"Where economics isn't just a job, but an adventure"
Quote of the Week
Blog Topics 2019
March The Burgeoning US Debt
May China, Trade and Tariffs
June Income taxes: Obama v Trump
July/Aug The China Threat
May China, Trade and Tariffs
June Income taxes: Obama v Trump
July/Aug The China Threat
Blog Topics 2018
January What Kills Bull Markets
May Are Cheap Oil Prices here to Stay
July California and Mandatory Solar Panels
August Tariffs and Trade
September Is a Recession coming?
November Increasing Healthcare Costs
December The Oracle of Omaha
Blog Topics 2017
January Trumponomics Part 2
February The Keystone Pipeline Revisited
March Border Adjustment Tax
April Are Liberal Prof's.....
May Moral Hazard Through a Libertarian's Lens (guest blog from a student)
July What's causing the Opioid Crisis
September The minimum Wage re-visited
November Everything You Want to Know about 401K
December How The New Tax Bill Affects you (spoiler alert: the middle class makes out great)
Blog Topics 2016
January Should Insider Trading be Legalized: Part 2
February The Presidential Election & the Economy
March Does Narcan Increase Heroin Use
April Is NOAA destroying the American Fisherman
June Will California Style Power Outages Happen in New England
July Textbooks, Inflation & the FTC
Sept Economic strangulation by Regulation
Oct Is this the Best we have?
Nov The High Cost of Prescription Drugs
Dec Trump, the Economy & Animal Spirits
February The Presidential Election & the Economy
March Does Narcan Increase Heroin Use
April Is NOAA destroying the American Fisherman
June Will California Style Power Outages Happen in New England
July Textbooks, Inflation & the FTC
Sept Economic strangulation by Regulation
Oct Is this the Best we have?
Nov The High Cost of Prescription Drugs
Dec Trump, the Economy & Animal Spirits
Blog Topics 2015
January Does Implementation of the Death Penalty lead to higher costs
February Less Competition and Higher Hospital Costs
March Millionaires Who Get Subsidies from the Affordable Care Act
April The Unintended Obama Legacy
May The NY Times and $15 Minimum Wage
June Are Disability Payments Bankrupting Social Security
August Seattle's $15 minimum wage and it's Surprising Consequence
October The Great Stagnation: The Obama Legacy
November Poverty in the United States
December Should Insider Trading be Legalized: Part one by Olivia Marchioni
February Less Competition and Higher Hospital Costs
March Millionaires Who Get Subsidies from the Affordable Care Act
April The Unintended Obama Legacy
May The NY Times and $15 Minimum Wage
June Are Disability Payments Bankrupting Social Security
August Seattle's $15 minimum wage and it's Surprising Consequence
October The Great Stagnation: The Obama Legacy
November Poverty in the United States
December Should Insider Trading be Legalized: Part one by Olivia Marchioni
blog topics for 2013 and 2014 are at page bottom
September Jobs Report
In September, the economy created 136,000 jobs when 145,000 were created, which is indicative of a slowing market. The unemployment rate dropped to 3.5% which is the lowest since 1969, a 50 year low. The real unemployment rate, which includes marginally attached and part-time workers decreased to 6.9%, a 19 year low. Year over year wage increases remained well above inflation at 2.9%. The drop in the unemployment rate, though, was for positive reasons, as it did not reflect a corresponding decline in the labor force participation rate, which held steady at 63.2%. The total labor force increased by 117,000, while the employment-to-population ratio increased one-tenth of a point to 61%. Among the major worker groups, the unemployment rate for Whites declined to 3.2 percent in September. The jobless rates for adult men (3.2 percent), adult women (3.1 percent), teenagers (12.5 percent), Blacks (5.5 percent), Asians (2.5 percent),
and Hispanics (3.9 percent) showed little or no change over the month.
and Hispanics (3.9 percent) showed little or no change over the month.
Updates/Advisories 10-15-2019
After jumping 320 points on Friday, the Dow gave back 30 points yesterday on low volume, lackluster trading. For most of yesterday, the Dow was slightly in the green before giving up the ghost in the last hour. The reason being that much of the exuberance on Friday over a partial trade deal gave way to bouts of reality since investors realized that the trade deal still has to be signed and tariffs scheduled for December are still in effect. However, today the Dow is up 115 points shortly after the open at 26,904. Today's action is a function of favorable statements by US and Chinese officials accompanied by favorable earnings. U.S. Treasury Secretary Steven Mnuchin told reporters that if a deal isn’t in place by December, those tariffs will go ahead, but he also said, “I expect we will have a deal." Hu Xijin, the influential editor-in-chief of China’s state-controlled Global Times, tweeted that China’s attitude about a deal remains “positive." Bloomberg reported that China wants further discussions as soon as the end of October, to smooth out details of the so-called “Phase 1” trade deal announced by President Donald Trump that will delay a tariff hike, boost Chinese agricultural purchases and address foreign currency levels.
