Tuesday, September 07, 2010

The Unsustainable College Textbook Bubble

I've been covering the "higher education bubble," see posts here and here.  One reason for the still-inflating higher education bubble for college tuition and fees is administrative bloat, see CD post here.

A direct partner in the "higher education bubble" is the unsustainable "college textbook bubble," captured graphically in the chart above.  To put the textbook bubble in perspective, consider that the unsustainable housing bubble started in the late 1990s when home prices started appreciating much faster than the consumer price index, and the housing bubble peaked in 2007 when median home prices had increased by a factor of about 4 since 1978. By comparison, increases in the price index for educational books and supplies have outstripped rises in the general price level for the last three decades, and are now more than 8 times higher than in 1978. Simply put, the textbook bubble displayed graphically has inflated to more than twice the size of the house price bubble.

Prediction: Just like the unsustainable housing bubble eventually peaked and crashed, the textbook bubble is likewise unsustainable and is set to crash.  As Michael Barone wrote about the higher education bubble, "The people running America's colleges and universities have long thought they were exempt from the laws of supply and demand and unaffected by the business cycle. Turns out that's wrong."  I think the exact same thing can be said about the people running today's college textbook companies. 

August State Tax Revenues Booming: Double-Dip?

Updated: 13 States Now Report August Tax Increases

1. Mississippi Tax Collections Beat Expectations in August

2. Kansas Taxes in August $38M More Than Expected

3. Pennsylvania Sees Signs of Growth in Its August Tax Collections

4. Maine Tax Revenue Bounces Back in August

5. Arkansas Governor Says State's Finances Looking Better

6. Aug. Tax Revenue Collections Increase in West Virginia

7. Iowa: State Revenues Rosier Than Projected

Update: These are the only states that have reported August tax revenues, and I'll update the list as more states release tax collections.  It seems encouraging though that all 7 states that have released data so far for August are reporting increases in sales and income tax collections.

8. West Virginia Sees Economic Growth in August Tax Revenues

9. Indiana Revenue up 8.4% in August from Year Ago

10. Increase in Missouri Tax Revenue Collections in August

Here's more:

11. Georgia revenue collections jump in August as economic picture brightens

12. Rhode Island Tax Revenues Rise in July-August

13. Nebraska Tax Revenue Beats Projections in August

Dulles Airport Has Busiest Month in 5 Years

July is always the single busiest month of the year for passenger travel at Washington Dulles International Airport, but July this year was even busier than usual.  Passenger traffic reached almost 2.3 million travellers in July, which was 2.2% above traffic in July of last year, and was the highest passenger count in any month since August of 2005 (data here), almost five years ago (see chart above).  Compared to last year, both domestic and international traffic rebounded by more than 2% in July. 

Freight volume at Dulles Airport was also up in July, by almost 18% above last year, with more than 25 tons of cargo passing through Washington's international airport.

The gains in July follow similar gains in June (2.8% growth in passengers, 24% growth in freight) and May (3.8% growth in passengers, 26.6% growth in freight).  Over the last 12 months from August 2009 to July 2009, passenger traffic is up by about 1%, with international traffic growth (2.5%) ahead of domestic traffic growth (0.30%), and freight cargo is up by 13% over that period. 

Welcome Univ. of Michigan-Flint MBA Students

To the students in the NetPlus! MBA program at the University of Michigan, Flint campus, who are enrolled in MGT 551 (Business Economics) for the fall term 2010 which started on Saturday:


Professor Perry

Christina Sommers: Where the Boys Are(n't)

"If boys are in trouble, it's a women's issue - we're all in trouble."

Christina Sommers talks about the effects of a philosophy that can be somewhat hostile to young men: Women's Rights. Advocating for recognition of gender differences while maintaining equality, Sommers discusses the implications, risks, and consequences of consistently supporting and encouraging females only.

Monday, September 06, 2010

Yoani Sanchez, Could Help Bring Down the Castro Regime With Her Award-Winning Blog in Cuba

Courageous Cuban blogger Yoani Sanchez (pictured above), whose regular posts on her blog Generation Y "offer punchy accounts of the day-to-day environment" in Cuba (frequently featured on CD), can add two new awards to the many she has previously received:

1. The International Press Institutes's (IPI) 60th World Press Freedom Hero:

 “Sanchez’s tremendously important work provides a glimpse into what is otherwise a closed world,” said IPI Interim Director Alison Bethel McKenzie. “It is perhaps fitting that our 60th and final World Press Freedom Hero represents a future where the power of the internet can be harnessed to promote free speech. We are proud to know Yoani and to award this prestigious prize to her.”

The other IPI prize winning press heroes ("Symbols of courage in global journalism") are listed here.
2. The Prince Claus Award for Yoani's courageous efforts to raise "global awareness of daily Cuban realities through her blog, for her inspiring and courageous example in giving a voice to the silenced, and for demonstrating the immense impact internet communications technologies can have as tools for social change and development."
See these related posts:
1. CD post: "How Cuba's "Blogostroika," the Internet, and Social Media Could Bring Down the Castro Regime."  
2. Enterprise Blog post: "Revolutionary Blogger and Freedom Fighter: Yoani Sanchez," where I concluded that:
"When the history of Cuba’s freedom movement is written, it’s likely that Yoani Sanchez will be recognized as a national hero and freedom fighter, the equivalent of Lech Walesa in Poland or Vaclav Klaus in the Czech Republic. Yoani Sanchez demonstrates that we should never underestimate the power of one courageous individual with a computer, a blog, and intermittent access to the Internet (Sanchez says she has not actually been able to see her own blog since 2007), or the individual’s power to change the world in the Information Age, especially with a message of freedom and individual liberty. Intellectual figures like Milton Friedman, Friedrich von Hayek, and Thomas Jefferson would be proud of Yoani and her powerful message of individual freedom in one of the only remaining regimes of totalitarianism left in the world."

