Saturday, January 05, 2008

Business is Booming at Orlando Theme Parks

The nation's economic jitters that contributed to lackluster holiday retail sales in December seemingly failed to make a serious dent in year-end travel to Central Florida as theme parks filled and hotels had few vacancies.

Large hotels in Central Florida's core tourist areas say they had no problem filling rooms during the final two weeks of December. Theme park parking lots swelled past capacity, and pedestrian concourses at Walt Disney World, SeaWorld Orlando and Universal Orlando resembled Manhattan sidewalks during rush hour.

The outpouring of tourists belied consumer concerns about an economy facing a significant housing industry slump, tightening credit markets and volatile financial markets. Hoteliers acknowledged the concerns, but those catering to the higher end of the market said they haven't seen a pullback.

Read more of this Orlando Sentinel article here.

Thursday, January 03, 2008

The Redolent Smell of Profits Crosses All Borders

From the FT article "US Studios Get Taste for Bollywood":

International investors are preparing to make an unprecedented onslaught on Bollywood this year, with several Hollywood studios and a group of London-listed funds looking to take a share of the world’s most prolific movie-making market.


Studio groups such as Sony Pictures Entertainment, Viacom – which controls Paramount Pictures – and Disney are working on new releases and partnerships that will give them an entry into India’s once closed and idiosyncratic movie industry.

Bottom Line: As developing economies like India grow and prosper, and as their middle classes emerge with increasingly higher disposable incomes, they become increasingly attractive as profitable consumer markets for firms in developed economies like the US. International trade and globalization are win-win, not win-lose as you would think from Lou Dobbs and the media. The "smell of profits" has a strong odor, penetrates globally across all international borders, and U.S. studios have picked up the redolent scent of profits in the booming Indian movie market.

Faux Populism

"You can't create a job without a business. And unless an investor finances a business, you ain't gonna have any jobs, you're not going to have a middle class, and you're not going to have any consumers. Therefore, this faux populism is a lot of crap."

Larry Kudlow on tonight's CNBC "Kudlow and Company," in reponse to the anti-investor, anti-business, pro-government faux populism and political rhetoric of Huckabee and Edwards.

Milton Friedman Debates Naomi Klein

(HT: Newmark's Door)


Is the USD Making a Comeback vs. the Euro?

Using foreign exchange data from FT.com, the chart above shows the one-year forward discount or premium of the USD vs. the euro from January 2006 to January 2008. (Mid-month rates were used for the months between January 2006 and December 2007, and yesterday's quote was used for January 2008.) After trading at a one-year forward discount vs. the euro for at least 23 consecutive months, the dollar has been selling at a one-year forward premium vs. the euro for the last two months, and is now trading at a one-year forward premium of .40%. Over the last 6 weeks, the dollar has strengthened by about 1.5% vs. the euro in the spot market.

Homo Politicus: The Strange and Scary Tribes...

It's a land where things are often not what they seem — at least to outsiders. They are, in fact, the opposite of what they seem. In his new book, "Homo Politicus: The Strange and Scary Tribes that Run Our Government," Dana Milbank describes this place as Potomac Land, also known as Washington, D.C.

'Potomac Land' Speak Select phrases, followed by their English equivalents:

"You're doing a heckuva job."
You will be fired in ten days.

"Frankly..."
The following statement is false.

"You are either with us or against us."
You are against us.

"The senator will deliver a major policy address."
The senator is desperate to get on television.

And my favorite:

"I will continue to do the people's business."
I expect to be indicted.

From a story this morning on NPR.

Wednesday, January 02, 2008

The Coen Brothers' Green Guilt and Their Purchase of Eco-Indulgences: The Eco-Extortion Scam

The credits of the Coen brothers feature film "No Country for Old Men" state that the film's production was "carbon neutral," thanks to carbon-offset credits purchased through Native Energy.

From the September 2007 LA Times article "Can You Buy a Greener Conscience?":

The race to save the planet from global warming has spawned a budding industry of middlemen selling environmental salvation at bargain prices. The companies take millions of dollars collected from their customers and funnel them into carbon-cutting projects, such as tree farms in Ecuador, windmills in Minnesota and no-till fields in Iowa.

In return, customers get to claim the reductions, known as voluntary carbon offsets, as their own. For less than $100 a year, even a Hummer can be pollution-free -- at least on paper.

