Natural Food Fight: Obamacare vs. Mackeycare



In August, Whole Foods CEO John Mackey argued in the pages of the Wall Street Journal that the solution to America's health care crisis was to be found in "less government control and more individual empowerment." His own company's unique health care plan, Mackey wrote, covers 90 percent of employees, costs less than health insurance plans, aned provides a "very high degree of worker satisfaction." But for the sin of not supporting a government take over of health care, labor unions and left-wing activists called for a boycott of Whole Foods, claiming that Mackey's solutions were unworkable and his employees were unhappy.

Reason.tv talked to protesters, Mackey, and employees about "the Whole Foods alternative to ObamaCare."

Thanks to Art Little.

Barefoot Brick Mover: What Would OSHA Say?

Amazing video of a barefoot brick mover loading 22 bricks on his head. What would OSHA say? This guy has to be more talented than the stagehands at Carnegie Hall making $430,000 per year.

HT: Art Little.

Piano Movers at Carnegie Hall Make More Money Than the Piano Players? Where's The Pay Czar?

METRO US -- The guys who push the piano onto the stage at Carnegie Hall make more than the guy who plays it. Dennis O’Connell, who oversees props at the legendary concert hall, made $530,044 in the fiscal year that ended in June. A concert pianist making $20,000 a night would have to give 27 performances to beat him.

The four other members of the full-time stage crew — two carpenters and two electricians — had an average income of $430,543 during the same period, according to Carnegie Hall’s
tax return (see a portion above). Only theater director Clive Gillinson earns more with his $946,581 in salary and benefits.

The stagehands have a powerful union: Local One of the International Alliance of Theatrical Stage Employees shut down 26 Broadway shows for nearly three weeks in November 2007. Its strike cost the city $40 million, the city comptroller said at the time. Stagehands and producers agreed on a five-year contract that both sides called a compromise.

Labor historian Joshua Freeman said the union’s power to shut down a vital part of the city’s entertainment industry gives it leverage.

MP: Total compensation for the five stagehands at Carnegie Hall totalled $2.175 million. And musicians and promoters are worried about "ticket scalping?" Seems like they should be more concerned about "stagehand scalping."


Thanks to Art Little.

Update: As OA points out in a comment, "Direct and indirect public support ($37.7 million) is more than program revenues ($28 million). So more than half of Carnegie's funding (56%) isn't from selling tickets, but handouts of taxpayer money."

Markets In Everything: La-Z-Boy DWI Chair on Ebay

There are 91 bids so far on Ebay for the "World Famous DWI Motorized La-Z-Boy Style Chair," with 2 days left to go. Current high bid is $38,100 for the infamous vehicle seized by the Proctor, MN police department, after previous owner Dennis Leroy Anderson accidentally crashed his now-famous home-made lawn mower powered La-Z-Boy chair into a parked car after leaving a local tavern.

Dennis won't receive any of the proceeds from the sale of his vehicle, but is trying to cash in on his notoriety by selling autographed pictures of himself sitting in his motorized La-Z-Boy chair, also on Ebay, check it out here.

Tip of the hat to J. Howe.

Peikoff Might Get Kind of Lonely

As I've recently stated, I have somewhat mixed feelings about the likely Republican loss in next week's Congressional elections. The Republicans have been really bad and certainly deserve to lose, but all the Democrats offer are on most issues even worse ideas, such as raising taxes, raising spending even more, trade protectionism and higher minimum wages. But then again , divided government have often proven to beneficial as Congress and the President have for partisan reasons blocked each other's harmful actions.

In any event, regardless of whether my prediction that Republicans will lose turns out to be correct, I won't be either celebrating or get depressed. Because either way, liberty will lose.

One argument against the Republicans that are invalid are the ones offered by Ayn Rand's official "intellectual heir" Leonard Peikoff.

In it, he argued that the Democrats stand for socialism and that the Republicans stand for theocracy, both of which are of course unacceptable for an Objectivist. But since socialism is more or less dying according to Peikoff while theocracy is rising, it would be immoral not to support a socialist (Democrat) over a theocrat (Republican).

Anyone who doesn't understand this doesn't understand the philosophy of Objectivism,according to Peikoff.

But Peikoff's argument rests on a extremely ambigous and misleading use of the terms "socialism" and "theocracy". He never defines them, which I would have thought someone claiming to be dedicated to reason and objectivity would do since it is highly relevant. First, what does "socialism" mean? Socialism comes in 3 basic varities (there are of course further sud-divisions within each, but in this context they aren't relevant): Communism, Anarcho-Socialism/Left-Anarchism and Social Democracy.

Since Anarcho-Socialism/Left-Anarchism have never really been a powerful force, so they can for this context be disregarded. Which leaves us with two relevant varities: Communism and Social Democracy.

Peikoff's description of socialism as a dying force is only true with regards to communism. Communism in its traditional form now really exist only in Cuba and North Korea and it probably won't last very long even there. And they are not likely to be a significant force elsewhere ever again given the failed track racord of communism.

However, Social Democracy is anything but dying. It have become the established social system in just about every Western country, and that looks unlikely to change as even the "right-wing" parties have adopted it. And the socialism that the Democrats stand for is not communism but social democracy. And even more of it than today.

What about the "theocracy" of the Republicans? By invoking the "theocracy" he tries to imply that the Republicans are like the Taliban. But just what kind of theocratic measures are Republicans proposing? Of this, Peikoff says nothing, absolutely nothing. Sure, the Republicans are the party of the Christian Right. But first of all, even their agenda, while being deplorable, are far preferable to the one offered by the jihadists. Having moral equivalance between the Christian Coalition and the Taliban is like having moral equivalance between the Swedish Social Democrats and Pol Pot's Khmer Rouge movement . And secondly, while most Christian fundamentalists are Republicans, it is not the case that the most Republicans are Christian fundamentalists or that they control the Republican party. The Republicans have after all controlled all three branches of the American government for years now, and have America become a theocracy or even moved more closely to it? No.

As I've now shown, Peikoff's arguments make no sense at all, yet he claims that anyone who don't agree with them don't understand a philosophy that supposedly is based on reason.

Which takes us to another interesting aspect of this. As Stephan Kinsella pointed out on the LRC blog, there are at least two leading Ayn Rand Institute associates which have advocated support of the Republicans-Harry Binswanger and Robert Tracinski.

Indeed, Tracinski in his recent column about the election seemed almost as passionate about his rejection of the Democrats as Peikoff was about his support of them.

So, is the ARI going to keep as leading fellows two persons who according to Peikoff
don't understand Objectivism? Or are they to be added to an ever growing list of "ex-communicated" people (people thus offically classified as "anti-life, anti-reason etc. ) including David Kelley, George Reisman, Per-Olof Samuelsson and others?