How To Start A Fire With Nothing But Ikea Products

HT: Ron A.

Two Market Measures of Risk Show Improvement

The charts above over the last 12 months of: a) the Bloomberg U.S. Financial Conditions Index (data here) and the S&P 500 Volatility Index (data here) show that the financial markets went through a rough patch in May, June and July of slightly elevated risk, but have now recovered to the conditions that prevailed in the spring.  The recent improvements in these two daily market measures of risk should probably mean that the chances of a double-dip recession are much less likely now than at any time over the last four months.

Bad News for Labor This Labor Day

From Linda Chavez:

"The labor movement doesn't have much to celebrate this Labor Day. Congress first established the national holiday in 1894 at unions' behest. Since then, the American labor movement's fortunes rose to their zenith in 1956, when more than three-in-10 workers were union members, only to decline each year after. Today, only 12 percent of workers hold union cards (see top chart). And if you discount union members who are public employees, barely 7 percent of private-sector workers are union members (see bottom chart).

So why has labor unions' membership declined so far?

Some of it has to do with the changing work trends in the United States. We've moved from large-scale industry to service and white-collar jobs, from big employers to small business, and from lifetime tenure to job insecurity and frequent career changes -- all of which makes union organizing more difficult.

But the biggest problem for unions has been their own leadership, which has grown out of touch with the very people those unions hope to represent."

Read more here

Interesting Union Facts:

1. Half of all American union members live in just six states: California, New York, Illinois, Michigan, Pennsylvania, and New Jersey (from Linda Chavez's article). 

2. The bottom chart above shows that in 2009 there were more public-sector union members (7.89 million, 37.4% of all government workers) than private-sector members (7.43 million, 7.2% of all private workers) for the first time ever.   

Sunday, September 05, 2010

Back to School

1. Greg Mankiw has some advice for college freshman, although given the reality that there are 150 women in some "freshman classes" this year for every 100 men (see this CD post), can we really still call first-year college students "freshman?"

2. Via Cuban blogger Joani Sanchez, here's the handwritten draconian dress code for a typical high school in Cuba (pictured below in Spanish), including "The skirts should be 4 centimeters (1.5 inches) above the knee," and "Males must not have hair longer than 4 centimeters (1.5 inches)."  Although not specifically mentioned, I think it's safe to say that tattoos and baseball caps worn backwards would be completely out of the question. 

3. A New York Times article asks if it's time for "The End of Tenure?"

4. Michael Barone says that the "Higher education bubble is poised to burst."

Administrative Bloat at American Universities

Why is college tuition rising so much faster than prices in general, faster even than the unsustainable rise in home prices that led to a housing bubble (see top chart above)?  Well, here's one explanation from the Goldwater Institute's report "Administrative Bloat at American Universities: The Real Reason for High Costs in Higher Education":

"Enrollment at America’s leading universities has been increasing dramatically, rising nearly 15 percent between 1993 and 2007. But unlike almost every other growing industry, higher education has not become more efficient. Instead, universities now have more administrative employees and spend more on administration to educate each student. In short, universities are suffering from “administrative bloat,” expanding the resources devoted to administration significantly faster than spending on instruction, research and service.

Between 1993 and 2007, the number of full-time administrators per 100 students at America’s leading universities grew by 39 percent, while the number of employees engaged in teaching, research or service only grew by 18 percent.  Inflation-adjusted spending on administration per student increased by 61 percent during the same period, while instructional spending per student rose 39 percent. Arizona State University, for example, increased the number of administrators per 100 students by 94 percent during this period while actually reducing the number of employees engaged in instruction, research and service by 2 percent. Nearly half of all full-time employees at Arizona State University are administrators (emphasis added).

A significant reason for the administrative bloat is that students pay only a small portion of administrative costs. The lion’s share of university resources comes from the federal and state governments, as well as private gifts and fees for non-educational services. The large and increasing rate of government subsidy for higher education facilitates administrative bloat by insulating students from the costs. Reducing government subsidies would do much to make universities more efficient."

MP: For public universities the administrative bloat is much worse than at private colleges - administrative positions grew by 39% between 1993 and 2007, almost four times the 9.8% increase for instructional positions, see bottom chart above.  At private universities, without access to the public largess, administrative and instructional positions increased at about the same rate. 

HT: Chris Douglas

Saturday, September 04, 2010

WSJ Interactive Graph of the Great Mancession

Here's a great WSJ Interactive Graphic that allows you to watch: a) monthly job losses by sector from December 2007 to August 2010, and b) monthly changes in the number of unemployed workers by gender and race over the same period. 

When watching the job losses by sector, you'll see that that: a) construction and manufacturing were the two sectors hit with the most job losses during the recession (combined loss of almost 4 million jobs through August 2010), and b) education and health care were the only two private sectors that continued to add jobs during the entire recession (more than 1 million jobs combined through August).

Then watch the interactive graph of the monthly number of unemployed workers by gender and you'll see that men were disproportionately affected by job losses, to the extent that in many months there were two men unemployed for every female who was unemployed. Even now that the recession has ended, there were still 172 unemployed men in August for every 100 women who were unemployed.