Driven by guilt, public relations or genuine concern over global warming, tens of thousands of people have purchased offsets to zero out their carbon impact on the planet. Beneath the feel-good simplicity of buying your way to carbon neutrality is a growing concern that the idea is more hype than solution.


In this related commentary "Carbon Offsets: Eco-Extortion, Green Guilt, and the Selling of Indulgences," Frank Pastore writes:

The selling of “voluntary carbon offsets”—eco-indulgences—is a $55 million per year industry, involving over three dozen companies worldwide. Total sales are anticipated to double both this year and next, and entrepreneurs are clamoring all over themselves for a piece of the action.

And it’s all a scam.

Yes, the money is very real, but the alleged benefits to the environment are fake. Paying someone to plant a tree to “offset” the carbon footprint of your SUV is just plain silly. Yet there are thousands of people spending real money on these kind of indulgences every day.

Why? The answer is that it’s part green guilt, part eco-extortion, and part just plain novelty.

MP: Both articles point out this part of the scam: Native Energy and other companies selling eco-indulgences often contribute only 1% of the total cost of windmill projects and alternative energy plants, yet they claim and sell 100% of the carbon reductions.

Oil Less Than $70 Per Barrel in 2015?

Oil for delivery in December 2015 is trading on the NYMEX for $88.33 per barrel. Assuming a 3% average annual inflation rate over the next 8 years, that means that oil in 2015 is trading for only $69.72 per barrel in today's dollars.

Is A Recession Looming on the Horizon in 2008?

I say NO in this commentary that has appeared nationally in these papers (circulation in parentheses):

JANUARY 2 — AKRON BEACON JOURNAL (141,073) / Op-Ed “Our economy is strong”

JANUARY 2 — ROCHESTER (MN) POST-BULLETIN (42,391) / Op-Ed “Key indicators show few signs of financial trouble ahead”

JANUARY 1 — KANSAS CITY STAR (261,776) / Op-Ed “No, a recession isn’t looming in 2008”

JANUARY 1 — COLUMBUS DISPATCH (259,000) / Op-Ed “Global economy will keep U.S. economy vibrant”

JANUARY 1 — JANESVILLE (WI) GAZETTE (26,682) / Op-Ed “Expanding global economy will keep U.S. economy humming”

DECEMBER 31 — AUSTIN AMERICAN-STATESMAN (183,952) / Op-Ed “Despite pressure, America’s economy will remain strong in 2008”

DECEMBER 31 — CHARLOTTE OBSERVER (232,000) / Op-Ed “U.S. economy is resilient enough to handle changes”

DECEMBER 29 — YOUNGSTOWN (OH) VINDICATOR (64,763) / Op-Ed “We’re thriving in this economy”

2008: 100% Chance of Alarm About Global Warming

Science columnist John Tierney's prediction in today's NY Times:

In 2008, your television will bring you image after frightening image of natural havoc linked to global warming. You will be told that such bizarre weather must be a sign of dangerous climate change — and that these images are a mere preview of what’s in store unless we act quickly to cool the planet.

Unfortunately, I can’t be more specific. I don’t know if disaster will come by flood or drought, hurricane or blizzard, fire or ice.

Tierney also writes about the "availability entrepreneurs: the activists, journalists and publicity-savvy scientists who selectively monitor the globe looking for newsworthy evidence of a new form of sinfulness, burning fossil fuels."

When the Arctic sea ice last year hit the lowest level ever recorded by satellites, it was big news and heralded as a sign that the whole planet was warming. When the Antarctic sea ice last year reached the highest level ever recorded by satellites, it was pretty much ignored. A large part of Antarctica has been cooling recently, but most coverage of that continent has focused on one small part that has warmed.

When Hurricane Katrina flooded New Orleans in 2005, it was supposed to be a harbinger of the stormier world predicted by some climate modelers. When the next two hurricane seasons were fairly calm — by some measures, last season in the Northern Hemisphere was the calmest in three decades — the availability entrepreneurs changed the subject. Droughts in California and Australia became the new harbingers of climate change (never mind that a warmer planet is projected to have more, not less, precipitation over all).

Maybe CEOs Like Jack Welch Are Underpaid?

