Professor Mark J. Perry's Blog for Economics and Finance
Saturday, October 25, 2008
Interesting Fact of the Day: Life Expectancy in Russia Is Lower Today Than It Was 50 Years Ago
Russia’s health situation today is a disaster — substantially worse than during the Mikhail Gorbachev years or even the Leonid Brezhnev era. In 2006, overall life expectancy in Russia, at fewer than 67 years, was actually lower than it had been at the end of the 1950s, nearly half a century earlier. For a literate, urbanized society during peacetime, such a monumental public health failure is an extraordinary historical anomaly. Russian life expectancy nowadays is about the same as India’s, and life expectancy for Russian men, today barely over 60 years, is lower than for their counterparts in Pakistan.
Nicholas Eberstadt, resident scholar at the American Enterprise Institute, in today's NY Times
U.S. Greenback Reached A 2.5 Year High Yesterday
The U.S. dollar index (vs. major currencies) hit a 2.5-year high today, reaching the highest level since April 20, 2006 (see chart above).
Update: What's so great about a rising dollar?
1. Imports are cheaper. We buy almost $200 billion of goods from the rest of the world, but export only about $120 billion. Since our imports are greater than our exports, we have a net gain from a rising dollar.
2. A strong dollar makes gas and oil (which is priced in dollars) cheaper. As I have reported, consumers save $1.42 billion annually for every cent that gas prices fall. Consumers will save more than $200 billion over the next year from the recent fall in gas prices, and part of that price decline and consumer savings is from the stronger dollar.
3. The appreciation of the dollar suggests that inflationary pressures have eased for the U.S. economy.
Libertarian Candidate Bob Barr Makes His Case
A conservative vote for Sen. McCain is a wasted vote. It is wasted because even if he is elected, he does not stand for conservative values and will not promote conservative values. Government will grow, spending will rise, and liberty will diminish.
But it looks increasingly likely that he won’t be elected, and no one will care about his vote totals if he loses. In contrast, a vote for Bob Barr and the Libertarian Party will be noticed and will have a lasting, positive impact. A vote for Bob Barr and the Libertarian Party will be a vote for liberty and for America’s future.
Traffic Volume Declines in August by Record 5.6%; What Will Happen In September, October?
Updated: The Federal Highway Administration reported yesterday that travel during August 2008 on all roads and streets in the U.S. fell by -5.6% compared to August last year. According to Secretary of Transportation Mary Peters, this was the largest ever year-to-year decline recorded in a single month.
August marks the tenth consecutive month of traffic volume decline compared to the same month in the previous year. Travel YTD through August 2008 fell by -3.3% compared to 2007.
The ten consecutive monthly declines (November 2007 through August 2008) in miles driven compared to the same month in the previous year is almost a record, and represents one of the most significant adjustments to driving behavior in recent history.
On a moving 12-month total basis, traffic volume in August fell to 4.5-year low of 2.929 trillion miles, the lowest level since March of 2004 (see chart above), and this measure has fallen in ten of the last 12 months.
Bottom Line: The moving 12-month total traffic volume in August 2008 (2.929 trillion) is below the August 2007 level (3.008 trillion) by 78.911 billion annual miles driven. At an average fuel efficiency of 20 m.p.g., and an average gas price of $3 per gallon over the last year, that reduction in miles driven represents almost a $12 billion annual savings for American consumers. That's in addition to the much larger $200 billion annual savings for consumers from the drop in gas prices from $4.12 per gallon to $2.71 since August (gas data), since consumers save about $1.42 billion annually for every penny decrease in gas prices.
It will be interesting to see how the significant fall in gas prices in September and October 2008 affects driving behavior, and we'll know in about a month from the next FHA report on September 2008 traffic volume.
Thanks to John Thacker for the FHA update.
Unbelievable McCain Vs. Obama Dance-Off
A little election levity....