These two trends in sector job losses/gains and unemployment by gender are directly related by these facts about employment shares by gender:

Education: 74.3% female, 25.9% male
Health Care: 74.6% female, 25.4% male
Construction: 4.4% female, 95.6% male
Manufacturing: 21.4% female, 78.6% male

In other words, these two interactive graphs help tell the story of the Great Mancession of 2007-2010 and how men were disproportionately affected by the recessionary conditions that adversely impacted male-dominated industries (construction and manufacturing), while employment in female-dominated industries actually increased throughout the entire recession.  And according to the employment report yesterday, there is still a 2% male-female jobless rate gap of 10.6% for men and 8.6% for women, so the Great Mancession is not yet close to ending.  

Bottom Line: Maybe it's not such a good time to be man, now that men are on the wrong side of the jobless rate gap by 2%, the wrong side of the college degree gap (142 women graduated from college in 2010 for every 100 men) and now even the wrong side of the wage gap.     

New Monthly Business Blog Rankings from Wikio

Top 20 Business Blogs, according to Wikio (see methodology here).

Friday, September 03, 2010

Colombia is the World's #1 Stock Market; Maybe It's Time for Obama to Push the U.S.- Colombia FTA

The chart above shows the MSCI Colombia Stock Market Index, monthly back to 1993 (data here).  Over almost every time horizon up to ten years, the returns for the Colombia stock market are the highest in the world:

YTD: 43.4%
One-Year: 67.2%
Three-Year: 25.1%
Five-Year: 25.8% (second to Indonesia's at 27.6%)
Ten-Year: 38.1% 

It's now been 1,382 days since the U.S.-Colombia free trade agreement (FTA) was signed in 2007, and it is now languishing into its fourth year awaiting Congressional approval.  The Latin American Trade Coalition estimates that almost $3 billion in tariffs have been imposed on U.S. exports since the FTA was signed.  Especially now that Colombia's stock market is booming, the failure to pass the Colombian FTA is especially inexcusable because it means that U.S. exporters are missing out on a golden opportunity to gain from Colombia's thriving economy.

The Colombian FTA has support from 1,200 American companies, associations, farm and ranch groups, and chambers of commerce, as well as support from the editorial boards of almost every major U.S. newspaper including the Wall Street Journal, L.A. Times, Washington Post, Miami Herald, Chicago Tribune, Detroit News, and even the New York Times, which wrote in 2008, “We don't say it all that often, but President Bush is right: Congress should pass the Colombian free-trade agreement now. We believe that the trade pact would be good for America's economy and workers.”

With incredible export opportunities awaiting U.S. manufacturers in booming, emerging markets like Colombia, with the huge potential to create much-needed jobs for America’s workers, and with universal support from almost every sector of the economy, what could possibly be holding up the FTAs with Panama, Colombia and Korea?  Apparently just one group: U.S. labor unions and their Democratic enablers in the White House and Congress. 

If Obama was really serious about supporting free trade, doubling U.S. exports, creating jobs and stimulating the economy, he could easily and costlessly accomplish all four by pushing Congress to approve the signed FTAs with Colombia, Panama and Korea. 

Private-Sector Jobs Increase for the 8th Month, First Time Since 2007; +763,000 Payroll Jobs This Year, But Almost +1.8 Million Total Household Jobs

Some highlights of today's employment report for August:

1. Private-sector jobs have increased in each month this year, and by 67,000 in August, bringing the total to 763,000 private-sector jobs that have been created this year.  This is the first time since December 2006 to July 2007, three years ago, of eight consecutive monthly gains in private-sector employment (see top chart above).

2. Temporary help service jobs increased in August by 16,800 to 2,116,000 jobs, the highest employment level in this sector since December 2008 (see middle chart above).  Except for a small decrease in July of 900 jobs, temporary employment has increased in each month since last October, following 23 consecutive monthly losses from November 2007 to September 2009.  Since last October, temporary employment has increased by 392,200.

3. Average overtime hours for manufacturing increased slightly in August to 3.9 hours from 3.8 hours in July, matching the 3.9 hours in May and June, which is the highest level of overtime since May 2008, more than two years ago. 

Update: Inspired by Scott Grannis' post today, the bottom chart above shows the monthly change in number of private-sector jobs using the household survey measure of total civilian employment that includes the self-employed, MINUS the total number of government employees from the household survey (data available here). Based on that measure of private-sector employment, the economy has added almost 1.8 million new jobs since the first of the year, a pace of more than 200,000 private-sector jobs per month.  (Thanks to Scott Grannis for clarification of how private-sector employment is calcuated using household data.)

Thursday, September 02, 2010

Instead of Marching, Let's End the War on Drugs

"Every time I see one of these marches or forums covered as significant, what occurs to me is that there is one thing we should all be focused on instead. It is, of all things, the War on Drugs. The most meaningfully pro-black policy today would be a white-hot commitment to ending its idiocy.

1. The War on Drugs destroys black families. It has become a norm for black children to grow up with their fathers in prison and barely knowing them. Data are unanimous in showing that children, especially poor ones, do better with two parents. We see the young black man in a do-rag pushing a baby carriage as a welcome sight rather than as a norm. That must stop.

2. The War on Drugs discourages young black men from seeking legal employment. Because the drugs' illegality keeps their price high, there are high salaries to be made in selling them -- not at first as a low-level runner, but potentially as one rises in the hierarchy. This makes selling drugs a standing alternative to legal employment, especially if one has a poor education.