Kicking off earnings season, JP Morgan is up over 1.5% after they beat earnings and raised future guidance. United Health Care, another Dow member, announced quarterly profits that topped expectations by 13 cent/share. The company’s results got a boost from growing pharmacy benefits. United Health Care also increased earnings guidance and the stock is up over 5%. JNJ also beat and is up over 2%.
On the international front, the IMF (International Monetary Fund) predicted global GDP for the year at 3%, US GDP at 2.4% and China at 6.1%. These all represent cuts from previous estimates but have had a negligible effect on the market.
The 10 year yield is at 1.7%, well above the 2 year at 1.56%, the dollar remains stable at $1.10/Euro, oil is down slightly to $53.21/barrel, gold is also down at $1491/oz and the price of a gallon of regular gas nationwide is up slightly to $2.642.
Kicking off earnings season, JP Morgan is up over 1.5% after they beat earnings and raised future guidance. United Health Care, another Dow member, announced quarterly profits that topped expectations by 13 cent/share. The company’s results got a boost from growing pharmacy benefits. United Health Care also increased earnings guidance and the stock is up over 5%. JNJ also beat and is up over 2%.
On the international front, the IMF (International Monetary Fund) predicted global GDP for the year at 3%, US GDP at 2.4% and China at 6.1%. These all represent cuts from previous estimates but have had a negligible effect on the market.
The 10 year yield is at 1.7%, well above the 2 year at 1.56%, the dollar remains stable at $1.10/Euro, oil is down slightly to $53.21/barrel, gold is also down at $1491/oz and the price of a gallon of regular gas nationwide is up slightly to $2.642.
Updates/Advisories 10-12-2019
Finally! Well, sort of. On anticipation of a partial China trade deal, the Dow advanced 320 points to finish the week at 26,817; that made a 502 increase over 2 days. Investors were not disappointed as a partial deal was announced after the close. Some of the stipulations of the deal include: the US will hold off on raising tariffs scheduled to begin next week, China pledged to increase purchases of US agricultural product (an extra $40-50 billion) and it will allow it's currency to float. In addition, and a major bone of contention for the US, China agreed to provisions protect American intellectual property and technology. President Trump stated that phase one of the deal should be written and signed within the next 3 weeks. Many investors, including me, have some skepticism since the "devil continues to be in the details". The president also stated that phase two of the deal will “start almost immediately” after the first one is signed. Most sectors were in the green with the greatest gains in tech and the financial sector (interest rates increased).
Big Tech shares such as Facebook, Amazon and Google parent Alphabet all gained at least 0.5%. Bank stocks also gained steam, as Bank of America and J.P. Morgan Chase rose more than 1.6% each. Apple jumped 3%. Chipmakers rose broadly. Micron Technology gained more than 4%, while Xilinx climbed 3.7% (CNBC).
Defensive sectors suffered. The 10 year yield soared to 1.75% as investors sold bonds in favor of buying stocks. Gold declined to $1493/oz, the dollar was stable at $1,10/Euro, oil gained along with stocks to $54.91/barrel and the price of a gallon of regular gas nationwide is down to $2.638.
Big Tech shares such as Facebook, Amazon and Google parent Alphabet all gained at least 0.5%. Bank stocks also gained steam, as Bank of America and J.P. Morgan Chase rose more than 1.6% each. Apple jumped 3%. Chipmakers rose broadly. Micron Technology gained more than 4%, while Xilinx climbed 3.7% (CNBC).
Defensive sectors suffered. The 10 year yield soared to 1.75% as investors sold bonds in favor of buying stocks. Gold declined to $1493/oz, the dollar was stable at $1,10/Euro, oil gained along with stocks to $54.91/barrel and the price of a gallon of regular gas nationwide is down to $2.638.
Updates/Advisories 10-10-2019
CALIFORNIA GAS PRICES BY COUNTY
During the last 20 minutes of trade yesterday, the Dow dropped over 75 points, but still finished in the green at 26346, up 182 points. I'm sure everyone is sick about reading this because writing about it is getting old. The culprit yesterday and in the pre-market is trade. Yesterday's rally was a result of optimism over trade and the downturn started over optimism being replaced by pessimism; and now, no one is quite sure as to what was going to happen. Initially, a Chinese newspaper reported that trade talks would only take place on Thursday, and stocks began a nose dive. However, a white house spokesman stated that this was inaccurate, and stocks reversed themselves. Finally, a Chinese official stated that talks would be fluid; i.e., your guess is as good as mine, and let's not forget the wild card, the President and his magic tweets. Tariffs on $250 billion worth of China imports are set to increase to 30% from 25% on Oct. 15 following a two-week delay seen as a goodwill gesture by President Donald Trump. The administration is also scheduled to add a 15% levy on an additional $160 billion worth of Chinese imports on Dec. 15 (CNBC). Just before the markets open, Dow Futures are down 40 points, but it was much worse. I suspect the market will trade sideways depending on results of today's trade talks.