Via the Huffington Post: Break.com has put together one of the most original and entertaining videos of the campaign season. Titled "Unbelievable McCain Vs. Obama Dance-Off," the video is as advertised: a dance-off between the 'candidates', and yes, kind of unbelievable. See for yourself. Click the arrow below to start the Dance-Off!
Thanks to SCP.
Friday, October 24, 2008
Some Healing in the Housing Market: The 5.5% September Home Sales Increase Highest in 5 Years
From First Trust, based on the National Association of Realtors release today:
1. Existing home sales increased 5.5% in September to an annual rate of 5.18 million, much higher than the consensus expected selling rate of 4.95 million. Existing home sales are up 1.4% versus a year ago.
2. The median price of an existing home declined to $191,600 in September (not seasonally adjusted) and is down 9.0% versus a year ago. Single-family home prices are down 8.6% versus last year.
3. The months’ supply of existing homes (at the current sales rate) fell to 9.9 in September from 10.6 in August.
Implications: The housing market is healing. The key implication of today’s report on existing homes is that credit-worthy home buyers are able get loans. After hovering for twelve months in a range between 4.85 million and 5.11 million, existing home sales spiked up 5.5% in September to a 5.18 million annual rate. The monthly gain in September was the most in five years and the level of sales is now above where it was a year ago (see chart above), the first time that has happened since 2005.
Sales are rising as home sellers (including lenders who have foreclosed on previous owners) are cutting prices aggressively. The median sales price on an existing home is down 9% versus last year and the lowest since 2004. We expect further price declines in the year ahead as the industry continues to work off excess inventory. After hitting 11.0 in June – the highest level since 1985 – the months’ supply of single-family existing homes has fallen to 9.4.
Despite 1.5% Target, Fed Fund Rate Is Below 1%
Thursday, October 23, 2008
Inflation Expectations Plunge By 2% in 4 Months And Drop to Lowest Level Since 1997
This is a huge drop in inflation expectations from 3.36% in June to only 1.36% this week (see bottom chart). Inflationary pressure is easing and deflating fast.
Update: The chart above is based on the Cleveland Fed's monthly data (calculated as the mean of daily data in a given month) from February 1997 (when TIPS were first introduced) to September 2008, and the average of the last four days this week (1.462%, 1.441%, 1.495% and 1.026%) for October 2008 (1.36% this week).
Markets in Everything, South Florida Edition: Vultures in Miami's Real Estate Market
South Florida is in the throes of a truly hellish real estate bust. Home prices are down 24% in the past year, with many places changing hands for less than half their height-of-bubble values. The region has seen foreclosures on more than $14.2 billion worth of property this year—a record. Developers can't sell enough units to pay construction loans. Condo boards are trying to keep the stairwells of their half-empty buildings clear of vagrants. Landlords are renting out units at daily rates to makers of porn films.
The bleak tableau is exactly what vulture investors have been waiting for. Having sat out the bubble, they're flocking to the Magic City to make lowball, often all-cash offers for numerous properties at once. Some members of this motley assortment of foreign professionals, U.S. money managers, and retired corporate executives learned how to prey by picking through the detritus of the U.S. savings and loan bust. Others earned their stripes in emerging- market financial crises. They differ in their tactics; what unites them is their absolute insistence on paying bottom dollar.
Thanks to DB
Foreclosures Fall in Sept., Partly Due to Legislation
RealtyTrac, the leading online marketplace for foreclosure properties, today released its U.S. Foreclosure Market Report for September 2008 and Q3 2008. Foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 265,968 properties in September, a 12% decrease from the previous month but still a 21% increase from September 2007 (see map above). One in every 475 U.S. housing units received a foreclosure filing in September (that's 0.21% of households).
Six states accounted for more than 60% of U.S. foreclosure activity in the third quarter (CA, AZ, NV, FL, MI and OH). California alone accounted for more than 27 percent of the nation’s foreclosure activity, with 210,845 properties receiving a foreclosure filing during the quarter — up 4 percent from the previous quarter and up more than 122 percent from the third quarter of 2007.
