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Blog Topics 2018
January What Kills Bull Markets
May Are Cheap Oil Prices here to Stay
May Are Cheap Oil Prices here to Stay
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 2014 blog topics for 2013 are at page bottom
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
May Jobs Report
The unemployment rate in May dropped to an 18 year low of 3.8% and the economy created 223,000 jobs, which exceeded expectations of 188,000. This pretty much guarantees a FED rate hike in June, but analysts are still in doubt to a 4th FED rate hike this year. Prior to April of 2000, when the unemployment rate was 3.8%, the last time it was at 3.8% was in 1969. The lowest unemployment rate ever was during World War 2 at 1.7%. Hourly pay rose by 8 cents, or 0.3% to $28.92 an hour in May. As a result, the 12-month increase in wages rose to 2.7% after holding at 2.6% for three months in a row. This remains relatively tame and bodes well for only 3 FED rate hikes this year. The Labor Force Participation Rate (LFPR) remains stubbornly low at 62.7%. The LFPR, is defined as the section of the population, ages 16-64 that are currently employed or seeking employment. It doesn't include Marginally attached workers (currently, 1.5 million) who have not looked for a job in at least 4 weeks. The LFPR peaked in the early 90's at over 80%, and has been in decline since then. The reasons are oft debated and range from liberal unemployment and transfer benefits, an increased disability retirement rate to a lack of necessary skills.
Among the major worker groups, the unemployment rates for adult men (3.5 percent), Blacks (5.9 percent), a record low; Asians (2.1 percent) decreased in May. The jobless rates for adult women (3.3 percent), teenagers (12.8 percent), Whites (3.5 percent), and Hispanics (4.9 percent).
Updates/Advisories 6-19-2018
In case you're wondering why the Dow is down over 300 points about two hours before the market open, the White House has threatened an all out trade war with China by imposing another $200 billion on Chinese goods. China has responded that they would respond in kind and many analysts believe that this would entail not only additional tariffs on US goods but by selling US bonds and devaluing it's currency. By selling bonds, this would decrease the price and increase yields, i.e., interest rates, which is bad news for borrowers. A trade war increases the price of good to consumers, thereby increasing inflation and would pretty much guarantee two more FED interest rate hikes which affect all short term borrowing. The Chinese stock market is also feeling the effect as it is down close to 2% and is at a 2 year low.
Nandini Ranakrishnan, global market strategist for J.P. Morgan, said the political realities of upcoming midterm elections could force the U.S. government to back away from a full-blown trade war (CNBC). "If prices of imported goods are rising for the U.S. consumer at an unmanageable rate, then there is a large part of the U.S. voting population that maybe will feel their money not going as far," she said. In 2017, US trade with China was over $630 billion compared with the European Union of $720 billion. Expect a big sell off in Boeing and Caterpillar stocks that are international bellweathers.
The yield on the 10 year is constant at 2.93%, I expect that to increase today, oil is down sharply to $64.8, the dollar is stronger as a result of expectations of higher interest rates at $1.15/Euro, gold is constant at $1280/oz, however I expect that to be up today along with gold stocks as investors seek a safe haven play and the price of a gallon of regular gas nationwide is down to $2.885.
Nandini Ranakrishnan, global market strategist for J.P. Morgan, said the political realities of upcoming midterm elections could force the U.S. government to back away from a full-blown trade war (CNBC). "If prices of imported goods are rising for the U.S. consumer at an unmanageable rate, then there is a large part of the U.S. voting population that maybe will feel their money not going as far," she said. In 2017, US trade with China was over $630 billion compared with the European Union of $720 billion. Expect a big sell off in Boeing and Caterpillar stocks that are international bellweathers.
The yield on the 10 year is constant at 2.93%, I expect that to increase today, oil is down sharply to $64.8, the dollar is stronger as a result of expectations of higher interest rates at $1.15/Euro, gold is constant at $1280/oz, however I expect that to be up today along with gold stocks as investors seek a safe haven play and the price of a gallon of regular gas nationwide is down to $2.885.