The yield on the 10 year is at 1.6%, about .12% above the 2 year yield. The dollar is stable at $1.10/Euro, gold is down slightly at $1508/oz, oil is up slightly at $53.22 and the price of a gallon of regular gas nationwide is down to $2.645.
The yield on the 10 year is at 1.6%, about .12% above the 2 year yield. The dollar is stable at $1.10/Euro, gold is down slightly at $1508/oz, oil is up slightly at $53.22 and the price of a gallon of regular gas nationwide is down to $2.645.
Updates/Advisories 10-9-2019
Yesterday, the Dow dropped 314 points on concerns over a trade agreement with China. However, after China stated that they were open to a "partial deal", the market soared 200 points initially. The Financial Times reported that officials in China are offering to increase purchases of U.S. agricultural products, in order to reach a partial deal. About 1 hour into the trading day, the Dow has given back some of those gains and is up 149 points at 26,310, but that can change minute by minute as we have seen over the past year.
In corporate news, troubles with the 737 Max continue for Boeing. After a midsummer estimate that the plane will be back in service in November, that has been pushed back until January of next year. Southwest and American have the largest fleets and this grounding has negatively impacted sales. Both stocks are down since the initial grounding in the Spring. American is cancelling 140 flights/day and the Southwest pilots union is sueing Boeing for lost overtime. Good luck on that one.
On the economic front, Campbell Harvey, the Duke professor who uncovered the inverted yield curve in his 1980's dissertation, as a recession signal, says investors should start preparing for a downturn. The inversion usually precedes an inversion by 6-18 months. In anticipation, consumers should reduce debt and decrease spending. The best time to buy a car is doing a recession since car sales drop dramatically.
The yield on the 10 year is currently, 1.56%, the dollar and gold are stable at $1.10/Euro and $1513/oz, oil is down slightly to $53.06/barrel and the price of a gallon of regular gas nationwide is down to $2.646.
In corporate news, troubles with the 737 Max continue for Boeing. After a midsummer estimate that the plane will be back in service in November, that has been pushed back until January of next year. Southwest and American have the largest fleets and this grounding has negatively impacted sales. Both stocks are down since the initial grounding in the Spring. American is cancelling 140 flights/day and the Southwest pilots union is sueing Boeing for lost overtime. Good luck on that one.
On the economic front, Campbell Harvey, the Duke professor who uncovered the inverted yield curve in his 1980's dissertation, as a recession signal, says investors should start preparing for a downturn. The inversion usually precedes an inversion by 6-18 months. In anticipation, consumers should reduce debt and decrease spending. The best time to buy a car is doing a recession since car sales drop dramatically.
The yield on the 10 year is currently, 1.56%, the dollar and gold are stable at $1.10/Euro and $1513/oz, oil is down slightly to $53.06/barrel and the price of a gallon of regular gas nationwide is down to $2.646.
Updates/Advisories 10-7-2019
October continues to live up to its history of being volatile. Between Friday's high of 26590, and Thursday's low, the Dow fluctuated approximately 850 points before settling at 26,573. Last week's volatility was pretty much a function of the usual suspects; trade. recession fears and the FED. Recession fears escalated as a result of poor PMI and Service sector numbers combined with a brief inversion of the 2 and 10 year Treasury bond. However, they were put aside as the inversion remained only a brief period of time. Currently, the 10 year is 1.54% and the 2 year is 1.41%. Helping to turn the market around was the job numbers for September, Even tho only 136,000 jobs were created when 145,000 were expected, August and July number were revised upwards which allied recession fears and increased optimism for another FED rate cut. About 20 minutes into the trading day, the Dow is down 128 points at 26446. Today's drop is a result (ho-hum) of pessimism over trade. CNBC is reporting that there is reluctance by Chinese officials to agree to a sweeping deal as proposed by President Trump and the US. Vice Premier Liu He, who will lead negotiations for China, told dignitaries that his offer to the U.S. will not include commitments on reforming Chinese industrial policy or government subsidies. Trade talks are slated to begin this Thursday. The outlook for the economy is also pessimistic. The New York Federal Reserve's forecast of GDPl was downgraded on Friday to 1.3% for the fourth quarter, compared with an earlier forecast of 1.8%.
The dollar is stable at $1.10/Euro, gold is down slightly to $1505/oz, oils is down to $53.31/barrel, and the price of a gallon of regular gas nationwide is constant at $2.653. By contrast, in Mariposa county in California, it is $4.47/gallon.
The dollar is stable at $1.10/Euro, gold is down slightly to $1505/oz, oils is down to $53.31/barrel, and the price of a gallon of regular gas nationwide is constant at $2.653. By contrast, in Mariposa county in California, it is $4.47/gallon.
