Some people watch things happen and others make things Happen
Some People watch things happen, some people make things happen, and others don't have a clue as to what is happening.
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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?
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 The 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
After being above 18,000 for most of the week, the Dow, Friday, retreated from the upward bound of its trading range and tanked 280 points to finish the day and week at 17,826. However, at one point, the Dow was down more than 330 points. There were two causes: China and Greece. In China, government regulators cracked down on margin trading. They are also allowing more short-selling where people can bet that stocks will fall. That didn't go down well with investors who began to question if a market that is up over 75% since October can sustain this pace, especially as China's economy slows down. There is also continuing talk of a bubble in the Chinese stock market. Greece continues to be, well, a Greek tragedy. There is continuing speculation on whether will repay its debt or not. The tragic part is that it continues to rattle markets about once/week. "We are not sympathetic to Greece," French Finance Minister Michael Sapin said in an interview at the International Monetary Fund-World Bank spring meetings in Washington. Even at it lowest point Friday, the Dow was less than 3% from the record peak it hit in early March. The S&P 500 is under 2% from its high. So it's hardly time for panic button yet, in addition, consumer confidence in April hit the second-highest level in more than eight years, Bloomberg reports, citing the University of Michigan gauge of Americans' views on the economy. Oil had one if its best rallies in years this week. While oil is still low -- under $60 a barrel -- it no longer looks like it's going to crash to the $40 or even $30 prices as some were warning earlier this year. Similarly, the dollar is also holding steady at $1.08 to 1 Euro; and gold continues to be boring trading at $1208/oz. Fifteen minutes into the trading day, the Dow is up over 200 points. This is a result of an unexpected stimulus from China's central bank. On Sunday, China's central bank lowered the reserve requirement ratio for all banks by 100 basis points. The wider-than-expected cut was the People's Bank of China's second reduction in two months, and marks a continuing effort by the world's second-largest economy to combat slowing growth.
After being up most of the day, the Dow saw profit taking in the last 2 hours of the day and finished the day at 18,106, down 6 for the day. Oil after being down most of the day, recovered and finished in positive territory above $56/barrel. Along with oil recovering, so are are oil stocks and oil.service stocks. Transocean (RIG) is up over 30% from its YTD low's and Shares of Schlumberger (SLB) also rose in extended trading after the oil services company said it was laying off another 11,000 workers. The stock was edging up 2% premarket. The Greek drama was once again worrying markets. European markets were down in morning trading. Germany's Dax lost 1.9% and the FTSE 100 was down 0.8%. German Finance Minister Wolfgang Schaeuble said he doubted a deal between Greece and its creditors could be reached next week. This is carrying over into the Dow which is currently down 140 points in the pre-market. Contributing to the downturn is economic data in the form of the CPI (Consumer Price Index, a measure of inflation) which showed prices edged up .2% in March after being up .2% in February Extrapolating, this could mean close to a 3% rise for the year which is above the FED's target; which would mean the FED could raise rates (by only 1/4%) in June. (For an explanation of Interest Rates, click on FED speak above). However, there are still a number of analysts who believe that the FED won't raise rates until the end of the year or next year. I think the market reaction to the CPI #'s is a knee jerk reaction.
California Drought California is in the middle of a drought; it must be global warming or now the more politically correct term (spare me), 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 above, California had a number of mega-droughts during the medieval ages and this was considerably worse than it is now. Oh yea, and probably the father of these climate alarmists were predicting an ice age in the 1960's (click on pictures below).
