Saturday, October 06, 2007

GM: Market Share Falling, But "Job Share" Rising?

The chart above is from the Level Field Institute's 2007 report, in which it says:

"Our car-by-car analysis also accounts for differences in market share. In other words, an automaker with 15% market share that employs 20% of U.S. autoworkers is overperforming on jobs, while an automaker with 15% market share that employs just 10% of autoworkers is underperforming."

That's a very interesting definition of "overperforming and underperforming on jobs," isn't it?

GM has a 23% market share and 29% of the autoworkers and is "overperforming on jobs?" That sounds a lot more like "ineffiency" to me. And Toyota has a 17% market share and 9% job share and is "underperforming on jobs?" That seems more like "efficiency" to me.

After all, corporations don't exist to create the maximum number of jobs, they exist to serve consumers and shareholders by producing output with the least number of employees.

Free Markets Are Good, But Foreign Firms Are Bad?

The Pew Research Center conducts a major international survey about every five years on the general public's perception of trade and globalization. The most recent study was just released, based on responses from 45,000 people worldwide in 47 countries (more than 2,000 in the U.S.).

From the study: "Overwhelmingly, the surveyed publics see the benefits of increasing global commerce and free market economies. In all 47 nations included in the survey, large majorities believe that international trade is benefiting their countries. For the most part, the multinational corporations that dominate global commerce receive favorable ratings. Nonetheless, since 2002 enthusiasm for trade has declined significantly in the United States, Italy, France and Britain, and views of multinationals are less positive in Western countries where economic growth has been relatively modest in recent years.

Just 59% of Americans say trade with other countries is having a good effect on the U.S., down sharply from 2002, when 78% believed it was having a positive impact."

Interestingly, these results are consistent with the recent trend reported in the Wall Street Journal that "Republican voters believe free trade is bad for the U.S. economy by nearly a two-to-one margin, a shift in opinion that mirrors Democratic views."

Notice in the chart above (click to enlarge), that in many countries like the U.S., Canada, UK, France, Germany, Spain, Sweden and Italy, people inconsistently express strong support for both: a) trade and b) free markets, but very weak support for "foreign companies."

In the U.S., 70% of the respondents have a favorable view of "free markets," but only 45% have a favorable view towards "foreign companies." In the U.K. and Italy, those percentages are 72% (free markets) vs. 49% (foreign companies) and 73% vs. 38%, respectively.

What's up with that? Aren't "foreign companies" an intergral part of "free markets"? Without foreign companies, we wouldn't have "free markets," we would have "closed markets" and a closed economy.

Is Wall Street Now Conducting Monetary Policy?

From Larry Kudlow's very interesting column today "Anatomy of a Fabulous Fed Flip-Flop":

On the afternoon of Aug. 7, the Federal Reserve chair was an inflation hawk -- according to the unchanged FOMC policy statement -- fearful of adding liquidity to the markets. By day's end on Aug. 9, however, he was leading the liquidity charge, initiating a process that would help unlock the credit seize-up that started in late-July.

Using the Freedom of Information Act, Ken Thomas, researcher and lecturer at the University of Pennsylvania's Wharton school, was able to get Bernanke's calendar of phone calls and meetings at the time the flip-flop occurred.

Over the next few weeks, Bernanke participated in no fewer than 35 separate conference calls with fellow Fed operatives -- a complete departure from his earlier no-conference-call style. And he got the liquidity ball rolling. As we now know, the Fed started pouring liquidity into the system on Aug. 9.

Exhibit A: See the chart above (click to enlarge) showing the significant drop in effective Fed Funds rate on August 9 to 4.68%, at a time the official target rate was 5.25%. During the entire month of August the effective Fed Funds rate was 5.02%, almost a quarter point below the official target. Simply put, the Fed implemented an unannounced "secret" rate cut to 5% in August, under pressure from Wall Street.

But is this a good outcome? Kudlow seems to think so, and says that "the academic Bernanke became a hands-on market participant through his contacts with Rubin, Paulson, the hedgies and others. He reached out to savvy financial-market players, who put him in touch with the real world."

Doesn't this call into question the concept of "central bank independence?" Most economists consider it desirable to have central bank decisions insulated from political pressure from politicians seeking short-term political goals, so that the central bank can do what is best for the economy in the long run. But shouldn't the central bank also be insulated from pressure from hedge fund managers and investment bankers on Wall Street, which is apparently exactly what happened in August? Wouldn't an official inflation target insulate the Fed from Wall Street pressure?

Comments welcome.