Updates/Advisories 10-2-2019
a The Dow remains range bound and October continues to be volatile. After being down 594 points, the Dow had a slight rally to finish at 26079, down 494 points. The Dow broke to the downside of its 50 day and 100 day moving averages. This Friday, the BLS will release monthly job and unemployment numbers for September. However, preliminary numbers from payroll processing company ADP showed that 135,000 jobs were created when 140,000 was expected. This combined with yesterday's dismal manufacturing numbers, and no news on the trade front, sent the Dow into a nosedive. Mega-cap tech stocks were hit particularly hard. Shares of Apple fell by more than 2.6%; Google's parent, Alphabet, shed 2.3%; and Amazon slid by 1.4%. Within the S&P 500 sectors, consumer discretionary, consumer staples, energy, industrials, financials, and materials all fell by about 2%. Given the aforementioned and the negative wealth effect caused by the downturn in stocks, I feel that we are in for a recession next year unless a miracle happens at upcoming trade talks and an agreement is reached. Other factors contributing towards a recession are the inverted yield curve, low consumer confidence and a decrease in business investment. A closely watched piece of economic data that will be released Thursday, is the ISM nonmanufacturing data, or simply, how the service sector is doing. Whereas consumption is 70% of GDP, the service sector is 60% of consumption and if you look at only services, the US is a net exporter.
The yield on the 10 year is down to 1.6%, gold rallied on investor uncertainty to $1506/oz, the dollar weakened to $1.10/Euro, oil was down sharply on anticipated decreased demand to $52.51/barrel and the price of a gallon of regular gas nationwide is up to $2.662, however I expect this to decrease in price. Crude prices have no dropped to where they were prior to the drone attacks on Saudi Arabia.
The yield on the 10 year is down to 1.6%, gold rallied on investor uncertainty to $1506/oz, the dollar weakened to $1.10/Euro, oil was down sharply on anticipated decreased demand to $52.51/barrel and the price of a gallon of regular gas nationwide is up to $2.662, however I expect this to decrease in price. Crude prices have no dropped to where they were prior to the drone attacks on Saudi Arabia.
Updates/Advisories 10-1-2019
The Dow dropped 343 points to finish at 26,573 and still remains range bound. Today's plunge was a result of the ISM manufacturing index came in at 47.8, the worst reading since June of 2009, which was the last month of the great recession. Any reading below 50 represents a contraction in manufacturing activity and greater than 50 an expansion. A treading greater than 56, is generally a sign of a very healthy economy. The worst month for the index was January of 2009 when it registered a 33. New export orders were 41, the lowest since June of 2009. Evidently this is a function of the continuing trade war with China that doesn't seem to have any end in sight. New orders, backlog, raw materials, inventories, exports and imports also contracted across the board last month, ISM data showed. It appears that a recession, possibly a mild one is almost assured. Also hurting exports is the strong dollar which is currently at $1.09/Euro. Shares of manufacturers such as Honeywell, 3M and Eaton rolled over on the data release, with each losing at least 2.8% lower. China and the US are scheduled to meet next week on trade talks but I'm not holding my breath.October is historically the most volatile month of the year and it appears that this year will not disappoint.
In corporate news, Charles Schwab shares dropped nearly 10% after the brokerage said it’s ending commissions on stock trading. TD Ameritrade plunged more than 20% on the news while E-Trade slid 16.4%. I'm still trying to figure this out. I suspect that investors will flock to Schwab and then at some point they will re-instate commissions.
Gold was up slightly to $1488/oz, the yield on the 10 year was done to 1.64% (above the 2 year at 1.56%) as investors flocked to a safe haven, oil was stable at $54.02/barrel and the price of a gallon of regular gas nationwide was stable also at $2.655.
In corporate news, Charles Schwab shares dropped nearly 10% after the brokerage said it’s ending commissions on stock trading. TD Ameritrade plunged more than 20% on the news while E-Trade slid 16.4%. I'm still trying to figure this out. I suspect that investors will flock to Schwab and then at some point they will re-instate commissions.
Gold was up slightly to $1488/oz, the yield on the 10 year was done to 1.64% (above the 2 year at 1.56%) as investors flocked to a safe haven, oil was stable at $54.02/barrel and the price of a gallon of regular gas nationwide was stable also at $2.655.
The last 5 recessions have been preceded by an inverted yield curve where the yield on the 2 year is higher than the yield on the 10 year. Currently, the yield on the 2 year curve is 2.32%, which is greater than the yield on the 3 and 5 year, but the yield on the 10 year is 2.46%. As a result, I'm not yet predicting a recession. However, if you look at the table above, once the yield curve has inverted, all is not lost. The market continues upward until a recession is imminent. For instance, the yield curve inverted in January of 2006 and the S&P peaked 20 months later in October of 2007, and the recession started in December of 2007. I will be concerned if the 2 year yield is greater than the 10 year. ON THE BRIGHT SIDE, mortgage rates have decreased by 1/2% since last summer and it is now worth it to refinance if you took out a mortgage last year.