The cities with the 10 highest foreclosure rates among the nation’s 100 largest metropolitan areas in the third quarter were all located in California, Florida, Arizona and Nevada.
Klaus: It's Not New Capitalism, It's Old Socialism
Klaus concludes that the EU plans to better regulate the financial markets and reform the International Monetary Fund will not lead to a "new capitalism", as termed by French President Nicolas Sarkozy, but will represent a return to an "old socialism."
(Thanks to Jack Helmuth.)
Wednesday, October 22, 2008
GAS FALLS BELOW $2 PER GALLON IN TEXAS!
The Greenback Hits At Two-Year High
What Credit Crisis?
For almost the last year (starting in November 2007), I have posted at least ten times (see here, here, here, here, here, here, here, here, here, and here) on the theme "What Credit Crisis?," featuring graphs like the one above, which shows Total Bank Credit at all U.S. commercial banks (data here) at an all-time historical high of almost $10 trillion as of two weeks ago (October 8, 2008).
A new working paper from the Minneapolis Federal Reserve, "Myths about the Financial Crisis of 2008," confirms much of what I have been saying for the last year, here is an excerpt:
The financial press and policymakers have made four claims about the nature of the crisis.
1. Bank lending to non-financial corporations and individuals has declined sharply.
2. Interbank lending is essentially nonexistent.
3. Commercial paper issuance by non-financial corporations has declined sharply and
rates have risen to unprecedented levels.
4. Banks play a large role in channeling funds from savers to borrowers.
Here we examine these claims using data from the Federal Reserve Board. At least based on data up until October 8, 2008, we argue that all four claims are false.
MP: Commercial loans are at an all-time high (data here) through October 8, consumer loans are at an all-time high through September (data here), and even real estate loans are at an all-time high through September (data here). Where's the credit crisis?
Thanks to Alex Tabarrok at Marginal Revolution.
Odds For Obama Now 6.2 To 1 On Intrade
Tuesday, October 21, 2008
1 Of 3 States Have Jobless Rates Below 5%
3. One of of every three states (17) have jobless rates below 5%.
King Dollar: The Greenback Makes A Comeback
The U.S. dollar index (vs. major currencies: Euro Area, Canada, Japan, United Kingdom, Switzerland, Australia, and Sweden ) hit a 17-month high today.
Political Hypocrisy: Do As I Say, Not As I Do
Political Rhetoric: An Obama campaign ad says: “Today women work to help support their families but are paid just 77 cents for every $1 a man makes. It’s just one more thing John McCain doesn’t get about our economy.”
1. Obama pays his own female Senate staffers, on average, only 78% of what he pays male staffers (see top chart above), and females make up 53% of Obama's staff.
2. McCain pays female staffers 101% of what he pays men (see bottom chart above), and females made 62% of McCain's staff.
3. Women occupy seven of the top 10 highest-paid positions on McCain’s staff, and five of the top 10 highest-paid positions on Obama’s staff.4. Women on McCain’s staff earn 24% more on average than women on Obama’s Senate staff.
Source: The most recent Report of the Secretary of the Senate, which includes the salaries of every member of each U.S. senator’s staff during the period of Oct. 1, 2007 through March 31, 2008, via CNS News. This is the second consecutive six-month period reviewed by CNSNews.com in which McCain, an Arizona Republican, has paid women on his Senate staff a higher average salary than he pays men and Obama has paid men a higher average salary than he pays women.
Thanks to a comment left by "like such as" for the CNS link.
UK Pay Gap Based on Personal Lifestyle Choices: Like Marriage and Motherhood
The UK's Institute of Economics Affairs has released a new study "Should We Mind the Gap? Gender Pay Differentials and Public Policy" (full study here, press release here, newspaper report here).
Professor John Shackleton, of the University of East London, who led the report, said in reality the pay gap hardly existed for workers under 30.