Friday, October 05, 2007

Picture's (Yes, I Know) of the Day: D'oh!

At this middle school in "Floriduh" there are multiple signs with this wording in its parking lots. If you have to make a grammatical blunder, at least don't make it in front of a school!

Here are a few more.....

Just wondering, are the grammar rules about the proper use of it's vs. its really that hard to learn? Isn't that something you are supposed learn in elementary school, maybe about third grade?

Rising Unemployment, But Education Pays Off

Employment rose in September, and the unemployment rate increased slightly to 4.7%, the Bureau of Labor Statistics (BLS) of the U.S. Department of Labor reported today.

AP: "The bump up in the unemployment rate from 4.6%in August came as hundreds of thousands of people streamed back into the labor market. That new rate of 4.7% the highest since the summer of 2006, is still considered low by historical standards."

The BLS also reports the unemployment by educational attainment in Table A-4 of its report, shown above in the chart (click to enlarge). Notice that the unemployment rate for those with some college has actually decreased from August to September from 3.7% to 3.4%, and has stayed the same for workers with a college degree (2.0%). For high school graduates, the jobless rate has increased by .40% from 4.3% in August to 4.6% in September, and for workers without a high school diploma the rate increased by .70%, from 6.7% to 7.4%.

Therefore, the increase in the September unemployment rate is entirely due to an increase in unemployment for workers with a high school degree or less. For workers with at least some college, unemployment rates are falling (some college, no degree) or stable (college graduates).

Yahoo Search for Foreclosures

I'm not sure how long this website has been going, but I just found the Yahoo! Real Estate website, where you can do a foreclosure search, by city and state, or zipcode. Here is a sample of some cities and the number of foreclosures currently available:

Las Vegas: 21,205
Chicago: 9,107
Detroit: 9,876
Minneapolis: 2,066
Miami: 6,614
St. Louis: 1,882
Cleveland: 8,006
Orlando: 12,448
San Diego: 7,764
Houston: 20,271

This seems like more evidence that house prices will continue to fall. Exhibit A: 21,205 foreclosed properties in Las Vegas!

Club For Growth: Symposium on Free Trade

The Club for Growth features a "Symposium on Free Trade" on its website, based on yesterday's Wall Street Journal "Republicans Grow Skeptical On Free Trade," which reported that "Six in 10 Republicans in the poll agreed with a statement that free trade has been bad for the U.S. and said they would agree with a Republican candidate who favored tougher regulations to limit foreign imports."

I was one of the six respondents who commented on the WSJ article.

Three Related Stories, Let's Connect The Dots

1. From today's Detroit Free Press article "Taxes May Hinder Attracting Businesses":

Selling Michigan as an attractive and low-cost place to do business just got a little harder.

The expansion of the state's sales tax to many service providers will raise the cost of business-to-business transactions and could hurt Michigan's enterprise reputation at a time when it can least afford it, economic development experts said Tuesday.

To be sure, the increase in taxes won't necessarily deter companies interested in Michigan. Taxes are just one of several factors that affect businesses' decisions about where to put a new factory or headquarters.

2. From today's NYTimes article "More Doctors in Texas After Malpractice Caps":

Four years after Texas voters approved a constitutional amendment limiting awards in medical malpractice lawsuits, doctors are responding as supporters predicted, arriving from all parts of the country to swell the ranks of specialists at Texas hospitals and bring professional health care to some long-underserved rural areas.

The influx has flooded the medical board’s offices in Austin with applications for licenses, close to 2,500 at last count.

“Doctors are coming to Texas because they sense a friendlier malpractice climate,” he said.

3. From U-Haul Reservations, a one-way rental from Austin, TX to Detroit, MI for a 26-foot truck is $661, and a one-way rental from Detroit, MI to Austin, TX is $1,583.

Bottom Line: Although taxes might not be the only factor for business location decisions, neither are malpractice limits for physicians' locations. But the fact that thousands of physicians are going through the trouble of moving to Texas demonstrates that taxes and regulations do play a role in business location decisions. Many physicians are actually independent, small businesses who move to where the business climate is most friendly. Making Michigan's business climate less friendly with higher taxes has to have some effect, the only question will be the size of that effect.

Given the difference in one-way truck rentals between Detroit and Austin, it sure seems like a LOT more people are moving out of Michigan to Texas, than the other way around.

Thursday, October 04, 2007

Cartoon of the Day

Trade Gridlock Would Be A Lot Better

From today's Wall Street Journal, front page article Republicans Grow Skeptical On Free Trade, "By a nearly two-to-one margin, Republican voters believe free trade is bad for the U.S. economy, a shift in opinion that mirrors Democratic views and suggests trade deals could face high hurdles under a new president."