PRICES AS OF 8-31-19
The wealth effect is an increase in consumption (and accompanying decrease in savings) as a result of an individuals assets (usually a portfolio or land/home) increasing in value. A negative wealth effect is just the opposite, and since most indexes declined more than 10% and tested bear market territory, this appears to be the case. Conversely, the market recovered in January and all losses and more were covered. T
Prices as of 9-19-2019
In other news:
The new carbon tax that dem's want includes up to 20 cent tax on gas over and above the more than 40 cents/gallon we are already paying. We already have amongst the highest energy costs in the nation, but at least dem's are consistent with tax and spend; to put it in Perspective. The Federal tax is 18.4 cents and in NH, the state gas tax is 23.8 cents for a total tax of 42.2 cents. The avg price of a gallon of gas in NH is $2.256, the price before taxes is $1.834 which makes the current taxes on gas 18.7%. Add 20 cents to that and the gas tax is now 27.6%. THAT meets my definition of ridiculous and exorbitant.
The Energy Information Administration reported that oil output will increase from its current 11 million barrels/day to close to 13 million by 2020 and we will most likely be the #1 producer in the world. This is an increase from 5.5 million/day from 2005 and it has occurred as a result of hydraulic fracturing drilling techniques.
In Other News:
Elon Musk recently stated that the worlds population is accelerating towards collapse. Hmmmm; let's look at some facts and figures and then do some math. The earth reached a population of 1 billion in 1900 (that took about 1/2 million years), but by 1967, it was 3 billion, 6 billion in 2000 and currently, it's 7.5 billion. Let's look at the US with a population of 321 million, and ask yourself, is it overpopulated. If you look at NY City, a resounding yes comes to mind. However, in the US, about 50% of the population lives within 50 miles of a shore (this includes the Atlantic, Pacific, Gulf of Mexico, Great Lakes and Mississippi).
Let me try and put this into perspective: the average household has 2.6 people and given a population of 321 million, that yields 123,461,538 households. The size of Texas is 172,000,00 acres. Assuming you put 1 household on an acre lot, the Entire population of the US can fit into Texas with room to spare, leaving the rest of the US baron of people.
How about Russia with a population of 144 million? Russia is 1.8 times the size of the US with a smaller population, so they have even more empty space and if you look at Canada, which is larger than the US, with a population of 33 million, there is even more empty space (I know bring your winter clothes).
So while I will agree that there is definitely some localized overpopulation, I don't see doom and gloom.
FICO SCORES
Fair Isaac Company reports that it's FICO scores (FICO being an acronym for Fair Isaac Co) reports that the average FICO score in the US has reached an all time high of 700 nationwide amongst adults. The share of consumers who are viewed as the riskiest from a credit perspective (these are sub-prime and have a score lower than 640) reached a new low of about 40 million — or 20 percent of adults in the U.S. that have FICO scores. according to the Wall St Journal. A lot of you may be asking what is a FICO score, how is it calculated and how it affects me. Fair Isaac uses use information provided by one of the three major credit reporting agencies – Equifax, Experian or Trans-Union. From this, they have a formula to get a credit score which can be as high as 850. The biggest part is your payment history, followed by how much you owe, credit history, credit mix and new credit (see chart). Next, how do you interpret your FICO Score: anything > 800 is excellent (and gets you low interest rates on loans and credit cards), 740-799 is very good, 670-739 is good, and anything less than 670 is considered not good and sub-prime (chart). Lastly, as no surprise, the older you are, the better your score (chart)
Fair Isaac Company reports that it's FICO scores (FICO being an acronym for Fair Isaac Co) reports that the average FICO score in the US has reached an all time high of 700 nationwide amongst adults. The share of consumers who are viewed as the riskiest from a credit perspective (these are sub-prime and have a score lower than 640) reached a new low of about 40 million — or 20 percent of adults in the U.S. that have FICO scores. according to the Wall St Journal. A lot of you may be asking what is a FICO score, how is it calculated and how it affects me. Fair Isaac uses use information provided by one of the three major credit reporting agencies – Equifax, Experian or Trans-Union. From this, they have a formula to get a credit score which can be as high as 850. The biggest part is your payment history, followed by how much you owe, credit history, credit mix and new credit (see chart). Next, how do you interpret your FICO Score: anything > 800 is excellent (and gets you low interest rates on loans and credit cards), 740-799 is very good, 670-739 is good, and anything less than 670 is considered not good and sub-prime (chart). Lastly, as no surprise, the older you are, the better your score (chart)
What do Rising Rates mean to you and the Economy
As interest rates rise as a result of FED policy, there are both good and bad effects. Firstly, the Fed's move affects all short term rates. It has no direct effect on mortgage rates which is a function of the yield on the 10 year US Treasury bond, however, they are highly correlated (above chart). What affects the yield is the price of the bond (yield and bond prices are inversely related). As bond prices decrease, the yield increases and why would bond prices decrease? Bonds tend to be a defensive play when the economy is doing poorly; hence, investors only have so much money and they will buy bonds instead of stocks. Conversely, when the economy is doing well, investors will buy stocks and sell bonds which depresses the bond price but raises the yield. The rate on the 30 year fixed mortgage is generally 1.25% to 2.75% higher than the yield on the 10 year(Chart).