Updates/Advisories 6-18-2018
The Dow was down 265 points shortly after the opening before it recovered it to finish the day at 24,987, down 103. The cause was the usual suspects, rising interest rates, the yield on the 10 year was up to 2.93% and a trade war between the US and China. Today's action was a continuation of Friday's fears as the President announced the imposition of $50 billion in tariffs on Chinese goods and China reciprocated. It was hoped that some white knight would alleviate fears over the weekend, but that didn't materialize. Tariffs are meant to protect employment in certain industries. However, what many fail to realize is that more consumers/people are harmed since the taxed country reciprocates which raises prices on other goods. In other words, the costs far outweigh the benefits. Over the years, government's have lowered tariffs and opted for free trade.
In corporate news, Shares of Disney fell 1.6 percent after being downgraded by Pivotal Research Group, and Intel dropped 4 percent after Northland Capital Markets downgraded the stock to underperform from market perform.
Oil prices advanced slightly $65.84/barrel, in volatile trading as analysts lowered their expectations on how much OPEC and Russia (the # 1 producer of oil) might increase production. Even with the anticipated increase, Goldman Sachs kept its bullish outlook. The S&P energy index rose 1.1 percent for the 1st time in a week.
The dollar strengthened to $1.16/Euro, gold was stable at $1280/oz, bitcoin traded at $6714 and the price of a gallon of regular gas nationwide was down slightly to $2.895. I gassed up today st Speedway in Salem NH at $2.729.
In corporate news, Shares of Disney fell 1.6 percent after being downgraded by Pivotal Research Group, and Intel dropped 4 percent after Northland Capital Markets downgraded the stock to underperform from market perform.
Oil prices advanced slightly $65.84/barrel, in volatile trading as analysts lowered their expectations on how much OPEC and Russia (the # 1 producer of oil) might increase production. Even with the anticipated increase, Goldman Sachs kept its bullish outlook. The S&P energy index rose 1.1 percent for the 1st time in a week.
The dollar strengthened to $1.16/Euro, gold was stable at $1280/oz, bitcoin traded at $6714 and the price of a gallon of regular gas nationwide was down slightly to $2.895. I gassed up today st Speedway in Salem NH at $2.729.
Updates/Advisories 6-17-2018
The Dow is on a 4 day losing streak where the Dow lost 226 points for the week to finish at 25,090. On Wednesday, the FED raised rates as expected , but also signaled that they could possible a 4th .25% rate hike this year as opposed to the expected 3. Wednesday's hike marked the 2nd of the year as the FED tried to "normalize" rates. Katie Nixon, chief investment officer at Northern Trust Wealth Management in Chicago stated that "It seems as if the Fed is much more confident now in inflation reaching, in fact maybe breaching a little bit, their target, so they are pulling forward some of the rate increases.”
China trade fears resurfaced on Friday as the Trump Administration imposed tariffs on $50 billion worth of imported goods. China soon reciprocated. At one point on Friday, the Dow was down 281 points before recovering to finish down 85 points. The yield on the 10 year varied during the week. It increased to close to 3% after the FED's rate hike and announcement on Wednesday, but pulled back to 2.92% as investors sought a safe haven play in buying government bonds. Over the past month, the Nasdaq and the S&P 500 have gained 5.4 percent and 2.5 percent, respectively. Meanwhile, the Dow has risen about 1.6 percent.
The dollar strengthened to $1.16/euro, gold, another safe haven, surprisingly dropped to $1282, oil continues to decrease to $65.73/barrel, and it is down over 10% for the past month, and the price of a gallon of regular gas nationwide is down to $2.898.
China trade fears resurfaced on Friday as the Trump Administration imposed tariffs on $50 billion worth of imported goods. China soon reciprocated. At one point on Friday, the Dow was down 281 points before recovering to finish down 85 points. The yield on the 10 year varied during the week. It increased to close to 3% after the FED's rate hike and announcement on Wednesday, but pulled back to 2.92% as investors sought a safe haven play in buying government bonds. Over the past month, the Nasdaq and the S&P 500 have gained 5.4 percent and 2.5 percent, respectively. Meanwhile, the Dow has risen about 1.6 percent.
The dollar strengthened to $1.16/euro, gold, another safe haven, surprisingly dropped to $1282, oil continues to decrease to $65.73/barrel, and it is down over 10% for the past month, and the price of a gallon of regular gas nationwide is down to $2.898.