For example, from the actual poll that was given to Republicans:

Statement A: Foreign trade has been good for the U.S. economy, because demand for U.S. products abroad has resulted in economic growth and jobs for Americans here at home and provided more choices for consumers.

Only 32% of Republicans agreed with this statement. Yikes!

Statement B: Foreign trade has been bad for the U.S. economy, because imports from abroad have reduced demand for American-made goods, cost jobs here at home, and produced potentially unsafe products.

59% of Republicans agreed with this statement. Yikes!

In another part of the poll on policy positions that a Republican president might take, 61% of Republicans agreed with the position "Favors tougher regulations to limit imports of foreign goods." Yikes!

In other words, it looks like there will be upcoming bi-partisan consensus on anti-trade, pro-protectionist policy positions. That's pretty scary when you have the Republicans agreeing with the Democrats that free trade is bad and protectionism is good. Legislative gridlock on trade would be a lot better, I agree with P.J. O'Rourke on this one. Here's what he said:

"I like legislative gridlock. What I hate is bipartisan consensus. Bipartisan consensus is like when my doctor and my lawyer agree with my wife that I need help."

More Trouble Ahead for Housing: 4-Year Decline

From today's Wall Street Journal article "Home-Price Outlook Takes Another Shot: Trading on CME Indicates a Decline Into Late 2011":

Traders on the CME expect home prices in 10 major cities to drop an average of about 10% from mid-2007 to November 2011, according to an analysis of prices for housing futures traded on the exchange.

The contracts have been trading since May 2006 but last month were adapted so that traders could bet on prices as long as 60 months into the future. The current contract prices show that traders expect prices in the Miami metro area in November 2011 to be down 28% from the mid-2007 level. The expected drops in other metro areas for the same period are 18% for Las Vegas, 12% for New York, 19% for San Diego, 26% for San Francisco and 13% for Washington, D.C. (see chart above).

MP: Below (click to enlarge) is an example of the current quotes for the Miami Housing Futures Contracts from the CME, showing November 2007 contracts trading at 251.80 and November 2011 contracts at 187.80, a -25.42% difference. If you expect Miami housing prices to fall by less than (more than) 25.42% between November 2007 and November 2001, you can take a long position (short position) on this contract and make money.

Wednesday, October 03, 2007

Michigan Committing Economic Suicide?

"The only good news from Maryland and Michigan (both raised taxes) is that these states will serve as laboratories for economic failure. In upcoming years, public policy experts will compare their economic performance to the results in states — like Rhode Island and New Mexico — that have lowered tax rates. Needless to say, it is easy to predict that the states lowering tax rates will prosper relative to the states that are increasing the burden of government."

Read the
full article here from Cato.

Japan Sweats It Out at 82 Degrees With No Suits and Global Warming Underwear

Global Warming Underwear in Japan:
NPR: Two years ago, the Japanese government instituted a new policy that has so far trimmed more than two million tons of greenhouse gases from the country's growing emissions: Get men to stop wearing suits and ties in the summer. That way, office buildings could ease up on the air conditioning, and set temperatures at 82 degrees Fahrenheit — that's seven degrees warmer than what you might find in a typical U.S. office building.

The campaign is called "Cool Biz," and generated some initial complaints from some tie-makers, but stimulated a new industry for "global warming clothing" including the "Su su suit," a one-pound suit for $500, so light you barely know you're wearing it, and "global warming underwear" (pictured above).

Read other articles about Cool Biz here and here.

Economic Conundrum: Square vs. Round Containers

Q: Why does milk usually come in a square container, while most other liquids come in round containers (water, beer, soft drinks, etc.)?

Update: Thanks for all of the comments to this question, I agree with "ty b" who said:

A: "Milk requires expensive refrigeration, so the shippers and sellers want to maximize the use of refrigerated space. The square containers do that."

That is the answer I had in mind. Milk and cream require constant refrigeration from the time of processing and packaging, during shipping, and at the point of sale, and square containers maximize the use of refrigerated space. Water, beer and soft drinks don't need constant refrigeration, and so square packaging isn't an issue. Another example of square containers is the Tropicana varieties of pasteurized "Pure, Premium" orange juice, which would also require constant refrigeration.