"The widespread belief that the gender pay gap is a reflection of deep rooted discrimination by employers is ill-informed and an unhelpful contribution to the debate. The pay gap is falling but is also a reflection of individuals' lifestyle preferences. Government can't regulate or legislate these away - and shouldn't try to," said the report.
He said men work longer hours in more dangerous jobs and face a greater risk of being sacked, while women who take career breaks outnumber their male equivalents by more than five to one.
"In the last decade, in the name of promoting equality, we have had a huge increase in the burden placed upon employers. This can often harm the very people it is intended to help. Indeed, given this new evidence, we should question the need for the Equal Pay Act. It seems to be individual choices and not systematic discrimination that determine pay and conditions."
MP: The table above from the report is very enlightening:
1. For unmarried, single workers there is NO "pay gap," and in fact women make 1.1% MORE than men in the U.K. (median wage of £8.82 per hour for females vs. £8.72 for men), so there is actually a pay gap for men!
2. For the overall population of U.K. workers, without even controlling for relevant factors like hours worked, career choices, etc., quite a bit of the "pay gap" can be explained by just two factors, both of which relate to voluntary and personal lifestyle choices: marriage and motherhood (see table above).
3. The pay gap increases as the number of children increases, and is highest for married workers with 4 children.
Falling Gas Prices: A Tax Cut of Massive Proportions
Update: A recent CD post reported that American consumers save $1.42 billion annually for every one penny decrease in retail gasoline prices. According to EIA data, the average retail gasoline price peaked in early July at $4.165 (national average) per gallon, and is now at $2.914, a decrease of 125.1 cents (see chart above). That fall in gas prices translates into a $177.6 billion savings for U.S. consumers over a one-year period, and there'll probably be more to come as gas prices continue to fall.
And in Texas, where gas prices are down to $2.02 in some areas, the $2 per gallon fall in gas prices there (from $4 in July) would translate into almost $300 billion worth of annual consumer savings (actually $284 billion).
As Dennis Gartman wrote in "The Gartman Letter" last Friday:
"This [$177 billion savings] dwarfs by a huge factor the recent tax rebate checks that went out to the nations taxpayers and which helped bump up the economy in the summer. That was a one-off event; the weakness in gasoline prices is an on-going one instead. This is a tax cut of massive proportions... beyond anything that Obama might promise."
The Magic Word: "Change"
The magic word "change" makes specifics unnecessary. If things are going bad, some think that what is needed is blank-check "change." But history shows any number of countries in crises worse than ours, where "change" turned problems into catastrophes.
In czarist Russia, for example, the economy was worse than ours is today and the First World War was going far worse for the Russians than anything we have faced in Iraq. Moreover, Russians had nothing like the rights of Americans today. So they went for "change." That "change" brought on a totalitarian regime that made the czars' despotism look like child's play. The Communists killed more people in one year than the czars killed in more than 90 years, not counting the millions who died in a government-created famine in the 1930s.
Other despotic regimes in China, Cuba, and Iran were similarly replaced by people who promised "change" that turned out to be even worse than what went before.
Yet many today seem to assume that if things are bad, "change" will make them better. Specifics don't interest them nearly as much as inspiring rhetoric and a confident style. But many 20th century leaders with inspiring rhetoric and great self-confidence led their followers or their countries into utter disasters.
These ranged from Jim Jones who led hundreds to their deaths in Jonestown to Hitler and Mao who led millions to their deaths.
~Thomas Sowell's column today
Monday, October 20, 2008
Life in the Blogosphere: The Feedback Can Be Instant, Personal, Emotionally Unstable, and Brutal
Some excerpts from the article "Why I Blog" by Andrew Sullivan in the new issue of The Atlantic:
A reporter can wait—must wait—until every source has confirmed. A novelist can spend months or years before committing words to the world. For bloggers, the deadline is always now. Blogging is therefore to writing what extreme sports are to athletics: more free-form, more accident-prone, less formal, more alive. It is, in many ways, writing out loud.