Who Benefits
As rates increase, banks generally benefit. The demand for money is inelastic and when banks loan money, they will make more on those loans. Conversely, borrowers suffer from the higher cost of money, but since the economy is doing well, more people are working, real wages tend to increase and the blow of the higher cost of money is mitigated. Savers who have minimal debt also benefit, as the FED raises interest rates, rates on Savings, CD's and money markets generally increase which helps this particular segment.
Who is Hurt
Generally, borrowers are hurt. Generally, the payments on all short term loans increase. If you take a college loan, a personal loan or a boat loan, rates will increase. The Prime Rate increases, it is generally 3% above the Federal Funds Rate and it is the rate the biggest banks charge their best customers on short term loans. If you have a HELOC (Home Equity Line of Credit), this will increase also and it is generally the same rate as the prime rate. However, the short term loan that is not affected is the car loan. Generally there is so much competition in this area, that a loan on a new car can range from 0%(not all the time) to a little over 4%.
As interest rates rise as a result of FED policy, there are both good and bad effects. Firstly, the Fed's move affects all short term rates. It has no direct effect on mortgage rates which is a function of the yield on the 10 year US Treasury bond, however, they are highly correlated (above chart). What affects the yield is the price of the bond (yield and bond prices are inversely related). As bond prices decrease, the yield increases and why would bond prices decrease? Bonds tend to be a defensive play when the economy is doing poorly; hence, investors only have so much money and they will buy bonds instead of stocks. Conversely, when the economy is doing well, investors will buy stocks and sell bonds which depresses the bond price but raises the yield. The rate on the 30 year fixed mortgage is generally 1.25% to 2.75% higher than the yield on the 10 year(Chart).
Who Benefits
As rates increase, banks generally benefit. The demand for money is inelastic and when banks loan money, they will make more on those loans. Conversely, borrowers suffer from the higher cost of money, but since the economy is doing well, more people are working, real wages tend to increase and the blow of the higher cost of money is mitigated. Savers who have minimal debt also benefit, as the FED raises interest rates, rates on Savings, CD's and money markets generally increase which helps this particular segment.
Who is Hurt
Generally, borrowers are hurt. Generally, the payments on all short term loans increase. If you take a college loan, a personal loan or a boat loan, rates will increase. The Prime Rate increases, it is generally 3% above the Federal Funds Rate and it is the rate the biggest banks charge their best customers on short term loans. If you have a HELOC (Home Equity Line of Credit), this will increase also and it is generally the same rate as the prime rate. However, the short term loan that is not affected is the car loan. Generally there is so much competition in this area, that a loan on a new car can range from 0%(not all the time) to a little over 4%.
Strangulation by Regulation:
The tax code is 77,000 pages, under Obama there were 4000 new EPA regulations (info from CBS) Dodd-Frank imposed somewhere between 310-500 new requirements on banks(various analysts CNBC) and Obamacare has over 20,000 pages of regulations (Washington Post); and people are complaining because Trump is trying to streamline government. He has signed the "2 for 1" executive order that mandates all agencies to do away with 2 regulations for every one they pass. I can run my life and spend my money, much better than the government and I applaud Trump's efforts in doing away with economically ruinous legislation.
UNH Study Results 5-31-2016
In other News:
First, a little history. In 1800, 90% of the adult population were farmers (lots of factory child labor), by 1900, 25% of the population and currently, about 2% as a result of technology garnering greater yield/acre. As a result much farmland from the 19th century is no longer. In a recent study out of UNH, it was found that 75% of the farmland from the mid 19th century is now covered by trees and this is contributing to warmer winters. Trees causing higher temperatures you say; how is this possible? It is very simple physics. In the winter in NH (and most other states), farm pastures are covered with snow, and this reflects sunlight, and heat, into space. Now that 75% of these pastures are covered with trees, the dark trees absorb the heat and it permeates into the atmosphere causing a general warming and milder winters. If you've ever wondered what a stone wall was doing in the middle of the woods, those woods were once pastures and delineated borders that contained live stock.
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A number of people have asked me about Bernie Sanders tax plan and he is in the same fantasy land as Obama. First, it would never pass a republican Congress and early indications are that the Republicans will definitely maintain control of the house.
He wants to make all state university's free; let's just look at NH. At UNH there are 14,500 students of which 45% are out of state. Just tuition, not including room and board for out of state students is $30,000 and in-state $17,000. If you do the math that's a total of $331,325,000, and that doesn't even include Plymouth, Keene and Granite state which are also part of the state University system. Do that for every state and it is an astronomical cost that his proposal doesn't even begin to cover. I hesitate to do the cost for California that has 38 million people as opposed to NH's 1.6 million.