September Sales: Ford Falls 21%, Drops to #3 Place

DETROIT, MI-- Ford Motor Co.'s U.S. vehicle sales plunged 20% in September, despite an average of $3,074 in incentives per vehicle, vs. $802 per vehicle for Toyota, which has overtaken Ford for the #2 spot for sales so far this year (see chart above).

Actually, Ford's car sales slipped a whopping 39% in September 2007 vs. September 2006, according to AutoData, while trucks sales dropped by "only" 8.6%, Jaguars sales fell by 8.4% and Volvo dropped 13.1%. Land Rover sales increased by 21%, the only bright spot for Ford's September sales numbers.

WSJ: "The overall seasonally adjusted annual rate of sales equaled 16.23 million vehicles during the month, according to Autodata Corp. The result was reasonably better than many analysts and auto-company officials had been expecting, after August's relatively weak showing. But the latest sales pace was still well below the trend set over the course of the decade and into the early months of this year. Most analysts now expect total light-vehicle sales in 2007 to crawl to 16 million vehicles, well below the 16.7 million rate that is generally considered healthy."

Tuesday, October 02, 2007

Crack vs. Powder Cocaine, In Pictures

1. As a result of the Anti-Drug Abuse Act of 1986, Congress established different mandatory penalties for cocaine and crack cocaine, with significantly higher punishments for crack cocaine offenses. There is a 5-year minimum prison penalty for a first-time trafficking offense involving 5 grams or more of crack cocaine or 500 grams or more of powder cocaine (see top chart above) and a 10-year mandatory minimum penalty for a first-time trafficking offense involving 50 grams or more of crack cocaine or 5,000 grams or more of powder cocaine.

2. One gram of pure powder cocaine will convert to approximately 0.89 grams of crack cocaine (see middle chart above).

3. Historically, the majority of crack cocaine offenders are black; powder cocaine offenders are now predominantly Hispanic. In 2006, African-Americans accounted for 82 percent of crack cocaine-related arrests, while white and Hispanic offenders accounted for 72 percent of powder cocaine-related arrests (see bottom chart above).

Bottom Line:

1. Members of Congress might need some remedial math, especially on decimals? If 1 gram of powder cocaine = .89 grams of crack cocaine, why is the amount of crack cocaine for five years of jail time (5 grams) 100X less than for powder cocaine (500 grams)?

2. Nobel economist Milton Friedman once called the minimum wage "the most anti-black law on the books." For once I have to disagree with Milton, I think the Anti-Drug Abuse Act of 1986 is now the most anti-black law on the books. By far.

Fortunately, the
Supreme Court is considering this egregious sentencing double standard.

Value of the Dollar in 1 Year? Check Forward Rates

What's going to happen to the U.S. dollar over the next year? Stronger, weaker? The best place to find out is in the forward markets for foreign exchange, where the dollar is already trading against the currencies of about 30 countries for delivery one year from now.

According to yesterday's
one-year currency forward rates, the dollar is expected to continue depreciate over the next year, and is trading at a one-year forward discount, against 11 major currencies like the euro, Swiss franc, yen, Canadian dollar, etc. (see chart above, click to enlarge). The USD is expected to appreciate over the next year, and is already trading at a one-year forward premium against 18 currencies including the UK pound, Mexican peso, Indian rupee, etc.

Bottom Line: The fall of the USD has probably stabilized and will actually appreciate over the next year against some currencies like the UK pound, and will depreciate only mildly against many other currencies.

Monday, October 01, 2007

Stocks Surge on Possible Rate Cut, 75-80% Chance

NEW YORK (AP) -- Wall Street shot higher Monday, sending the Dow Jones industrial average above 14,000 for the first time in 2 1/2 months (closing at 14,087.55) as investors moved back into stocks at the start of the fourth quarter. The blue chip index rose more than 200 points as it surged to a new trading high.

The market grew more optimistic that the Fed might lower rates to boost the economy after a report showed that manufacturing grew in September at the slowest pace in six months.

"People are getting more confident there is going to be an October rate cut."

The Fed (FOMC) meets again on October 30-31. What are the chances of another rate cut?

1. According to Fed Funds futures contracts for November, the chances of a rate to 4.5% are about 74%.

2. According to trading on ("The Prediction Market") for the contract "Fed Funds Rate to be ON or OVER 4.75% on Year End 2007," there is only a 19.5% of that happening, indicating about an 80% of a rate cut by year end.

Weak Dollar Has Its Advantages

From today's WSJ front page article "Dollar Lifts Exporters":

As long as the dollar's decline is gradual, most economists see it as a modest plus overall.