Tragedy of the Commons: French Bicycle-Sharing Program Goes Flat; 80% of Bikes Stolen or Damaged

NY TIMES -- The latest French utopia (Vélib’, Paris’s bicycle rental system) has met a prosaic reality: Many of the specially designed bikes, which cost $3,500 each, are showing up on black markets in Eastern Europe and northern Africa. Many others are being spirited away for urban joy rides, then ditched by roadsides, their wheels bent and tires stripped.

With 80 percent of the initial 20,600 bicycles stolen or damaged, the program’s organizers have had to hire several hundred people just to fix them. And along with the dent in the city-subsidized budget has been a blow to the Parisian psyche, as not everyone shares the spirit of joint public property promoted by Paris’s Socialist mayor, Bertrand Delanoë.

At least 8,000 bikes have been stolen and 8,000 damaged so badly that they had to be replaced — nearly 80 percent of the initial stock. JCDecaux must repair some 1,500 bicycles a day. The company maintains 10 repair shops and a workshop on a boat that moves up and down the Seine.

It is commonplace now to see the bikes at docking stations in Paris with flat tires, punctured wheels or missing baskets. Some Vélib’s have been found hanging from lampposts, dumped in the Seine, used on the streets of Bucharest or resting in shipping containers on their way to North Africa. Some are simply appropriated and repainted.

Pathetic Fed Forecasts

In the FOMC statement accompaning yesterday's 50 basis point cut of the Fed Funds rate from 3.5% to 3%, the Fed stated that "The Committee expects inflation to moderate in coming quarters".

But as the Wall Street Journal's editorial page points out, they used a nearly identical phrase in the statement accompaning the meeting in January 2007, where they claimed that "inflation pressures seem likely to moderate over time". What have actually happened since then is that inflation, far from moderating, have risen sharply. These forecasts are as pathetic as their claim that they want a strong dollar, and similarly reflects a desire to fool people into buying government bonds, as well as justifying their own interest rate cuts (or in the case of last year, refusal to raise interest rates).

Unexpectedly Strong U.S. Growth

Fourth quarter U.S. GDP growth came in a lot faster than what most analysts -including me- expected. While this was only the "advance" number, subject to many revisions, it is just as likely to be upwardly revised as downwardly revised. Personal consumption, business investments, residential investments and inventories came in roughly in line with what I had expected, so the upwards surprise was attributable to the remaining two components: net exports and government demand.

That the trade deficit fell during the fourth quarter was expected given the remarkably low October and November deficits. The Bureau of Economic Analysis apparently expects it to stay as low during December. What was really surprising was that this to such a large extent was attributed to volume changes, rather than just price changes (read: oil price collapse). It remains to be seen whether this will really materialize.

Government spending increased a lot faster than expected. But that was actually not the result of faster nominal spending growth, but a sharp deceleration in the price index for government consumption. Price indexes for government spending are inherently dubious due to the fact that it is determined by a non-market actor, but presumably this deceleration was due to lower oil costs as well.

The oil price collapse, together with other effects from the warm weather was of course the by far most important reason why the U.S economy was so strong despite the housing bust. Oil prices is likely to provide a further -albeit smaller- boost during the first quarter of 2007, despite the recent recovery in oil prices. If it stays this low (or falls further, of course) the U.S. might actually escape a housing-related recession-at least for 2007. The deep imbalances of the U.S. economy means however that this will only represent a postponement of it.

EMU Inflation Rises to 2.6%

Little more than a month ago, I predicted that Euro area inflation would easily rise to at least 2.5% by October or November this year from the 1.7% in August. Now, the flash estimate of euro area inflation indicates that it rose to 2.6% in October.

Yet even with inflation clearly above the ECB:s official ceiling of 2% and money supply growth way above the ECB:s official target of 4.5%, they are not expected to raise any more. All because the cowardly Frenchman, Jean-Claude Trichet, in charge isn't man enough too defy the monetary crank ruling in Paris, Sarkozy. Anyone who considers the ECB to be inflation hawks should really have their head examined.

This also illustrates again why we can't rely on written rules to restrain government officials. Just as most U.S. politicians -with very few exceptions, like Ron Paul- and most U.S. supreme court justices -with again very few exceptions, like Clarence Thomas- openly defy the U.S. constitution, so do the ECB board ignore the inflation targets they are supposed to follow. And this is not just true right now, money supply growth have exceeded 4.5% every single month since 1999 and consumer price inflation have exceeded 2% most of the time.

EU Stops Brazilian Beef

This is the kind of news that really makes you hate the EU, and wish for Swedish withdrawal from it. EU have now decided to ban beef imports from Brazil based on some flimsy nonsensical argument about how Brazil supposedly does not track and control the beef to a sufficient extent. It is considered irrelevant that Brazil have not had a single case of mad cow disease or anything like that, or that there have never been any case of anyone getting sick from eating it.

The real reason for this ban is actually intense lobbying from Irish and British beef producers who detest the competition from the cheap Brazilian beef. The health argument is just a smoke screen for pure protectionism.

The result will be a sharp increase in the price of beef, as if food prices weren't already rising fast enough due to central bank inflation and the ethanol boom.

$500 Million of Missing Tax Revenue from The Rich; ECON 101: If You Tax Something You Get Less of It

ASSOCIATED PRESS -- Early data from New York show the higher tax rates for the wealthy have yielded lower-than-expected state wealth. Gov. David Paterson, who had always warned targeting the rich could backfire, fears that's just what happened.

Paterson said last week that revenues from the income tax increases and other taxes enacted in April are running about 20% less than anticipated. So far this year, half of about $1 billion in expected revenue from New York's 100 richest taxpayers is missing. State officials say they don't know how much of the missing revenue is because any wealthy New Yorkers simply left.

But at least two high-profile defectors have sounded off on the tax changes: Buffalo Sabres owner Tom Golisano, the billionaire who ran for governor three times and who was paying $13,000 a day in New York income taxes, and radio talk-show host Rush Limbaugh. Golisano changed his official address to Florida, and Limbaugh, who also has a Florida home, announced earlier this year that he was relinquishing his home in Manhattan.

Donald Trump told Fox News earlier this year that several of his millionaire friends were talking about leaving the state over the latest taxes.


Thanks to Jeff Perry.

Rate of Yuan Apprection Increasing-But Only Slightly

After the initial move from the more than decade old peg of the yuan to the dollar at an exchange rate of 8.28, when the yuan was revalued by 2.1% to 8.11, the yuan have continued to increase in value, but only very slowly. One year after the revaluation, the yuan had increased just another 1.5% in value, to 7.99.

Today (October 30), a little more than 3 months later, the yuan have increased another 1.5%, to 7.8728. So, the rate of appreciation is increasing, but it is still far too slow for China's own good.