3. The War on Drugs brings firearms into black lives. Policing turf for drug sales entails guns, which then become tools for maintenance of the pecking order, including settling petty scores. A striking difference between surveys of black ghettos before the War on Drugs and today is how common guns have become.

Marches don't hurt, but they are a misdirection of energy. And not from an equally empty war on racism in the Tea Party or the n-word. Black uplift in 2010 should be about a war on the War on Drugs -- after the success of which, I can guarantee you, slowly but surely, the teens would start pulling up their pants."

~John McWhorter

HT: Radley Balko

Rail Traffic At Highest Level Since 2008

WASHINGTON , D.C. – Sept. 2, 2010 – "The Association of American Railroads (AAR) today reported weekly rail traffic continues to set records with U.S. railroads posting their highest numbers for 2010 in both rail carloads and intermodal volume for the week ending Aug. 28. U.S. railroads originated 302,358 carloads for the week, up 5.8 percent compared with the same week in 2009 and intermodal traffic totaled 237,194 trailers and containers, up 17.1 percent from the same week in 2009 (see charts above).  Compared with the same week in 2009, container volume, a subset of intermodal, increased 18.1 percent and trailer volume rose 11.4 percent."  Other highlights include:

1. This is the 33rd consecutive week in 2010 that intermodal volume is above the same week in 2009, with 24 of those weeks being double-digit percentage gains. 

2. Rail carloads have increased in 26 out of the last 27 weeks versus the same week last year.

3. Fifteen of the 19 carload commodity groups increased from the comparable week in 2009 with significant increases in metallic ores (62.2 percent), metals and metal products (40.2 percent) and farm product excluding grain (33.4 percent).

4. Canadian railroads reported volume of 76,064 cars for the week, up 16.5 percent from last year, and 53,747 trailers or containers, up 24.4 percent from 2009. For the first 34 weeks of 2010, Canadian railroads reported cumulative volume of 2,458,747 carloads, up 20.6 percent from last year, and 1,585,669 trailers or containers, up 15.7 percent from last year.

5. Mexican railroads reported originated volume of 14,531 cars, up 18 percent from the same week last year, and 8,168 trailers or containers, up 26.7 percent.

MP: Warren Buffett's single most favorite economic indicator - rail freight traffic - continues to set records for both 2009 and 2010, with both rail carloads and intermodal volume now at the highest levels since 2008. Based on the steadily increasing volume of raw materials, natural resources, lumber, coal, grains, chemicals, metals, motor vehicles and paper products moving around the country by rail (and Canada and Mexico), the economic picture continues to get a little brighter almost every week.

7th Monthly Gain in Monster Employment Index

"The U.S. Monster Employment Index recorded its seventh consecutive month of positive year-over-year in August at a growth rate at 12.4 percent. The annual growth rate eased from July's 21% growth possibly due to moderation in underlying job market drivers. The Index dropped two points (1 percent) in August to 136 (from 138 in July) as online job demand eased contrary to seasonal patterns traditionally witnessed at this time of the year (see chart above). Highlights include:

1. Online recruitment activity rose in six of the 20 industries between July and August.  Compared to year-ago levels, 17 industries are showing positive growth trends, although at decelerated rates from July.

2. While the Monster Employment Index experienced a marginal contraction in August, several industries, occupations and all 28 metro markets including Cleveland and Detroit continue to record positive annual growth trends. 


Click arrow above to watch Dr. Hal Scherz's "video for doctors" above from Docs4PatientCare.  See his editorial in yesterday's WSJ here, about this "Waiting Room Letter for Physicians and Patients," here's an excerpt:

"ObamaCare will bring major cost increases, rising insurance premiums, higher taxes, a decline in new medical techniques, a fall-off in the development of miracle drugs as well as rationing by government panels and by bureaucrats like passionate rationing advocate Donald Berwick that will force delays of months or sometimes years for hospitalization or surgery."

Wednesday, September 01, 2010

Aug. Online Ads Increase By 1 Million vs. Apr. 2009

"Online advertised vacancies dropped 57,100 in August to 4,236,200, following an increase of 139,200 in July, according to The Conference Board Help Wanted OnLine (HWOL) Data Series released today. The gap between the number of unemployed and advertised vacancies (supply/demand rate) stood at 3.40 unemployed for every advertised vacancy in July (the last available unemployment data) but is down from its peak of 4.73 in October 2009."

“Labor demand continues to struggle to post gains month after month,” said June Shelp, Vice President at The Conference Board. “During the last few months, gains in online job demand one month have been partially offset by dips in the following month. But the good news is that overall job demand is still maintaining a modest upward trend for both the nation and most States.”

MP: Compared to last August (3.37 million ads), online advertised vacancies were 25.4% higher this August (4.236 million ), and except for July's level of 4.29 million online ads, was the highest monthly level since November 2008 (see chart above).  July's 25.4% year-over-year increase was the sixth straight increase of 20% or higher, and follows increases of 30.8% in July, 26.1% in June, 23.3% in May, 31.4% in April and 20.6% in March.  Compared to the April 2009 bottom of 3.2 million online vacancies, the August count of 4.23 million help wanted ads is more than one million job openings higher. 

See Scott Grannis' related post here.