What I find particularly disconcerting, is all the people who are buying this.
A number of people have asked me about Bernie Sanders tax plan and he is in the same fantasy land as Obama. First, it would never pass a republican Congress and early indications are that the Republicans will definitely maintain control of the house.
He wants to make all state university's free; let's just look at NH. At UNH there are 14,500 students of which 45% are out of state. Just tuition, not including room and board for out of state students is $30,000 and in-state $17,000. If you do the math that's a total of $331,325,000, and that doesn't even include Plymouth, Keene and Granite state which are also part of the state University system. Do that for every state and it is an astronomical cost that his proposal doesn't even begin to cover. I hesitate to do the cost for California that has 38 million people as opposed to NH's 1.6 million.
What I find particularly disconcerting, is all the people who are buying this.
Just as a reminder from my blog of October 2013, Carbon dioxide composes only .0387% of our atmosphere (in decimal form that’s .000387), and of all the CO2 currently being produced on the earth, man only accounts for 3.4% (.034 in decimals). Therefore, if you want to calculate the amount of CO2 in the atmosphere caused by man, you would multiply .034 x .000387 to get .0000131 or .00131%.
The Arctic ocean is warming up, icebergs are growing scarcer and in some places the seals are finding the water too hot, according to a report to the Commerce Department yesterday from Consulafft, at Bergen, Norway.
Reports from fishermen, seal hunters and explorers all point to a radical change in climate conditions and hitherto unheard-of temperatures in the Arctic zone. Exploration expeditions report that scarcely any ice has been met as far north as 81 degrees 29 minutes. Soundings to a depth of 3,100 meters showed the gulf stream still very warm. Great masses of ice have been replaced by moraines of earth and stones, the report continued, while at many points well known glaciers have entirely disappeared.
Very few seals and no white fish are found in the eastern Arctic, while vast shoals of herring and smelts which have never before ventured so far north, are being encountered in the old seal fishing grounds.
I apologize, I neglected to mention that this report was from November 2, 1922. As reported by the AP and published in The Washington Post — 96 years ago!
The text in the above example is a genuine transcription of a 1922 newspaper article, an Associated Press account which appeared on page 2 of the Washington Post on 2 November of that year
The Arctic ocean is warming up, icebergs are growing scarcer and in some places the seals are finding the water too hot, according to a report to the Commerce Department yesterday from Consulafft, at Bergen, Norway.
Reports from fishermen, seal hunters and explorers all point to a radical change in climate conditions and hitherto unheard-of temperatures in the Arctic zone. Exploration expeditions report that scarcely any ice has been met as far north as 81 degrees 29 minutes. Soundings to a depth of 3,100 meters showed the gulf stream still very warm. Great masses of ice have been replaced by moraines of earth and stones, the report continued, while at many points well known glaciers have entirely disappeared.
Very few seals and no white fish are found in the eastern Arctic, while vast shoals of herring and smelts which have never before ventured so far north, are being encountered in the old seal fishing grounds.
I apologize, I neglected to mention that this report was from November 2, 1922. As reported by the AP and published in The Washington Post — 96 years ago!
The text in the above example is a genuine transcription of a 1922 newspaper article, an Associated Press account which appeared on page 2 of the Washington Post on 2 November of that year
For a good laugh on Obamacare, go to this web site and watch this video; http://www.youtube.com/watch?v=qpa-5JdCnmo. It shows the president on 36 different occasions stating that if you like your healthcare plan you can keep it. Obviously there are 1 of two explanations for this misunderstanding. He was ill advised on the 2700 page, 4500 provision Affordable Care Act, or he knew about it and lied. According to a study by Forbes magazine, the ACA will increase premiums to men under 27 by 77%, 40 year olds, 37% and 64 year olds by 37%.
Commentary on Minimum Wage
The main argument concerning minimum wage is that it will help to alleviate poverty. That is clearly not the case. As you can see from the chart at the left, the poverty rate dropped dramatically in the 1960's. This was a function of great society legislation; specifically, increase in Social Security benefits in addition to the inception and implementation of Medicare and Medicaid. Since then, the poverty rate has fluctuated between 9-15% and is highly correlated with the unemployment rate. The vertical grey area's in the graph represent periods of recessions in the US. As can be expected, unemployment rises during recessions and peaks at the end (unemployment is said to be a lagging indicator). As you can also see from the chart, so too does the poverty rate. There is no indication whatsoever that the poverty rate is affected by increases in the minimum wage. Generally, this is quite the contrary. As can be evidenced from the below left chart, increases in minimum wage can contribute to unemployment and as we can infer from the above chart, as unemployment increases so to does poverty. If you look at NH, they have the lowest state poverty rate in the nation and it generally parallels the national unemployment rate. By raising the minimum wage, you increase business costs. As a result; businesses either pass these costs onto the consumer (in which case inflation nullifies any wage increase), substitute capital for labor, or simply go out of business. If you look at the chart below right, UAW (United Auto Workers) membership has decreased in the late 1970's from 1.5 million to 350,000 in 2009. The reason for this is simple. Detroit isn't making fewer cars, they are making more, but they have made their assembly lines more robotic and have substituted capital for labor, which became cheaper in the long run. This can also happen to those fast food workers who want a $15 minimum wage. There is currently a machine on the market that can make 300 burgers/hour. In other words, capital can be substituted for labor. Someone please e-mail me and explain how someone is better off unemployed at $10-15/hour as opposed to being gainfully employed at $7.25/hour
You cannot legislate equality. If you want to decrease poverty, implement policies to insure that higher levels of education is available to all.