Aren't CEOs overpaid? Here's part of George Mason economist Walter Williams' column today:

What about complaints about CEOs earning so much more than the average worker? Before looking at CEOs, let's look at another area of huge pay differences. According to Forbes' Celebrity 100 list, Oprah Winfrey earned $260 million. Even if her makeup person or cameraman earned $100,000, she earns thousands of times what they earn. Among the celebrities earning hundreds or thousands of times more than the people who work with them are: Steven Spielberg ($110 million), Tiger Woods ($100 million), Jay Leno ($32 million) and Dr. Phil ($30 million). According to Forbes, the top 10 celebrities and athletes earned an average of $116 million in 2004 compared to an average of $59 million earned by the top 10 corporate CEOs.

When Jack Welch became General Electric's CEO in 1981, the company was worth about $14 billion. Through hiring and firing, buying and selling decisions, Welch turned the company around and when he retired 20 years later, GE was worth nearly $500 billion. What's a CEO worth for such an achievement? If Welch was paid a measly one-half of a percent of GE's increase in value, his total compensation would have come to nearly $2.5 billion, instead of the few hundred million that he actually received.

Bottom Line: You could probably make a stronger case that Jack Welch was underpaid and exploited by his shareholders and GE's Board of Directors than making a case that he was overpaid as a CEO.

Tuesday, January 01, 2008

Do U.S. Companies Overlook Labor Arbitrage Here?

Fact 1: The size of the global outsourcing market is estimated to be $310 billion in 2008, driven primarily by the endless pursuit of U.S. MNCs looking for low-cost labor any where in the world it is available and ultimately seeking greater corporate profits. Most offshore outsourcing efforts save 15-20% when all costs are considered, representing a form of "labor arbitrage" generated by the wage gap between industrialized and developing nations.

Fact 2: According to the National Organization for Women, full-time women workers in the U.S. are paid an average of 77 cents for every dollar men are paid. Women of color are short-changed even more, with African-American women paid only 71 cents and Latinas just 58 cents on men's dollar. These wage gaps stubbornly remain despite the passage of the Equal Pay Act more than 40 years ago, and a variety of legislation prohibiting employment discrimination.

Questions: If the wage gap in the U.S. exists primarily because of discrimination and U.S. companies could immediately save 23-42% by exclusively hiring women, why would they overlook this "labor arbitrage" opportunity and profitable wage gap right in their own back yard? In other words, why would U.S. companies go to the other side of the planet to hire low-cost workers in Bangalore, to take advantage of a 15-20% wage gap and exploit labor arbitrage in India, when they could exploit labor arbitrage and a wage gap right here in the U.S.?

Demise of Newspapers; Outsourcing to the Rescue?

It's a grim new year for newspapers. As yet another rough quarter draws to a close, we witness the closing of a venerable Midwestern journal, The Cincinnati Post, after 126 years of publication, as well as an alarming new trend: the outsourcing of advertising responsibilities to India.

Read more here.

World Stock Market Boom 2007

According to world stock market capitalization data available from Global Financial Data and the World Federation of Exchanges, more than $9.5 trillion of stock market value was created from January-November 2007, an historical record for that period (see chart above).

Bottom Line: Despite $100 oil, a subprime crisis, a somewhat weak U.S. stock market, and constant worries about a U.S. recession, the $9.5 trillion increase in world stock market capitalization during the first 11 months of 2007 was almost as much stock market value as was added in the global bull market, Dot.com years of 1995, 1996, 1997 and 1998 COMBINED. The global economy and the global stock markets are alive and well.

2007 Bull Market in the Emerging Markets

Chart above (click to enlarge) is based on 2007 stock returns for the emerging markets, in USD, from MSCI. Note that the return for the US market was 4.1%, measured by MSCI's US Index, and the S&P500 return with dividends was about 5.4%.

Note also that most returns of these markets, measured in local currency (not displayed here), were less than these returns above measured in US dollars. But the falling dollar (and rising foreign currencies) turned out to be another significant advantage of the weak dollar, at least for U.S. investors holding stocks or mutual funds of emerging markets with appreciating currencies.

Santa Claus Front Runner in Economics-Free Zone

Santa Claus may turn out to be the real front-runner in the primaries, judging by the way candidates are vying with one another to give away government goodies to the voters.

We now have a bipartisan tradition of the government stepping in to rescue people who engaged in risky behavior -- whether by locating in the known paths of hurricanes in Florida or in areas repeatedly hit by wildfires over the years in California or by gambling in the housing market.

Why not also rescue people who gambled away their life's savings in Las Vegas? That would at least be consistent.