Interestingly, China does however seems to have reduced , if not halted, the inflow of "hot money" trying to profit from the revaluation, further increasing the need for increased foreign exchange reserves. During the third quarter, China's goods trade surplus was $50 billion. And usually the current account surplus is an additional $15 billion. Yet the foreign exchange reserves rose "just" $50 billion. This indicates a net capital outflow of $15 billion. Brad Setser and Richard McGregor thinks this reflects that state owned Chinese banks are accumulating dollar assets instead of selling them to the central bank. This would imply that the accumulation of foreign assets by state owned entities in China is growing faster than the official reserve number indicates.

They may be partially right, but it also seems likely that net private capital inflow was sharply reduced, if not halted or partially reversed.

Yen Undervaluation Causing Increasing Distortions

Today's economic statistics from Japan were mixed. Industrial production were stronger than expected while consumer spending were weaker than expected. The explanation for these seemingly contradicting statistics is of course the extreme undervaluation of the yen, which have just gotten worse since I first wrote about it. While European currencies and the Chinese yuan and most other Asian currencies have strengthened against the dollar since then,the yen have kept falling even against the dollar (and of course even more so against European and most other Asian currencies).

The weak yen will depress local purchasing power in Japan, while boosting net exports, As a result, Japan's trade- and current account surplus have continued to rise. Note however, that contrary to the misleading "unit labor cost" economics of The Economist, the weak yen have not boosted overall economic growth, just shifted it from domestic demand to net exports. As this shift is very unnatural, it will in fact create economic distortions both in Japan and elsewhere.

Meanwhile, European leaders are starting to complain, noting that Japan's monetary policy creates as much distortions as China's. An increasing number of investors -both Japanese and gaijins- are borrowing at the super-low nominal interest rates in Japan and using it to invest in far higher yielding investments elsewhere.

Rx: The Cure of Market-Based Health Care Reform, Like Retail Clinics Partnering With Hospitals

From the Minneapolis-St. Paul StarTribune:

In a marriage of giants, Allina Hospitals and Clinics is teaming up with MinuteClinic to coordinate care for patients and expand medical services down the road. Allina is the biggest hospital and clinic group in the Twin Cities, with 11 hospitals and 90 clinics. MinuteClinic, the pioneer of bare-bones retail kiosks staffed by nurse practitioners, has 24 locations in the Twin Cities and 500 nationwide. This is the second such partnership for MinuteClinic, coming after a similar deal with the Cleveland Clinic in Ohio.

"By coordinating care between the retail clinic setting and our clinics and hospitals, patients can feel confident that they will be well taken care of, whether they have a minor illness or something more serious," Kenneth Paulus, Allina's chief executive, said in a statement.

Allina doctors will offer medical oversight to MinuteClinic nurse practitioners in Minnesota, and the two organizations will share electronic medical records. An Allina patient who visits a MinuteClinic, for example, will get that visit recorded in her Allina record.

The Allina/MinuteClinic deal comes at a time of uncertainty in health care. Health care legislation in Congress contemplates ways to both cut payments and shift from paying for procedures to paying for outcomes. That would pressure medical providers to be more efficient -- for example, patients with less serious conditions may be seen by nurse practitioners instead of doctors, at lower cost. That is already happening in some areas, with retail clinics the most obvious example.

Canada's Improving Real Estate Market - Three Consecutive Monthly Increases in Home Prices


Canadian home prices in July were down 5.1% from a year earlier, according to the Teranet-National Bank National Composite House Price Index. Though it was the eighth consecutive 12-month decline, it was also the first time in 13 months that prices in every region covered by the index were up from the month before. For the composite index it was a third consecutive monthly rise (see charts above). The trend reversal is consistent with improving market conditions for the country as a whole in recent months - more homes have been selling and fewer have been coming on the market.

MP: The three consecutive monthly increases in Canada's main House Price Index follows 8 consecutive monthly decreases, and is the largest cumulative three-month increase in about two years (see bottom chart above).

Entrepreneurship At Its Finest: Why We Need Them

The reason that entrepreneurs are so important to the economy is because their very existence and success depends on one key factor: Effectively solving other people's problems. Need some new product to make your life better off, or something that already exists but you want it cheaper, better, faster, or more conveniently to make you better off? The entrepreneurs are at your service.

Here's a great example of entrepreneurship at its finest, featured recently on Club for Growth and Marginal Revolution- the Big Box Deliveries service in NYC. From its homepage:

On average, New York City stores and delivery services are 147% more expensive for Non-Perishable items and 107% more expensive for Perishable items than for similar items at Costco. Big Box Deliveries will "split the savings" with you. Each Non-Perishable item for sale has a “Costco” price and the “Average New York City” price for the exact same item but with Costco-sized bulk packing (see samples above).

For instance, Charmin costs $20.19 at Costco for 30 rolls. If a customer were to purchase 30 rolls in New York City, on average, the price would be $42.18. We split the savings. The customer pays $31.19 and saves $11. The Average New York City price is derived from real prices at Fresh Direct, Fairway, Gristedes, D’Agostino’s, Food Emporium, Whole Foods, Duane Reade™, CVS, Staples, Petco, and Diapers.com. Where there is no direct comparison for items, we use the overall average difference of 147.42% to calculate your final price.

They deliver 7 days a week to the Upper East and West sides of Manhattan, only to apartment buildings that have a doorman (doorperson?).

Markets in Everything: Deeply-Discounted Surgery for Cash, Payable in Advance

The Surgery Center of Oklahoma offers deeply-discounted surgery, payable in advance in cash or cashier's check, see a sample of prices above (click to enlarge).

From the FAQ section:


To keep our prices as low as possible, cashier's checks or cash are the methods preferred. Credit cards and personal checks cannot be accepted. Human resource departments or divisions of self-insured companies can make other arrangements if necessary.

Payment in full is required at the time service is rendered. No payment arrangements can be made. These deeply-discounted prices are otherwise not available.

HT: Jim DeLong via Nick Schulz

U.S. Real GDP Growth Turns Negative

While the headline volume number for real GDP in the U.S. stayed above zero in the fourth quarter of 2007, the more relevant terms of trade adjusted real GDP fell below zero. Nominal GDP rose 3.2% and the domestic purchases price index rose 3.8%, implying that real GDP fell with 0.6% instead of the 0.6% increase implied by the volume number. This means that properly measured, the recession began during the fourth quarter, just as I predicted back in early December.

It gets even worse if you only look at the private sector. Government demand rose from 19.4% to 19.7% of GDP, the highest since the fourth quarter of 1992. Excluding government demand, GDP fell 1.1%.

The outlook for this year looks even worse, as the increase in consumer spending and business investments during the fourth quarter of 2007 were based on large reductions in financial savings and increases in debt. With corporate profits falling the increase in business investments is very much unsustainable, although yesterday's surprisingly strong durable goods orders report indicate that many business executives are still in denial about the state of the economy. Ultimately, the weakening corporate balance sheets and the weakening economic outlook will force them to cut back on investment spending, despite the Fed's agressive rate cuts.