Evidence of a New "Reverse Gender Wage Gap"

From Time Magazine:

"According to a new analysis of 2,000 communities by a market research company, in 147 out of 150 of the biggest cities in the U.S., young women's median full-time salaries are 8% higher than those of the guys in their peer group. In two cities, Atlanta and Memphis, those women are making around 20% more. This squares with earlier research from Queens College, New York, that had suggested that this was happening in major metropoles. But the new study suggests that the gap is bigger than thought, with young women in New York City, Los Angeles and San Diego making 17%, 12% and 15% more than their male peers respectively. And it also holds true even in reasonably small cities like Raleigh Durham, N.C., Charlotte, N.C., (both 14% more) and Jacksonville, Florida (6%).

Here's the slightly deflating caveat: this reverse gender gap, as it's known, applies only to unmarried, childless women under 30 who live in cities."

MP: In other words, if you control for all of the important variables that contribute to wage differentials (age, marital status, having children, etc.), i.e. impose ceteris paribus conditions, there is no evidence of gender discrimination, and either there is no statistically significant wage gap, or now there's a wage gap in favor of women. 

ASA Staffing Index, NRA Restaurant Index Flat

The American Staffing Association (ASA) Staffing Index for temporary and contract employment activity remained at 95 for the week of August 16 (same as last week), which is the highest index level since a reading of 97 in the week of September 29, 2008 (see chart above, data here).

Compared to the same week last year, the latest ASA Staffing Index has improved by 25% for Week 34 (see bottom chart above). This marks the 18th week in a row with percentage gains above 20% compared to the same month in 2009, the 27th straight week of double-digit percent increases vs. 2009, and the 33rd consecutive week for the ASA Index being above the same level in the previous year (every week this year). The improvements this year follow 80 consecutive weeks of percentage declines in the weekly index vs. the previous year that started in May 2008 and continued through the end of 2009.

In another report released yesterday, the National Restaurant Association's Restaurant Performance Index was flat in July (99.4) compared to June (99.5), but above the index levels in July of 2008 and July 2009.   

Tuesday, August 31, 2010

Free Health Care

And it's not in Canada or the U.K....it's right here in the United States

Global Economic Recovery Watch: India +8.8%

Financial Times (free subscription required) -- "India’s economy grew a brisk 8.8 per cent from April to June, its fastest pace in two-and-a-half years, highlighting the strength of India’s economic recovery despite high inflation now acting as a drag on consumer spending.

Growth during the first quarter of India’s April to March financial year accelerated from the 8.6 per cent last quarter, driven by robust manufacturing and services growth, and a pick-up in farm production."

Case-Shiller Home Price Indexes Highest Since '08

New York, August 31, 2010 – "Data through June 2010, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show that the U.S. National Home Price Index rose 4.4% in the second quarter of 2010, after having fallen 2.8% in the first quarter. Nationally, home prices are 3.6% above their year-earlier levels.

In June, 17 of the 20 MSAs covered by S&P/Case-Shiller Home Price Indices and both monthly composites were up; and the two composites and 15 MSAs showed year-over-year gains. Housing prices have rebounded from crisis lows, but other recent housing indicators point to more ominous signals as tax incentives have ended and foreclosures continue.  In June, the 10-City and 20-City Composites recorded annual returns of +5.0% and +4.2%, respectively."

MP: Both the Composite-10 and Composite-20 Home Price Indexes reached their highest levels in June since December 2008. 

Buy Now or Wait? Check the Airfare Prediction Tool

When booking air travel, the dilemma is often: should I buy now or wait later to try to get a better price?  Now you've got some help. 

The Bing Travel Farecast provides a free airfare prediction tool that allows you to specify your travel dates and destinations, and you'll get a prediction of whether fares for your flight are rising or falling, so you can decide whether you should buy now or wait.

From the Bing website: "According to a third-party audit of our predictive technology, we're about 75% accurate and on average, customers will save over $50 on a typical round-trip transaction."
Here are details on Bing's predictive technology.

ECON 101: The Answer to A Housing Recovery is Lower Prices, Not Incessant Government Tinkering

"In order for the housing market to build a firm foundation that does not require government aid we will need to see a reduction in prices.

Congress is currently discussing creative new ways to prop up this market. It should be plain as day at this juncture that the government cannot fix the housing market with their incessant fidgeting. The market needs to correct further before reaching a sustainable bottom. Lower prices will act as an automatic stabilizer by generating significant demand. At this point, more government intervention merely kicks the can down the road by pulling demand from the future. We can continue to deny the simple economics at work here, but at some point the market will prevail and prices will settle at a level that the market can absorb. In my opinion, the sooner this happens the sooner we can get on with the recovery process. Unfortunately, politicians have elections to win so they will continue to use their law degrees to attempt to change the laws of economics. It won’t work."

~The Pragmatist Capitalist writing in the Business Insider

Monday, August 30, 2010

Global Recovery Still on Track, Despite Angst

"At an annual Federal Reserve retreat, angst, not panic, was the order of the day among officials and economists chastened by a deep recession and a disappointing rebound. "We'll slog our way through this," said Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, which sponsored the symposium, summing up two days of presentations, discussions, dinner-table conversation and hiking.

Several foreign central bankers said they were struck by the unusual degree of pessimism they had witnessed in the U.S., a contrast to typical American optimism. "I can't wait to get back to my side of the world," said Alan Bollard, governor of the Reserve Bank of New Zealand. Growth in New Zealand, seen at around 3% this year and next, has been underpinned by strength in Australia and China."