After the departure of Senator Phil Gramm and House Majority Leader Dick Armey, Congress has been an economics-free zone. There is not one economist among the 535 members of Congress.

But, in an election year, that is not a political handicap. Santa Claus has won far more elections than any economist.


From Thomas Sowell's article "Santa Claus Politics"

The Starbucks Reverse Jinx

Strange as it sounds, the best way to boost sales at your independently owned coffeehouse may just be to have Starbucks move in next-door.

Read why here in Slate.com's article "Don't Fear Starbucks: Why the Franchise Actually Helps Mom and Pop Coffeehouses."

Monday, December 31, 2007

Hillary 3:1 Favorite; 3-Way Tie for Republicans


Based on Intrade.com trading:

Hillary is more than a 3:1 favorite for the Democratic nomination. There is close to a 3-way tie for the Republican nomination among Giuliani (27%), Romney (26%) and McCain (23%).

Sunday, December 30, 2007

Harley-Davidson To Drive Into the Indian Market

NEW DELHI: American cult bike brand Harley-Davidson may finally hit the Indian roads.

Bottom Line: Globalization works both ways. As U.S. companies outsource business processing, research, software development and call centers to India, wealth and prosperity are created there that creates a demand for U.S. products like Harley-Davidsons.

(HT: Sanil Kori)

The Coming Oil Glut and $30 Oil, $1.50 Gas?

The tripling of oil prices since the summer of 2003 has unleashed forces that within the next two or three years will bring oil prices tumbling back down to below $50 a barrel. Looking even further ahead, prices could easily fall to $30 a barrel or even lower.

With prices close to the inflation-adjusted record, energy companies and governments are investing heavily in facilities that generate crude and crude substitutes. Consumers of fuel oil and gasoline are starting to economize, and over time, these changes in behavior will shift the balance of power in their favor. When that happens, an oil glut will emerge, and the price will plummet. So before you trade in your Cadillac Escalade for a Toyota Prius, think twice: $1.50-a-gallon gas might not be gone forever.

Read more here.

(HT: Newmark's Door)

Giving Birth Latest Job Outsourced to India

The small clinic at Kaival Hospital in Anand, India matches infertile couples with local women, cares for the women during pregnancy and delivery, and counsels them afterward. Anand's surrogate mothers (pictured above), pioneers in the growing field of outsourced pregnancies, have given birth to roughly 40 babies.

More than 50 women in this city are now pregnant with the children of couples from the United States, Taiwan, and Britain. Suman Dodia, a pregnant, 26-year-old, said she will buy a house with the $4,500 she receives from the British couple whose child she's carrying. It would have taken her 15 years to earn that on her maid's monthly salary of $25.

Experts say commercial surrogacy could take off in India for the same reasons outsourcing in other industries has been successful: a wide labor pool working for relatively low rates.

Read more here.

(HT: Sanil Kori)

Quote of the Day: Good Renters, Bad Homeowners

"Easy credit made bad homeowners out of good renters."

~Los Angeles manager of rental property, from an article in today's Mpls.-St. Paul Star Tribune

Fortunately maybe, the homeownership rate in the U.S., after rising by 5 percentage points (from 64% to 69%) between 1994 and 2004, has fallen over the last four years by the biggest amount (.80%) since the mid-1980s (see chart above). Hopefully, many of the bad homeowners of the last few years of easy credit and now rising foreclosures are becoming good renters again.

Global Capitalism Comes to Southeast Asia

Cheap Chinese products, like motorcycles that sell for only $440, are flooding China's southern neighbors and consumers in Myanmar, Laos, Vietnam and Cambodia are laying out the welcome mat.

The products are transforming the lives of some of the poorest people in Asia, whose worldly possessions only a few years ago typically consisted of not much more than a set or two of clothes, cooking utensils and a thatch-roofed house built by hand.

As the first introduction to global capitalism, Chinese products are met with deep appreciation.

Read more of the IHT article "Chinese Goods Transform Life in Southeast Asia"
here.

Watch a video "Change Arrives on a Scooter" here.

Note that globalization and trade are disproportionately benefiting the poor people of SE Asia, since the rich politicians and politically-connected elite already had their BMWs. Also, this story counteracts the myth that "globalization exploits the developing nations and their poor." I don't think the mountain villagers of Laos, who can now reach the nearest city in 2 hours on a scooter instead of walking all day, feel too "exploited."

(HT: Sanil Kori)