A similar story is true for consumers, whose zero savings rate looks very unhealthy and unsustainable considering the decline in house prices and stock prices. It therefore seems safe to say that the economic contraction will continue during 2008, and probably at an ever faster pace.

Why the Riksbank Will Have To Raise More

The Swedish Riksbank today raised as expected short term interest rates from 3.75% to 4%, which means that it now reaches interest parity with the euro area countries. And if as expected, the Fed cuts by another 25 basis points today, then that will mean that the spread between U.S. and Swedish nominal interest rates (As inflation and inflationary expectations are much higher in U.S., real interest rates is in fact already much higher in Sweden) will be reduced to 50 basis points, down from 175 basis points as recently as in August.

They will most likely have to raise interest rates again in the next few months. Money supply- and credit growth remains very high. And while some news papers have in recent days published anecdotal signs of falling house prices, that is likely misleading and more reliable reports indicate rising prices. And to the extent it is true that price increases have slowed down, that is likely a temporary factor related to how many Swedes wants to sell their homes before new year's eve to avoid the planned increase in the capital gains tax. With credit growth remaining high, with the housing tax reform and with construction levels remaining relatively low, prices should rise significantly next year, especially in the greater Stockholm area which is most affected by the housing tax reform.

Meanwhile, other factors including soaring food- and energy prices and higher increases in unit labor costs (i.e. wage increases uadjusted for productivity increases) is likely to help push consumer price inflation higher.

All of this means that the Riksbank will likely be forced to raise again.

The Strong Dollar Fairy Tale

Marketwatch has an interesting story about the difference between the words and actions of U.S. policy makers. U.S. policymakers claim to want a strong dollar, yet they do everything they can in practice in order to make it weaker. The Federal Reserve is arguably the most inflationist (and Keynesian)of all western central banks and so constantly debase the value of the dollar, and the Bush administration have of course increased budget deficits, with the latest "stimulus package" being just one example.

So, why do they claim they want a strong dollar when they in practice do everything they can to make it weaker? The answer is simply that they want to screw foreign investors and fool them into buying U.S. government bonds and that way get their money and "pay them back" with a negative real interest rate. The only mystery is why foreign investors keep falling for that lie (or fairy tale as marketwatch call it. I don't think the distinction is meaningful here since you are lying if you try to make someone believe that a fairy tale is true), given the historical record of negative real interest rates and constantly depreciating dollar, and the obvious attempts by Helicopter Bernanke to accelerate inflation further.

A Dirty Pun Tweaks China’s Online Censors in the World's Largest Cyber-Community



BEIJING -- The number of China's Internet users increased by 40 million to 338 million in January-June 2009, exceeding the total U.S. population, according to official news agency Xinhua. About 95% of towns and cities are connected to broadband Internet, Xinhua said. China has a population of over 1.3 billion people compared with the U.S. population of 307 million. The number of broadband Internet users in China increased by 10 million in the first half of the year to 93.5 million.

NY TIMES-- Government computers scan Chinese cyberspace constantly, hunting for words and phrases that censors have dubbed inflammatory or seditious. When they find one, the offending blog or chat can be blocked within minutes.

The grass-mud horse is an example of something that, in China’s authoritarian system, passes as subversive behavior (see video above). Conceived as an impish protest against censorship, the foul-named little horse has not merely made government censors look ridiculous, although it has surely done that. It has also raised real questions about China’s ability to stanch the flow of information over the Internet — a project on which the Chinese government already has expended untold riches, and written countless software algorithms to weed deviant thought from the world’s largest cyber-community.

Markets in Everything: Fantasy Sports Insurance

You’ve seen it time and time again… you spend your valuable TIME and MONEY preparing for your fantasy season… the anticipation of winning it all, drafting a team thatwould make any fantasy owner jealous, to have it all washed away with a major injury to your key player(s). NFL, MLB, NBA and NHL Team Owners carry disability insurance for key players on their team – Now Smart Fantasy Team Owners Can Too!

The Perils of Writing Articles in Advance of the Facts

Cesar Conda have written a supply-side/Republican spin on the weak third quarter growth number. I'll return for a more indepth analysis of the arguments over the U.S. economy between Republicans and Democrats, but meanwhile I can't resist pointing out one embarrasing detail of Conda's article.

It seems obvious that Conda had anticipated a weak number and so in advance written a article with the supply-side spin on it, and that he also had the article approved in advance by NRO editors. The only thing added after the release of the numbers was the precise aggregate growth number of 1.6%

Why is that obvious? First of all because it appeared so rapidly after the release, less than an hour.

Secondly because it contains this line:
"Another one-time factor slowing economic growth was a significant drop in the production of motor vehicles in the third quarter."

Only trouble is, motor vehicle production did not drag down the number. In fact, to the surprise of most economists, it actually soared during that quarter according to the statistics. This was likely a statistical fluke which will be reversed during the fourth quarter, helping to make Nouriel Roubini's 1% or less forecast for the fourth quarter more realistic.

And it also illustrated the perils of writing articles in advance on reports not yet available. I don't think doing so is in any way immoral or anything like that, but as we can see with Conda's article, it opens for embarrasing factual errors.

People Voting With Their One-Way U-Haul Rentals


Fortunately, the American people and businesses can vote with their feet, and with their one-way truck rentals, and that is apparently what the U-Haul data in the chart above show they are doing—moving away from places like Detroit and Providence with high unemployment and business-unfriendly environments, to cities like Fairfax, Fargo, and Houston that rank high for business climate in a new Forbes study on the best states for business.

Read my full post here at
The Enterprise Blog.

Low Prices Are Harmful to Consumers?

Click to enlarge.

From the American Booksellers Association letter to the Antitrust Division of the U.S. Department of Justice:

We ask that the Department of Justice investigate practices by Amazon.com, Wal-Mart, and Target that we believe constitute illegal predatory pricing that is damaging to the book industry and harmful to consumers.

As reported in the consumer and trade press this past week, Amazon.com, WalMart.com, and Target.com have engaged in a price war in the pre-sale of new hardcover bestsellers, including books from John Grisham, Stephen King, Barbara Kingsolver, Sarah Palin, and James Patterson. These books typically retail for between $25 and $35. As of writing of this letter, all three competitors are selling these and other titles for between $8.98 and $9.00.

The retailers are, in fact, taking orders for these books at prices far below cost. (In the case of Mr. King's book, these retailers are losing as much as $8.50 on each unit sold.) We believe that Amazon.com, Wal-Mart, and Target are using these predatory pricing practices to attempt to win control of the market for hardcover bestsellers.