It was obvious from the start that it was revolutionary. Every writer since the printing press has longed for a means to publish himself and reach—instantly—any reader on Earth.
Within minutes of my posting something, even in the earliest days, readers responded. E-mail seemed to unleash their inner beast. They were more brutal than any editor, more persnickety than any copy editor, and more emotionally unstable than any colleague.
Again, it’s hard to overrate how different this is. Writers can be sensitive, vain souls, requiring gentle nurturing from editors, and oddly susceptible to the blows delivered by reviewers. They survive, for the most part, but the thinness of their skins is legendary. Moreover, before the blogosphere, reporters and columnists were largely shielded from this kind of direct hazing. Yes, letters to the editor would arrive in due course and subscriptions would be canceled.
But reporters and columnists tended to operate in a relative sanctuary, answerable mainly to their editors, not readers. For a long time, columns were essentially monologues published to applause, muffled murmurs, silence, or a distant heckle. I’d gotten blowback from pieces before—but in an amorphous, time-delayed, distant way. Now the feedback was instant, personal, and brutal.
Some e-mailers, unsurprisingly, know more about a subject than the blogger does. They will send links, stories, and facts, challenging the blogger’s view of the world, sometimes outright refuting it, but more frequently adding context and nuance and complexity to an idea. The role of a blogger is not to defend against this but to embrace it. He is similar in this way to the host of a dinner party. He can provoke discussion or take a position, even passionately, but he also must create an atmosphere in which others want to participate.
For all the intense gloom surrounding the news-paper and magazine business, this is actually a golden era for journalism. The blogosphere has added a whole new idiom to the act of writing and has introduced an entirely new generation to nonfiction. It has enabled writers to write out loud in ways never seen or understood before. And yet it has exposed a hunger and need for traditional writing that, in the age of television’s dominance, had seemed on the wane. Words, of all sorts, have never seemed so now.
Environmental Heresy, Parts I and II
1. Disposable diapers are more green than reusable diapers, according to a recent U.K. report that concluded that disposable diapers have a global warming impact of 550 kg of CO2 over 2.5 years, while reusable diapers produced 570 kg of CO2.
2. The number of climate change skeptics is growing rapidly. Because a funny thing is happening to global temperatures -- they're going down, not up. Don Easterbrook, a geologist at Western Washington University, says, "It's practically a slam dunk that we are in for about 30 years of global cooling," as the sun enters a particularly inactive phase.
Markets In Everything: Paperless Coupons
Coupons are going paperless. Here's how it works: Electronic coupons are posted online. Shoppers point and click to select the ones they want, and link them with their loyalty cards from their grocery store. When their card is presented at check out, the coupon discounts get applied to the bill.
Cell-phone-based coupons are also gaining some steam. In that model, customers receive the coupon codes on their handsets, which can be used at the checkout for savings.
Thanks to Clover Aguayo.
Colorado and Nebraska Attempt to End State-Sponsored Race and Gender Preferences
While choosing between tickets featuring Barack Obama or Sarah Palin this November, voters in Colorado and Nebraska will also be able to bury the idea that blacks and women in America still need special help to get ahead. In those states, the ballot will carry civil rights initiatives to end race and gender preferences in public hiring and education.
If passing laws to ban discrimination sounds like a triumph for civil rights, you wouldn't know it from the heckling of opponents, who have spent hundreds of thousands of dollars to keep the measures off ballots around the country, using tactics from lawsuits to voter deception to defeat the plans.
Defenders of group-based preferences have long warned that minorities couldn't succeed in a system that doesn't give them special advantages. But far from turning back the clock for African-Americans and women, ending preferences will allow minorities and women to take the full credit for their accomplishments. Barack Obama and Sarah Palin have shown the roads are open.