Updates/Advisories 6-13-2018
The Dow is up about 40 points in pre-market trading, about 2 hours before the opening. The big news today will be the FED's statement on interest rates and the economy set to be released at 2 PM. The big ruling today is a Federal Court has over ruled the US Justice Department and is allowing AT&T's purchase, $85 billion, of Time Warner was legal, effectively paving the way for the merger to pass without any conditions or concessions on AT&T's part. The Federal Court judge didn't put any conditions on the deal. For instance, in 1996, when Exxon and Mobile merge, a condition of the merger was that the company had to sell a number of gas stations in the Southwest since this would inhibit competition. I have long time been an opponent of these large mergers since I feel it does nothing BUT curtail competition, and generally, when you have less competition you have higher prices. The government's position as stated by Assistant Attorney General Makan Delrahim "was that the pay-TV market will be less competitive and less innovative as a result of the proposed merger between AT&T and Time Warner. We will closely review the Court's opinion and consider next steps in light of our commitment to preserving competition for the benefit of American consumers." The government has the option of appealing the case.
In economic news, mortgage applications are down by 1.5% for the week and 15% from a year ago as the mortgage rate on the 30 year is up to 4.8%. Mortgage rates are tied to the interest rate yield on the US 10 year bond which is currently at 2.96% and the mortgage rate fluctuates between 1.75%-3% above that yield (above chart). Also hurting the market is a lack of supply.
Despite lingering uncertainty over a potential trade war, investors moved away from Treasury's, pushing yields up for the week," said Joel Kan, an MBA economist. "Overall mortgage application activity declined as rates rose, but government applications increased, driven largely by increases in FHA applications, reflecting stronger demand by first-time homebuyers (CNBC).
The dollar and gold are both down slightly, $1.18/Euro and $1298/oz, bitcoin is down to $6431, Oil is up slightly at $66.02/Barrel and the price of a gallon of regular gas nationwide is down to $2.91.
In economic news, mortgage applications are down by 1.5% for the week and 15% from a year ago as the mortgage rate on the 30 year is up to 4.8%. Mortgage rates are tied to the interest rate yield on the US 10 year bond which is currently at 2.96% and the mortgage rate fluctuates between 1.75%-3% above that yield (above chart). Also hurting the market is a lack of supply.
Despite lingering uncertainty over a potential trade war, investors moved away from Treasury's, pushing yields up for the week," said Joel Kan, an MBA economist. "Overall mortgage application activity declined as rates rose, but government applications increased, driven largely by increases in FHA applications, reflecting stronger demand by first-time homebuyers (CNBC).
The dollar and gold are both down slightly, $1.18/Euro and $1298/oz, bitcoin is down to $6431, Oil is up slightly at $66.02/Barrel and the price of a gallon of regular gas nationwide is down to $2.91.
Updates/Advisories 6-12-2018
After being up 6 points yesterday, the Dow was up another 2 points today to finish at 25,321, this in spite of what appears to be a successful Kim Trump summit. A lack of details in the agreement kept the market's moves in check throughout the day. Trump said the sanctions will remain on Pyongyang until "the menace of nuclear weapons" is gone. Also contributing to the malaise in the market is the current ongoing FED FOMC meeting that is scheduled to end tomorrow culminating in a statement from the FED. It is widely expected that the FED will be raising interest rates by .25% at its 2 PM announcement. Year over year inflation is 2.8%, above the FED's target of 2%. A slowdown in the climb of gasoline prices helped dampen the movement upward, though core CPI, which excludes volatile food and energy costs, also rose 0.2 percent. The year-over-year increase in core CPI is now 2.2 percent. As a result the yield on the 10 year rose to 2.97% and the dollar strengthened to $1.17/Euro. What is not known is if there will be 3 or 4 rate hikes this year and analysts will be looking for any indication from the FED's statement. It is also expected that the FED will be updating it's GDP forecast to 3% or more for the year, up from 2.7%. This will be the 1st time GDP has reached 3% for the year in 10 years. Also contributing to inflation is the unemployment rate of 3.8%, well below the NAIRU, the Non Accelerating Rate of Unemployment. The FED also believe that a rate of 2.9% would be market neutral. A Fed rate hike tomorrow would raise the Federal Funds rate to 2%.
Oil was down slightly to $65.93/barrel and the price of a gallon of regular gas nationwide is down to $2.915.
Oil was down slightly to $65.93/barrel and the price of a gallon of regular gas nationwide is down to $2.915.