Authors and publishers, and ultimately consumers, stand to lose a great deal if this practice continues and/or grows. If left unchecked, these predatory pricing policies will devastate not only the book industry, but our collective ability to maintain a society where the widest range of ideas are always made available to the public, and will allow the few remaining mega booksellers to raise prices to consumers unchecked.

We urge that the DOJ investigate and request an opportunity to come to Washington to discuss this at your earliest convenience.


MP: In other words, according to the booksellers, the "sky is falling," and the very foundations of our civilization are about to be destroyed by the rapacious book pricing policies of Amazon, Wal-Mart and Target. Where to start?

1. How exactly are low book prices "harmful to consumers?" Consumers love low prices, but have several remedies at their disposal to combat "predation" whenever they feel harmed by low prices: a) refuse to buy the book from Amazon or Wal-Mart for $9 and instead pay full price from an independent bookseller, b) refuse to buy the book at all, or c) offer to pay more than the "predatory" price from the "predator." That last option might not work so well at Amazon or Wal-Mart (if the book is priced at $9, it might be hard to actually pay $20 instead - how would the cashier ring it up?), but there might be some cases where a consumer could pay more than the listed price to combat "predation."

2. Keep in mind that about 90% of antitrust investigations involve one firm or group of firms complaining about one of their more efficient, low-cost competitors, like in this case.

3. Assuming that the predation worked and Amazon, Target and Wal-Mart were able to successfully drive all of the independent booksellers out of the market, there would be two problems:

a) They would still have to compete against each other and it could remain an intensely competitive book market even without the independents, to the continued benefit to consumers and

b) if the three oligopolists (Amazon, Target and Wal-Mart) did conspire to raise book prices to "book scalping" or "book gouging" levels, they could then: i) face antitrust charges, this time for high anti-competitive "monopoly" prices, and/or ii) face new competition from firms re-entering the market from the attractive "smell of profits" emanating from the monopoly pricing.

4. Notice in the Amazon listing above (click to enlarge) that Amazon offers "free shipping" on orders over $25, which is obviously below its actual cost. Isn't that then "predatory shipping?" Should that be investigated by the Dept. of Justice?

5. Also notice in the Amazon listing that there are more than 30 new copies of the Grisham book available from small, private booksellers at prices starting at $4.25, or more than 50% below Amazon's price of $9.59. Aren't those small booksellers engaged in predatory pricing AGAINST Amazon?

Bottom Line: "Predatory pricing," as the ABA describes it, is a myth and fairy tale, with virtually no real-world examples of it ever being successful, harmful to consumers, or leading to anti-competitive behavior in the long run.

It's only in the bizarre world of antitrust that any price you charge can be considered illegal. If your price is lower than your competitors, you could be charged with being a "predator" for anti-competitive "predatory pricing." If your price is "too high" you could be charged with anti-competitive monopoly pricing, "price gouging," or "ticket scalping." And if your price is the same as your competitors, you could be charged with collusion and anti-competitive price-fixing.

See Jeff Jacoby's excellent column about this issue "
The War Against Affordable Books," which concludes that:

The ABA does its members no favors by painting them as helpless victims, undone because Amazon, Wal-Mart, and Target are discounting some popular books. The best neighborhood booksellers inspire affection and allegiance from customers that no online superstore can match. Prices are important, but they aren't all-important. And not everyone is looking for the latest Stephen King.

Weekend Weimer and Beagle.

The markets are closed so it's time to stop thinking about economics and the markets. To help you get in the relaxing mood, here are some pictures of my dogs (the Weimeraners) and the future Mr$. Bonddad's dog -- the Beagle.





Real Estate Recovery: Phoenix, Miami, Las Vegas

PHOENIX -- A total of 8,639 new and resale houses and condos closed escrow in the combined Maricopa-Pinal counties metropolitan area in August, down 15.5% from July but up 20.2% from a year ago. Total home sales have increased on a year-over-year basis for eight consecutive months. Last month’s sales were at the highest level for an August since 2006.

MIAMI -- In August, 7,178 new and resale houses and condos closed escrow in the metro area encompassing Miami-Dade, Palm Beach and Broward counties. That was down a relatively sharp 9.6% from July but still up 27.4% from 5,635 in August 2008. August marked the sixth consecutive month in which the region's sales have risen on a year-over-year basis.

LAS VEGAS -- A total of 4,716 new and resale houses and condos closed escrow in the Las Vegas-Paradise metro area (Clark County) last month (August), down a record 11.2% from July but up 16.5% from a year ago. August marked the 12th consecutive month in which sales have risen on a year-over-year basis.

Source: DQNews

Paul Krugman On Useless U.S. Ethanol Subsidies

Paul Krugman may be a left-liberal and so I very often disagree with him, but he is right on the mark when pointing out the irrationality of U.S. ethanol policy, which will do little or nothing to reduce oil consumption, while costing the U.S. economy far more than alternative policies to reduce oil consumption. The source of this irrational policy is the parasitical U.S. farm lobby which both the Republican and Democratic establishment panders to. What could be added to Krugman's piece is that the reason Brazilian ethanol isn't used instead of the far more costly U.S. ethanol, is the fact that the U.S. congress, led by Senatar Barack Obama have slapped punitive tariffs on it.

"For those hoping for real action on global warming and energy policy, the State of the Union address was a downer.....

Too bad... The only real substance was Mr. Bush’s call for ... ethanol to replace gasoline. Unfortunately, that’s a really bad idea. There is a place for ethanol in the world’s energy future — but that place is in the tropics. Brazil has managed to replace a lot of its gasoline consumption with ethanol. But Brazil’s ethanol comes from sugar cane.

In the United States, ethanol comes overwhelmingly from corn, a much less suitable raw material. In fact, ... researchers ... estimate that converting the entire U.S. corn crop — the sum of all our ears — into ethanol would replace only 12 percent of our gasoline consumption.

Still, doesn’t every little bit help? Well, this little bit would come at a very high price compared with ... conservation. The Congressional Budget Office estimates that reducing gasoline consumption 10 percent through ... fuel economy standards would cost ... about $3.6 billion a year. Achieving the same result by expanding ethanol production would cost taxpayers at least $10 billion a year...

What’s more, ethanol production has hidden costs. ...[T]he Department of Energy ... says that the net energy savings from replacing a gallon of gasoline with ethanol are only ... about a quarter of a gallon, because of the energy used to grow corn, transport it, run ethanol plants, and so on. And these energy inputs come almost entirely from fossil fuels, so it’s not clear ... ethanol does anything to reduce carbon dioxide emissions....

...Subsidizing ethanol benefits two well-organized groups: corn growers and ethanol producers (especially the corporate giant Archer Daniels Midland). As a result, it’s bad policy with bipartisan support. For example, earlier this month legislation calling for a huge increase in ethanol use was introduced by five senators, of whom four, including ... Barack Obama and Joseph Biden, were Democrats. In a recent town meeting in Iowa, Hillary Clinton managed to mention ethanol twice..."