After advancing 76 points yesterday, the Dow at the midday mark is down 5 points at 18107. There was both earnings news and economic data that is causing the market to trade sideways. Both Citigroup and Goldman Sachs beat earnings by a decisive margin and they are up on that news. Housing starts for March were up 2%, and even tho it was below expectations it is still a positive even particular given the harsh weather. If you look at the Dow 10 day chart at the left, the Dow has been trending upwards and if it wasn't for the good news on earnings and the economy, I feel that some profit taking would have taken place. There is also strength in the oil sector. Even tho it is down today, oil is closing in on the 60$ mark and is currently trading at $55.71/barrel. In spite of this, the price of a gallon of gasoline is remaining stable at $2.40 gallon which is significantly less than the $3.65/gallon last year at this time. China's main stock market rebounded from losses the day before, when China's economy posted its worst quarterly growth in six years. The 7% expansion in the January-March period was the weakest since the global financial crisis. However, it trashes the US GDP growth of slightly over 2%. There are a number of stocks that are on the verge of a breakout and have considerable upside potential. If you look at AIG's chart, they are at a 5 year high and they have just broken out on the upside of a consolidation period. Combine this with the fact that it has a book value of $68/share (it is trading at $58), there is considerable upside. Synta Pharmaceuticals has just broken a 5 year resistance line after advancing over 30% in the past week. They just announced today favorable results from a drug finishing phase 3 testing and possibly getting FDA approval this year. A $9-$12 range for this stock is not out of the question (REMEMBER, biotech stocks are highly risky). The last stock is Hi-Crush LTD. They provide sand with to the fracking industry and they are rising in accordance with oil. It appears that they are about to breakout on the upside of a consolidation period. If so, their next resistance point will be at $50.
After fluctuating all day, mainly in the green, The Dow Jones industrial average managed to move back above the 18,000 level as it gained 59.66 points, or 0.3%, to close at 18,036.70. Energy stocks got a boost as oil prices rose for a third straight day. WTI (West Texas Intermediate) crude gained $1.38 to $53.29 a barrel in New York. Early morning earnings reports from major financial companies and a few economic reports, including industrial production, could set the tone for today's markets. Markets will also be watching economic reports, with industrial production at 9:15 a.m. The Empire State survey is at 8:30 a.m. and the National Association of Home Builders survey is at 10 a.m. The Fed's Beige Book on the economy will be important at 2 p.m., and there is Treasury data on international capital flows at 4 p.m. U.S. producer prices rose in March after four straight months of declines and there were signs of some firming in underlying inflation, which should keep the Federal Reserve on course to start raising interest rates this year. The Labor Department said on Tuesday its producer price index (rise in wholesale prices) for final demand increased 0.2 percent last month, with rising prices for goods accounting for more than half of the jump. This comes as no surprise. The Fed, which has a 2 percent inflation target, has kept its key short-term interest rate near zero since December 2008. Shares of GoPro Inc (NASDAQ: GPRO) are trading up nearly 2 percent in Tuesday's post-market session following an after-hours upgrade from Piper Jaffray's Erinn Murphy. The analyst now rates GoPro shares as an Overweight, up from Neutral previously. Murphy set a $55 price target on the stock. The average price of a gallon of regular gas stayed relatively constant at at $2.38/gallon (last year it was $3.64/gallon) and gold is selling for $1194/oz and the dollar remains strong selling at $1.06 for $1 euro. In the pre-market the Dow is up over 40 points.
In the pre-market, the Dow was 10 points until Wells Fargo and Proctor and Johnson reported higher earnings than estimated. This accompanied with a number of buy recommendations for the financial sector in general and oil increasing to over $52/barrel has given the market a positive impetus. At the midday, the Dow is up 90 points and rising. Banks, for the most part are in positive territory and JP Morgan has raised their dividend by 10%. AIG, a company that needed a government bailout in 2008, is trading at 6 year highs. AIG has been a previous stock pick of mine and I see it easily advancing to the mid to upper 60's (it's currently trading at $57) and even at that price, I still believe it has strong upside potential. Also helping the market is a report that retail sales rose in March, the first monthly increase since November, boosted by stronger auto sales. American consumers' increased spending boosted retail sales by a seasonally adjusted 0.9% in February. Even with a successful iwatch introduction, Apple is relatively stagnant at $126/share. If orders continue and the iwatch continues to get positive reviews, this should spell upside. HOW DO YOU DEFINE IRONY? Deval Patrick, the former Massachusetts governor, strong supporter of President Obama, and criticizer of Mitt Romney, particularly his tenure at Baines Capital, has just been hired by Baines Capital. In the 2012 campaign, Obama, Patrick and Democratic allies pounced on Romney’s record at Bain and the firm’s investments in companies that led to bankruptcies, layoffs and outsourcing. Would this be irony or hypocrisy, or all the above?