You cannot legislate equality. If you want to decrease poverty, implement policies to insure that higher levels of education is available to all.
BLOG Topics 2013
January Do Protected Seals lead to Depleted Fish Stocks
February Prohibition: Profits to Cartels & Increased Violence for Americans
March Increased Minimum Wage & Extended benefits lead to Higher Unemployment
April Ethanol from corn & Agflation
May Cash for Clunkers lead to Higher Used Car Prices & Wasted Tax Dollars
June The Affordable Care Act; Anything but Affordable Part 1
July The Affordable Care Act; The poster Child for False Advertising
August Detroit: Higher Taxes + Liberal Benefits = Bankruptcy
September No Keystone Pipeline leads to more pollution
October Global Warming! Or is it Global Cooling!
November Poverty & Benefits
December Does Affirmative Action lead to Reverse Discrimination?
February Prohibition: Profits to Cartels & Increased Violence for Americans
March Increased Minimum Wage & Extended benefits lead to Higher Unemployment
April Ethanol from corn & Agflation
May Cash for Clunkers lead to Higher Used Car Prices & Wasted Tax Dollars
June The Affordable Care Act; Anything but Affordable Part 1
July The Affordable Care Act; The poster Child for False Advertising
August Detroit: Higher Taxes + Liberal Benefits = Bankruptcy
September No Keystone Pipeline leads to more pollution
October Global Warming! Or is it Global Cooling!
November Poverty & Benefits
December Does Affirmative Action lead to Reverse Discrimination?
Blog Topics 2014
January Will Lake Meade become another Aral Sea
February Does Taxing the rich hurt the economy
March The Cause of the Great Depression
April Temporary Agricultural Subsidies lead to wealthy Farmers and Higher Prices
May The Presidents Stance on Gun Control leads to Increased Gun Ownership
June Is there really a Gender Pay Gap
July Did the Supreme Court decision in Roe v. Wade lower the crime rate
August Department of Education and wasted Money
October The Financial Follies of the EPA
November Social Security and Portfolio Diversification
December The White House and Terrorism
February Does Taxing the rich hurt the economy
March The Cause of the Great Depression
April Temporary Agricultural Subsidies lead to wealthy Farmers and Higher Prices
May The Presidents Stance on Gun Control leads to Increased Gun Ownership
June Is there really a Gender Pay Gap
July Did the Supreme Court decision in Roe v. Wade lower the crime rate
August Department of Education and wasted Money
October The Financial Follies of the EPA
November Social Security and Portfolio Diversification
December The White House and Terrorism
iOMe Challenge 2012
The United States has amongst the lowest savings rate for all technological nations. The iOMe challenge is a nationwide competition between Colleges where teams submit a 10,000 page essay on how Americans can improve their savings rates. In addition, teams must produce an approximate 60 second video which complements the essay. If you click on the iOMe logo above, it will take you to Bentley University's 2012 video submission. The faculty adviser for the challenge is John Tommasi and is offered during his Fall EC 351 course, Contemporary Issues in Economics.
I'm pleased to announce that on February 15, Bentley was declared the winner of the iOMe video portion of the contest. Congrats to the team members and great job! |
EC 3900 Energy Economics
EC 3900, Energy Economics and International Markets, is a 3 credit, Short Term Program, that is offered during Spring semester. After 7 weeks of lecture, the class takes a 10 day educational/cultural tour to France where 80% of their electricity is produced by nuclear power. During the 10 day trip, students travel to, and tour various nuclear facilities Last year's class visited; Marsailles, Aix en Provance, Lyons, Brest and 4 days in Paris.
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Unintended Consequences
If there were ever words that can strike fear into the hearts of any man women or child, it's: "I'm from the Government and I'm here to help". On a monthly basis my blog, from an economic standpoint, will explore government laws, decisions and actions, which while well intentioned, had inadvertent results that were either disastrous, or made a bad situation worse. It wouldn't surprise me if you reached the conclusion that congress does two things well, nothing and overreact; and you may ask yourself, do Congressional members vote for what is best for the economy, or what will get them re-elected.
iOMe Challenge 2012 - Video |
iOMe Challenge 2011 - Video |