Updates/Advisories 6-9-2018
OIL 1 YEAR CHART
After going up 95 points on Thursday, The Dow was up another 75 points on Friday to finish the day at 25,317 and finishing the week up 1%, almost 700 points. This occurred in spite of trade tensions and an upcoming G7 conference that may turn into a G6 pact sans the US given Presidents Trump's stance dramatically different stance on trade and environment.
In corporate news, Apple dropped 1 percent after Nikkei reported the company is warning suppliers about a sharp decline in parts orders. Despite Friday's decline, it was a solid week for Apple and the rest of the technology sector. The overall technology sector gained 0.7 percent.
On the economic front, GDP is expected to double the 2017 rate for the 2nd quarter and come in at 4.6% (well above the 2.2% 1st quarter rate) which bodes well for a 3% yearly GDP rate which was not seen during the Obama Administration. The Atlanta district raised its forecast after a report Friday morning indicating a stronger-than-expected inventory build that raised the forecast one-tenth of a point. The FED's regularly scheduled FOMC meeting is next week and is expected to increase rates by .25%. Despite this expectation, the yield on the 10 year is down to 2.94%. This is closely watched since the mortgage interest rate is a function of the 10 year yield. Oil is down again (10 of the past 11 trading sessions) at $65.56/barrel, the dollar is steady at $1.18/Euro gold is stable at $1303/oz and the price of a gallon of regular gas nationwide is down to $2.927.
In other news:
Seriously? In a recent poll, millennials were asked how they were planning for retirement; 35% responded that their plans revolved around inheriting money from their parents. Get a life, oh yea, and a job and savings account.
In corporate news, Apple dropped 1 percent after Nikkei reported the company is warning suppliers about a sharp decline in parts orders. Despite Friday's decline, it was a solid week for Apple and the rest of the technology sector. The overall technology sector gained 0.7 percent.
On the economic front, GDP is expected to double the 2017 rate for the 2nd quarter and come in at 4.6% (well above the 2.2% 1st quarter rate) which bodes well for a 3% yearly GDP rate which was not seen during the Obama Administration. The Atlanta district raised its forecast after a report Friday morning indicating a stronger-than-expected inventory build that raised the forecast one-tenth of a point. The FED's regularly scheduled FOMC meeting is next week and is expected to increase rates by .25%. Despite this expectation, the yield on the 10 year is down to 2.94%. This is closely watched since the mortgage interest rate is a function of the 10 year yield. Oil is down again (10 of the past 11 trading sessions) at $65.56/barrel, the dollar is steady at $1.18/Euro gold is stable at $1303/oz and the price of a gallon of regular gas nationwide is down to $2.927.
In other news:
Seriously? In a recent poll, millennials were asked how they were planning for retirement; 35% responded that their plans revolved around inheriting money from their parents. Get a life, oh yea, and a job and savings account.
Updates/Advisories 6-7-2018
After advancing 347 points yesterday, the Dow is back above 25,000 at 25,146. On Wednesday, trad war tensions eased (another ride on the see-saw) and there was strong economic data to buoy investor sentiment. The trade deficit for April came in at 46 billion, less than the 48 billion expected,and the deficit with China decreased by over $3 billion to $30.8 billion. First time jobless claims dropped and Warren Buffet, (the Oracle of Omaha), feels confident about the economy
White House economic adviser Larry Kudlow said President Donald Trump will meet French President Emmanuel Macron and Canadian Prime Minister Justin Trudeau during a G7 summit this week. While he said Trump is not backing down from the tough line he has taken on trade, the comments appeared to calm investors. Earlier reports citing sources said U.S. officials were weighing an offer by China to import an extra $70 billion of American goods over a year as Beijing tries to defuse a potential trade war (yahoo finance).
In the pre-market, the party continues. Commerce Secretary, Wilbur Ross, stated that the US has struck a deal with China telecom company, ZTE, to end US sanctions. Part of the deal is that ZTE will pay to the US a $1 billion penalty and comply with US regulatory guidance. The settlement deal includes $400 million in escrow to cover any future violations as well as requiring ZTE to change its board of directors and executive team in 30 days. To many investors, this is an indication that s deal with China on trade sanctions is in the making.
In other news, the price of a barrel of oil has declined 10 of the past 11 days. It is up slightly today at $65.39/barrel, down from its recent high of $75/barrel. Every $1 change in the price of a barrel of oil equates to about a 2.5 cent change at the pump. The yield at on the 10 year is up to 2.99% on the strong economic data and expectation of a continuing strong economy, the dollar is stable at $1.18/Euro, gold is up slightly to $1305/oz and the average price of a gallon of a regular gas nationwide is down to $2.94.