14th Straight Month of Pending Sales Increases for the Minneapolis Area Housing Market

Minneapolis Area Association of Realtors -- Home prices continue to show signs of strengthening in August. From March 2009 through August 2009 the median sales price has grown from $154,125 to $175,000. During the same period last year prices were flat. Prices are stablizing due to strong buyer demand—especially in the lower price ranges—buoyed by low mortgage rates and the federal tax credit for first-time home buyers. For the 14th consecutive month, there were more pending sales than there were the prior year. August saw 4,897 signed purchase agreements, up 11% percent from August 2008. With the tax credit expiring in November, closed sales should stay robust for at least the next two months. Time will tell what the market looks like after that, but there will be less inventory.

MP: The chart above displays some of the key August data for the Twin Cities real estate market - home sales increased by 14.5% compared to August of last year, and the months supply of housing inventory decreased by three full months, from 9.9 months in August 2008 to 6.9 months in August of this year.

Jobless Claims (4-Wk. Avg.) Drop to Lowest Level in 40 Weeks, Down 132,500 (-20.1%) From April Peak

WASHINGTON (Reuters) - The number of U.S. workers filing new claims for jobless benefits dipped by 1,000 last week, while the number collecting long-term aid fell to the lowest reading in seven months as the job market steadied. Another key gauge of underlying labor market health, the 4-week moving average for new claims, decreased by 6,000 to 526,250, which was the smallest reading since January.

MP: The 4-week moving average of 526,250 is now 132,500 below the early April peak of 658,750, and has dropped to the lowest level since January 17, a 40-week low.

Website of the Day

From Comcast.net via Rand Gerald.

The Economist And The Euro Zone Economy

The Economistis usually relatively sound on monetary matters, but no so in their latest issue. The Economist Finance and Economics section seems to be made up of a mix of semi-Austrians and Keynesians. This week, it seems, the Keynesians were in charge (as articles aren't signed, we don't know the exact identity of the writer)..

In the article, they argue for a rather crude and naive "unit cost of labor"-theory of growth in which unit labor costs are everything that matters. The recent relative strength of the German economy is supposedly evidence of this. Had they bothered to check their own chart more carefully, they would have noticed that relative German unit labor costs have been as low or nearly as low this for more than five years, yet it is only now that it recovers. And even now, growth is only a tenth of a percentage point above euro zone average. And they failed to noticed how Italy had low growth even in the mid 1990s when unit labor costs were low. Not to mention how fast growers like Ireland and Greece have seen rapid increases in unit labor costs. They did however notice that fast grower Spain have seen such rapid increases, yet they fail to notice how this contradict their growth theory.

The truth is that growth differentials have virtually nothing to with unit labor costs, particularly not in a monetary union for reasons explained below. Instead it depends on demographics and differences in regulatory-, tax- and fiscal policy. Spain, Ireland and Greece is doing well because of favorable demographics and unsound policies while Italy is doing badly because of unfavorable demographics and unsound policies. Germany is a mixed bag, with unfavorable demographics combined with modest liberalizations, which not suprisingly means that it achieves average growth.

Interestingly, The Economist in the past have tried to argue the opposite theory. That lower than average inflation in a monetary union is bad for growth, because it means real interest rates is higher. In June 2003, they predicted (in a article unavailable to non-subscribers) that Germany would forever roast and live unhappily ever after. Now they are arguing that the same conditions means that they will live happily ever after.

The truth is that in a monetary union, above average inflation contains both advantages or disadvantages, likely to cancel each other out. On the one hand, higher unit labor costs will slow growth, on the other hand it will also imply lower real interest rates and lower relative cost of capital goods. The Economist in its bias against monetay unions manages to first make the error of assuming that below average inflation is necessarily bad and the error that above average inflation is necessarily bad. The only thing consistent about its arguments is that they are false and biased against monetary unions.

Single Most Important and Revolutionary Factor for Economic Development and Empowerment?

Over the last several years, what has been the single most important and revolutionary factor for the economic empowerment of the world’s poorest people?

Hint: It’s not foreign aid, the World Bank, or the International Monetary Fund.


Hint: It has compensated for inadequate infrastructure such as bad roads and slow postal services, it has facilitated the flow of information, it has allowed emerging market economies to operate more efficiently, and it has helped unleash entrepreneurship in some of the poorest countries in the world. And having it is “almost like having a card to get out of poverty in a couple of years.”


Find out what “it” is
here, here and here.

U.S. Home Prices Increase for the Third Month in a Row For the First Time Since Spring 2006


NEW YORK (Reuters) - U.S. single-family home prices in July rose from the previous month, surpassing forecasts and bolstering the case for housing market stability after a three-year plunge, Standard & Poor's said on Tuesday. The S&P/Case-Shiller composite index of 20 metropolitan areas rose 1.6% in July from June, more than triple the estimate of a 0.5% rise found in a Reuters poll. This index rose 1.4% the month before. The 10-city index gained 1.7% in July after a 1.4% rise the previous month (see top chart above, data here).

"These figures continue to support an indication of stabilization in national real estate values, but we do need to be cautious in coming months to assess whether the housing market will weather the expiration of the Federal First-Time Buyer's Tax Credit in November, anticipated higher unemployment rates and a possible increase in foreclosures," David Blitzer, chairman of the index committee at S&P, said in a statement.

MP: The 1.61% July increase in the Composite-20 Index was the largest monthly gain since a 1.62% increase in April of 2005, and the period of three consecutive monthly increases in May, June and July of this year is the first time in more than three years that the index has increased three months in a row (see bottom chart above).

Markets in Everything: Carbon Offset Airport Kiosks

Three new kiosks with touch screens let travelers passing through SFO airport punch in an itinerary and purchase the appropriate carbon offset—calculated on the spot. These Climate Passport kiosks, the first in a U.S. airport, debuted yesterday and are located after security checkpoints near the entrances to Terminal 3 and international terminals A and G.


The offsets will fund two local projects: Garcia River Forest's planting of redwood and Douglas fir trees in heavily-logged Mendocino County and Dogpatch Biofuels, a bio-diesel fueling station based in San Francisco.

Link

See related article "Carbon Offsets: Eco-Extortion, Green Guilt, and the Selling of Indulgences."

The Coming Negative Equity Problem

Mish has been all over this story.

From today's WSJ:

Goldman Sachs economists estimate that as much as $3 trillion in mortgages could be underwater by the end of the year, leaving 30% of the country's outstanding mortgages in negative equity. Since there is roughly $1 trillion in subprime mortgages outstanding, that means a large amount of better-quality mortgages, such as prime and Alt-A -- a category between prime and subprime -- will be attached to negative equity.


This situation is already leading to people walking away:

Sgt. First Class Nicklaus Skaggs is among those looking to walk way. Mr. Skaggs bought his home in April 2005 shortly after returning to California from a one-year tour of duty in Baghdad.