~Today's Wall Street Journal
From my Detroit Free Press article two years ago when Michigan voted to end racial double-standards here:
President John F. Kennedy said: "Simple justice requires that public funds, to which all taxpayers of all races and national origins contribute, not be spent in any fashion which encourages, entrenches, subsidizes or results in racial discrimination." Hopefully, Kennedy's vision will prevail this fall when Michigan (and now Colorado and Nebraska) voters have an opportunity to end state-sponsored racial discrimination in college admissions at Michigan (Colorado and Nebraska) public universities.
In 2006 when Michigan voters considered Proposal 2 to end racial and gender preferences, 80 out of 83 Michigan counties voted in favor of ending state-sponsored racial and gender discrimination.
Sunday, October 19, 2008
Healthcare Should Not Be Linked To Employment
An end to employer-based health insurance is exactly what the American healthcare market needs. Far from being a calamity, it would represent a giant step toward ending the current system's worst distortions: skyrocketing premiums, lack of insurance portability, widespread ignorance of medical prices, and overconsumption of health services.
With more than 90% of private healthcare plans in the United States obtained through employers, it might seem unnatural to get health insurance any other way. But what's unnatural is the link between healthcare and employment. After all, we don't rely on employers for auto, homeowners, or life insurance. Those policies we buy in an open market, where numerous insurers and agents compete for our business. Health insurance is different only because of an idiosyncrasy in the tax code dating back 60 years - a good example, to quote Milton Friedman, of how one bad government policy leads to another.
De-linking medical insurance from employment is the key to reforming healthcare in the United States.
~From Jeff Jacoby's most recent Boston Globe column
Doom and Gloom? Consider Hedging with Intrade
Has the late unpleasantness got you down? The perfect solution is right in front of you. Use Intrade as a hedge. Using money to offset real hardship is a time-honored trick. Insurance companies rely upon this approach to smooth over all manner of downers and upsets. So if you feel strongly about the election or the financial crisis, why not buy a little insurance of your own?
Hope the economy pulls through? We all do. But if it doesn't, owning a little US.RECESSION.08 will help smooth the rough ride. What better way to counter your own personal recession than a little extra return when it hits?
It doesn't end there. Why not hedge against higher taxes on "Highest Marginal Single-Filer Fed Income Tax Rate to be Equal or Greater than 36% in 2009 Tax Year"? Boy, higher income taxes. That doesn't sound fun. But if it happens, an investment of $41 on 2009.INCOME.TAXRATE.>36% today will be worth $100. You could even invest just enough to cover a tax hike. No, really. Why not?
Gas Prices Approaching $2 Per Gallon in Texas
OPEC Cheats: It Overproduces By 500,000 bpd
The chart above is from the Net Oil Exports blog, and shows the difference between: a) OPEC's official quotas and b) OPEC's typically higher actual production, demonstrating that "OPEC almost always cheats as a group. They over-produce by 500,000 barrels per day (bpd)."
Harvesting Cash: There's Sure No Farm Recession in the U.S., "Big Farm" is Having The Best Year Ever
There's sure no recession in U.S. agriculture - "Big Farm" is doing very, very well this year, according to data from the USDA:
1. Farm income in 2008 ($95.7 billion) is up by almost 64% compared to 2006 ($58.5 billion), see top chart above.
2. Farm real estate has increased in value by 53% during the last four years, from $1.34 trillion in 2004 to more than $2 trillion in 2008, see middle chart above.
3. Farm equity has increased by almost 50% since 2004, to a record $2.147 trillion, see bottom chart above. And the debt to asset ratio for farms is at a five-year low of only 9% (down from 11.3% in 2004), since farmers are carrying only $211 billion in debt on $2.359 trillion of farm assets.
Q1. What's next? "Windfall profits taxes" on Big Farm?
Q2. Does this wealthy group of agribusinesses ("Big Farm") really need taxpayer subsidies?
Quote of the Day
"The bottom of the bear market is where fear and greed come face to face."
~Connie Wright, via regular CD contributor Bob Wright (who commented on this CD post)
Just wondering, wouldn't it also be true that "the top of the bull market is where fear and greed come face to face?"