~From today's WSJ article "Global Recovery Is Still Seen On Track, Despite the Angst"

GSEs Prevented Private Secondary Market

"A private secondary market for prime mortgages should have been a natural market development. Why did it never develop? The answer is obvious: no private entity could compete, or can now compete, with the government-granted advantages, and now the huge explicit subsidies, of the Government Sponsored Enterprises (GSEs). There can be no evolution of a private prime mortgage loan market while the GSEs make private competition impossible.

The core issue about GSEs is this: You can be a private company, with market discipline; or you can be part of the government, with government discipline. But you can't be both."

Read more of AEI's Alex Pollock's article "To Overhaul the GSEs, Divide Them into Three Parts" here.

Sunday, August 29, 2010

Promoting Homeownership Is Not Only Un-American: It Contributed to the Housing Bubble

From the Forbes.com article "The Un-American Dream":

"For nearly a century it has been the policy of the U.S. government to increase American homeownership. Its efforts include (but aren't limited to) bouts of easy money from the Fed, the mortgage-interest deduction, the exclusion of capital gains on primary residence sales, direct and indirect subsidies from the Department of Housing and Urban Development, and artificial liquidity pumped into the mortgage market via government sponsored entities Fannie and Freddie.

Policymakers assure us that the next generation of government housing programs will be "carefully designed" (bring on the next five-year plan, Comrade!). But the real question is why the government should be doing anything to promote homeownership.

"I do believe in the American Dream," said President Bush in 2002. "Owning a home is a part of that dream, it just is. Right here in America, if you own your own home, you're realizing the American dream." Bush was echoing a theme that reaches back at least to Herbert Hoover: When the government encourages homeownership, the story goes, it strengthens individuals and communities and thereby fosters the American Dream. They're wrong. A government crusade to promote homeownership is un-American.

America's distinction is that it was the first nation founded on the principle that you have a right to pursue your own happiness without government interference. But the government's homeownership crusade means it gets to decide how you should live, and stick-and-carrot you into living that way.

Here's the real lesson: The American Dream is not some government-subsidized house foisted on you by George W. Bush or Barney Frank. It's the undiluted freedom to decide how you want to live--and, if you want to own a home, it's the freedom to work, save, establish credit, and earn one. In America, the government's job is to protect our freedom to pursue our values, not to dictate what our values are. Its homeownership policy should be the same as its toaster oven policy: laissez-faire.

Government intervention in housing runs deep, and it can't be eliminated overnight. But the government should make its long-term goal to fully extricate itself from the housing market. It can then start gradually dismantling Fannie, Freddie, tax preferences for homeowners, and every other government housing program."

MP: You can add the government's role in promoting fixed-rate 30-year mortgages, and subsidizing FHA mortgages that only require a 3.5% down payment to the list of policies that the government has used to increase homeownership. 

The chart above shows how the political promotion of homeownership in the U.S. may have contributed to the housing bubble.  The blue line is the quarterly homeownership rate from the Census Bureau (data here) going back to 1991, which went from 64% in the early 1990s to a record high of more than 69% in 2004.  During that same time period, the Federal Housing Finance Agency's (FHFA) Home Price Index (data here) doubled from 100 in 1991 to 200 in 2005, before reaching a peak of more than 222 at the height of the real estate bubble in 2007. 

In the aftermath of  the real estate bubble's crash, the homeownership rate has fallen to a 10-year low of 66.9% (QII 2010) and the FHFA home price has fallen back to 2004 levels.   Promoting homeownership is not only un-American, but it helped create an unsustainable real estate bubble, which turned the "American dream" into an "American nightmare" for millions of Americans by turning "good renters into terrible homeowners."

Lessons on Trade, U.S. Manufacturing from Chile

1. WEST CHESTER, PA — "With the world captivated by the plight of 33 Chilean miners trapped in a mine more than 2,300 feet below the surface, a local manufacturer of drill rigs is involved in the rescue effort. Schramm Inc. is a major manufacturer of drill rigs and the manufacturer of the particular rig — the T685 — that reached the trapped miners a few days ago.  There are 40-plus Schramm drill rigs in Chile right now, said Edward Breiner, president and CEO of Schramm, in an interview Friday."

2. MILWAUKEE, WI --  "If not for a tiny camera system developed by Aries Industries of Waukesha, the families and rescuers of 33 trapped Chilean miners might not have caught a glimpse of their loved ones.  Aries manufactures pipeline inspection and rehabilitation equipment for water, wastewater, natural gas, oil and disaster recovery services. The company manufactures a camera system that has been used many times in coal mine disasters in this country and was available to Chilean rescuers."

A few points:

1. Chile has achieved a great deal of economic success in the last twenty years, largely because it has pursued free market policies that include very open free trade policies.  The OECD recognized Chile's economic success last December by inviting it to be the first South American country to join the club of developed countries, see CD post here.  With a more protectionist approach to trade with high tariffs, Chile may not have had access to the drill rigs and camera systems manufactured in the U.S. that are now helping in the rescue of the 33 miners.

2. We hear a lot of news about the "death of American manufacturing sector," the "loss of millions of manufacturing jobs," and how this will contribute to some permanent decline in the U.S. economy.  And yet the data show that manufacturing output was reaching historical all-time record highs before a sharp recession-related decline, and manufacturing output is gradually increasing and will probably be at record levels again within a few years (see CD posts here, here, and here).   The manufacturers highlighted here are probably just two examples of the thousands of successful American manufacturers that are world-leaders in high-tech manufacturing equipment.  