The $455,000 three-bedroom home he and his wife purchased in Vacaville, about one hour northeast of San Francisco, is worth an estimated $285,000 today, well below the $453,000 he owes on his mortgage. The monthly mortgage payment, which jumped after its interest rate increased, is now $4,000, up from $2,980 when he bought the house.

Mr. Skaggs expects to be redeployed to Iraq again later this year. But he can't sell his home, since there are few buyers, and he can't refinance because lenders require a large down payment he doesn't have. Now, the 18-year Army veteran has decided to walk away from his mortgage. He hopes in a few years lenders see his decision as a unique situation created by the housing meltdown. "I don't think that house is going to recover in value any time soon," said the 40-year-old. "I'd just be throwing the money away."

.....

In the Phoenix area, where home prices were off 15% in the fourth-quarter when compared with a year ago, accountant Steven Ulrich says several of his clients have recently said they plan to walk away. One client's home is now worth $100,000 less than the mortgage and the other is $60,000 underwater.

"It surprised me," said Mr. Ulrich, who works at The Focus Group in Scottsdale. "I'd never had people doing that before, if they had to it was something they were forced into. But these people are choosing it as a strategy, and I think it's going to be happening a lot more."


First, this is entirely rational behavior. There is no point in paying more for something than it is worth.

The financial sector is going to have problems for some time because of this. By some time I mean at least the next year and probably longer. Notice where home prices are on the Cash Shiller price index; prices are just starting to correct:



The bottom line is all the writedowns we've been hearing about are going to continue for the foreseeable future. The writedowns first started because the debt wasn't worth nearly as much as people thought it was. Now we have a second problem: lenders who actually hold the underwater mortgages will be forced to devalue them in order to reflect current market condition.

Now -- let's see how this will impact financial institutions. According to the FDIC, here are some highlights about where FDIC insured banks are currently:

For all of 2007, insured institutions earned $105.5 billion, a decline of $39.8 billion (27.4 percent) from 2006. This is the lowest annual net income for the industry since 2002 and is the first time since 1999-2000 that annual net income has declined. While much of the decline in industry earnings was concentrated among some of the largest institutions, evidence of broader weakness in earnings bespoke an operating environment that was less favorable than in previous years.

.....

Net charge-offs registered a sharp increase in the fourth quarter, rising to $16.2 billion, compared to $8.5 billion in the fourth quarter of 2006. The annualized net charge-off rate in the fourth quarter was 0.83 percent, the highest since the fourth quarter of 2002. Net charge-offs were up year-over-year in all major loan categories except loans to the farm sector (agricultural production loans and real estate loans secured by farmland).

.....

Despite the heightened level of charge-offs, the rising trend in noncurrent loans that began in mid-2006 continued to gain momentum in the fourth quarter. Total noncurrent loans -- loans 90 days or more past due or in nonaccrual status -- rose by $26.9 billion (32.5 percent) in the last three months of 2007. This is the largest percentage increase in a single quarter in the 24 years for which noncurrent loan data are available.


.....

Insured institutions’ loss reserves posted their largest increase in 20 years in the fourth quarter, but this growth did not keep pace with the growth in noncurrent loans.


Ladies and gentlemen, the quarterly banking profile indicates times are just starting to really hit the banks. But you ain't seen nothing yet.

The Dollar's Plight and Status

There is a fascinating story in today's WSJ today about the dollar. It mentions the current nosedive is causing a ton of problems for countries around the world. But it also mentions the dollar is very entrenched in global finance which means changing dominant currencies (to the euro, for example) would be extremely difficult.

Beaten down by fears of a U.S. recession, the dollar is falling with new speed -- creating severe challenges not just for the U.S., but also for sugar traders in Brazil, central bankers in the Persian Gulf and a host of others.

.....

Yet for all of the gloom, the world is unready to let go of America's unloved dollar. Akin to the way Microsoft's often-criticized Windows operating system remains indispensable to the majority of computer users, the dollar remains the common language of finance, the medium of exchange in everything from sugar to wheat to oil.

Shaking the dollar loose from that place would require a vast reworking of the global financial system that few parties seem prepared to confront. It is far from certain that the dollar will continue to decline. But if it does, businesses and policy makers around the world could be wrestling with the problems created by their dependence on it for many years.


I love the Microsoft comparison -- that just makes me feel warm and fuzzy all over. But I think it is a very apt comparison.

The whole article is a great read.

Mathematical Traders Fail Again

Back in August, I reported on how traders using computer programs based on advanced mathematics and statistical patterns had lost huge sums of money as August experienced dramatic market fluctuations that contradicted the mathematical models, as there was for example market movements that were 20 standard deviations from the perceived normal-events that really never should occur.

But in reality, events considered impossible in mathematical models occur quite frequently. Examples of this include the stock market crash of October 1987, the market movements that destroyed the Long Term Capital Management fund and the movements in August 2007. And while perhaps not considered impossible, we have also seen market movements that contradict what statistical patterns indicate. For example, normally September is the month of the year when the stock market is weakest while January is the month when it is strongest. But this September, stock prices rose sharply while they have fallen sharply this January.

Here is an interesting Bloomberg News article about how last year, the great losers were the "quants", i.e. the traders relying on mathematical models.

This again illustrates how human behavior cannot be captured in mathematical models. Instead, what matters is understanding of sound economic theory of how the economy and the markets function and the understaning of how to apply this to market movements.

Questions for Protectionists: Is The National Zoo with Foreign Animals Unpatriotic & Un-American?

Is China Guilty of "Panda Dumping"?
I now live several blocks from the Smithsonian National Zoo in Washington, D.C. and have visited there twice in the last week to see the exotic, foreign, imported pandas, hippo, zebras, the 8-month old baby gorilla, tigers, lions, etc.

Based on an earlier CD post, here are some questions for the trade protectionists, many of whom reside right here in the DC area, including my new neighbor President Obama:

1. Is there any material difference between American zoos like the Smithsonian National Zoo spending millions or billions of dollars annually to acquire "foreign" animals from South America, Africa and Asia for their exhibits, and American consumers spending billions of dollars annually to acquire foreign products from those same parts of the world, like tires from China?

2. If patronizing a foreign car company or a foreign tire company is considered to be an unpatriotic, un-American act, wouldn't visiting a zoo to patronize foreign, imported animals like the Chinese pandas be equally unpatriotic and un-American?

3. Protectionists might argue that you cannot buy an American elephant, so the only choice for the National Zoo is to purchase one from Africa or India. But isn't it also true that American consumers cannot buy what they might consider to be uniquely British, Japanese or German engineering features in an American car? Just like you cannot purchase an American elephant, you cannot purchase an American Jaguar, Lexus or BWM can you?

