goods fell by 0.8% on an annual basis through May, the first annual deflation in intermediate goods since November 2009 (see red line in chart).

3. Prices for crude goods fell by 3.2% from May last year (see blue line), led by sharp declines in food (-2.3%) and energy prices (-5%).

MP: Overall, the ongoing, declining inflation rates for producer prices that have been happening for the last year, along with price deflation now for crude and intermediates goods, should ease some of the fears of inflationary pressures at the consumer level. Falling raw material costs for producers means that there won't be any input-cost based incentives to raise prices on consumer goods, and we can expect low and stable consumer inflation through the rest of this year.  

For example, inflation expectations from the bond market, measured by the breakeven rate for 10-year treasuries (nominal yield minus the real TIPS yield) have been trending downward for the last three months, falling from 2.4% in early April to 2.1% in recent trading, see chart below from Bloomberg.  


U.S. Auto Assemblies Unexpectedly Surge Back to 2007 Levels, Creating a Shortage of Rail Cars

The Federal Reserve reported recently that U.S. motor vehicle assemblies totaled 10.7 million units in May (seasonally adjusted at an annual rate), the highest monthly production level since August 2007, almost five years ago before the Great Recession, and almost three times the recessionary low of 3.7 million units in January 2009.  At the current rate of  monthly increases, motor vehicle assemblies will be above 11 million units within a few months, and back up to 12 million units by the end of this year.

The recent, and somewhat unexpected, surge in U.S. auto production to pre-recession levels so quickly in the last year has brought about a new problem - a shortage of rail cars used to transport cars and light trucks from assembly plants to dealerships, as Automotive News is reporting:

"As of May 18 , daily inventories of vehicles awaiting shipment totaled 81,470 units -- well above the standard daily inventory of 69,000 vehicles, according to a report from TTX Co., a Chicago firm that coordinates rail shipments of vehicles for the railroad industry.

Auto executives fear rising North American vehicle production could trigger chronic -- and serious -- transport bottlenecks. "It's a nightmare right now," said Mike Nelson, Toyota Motor Corp.'s national manager of rail strategy and operations.
  The rail-car shortage is especially bad for assembly plants in the Midwest, and somewhat less serious for West Coast ports that handle shipments of Asia-built vehicles. The delays will be tough to fix because automakers require special rail cars, called autoracks, to transport vehicles. Bi-level autoracks carry 10 full-sized SUVs and pickups, while tri-level autoracks hold 14 cars.

The railroads have a shortage of tri-level autoracks, now that cars are once again outselling trucks. But railroads need time to build these transports, and forecasters did not expect North American auto production to recover so quickly after the recession."

HT: Unknown

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?