HT: Colin Grabow  

Saturday, August 28, 2010

Quote of the Day on the "Two Americas"

"Few Californians in the private sector have $1 million in savings, but that's effectively the retirement account they guarantee to public employees who opt to retire at age 55 and are entitled to a monthly, inflation-protected check of $3,000 for the rest of their lives."

~Arnold Schwarzenegger in yesterday's WSJ

Record-High Corporate Profits in QII: The Mother's Milk of Stocks, Business Success and Job Creation

The chart above shows quarterly "Corporate Profits After Tax with Inventory Valuation Adjustment and Capital Consumption Adjustment" (BEA data here) from 1990 to 2010 (inspired by Scott Grannis's recent post).  The red line represents profits in nominal dollars (billions) and the blue line represents inflation-adjusted profits using the Business Sector: Implicit Price Deflator (data here).  Comments:

1. Nominal corporate profits in the second quarter reached almost $1.2 trillion, which is an all-time record high, and 54.5% above the recent bottom of $774.6 billion in the fourth quarter of 2008.  

2. Nominal corporate profits have now doubled in less than ten years,  from $600 billion at the end of 2001 to the current level of $1.2 trillion.  The S&P 500 Index is actually lower now (1047) than at the end of 2001 (1148).   

3. Quarterly profits have been growing at an average annual rate of 30% over the last six quarters, which would suggest that the equity market is extremely undervalued (see Scott Grannis' comments here). 

4. On an inflation-adjusted basis, real corporate profits are slightly below the $1.2 trillion record in 2006, but 53% above the QIV bottom.  

5. For either measure of corporate profits, it's clear that there has been a complete V-shaped recovery from the 2007-2009 recession, and the record-high profits would be completely inconsistent  with any chance of a double-dip recession. 

6. Larry Kudlow has frequently reminded us that corporate profits are the "mother’s milk of stocks, business success, and job creation."  In that case, the record-high profits of American companies suggests that the U.S. economy is doing better than the "economic hypochondriacs" keep telling us, and we could be poised for an economic boom for stocks, businesses and job creation. 

Friday, August 27, 2010

Obama Is Gradually Losing Independent Voters

When Obama took office in January 2009, only about 15% of independent voters disapproved of Obama according to Pollster.com's consensus of about ten different polls, but that percentage has gradually risen over the last 20 months, and now 54.5% of independent voters disapprove of the president.  Over the same period, the percent of independent voters who approve of Obama has fallen from 62% to 38.7%. 

The Onion Uncovers a New Form of Test Bias

Are Standardized Tests Biased Against Students Who Don't Give A Shit? Click on the arrow above to start video.

Economic Hypochondria

VIDEO: The Economy's Not Sick, Says Brian Wesbury--Everyone Just Says It Is
Click on the arrow above to start video.

Consumption, Investment and Trade Are All Up

Here's a breakdown of the percent changes in the components of real GDP for the second quarter (from Table 1 of today's BEA report):

1. Personal consumption expenditures (PCE): 2.0% in QII, matching the growth rate of personal consumption spending in third quarter of 2009, and the highest growth rate in PCE since the 2.4% rate in the first quarter of 2007.  The 2% growth in PCE follows increases over the previous three quarters of  2.0%, 0.9% and 1.9%, which marks the first period of four consecutive quarterly increases since 2007 (QI to QIV), and follows four straight quarterly decreases from QIII 2008 to QII 2009.   

2. Gross Private Domestic Investment: 25.0% in QII, which was the fourth consecutive quarterly increase in investment, following double-digit increases of 29.1% in the first quarter, 26.7% in QIV 2009, and 11.8% in QIII 2009.  The four consecutive quarterly increases over the last year follows eight consecutive quarterly decreases from QIII 2007 to QII 2009.  The average quarterly growth in investment spending of 23.15% over the last four quarters is the highest annual average since 1987.  

3. Exports: 9.1% in QII, following increases of 11.4% (Q1 2010), 24.4% (QIV 2009) and 12.2% (QIII 2009), for an average growth rate over the last year of 14.3%, which is the highest annual average since 1996.  The positive increases in exports over the last four quarters follows four quarters of negative growth from QIII 2008 to QII 2009.

4. Imports: 32.4% in QII, the highest quarterly growth in imports since 1975, and the fourth consecutive quarterly increase (11.2% in Q1, and 4.9% and 21.9% in QIV and QIII 2009) following four straight quarterly decreases.  The average quarterly increase of the last year of 17.6% is the highest since 1984. 

Bottom Line: Except for the fact that we subtract imports from exports to calculate GDP, the growth rates above in private sector activity (consumption, investments, and international trade) in the second quarter of this year, and over the last four quarters, suggest that the economy may be in better shape than indicated by the 1.6% growth in real GDP.  

Buying Votes in Arkansas With Our Money

Intrade contract for Blanche Lincoln to win, odds now at 5.5%, down from 70% a year ago (click to enlarge):
From today's Wall Street Journal:

"Arkansas Senator Blanche Lincoln is down 20 points in the polls, but the Democrat is apparently going to go down swinging—with $1.5 billion of your money. She is the spending problem, in profile.

Last year heavy rain damaged cotton and rice crops across the South. The 2008 farm bill, passed by a Democratic Congress, created the Supplemental Revenue Assistance Program (SURE) to aid farmers hit by such weather-related disasters. The admirable intent was to stop farm-state Senators from looting the Treasury after every early frost or the like. To qualify for SURE funds, farmers are now required to buy crop insurance (federally subsidized to the tune of about $6 billion a year) and to have lost more than 30% of their crop value.