4. Isn't naming professional sports teams after foreign animals (Tigers, Lions) somewhat unpatriotic? If a team is named for an animal, wouldn't it really be better to name teams after American animals instead? If you support "Buy American," shouldn't you also support a "Name American" practice for professional sports teams?

5. One might argue that the National Zoo didn't spend any money purchasing the Chinese pandas (pictured above), but then wouldn't that be a case of "predatory panda pricing," since the Chinese government and Chinese people provided the pandas to the American people for "less than the cost of production." Should the American people complain to the WTO or the International Trade Commission that China is guilty of "panda dumping"? If we're willing to accept gifts from the Chinese people in the form of free pandas, why would we complain about them providing tires or other products at less than the cost of production, or complain about gifts from the Chinese people in the form of what is pejoratively called "predatory pricing" or "dumping"?

Libertarian Purity Test

Translating "Fedspeak"

Bernanke spoke to Congress on Wednesday. His opening statements provide a good outline of where the economy is presently. I have interspersed his comments with some news stories and various graphs to clarify Barnanke's points. I have separated his comments by indenting and italicizing them.

Here is a link to his complete testimony.

The economic situation has become distinctly less favorable since the time of our July report. Strains in financial markets, which first became evident late last summer, have persisted; and pressures on bank capital and the continued poor functioning of markets for securitized credit have led to tighter credit conditions for many households and businesses. The growth of real gross domestic product (GDP) held up well through the third quarter despite the financial turmoil, but it has since slowed sharply. Labor market conditions have similarly softened, as job creation has slowed and the unemployment rate--at 4.9 percent in January--has moved up somewhat.


Regarding banking:

Record-high loan-loss provisions, record losses in trading activities and goodwill impairment expenses combined to dramatically reduce earnings at a number of FDIC-insured institutions in the fourth quarter of 2007. Fourth-quarter net income of $5.8 billion was the lowest amount reported by the industry since the fourth quarter of 1991, when earnings totaled $3.2 billion. It was $29.4 billion (83.5 percent) less than insured institutions earned in the fourth quarter of 2006. The average return on assets (ROA) in the quarter was 0.18 percent, down from 1.20 percent a year earlier. This is the lowest quarterly ROA since the fourth quarter of 1990, when it was a negative 0.19 percent. Insured institutions set aside a record $31.3 billion in provisions for loan losses in the fourth quarter, more than three times the $9.8 billion they set aside in the fourth quarter of 2006.


GDP isn't doing that well:

The U.S. economy slowed sharply in the fourth quarter, growing at a 0.6% annual rate, unrevised from last month's estimate, the Commerce Department reported Thursday.

For all of 2007, the economy grew at the weakest pace in five years, rising at an inflation-adjusted 2.2% after a 2.9% gain in 2006. The economy grew 4.9% in the third quarter.


Employment isn't looking that hot either:



Year over year job growth has been dropping for about a year and a half and is now negative.



Also note the unemployment rate is edging up.

Many of the challenges now facing our economy stem from the continuing contraction of the U.S. housing market. In 2006, after a multiyear boom in residential construction and house prices, the housing market reversed course. Housing starts and sales of new homes are now less than half of their respective peaks, and house prices have flattened or declined in most areas. Changes in the availability of mortgage credit amplified the swings in the housing market. During the housing sector's expansion phase, increasingly lax lending standards, particularly in the subprime market, raised the effective demand for housing, pushing up prices and stimulating construction activity. As the housing market began to turn down, however, the slump in subprime mortgage originations, together with a more general tightening of credit conditions, has served to increase the severity of the downturn. Weaker house prices in turn have contributed to the deterioration in the performance of mortgage-related securities and reduced the availability of mortgage credit.

The housing market is expected to continue to weigh on economic activity in coming quarters. Homebuilders, still faced with abnormally high inventories of unsold homes, are likely to cut the pace of their building activity further, which will subtract from overall growth and reduce employment in residential construction and closely related industries.




New home sales have been dropping for awhile.



Existing home sales have been as well

I dealt with housing this week in this article.

Consumer spending continued to increase at a solid pace through much of the second half of 2007, despite the problems in the housing market, but it appears to have slowed significantly toward the end of the year. The jump in the price of imported energy, which eroded real incomes and wages, likely contributed to the slowdown in spending, as did the declines in household wealth associated with the weakness in house prices and equity prices. Slowing job creation is yet another potential drag on household spending, as gains in payroll employment averaged little more than 40,000 per month during the three months ending in January, compared with an average increase of almost 100,000 per month over the previous three months. However, the recently enacted fiscal stimulus package should provide some support for household spending during the second half of this year and into next year.




Real retail sales -- sales adjusted for inflation -0 are barely positive right now.



Personal Consumption Expenditures aren't looking that hot either.

The business sector has also displayed signs of being affected by the difficulties in the housing and credit markets. Reflecting a downshift in the growth of final demand and tighter credit conditions for some firms, available indicators suggest that investment in equipment and software will be subdued during the first half of 2008. Likewise, after growing robustly through much of 2007, nonresidential construction is likely to decelerate sharply in coming quarters as business activity slows and funding becomes harder to obtain, especially for more speculative projects. On a more encouraging note, we see few signs of any serious imbalances in business inventories aside from the overhang of unsold homes. And, as a whole, the nonfinancial business sector remains in good financial condition, with strong profits, liquid balance sheets, and corporate leverage near historical lows.




Ben's right about business investment -- it's been pretty strong. But with the credit crunch, I have to wonder how long that can last. My guess is a lot of the growth we've seen over the last two quarters comes from deals that started before the credit markets fell apart. The next few quarters will be crucial to determining if the trend continues.



Overall industrial production is doing fine. But you have to remember this figure includes all production such as utilities.





The Philly and Empire State indexes tell a very different tale. They show a lot of pullback.



And last months durable goods numbers weren't that good -- and durable goods orders have been negative from a year over year perspective for the last year.

The only good picture in all of this is exports -- one of the few benefits of a crashing dollar.

Bottom line: Ben has a lot of reasons to be concerned right now.

There's Hope: Even Michigan Economy Rebounds!

DALLAS/September 28, 2009Comerica Bank’s Michigan Economic Activity Index improved five points in August to 78, the highest reading since December 2008. Compared to its recent May low, the Index is now up eight points, or 11%. Year-to-date, the Index averages 73, down 14 points from the 2008 average.

“A surge in Michigan auto sales related to the cash-for-clunkers incentives accounted for about half of the rise in our index in August,” said Dana Johnson, Chief Economist at Comerica Bank. “Although car sales will undoubtedly be much weaker in coming months, the decline in our index due to that component will be at least partially offset by rising light vehicle production. Our index may not rise in September, but it looks increasingly likely that it will trend higher over the balance of the year as a gradually accelerating national recovery boosts the auto sector and other components of the Michigan economy.”

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