DOW 1 YEAR
The Dow was up 99 points today to finish the week at 18,057. This is the first time it finished above 18,000 in two weeks. The traders market continues (the Dow has been in a trading range since November). This was the 3rd straight day of gains for the Dow. Markets got a boost from GE (GE) as its shares surged more than 11DOW % on a deal to sell the bulk of its GE Capital banking business that could give shareholders a potential $90 billion return.The company also announced a $50 billion buyback. GE shares rose $2.78 to $28.51. it's largest one day move in over a year. Even tho it was evident in it's stock price, the opening day for the iwatch appears to be a huge success. Pre-orders for the Apple Watch kicked off Friday as wait times for shipments ranging from several weeks to as late as August. Apple (AAPL) shares were up only 54 cents to close at $127.10. The iwatch is already selling for a 40% premium on ebay according to CNN. Earnings season kicked off this week and investors have been concerned about a slowdown in corporate profits. Next week markets will get a look at the financial health of the banking industry as Bank of America (BAC), Goldman Sachs (GS), JPMorgan Chase (JPM) and Wells Fargo and set to report. Any surprises from the financial sector should have significant moves on the market. Thomas Lee with Fundstrat Global Advisors, one of the most bullish strategists, said his biggest fear is that deflation takes hold later in the year. He already anticipates negative first-quarter earnings. The price of a gallon of regular gas seems to be stabilizing for the moment in the $2.40 range and gold is also range bound closing the week at $1207/oz.
More on Obamacare. This keeps getting better and better. From CNBC: I wasn't very happy," said Mike Highsmith, 61, a retired US Airways flight attendant who learned after having his taxes done that he has to pay back every cent of the $6,624 in federal subsidies that helped pay the lion's share of his HealthCare.gov-purchased plan. "I was paying $89 per month and they [the federal government] were paying $736," said Highsmith, who only learned about the subsidy and its value when he received a 1095-A form from the IRS this year. He said he wasn't told about the subsidy when he applied for insurance over the HealthCare.gov telephone assistance line. "I would have canceled it if I had known that," he said, referring to the plan's retail price. I just love being able to saying "I told you so" when it comes to the Affordable Care Act.
March Job's Report 4-3-2015
The market expected the economy to create 248,000 jobs in March and when the actual number was 126,000, Dow futures went from being in the green to down over 100 points. Fortunately, markets are close in observance of the Good Friday Holiday and investors will have the weekend to digest the numbers. I think there will be a more benign opening on Monday since this news could put off the FED raising rates which investors would view as a positive. The unemployment rate remained unchanged at 5.5%(U-3) and the Real unemployment rate (U-6 which includes part-time/temporary workers and marginally attached workers) decreased to 10.9%. There were 2.1 million marginally attached workers (those who have not looked for a job in 4 weeks) of which 738,00 were rated as discouraged workers (those people who have given up looking for a job) The Long termed Unemployed (those unemployed for more than 26 weeks) decrease to 29.8% of total unemployment and the labor force participation rate remained relatively stable at 62.7%. The teenage unemployment rate dropped slightly to 17.5%. Average hourly earnings increased by .3% and while this may not seem like much, if it continued at that rate for a year, that amounts to a 4.25% raise.
Obamacare Revised Costs
More on Obamacare In a recent survey by the New York FED on businesses, the median increase in healthcare premiums is expected to be 10%. More than a quarter of the manufacturing and service firms surveyed said they either have or will boost prices for goods and services "because of the effects that the ACA is having on your business." About 20 percent of respondents said they were reducing their number of workers and/or raising the share of part-time workers as a result of the ACA. His is in stark contrast to the presidents remarks earlier this year that healthcare costs are decreasing. Maybe CEO's were right when they said the president "Just doesn't get it".
Commentary on Minimum Wage
There is currently a debate in the state of NH on whether to increase the minimum wage to 8.25 from 7.25. The main argument 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 $8.25/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.
The Congressional Budget Office predicted this week that more than 2 million people will leave the labor force because of Obamacare. Specifically, more people will leave the labor force or reduce their hours, to stay under the cap for federal subsidies. If you are a family of 4, and household income is under, WAIT FOR IT, $94,000, you are eligible for a federal subsidy. The number of part time/temporary workers has already increased by 35% since Obamacare was passed in 2010; and yes it will get worse, wait until 2015 when it becomes mandatory for businesses.
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%.
When Obamacare was 1st released, The Congressional Budget Office predicted that it would cost $900 billion over 3 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 $292 million dollars 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."
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.
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.