White House economic adviser Larry Kudlow said President Donald Trump will meet French President Emmanuel Macron and Canadian Prime Minister Justin Trudeau during a G7 summit this week. While he said Trump is not backing down from the tough line he has taken on trade, the comments appeared to calm investors. Earlier reports citing sources said U.S. officials were weighing an offer by China to import an extra $70 billion of American goods over a year as Beijing tries to defuse a potential trade war (yahoo finance).
In the pre-market, the party continues. Commerce Secretary, Wilbur Ross, stated that the US has struck a deal with China telecom company, ZTE, to end US sanctions. Part of the deal is that ZTE will pay to the US a $1 billion penalty and comply with US regulatory guidance. The settlement deal includes $400 million in escrow to cover any future violations as well as requiring ZTE to change its board of directors and executive team in 30 days. To many investors, this is an indication that s deal with China on trade sanctions is in the making.
In other news, the price of a barrel of oil has declined 10 of the past 11 days. It is up slightly today at $65.39/barrel, down from its recent high of $75/barrel. Every $1 change in the price of a barrel of oil equates to about a 2.5 cent change at the pump. The yield at on the 10 year is up to 2.99% on the strong economic data and expectation of a continuing strong economy, the dollar is stable at $1.18/Euro, gold is up slightly to $1305/oz and the average price of a gallon of a regular gas nationwide is down to $2.94.
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 reach 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 barron 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 31 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" 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.
In one of the presidential debates, Hillary Clinton stated that supply side economics of lower taxes and regulation doesn't work. She needs better economic advisers. If you look at the attached chart, GDP soared after the Reagan stimulus and the average GDP post stimulus was 4.83 (a 40 year average is about 3.2); whereas post Obama stimulus, increased taxes and regulation, was a meager 2.23%. We have not been above 3% during his entire presidency and this has been the slowest recovery since the great depression.
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 — 88 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 — 88 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
California Drought of 2015
California is in the middle of a drought; it must be global warming or now the more politically correct term, climate change. In case you haven't noticed, the climate is always changing. It is in a constant state of flux. If you notice the chart below right, California has had a number of mega-droughts during the medieval ages and this was considerably worse than it is now; and as far as climate change, it's obviously not an exact science(click on pictures below).
California is in the middle of a drought; it must be global warming or now the more politically correct term, climate change. In case you haven't noticed, the climate is always changing. It is in a constant state of flux. If you notice the chart below right, California has had a number of mega-droughts during the medieval ages and this was considerably worse than it is now; and as far as climate change, it's obviously not an exact science(click on pictures below).
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%.
"We have to pass the bill ..."
http://blog.heritage.org/2010/03/10/video-of-the-week-we-have-to-pass-the-bill-so-you-can-find-out-what-is-in-it/
When Obamacare was 1st released, The Congressional Budget Office predicted that it would cost $900 billion over 10 years. At the time, I made a prediction to my students that I estimate the final cost would be closer to $3 trillion. Three years later, the CBO has raised it's estimate to $1.6 trillion. At this rate, we are on pace to reach the $3 trillion mark.
www.healthcare.gov, the official website to sign up for Obamacare had an original cost of $100 million. That cost is now up to $2.6 Trillion and rising. If the government can't manage the costs on a web site, and these costs have trippled since it opened on October 1, how can it possible manage a 2700 page, 4500 provision bill. The words of Nancy Pelosi (see above) are acting as a harbinger of doom: "We have to pass the bill, so we can find out what's in it."
When Obamacare was 1st released, The Congressional Budget Office predicted that it would cost $900 billion over 10 years. At the time, I made a prediction to my students that I estimate the final cost would be closer to $3 trillion. Three years later, the CBO has raised it's estimate to $1.6 trillion. At this rate, we are on pace to reach the $3 trillion mark.
www.healthcare.gov, the official website to sign up for Obamacare had an original cost of $100 million. That cost is now up to $2.6 Trillion and rising. If the government can't manage the costs on a web site, and these costs have trippled since it opened on October 1, how can it possible manage a 2700 page, 4500 provision bill. The words of Nancy Pelosi (see above) are acting as a harbinger of doom: "We have to pass the bill, so we can find out what's in it."
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?
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 |