Real exports have grown faster than real imports for nearly two years, and this trend is expected to continue. U.S. exports rose 2.7% to a record $137.68 billion in July, and stronger exports have contributed a half percentage point of added growth to GDP since 2005.

At the moment, strong foreign economies are soaking up U.S.-made goods and services.

Visits by foreign tourists to U.S. theme parks and other attractions are up, which means more bookings for hotels, restaurants and rental cars. The convention bureau in Orlando, Fla., forecasts a 3.9% increase in foreign visitors this year compared with 2006. Canada's dollar recently hit parity with its U.S. counterpart for the first time since 1976, which is why Disney recently ran ads north of the border urging Canadians to "enjoy the magic" of a strong currency by traveling to Florida.

People like James Mallon are seeing yet another dimension to the falling dollar. The 34-year-old native of Ottawa, who now lives in Ann Arbor, Mich., says he's gotten a flurry of phone calls in the past few weeks from friends in Canada who want to stay with him for weekend shopping excursions. Several asked him to accept mail-order shipments -- including a surfboard, cookware and bicycle parts -- that they'll pick up in the future.

"I feel richer for my friends," he says, "but poorer." Mr. Mallon, an engineering consultant who specializes in ergonomics, has his student loans in Canadian dollars that now cost more to pay back. And a loan of C$25,000 that he took from his parents to buy his house in 2003 has suddenly grown far more onerous. "When I took out that loan, it was the equivalent of $14,000 U.S., but now I owe them $25,000."

Economic Boom Down Under in Australia

We don't hear much about it in the U.S., but Australia is in the middle of a huge economic boom, with a record low unemployment rate of 4.3% and a record high stock market that has more than doubled in the last three years (see chart above).

Here's a report on job vacancies reaching a record high in Australia, and how "the unemployment rate is tipped to fall to a fresh historic low as bosses struggle to keep young and restless workers seeking to cash in on the commodities bonanza (coal and iron ore are Australia's two largest exports)."

Alan Greenspan praises Australia
in his new book (The Age of Turbulence) as a model of what can happen when governments deregulate their economies, crediting former prime minister Bob Hawke with "a series of significant but painful reforms, especially in labor market reform." Greenspan also pointed to the tariff reductions and the floating of the Australian dollar, which he said "sparked an amazing economic turnaround."

Another article reports that
"In the past two weeks, the International Monetary Fund and international credit rating agency Standard & Poor's have both heaped praise on the performance of the Australian economy and its economic management."

Sunday, September 30, 2007

Housing Market Continues to Soften

WASHINGTON -- Existing-home sales slipped 0.2% in July to a seasonally adjusted annual pace of 5.75 million homes, the lowest in five years, according to the National Association of Realtors (see top chart above). The median sales price dropped to $228,900, down 0.6% from the July 2006 level, which was the highest on record.

Inventories of homes for sale jumped 5.1% to 4.59 million, or about 9.6 months of supply at the current sales pace (see bottom chart above). A supply of about six months generally indicates a balanced market.

Ethanol, Schmethanol: El Mistako Muy Grande

"Everyone seems to think that ethanol is a good way to make cars greener. Everyone is wrong. The political rush to back ethanol is a mistake."

Read more of the article "Ethanol, Schmethanol" here in The Economist.

Africa Leads the World in the Creation of Red Tape

The World Bank just released its "Doing Business 2008" report, an annual study that tracks a set of regulatory indicators related to business startup, operation, getting credit, trade, payment of taxes and closing a business, by measuring the time and cost associated with various government requirements in 178 countries.

The top 10 and bottom 10 countries are displayed above (click to enlarge) for the "Ease of Doing Business Index," along with the GDP per capita of those countries. As expected, the more favorable the overall business climate, the higher the income per capital. Poor countries are poor and remain poor because they stifle private businesses, especially in Africa, which has 9 of the bottom 10 countries, and 19 of the bottom 20. Here are the complete rankings.

From the FT Times: "The U.S. may be the economic superpower, and China the new manufacturing powerhouse, but there is one industry in which Africa still leads the world: the manufacture of red tape. This year’s edition of “Doing Business" is a depressing but important reminder of what we already knew: poor countries tend to stifle their economies with impossibly burdensome regulations, while most rich countries let entrepreneurs start businesses, buy and sell property, and ship goods through customs.

Read a Business Week report here, and an article from Financial Express in India here.

Bottom Line: Wealth, income, jobs and prosperity are created by businesses that start and operate in the private sector of the economy. Business-friendly countries create wealth, income, jobs and prosperity, and business-unfriendly countries don't.