Mrs. Lincoln wants to pull an end run around this law and make Arkansas farmers eligible for retroactive taxpayer payments. The payments would be made even if the recipients didn't buy crop insurance and even if their damages were as little as 5%. Most small businesses in America suffered far more than a 5% fall in revenues during the recession, but few are getting six-figure handouts from Uncle Sam. Rice and cotton prices have recovered nicely this year in any event.

Nearly 200 Arkansas farms and 100 Louisiana farms will get a check for $100,000 or more, and the 10% richest farmers will get almost two-thirds of the money. One of the few federal programs the Obama administration has said it wants to eliminate is farm subsidies to wealthy farmers -- unless, apparently, the money goes to the state of an endangered Democratic Senator."

Thanks to Bob Wright.

Thursday, August 26, 2010

Markets in Everything: Fantasy Sports Insurance

Now available for the 2010 NFL season - disability insurance for fantasy players. 

Featured last year on CD. 

Weekly Intermodal Rail Volume Sets 2010 Record

WASHINGTON, D.C. – Aug. 26, 2010 – "The Association of American Railroads (AAR) today reported rail intermodal volume on U.S. railroads for the week ending Aug. 21, 2010 set a new 2010 record for the second consecutive week, with 236,404 total trailers and containers (see top chart), up 22.4 percent from the same week in 2009 (see bottom chart), and up 2.6 percent compared with 2008. Weekly container volume, a subset of intermodal, was the highest on record, also for the second consecutive week, up 24.2 percent compared with the same week in 2009, and up 11.5 percent with the same week in 2008. Trailer volume, the other subset of intermodal, rose 12.4 percent last week compared with the same week in 2009, but fell 30.5 percent compared with 2008.

Carload traffic continued moderate weekly gains, with U.S. railroads originating 296,634 carloads for the week (see top chart), up 6.2 percent compared with the same week in 2009 (see top chart), but down 11 percent from the same week in 2008."

Bottom Line: As I reported last week, Warren Buffett's favorite economic indicator continued to show signs of improvement again in this week's report from the AAR on rail traffic. Based on the volume of raw materials, natural resources, lumber, coal, grains, chemicals, metals, motor vehicles and paper products moving around the country by rail, the economic picture continues to get a little brighter almost every week.

Wednesday, August 25, 2010

The Case for Optimism and 20 Charts to Prove It

From today's Wall Street Journal article "The Case for Optimism" by Ross Devol, executive director of economic research at the Milken Institute:

"There's a point at which pessimism becomes a self-fulfilling prophesy, scaring businesses away from investing or hiring. The dark tone of today's discourse is at risk of doing just that.

The Milken Institute's new study, "From Recession to Recovery: Analyzing America's Return to Growth" is based on extensive and dispassionate econometric analysis. It concludes that the U.S. economy remains more flexible and resilient—and has more underlying momentum—than is generally acknowledged. In fact, our projections show cause for measured optimism: A return to modest but sustainable growth is close at hand.

America's businesses are capable of navigating around policy uncertainty and the twists and turns of a volatile global economy. While slow private-sector job growth is to be expected in the early stages of a recovery, the U.S. should add 1.5 million jobs in 2010, 3.1 million in 2011, and 2.6 million in 2012. That will translate into real GDP growth of 3.3% in 2010, 3.7% in 2011, and 3.8% in 2012.

In this pessimistic climate, this forecast will likely be considered contrarian. So why is our economic outlook more sanguine than the current consensus? For one, robust (albeit moderating) economic growth in developing countries, particularly in Asia, will provide support for U.S. exports. Look no further than Caterpillar, which reported a doubling of its earnings in the second quarter of 2010 and whose product line is sold out for the rest of the year."

Read the rest of the article here.

See related excellent post today from Scott Grannis: "20 Bullish Charts."

More on Global Shipping Boom. What Double-Dip?

1. "Georgia's Port of Savannah reported the busiest month for container shipments in its history in July, with 251,126 20-foot equivalent units moving through the port in an accelerating shipping recovery. The 20.7 percent year-to-year increase marked the eighth straight month of double-digit growth in volume at the Georgia Ports Authority’s Savannah terminals."

2. "Container volume at the Port of Charleston increased 26 percent in July over the same month last year, giving the port its strongest month since October 2008."

Truck Tonnage Index Increases for 8th Month

ARLINGTON, VA — "The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 1.5% in July, although June’s reduction was revised from 1.4% to 1.6%. The latest improvement raised the SA index from 108.3 (2000=100) in June to 110 in July.  Compared with July 2009, SA tonnage climbed 7.4%, which matched June’s increase and was the eighth consecutive year-over-year gain (see chart above). Year-to-date, tonnage is up 6.7% compared with the same period in 2009.

ATA Chief Economist Bob Costello said that July’s data didn’t change his outlook for subdued tonnage growth in the months ahead, stating, “The economy is slowing and truck freight tonnage has essentially gone sideways since April 2010.” Nevertheless, Costello believes that tonnage will post moderate gains, on average, for the second half of the year. “After accounting for the reduction in supply over the last few years, even small gains in tonnage will have a larger impact on the industry than in past.”

MP: Compared to last year, the July index this year is up by 7.4% but down by 5.3% compared to the index level of 116.2 in July 2008.  However, in July 2007 before the recession officially started, the ATA's Truck Tonnage Index was just slightly higher, at 110.9, than the index reading last month.