" Where economics isn't just a job, but an adventure"
New blog is out: The Financial Follies of the EPA
Quote of the Week
These are so good, I'm going to leave them for a 2nd week
Once Morons ‘Understand’ ObamaCare, They’ll Be Thrilled - Cokie Roberts ABC
Ignore Republican Lies: ObamaCare Is the Best Thing in 50 Years Ed Schultz MSNBC
ObamaCare Will Reduce the Deficit! Maggie Rodriguez CBS
If We Don’t Get ObamaCare Passed We’re Not Going to be ‘A Great World Power’ Dr. Nancy Snyderman, NBC Medical Correspondent
If you think health insurance is expensive now, wait til you see how much it costs when it's free PJ O'Rourke Political Satirist
AND OF COURSE
If you like your Insurance plan, you can keep it. Barack Obama and Jeanne Shaheen
Click on the pictures to enlarge
BLOG Topics 2013
January Do Protected Seals lead to Depleted Fish Stocks February Prohibition: Profits to Cartels & Increased Violence 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 wealth 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
The Dow was up 12 points today in trading that was, well, boring. The Dow was initially down by 60 points, stabilized and traded withing 30 points of breakeven for most of the rest of the day. It finished the day at 16,817 Oil prices and earnings headlines could sway stocks Tuesday, as markets await the Fed. The Federal Open Market Committee begins its two-day meeting Tuesday morning, and it's expected to declare the end of its quantitative easing program when it releases its statement Wednesday afternoon. QE, is the name given for the FED buying bonds to increase the money supply and stimulate the economy. In the meantime, there are durable goods and S&P/Case-Shiller home price data Tuesday, and a deluge of earnings. BP starts the parade of major oil earnings releases this week when it reports before the bell, and early reports are also expected from DuPont, Pfizer, Whirlpool, Starwood Hotels and Coach. After the bell reports include Facebook, Gilead Sciences, Electronic Arts and Panera. This will move the market today and Wednesday. Pay particular attention Tuesday at 2PM. This is when the FED announce its results of the two day FOMC policy committee and it is generally market moving. West Texas Intermediate fell below $80 to a more than two-year low, after Goldman Sachs said WTI could hit $75 in the first quarter of 2015. Even though WTI moved back to $81 a barrel in a short covering rally, the oil-related stocks remained under pressure.
Shares of Amazon (AMZN) plunged more than 8% (down 26 points to 287) Friday on disappointing earnings and a gloomy outlook. The stock is now down 28% for the year (from a high of 402).The huge loss in the third quarter is troubling enough. It's a sign that not all of Amazon's big investments are paying off. The Fire Phone, which Amazon hyped to death because it was a 3-D smartphone, has been at best a disappointment; but it's even more alarming that Amazon's fourth quarter sales projections are worse than expected. In spite of this Internet analysts at Jefferies reiterated their "buy" target on Amazon Friday morning because they still believe in the long-term strategy. But they also cut their price target on the stock and lowered their revenue and earnings estimates for the fourth quarter. In spite of this, the Dow closed up 127 points for the day, finishing the week at 16,805, the best week of the year for the Dow. Today's market was up on good earnings reports starting with UPS. The Atlanta-based company confirmed its full-year outlook, forecasting earnings of $4.90 to $5.00 a share. The shipment company posted earnings of $1.32 per share on revenue of $14.29 billion. Wall Street had expected UPS to deliver quarterly earnings of $1.28 per share on revenue of $14.2 billion, according to a consensus estimate from Thomson Reuters. UPS, the world's largest shipping company, and its main rival, FedEx, both considered U.S. economic bellwethers, are heading into their busiest season of the year as the U.S. holidays approach. In economic news, September new-home sales came in at 467,000 units, a little better than expected. As expected, August data were revised lower to 466,000 from an initially reported 504,000. Homebuilders shrugged off the news as IBD's Building-Residential/Commercial group was down 0.6%.
Another day another triple digit move. The Dow was up 216 points today to finish the day at 16,677. If you look at the chart, tomorrow is going to be the make or brake day. Today's move put the Dow against a 1 month resistance line and tomorrow will determine (from a technical analysis standpoint) if the Dow continues an upward or downward trend. There was a host of positive earnings reports (more than 70% of the companies on the S&P 500 have beat earnings) the most notable being Caterpillar the readily beat expectations and was up 5% in today's trading; they had EPS of $1.63 per share opposed to expectations of $1.45. Stocks head into Friday on track for the best weekly performance in 22 months, after several snap back rallies put the S&P 500 within just several percent of its all-time high. What else contributed to the Dow's rise was manufacturing reports from China and Europe that surprised to the upside and gave some indication that growth may not be slowing in China and the Eurozone may not go into a recession. In the past week, the S&P 500 has swiftly recovered much of the 9.8 percent loss made on an intraday basis between late September and Oct. 15. It is up 7.1 percent from the drop to 1,820, and up 3.4 percent week to date. As of Thursday, the S&P and Nasdaq were on track for the best week since January 2013. The S&P gained 1.2 percent Thursday to 1,950, and the Dow was up 1.3 percent to 16,677, while the Nasdaq was up 1.6 percent to 4,452.
After increasing 215 points yesterday, the Dow dropped 153 points today. Yesterday life was rosy, today the price of oil went down and the shootings in Canada made life not so rosy. World oil prices hit reverse Wednesday following news of surging stockpiles in top consumer the United States, with additional selling pressure from the stronger dollar. The US government's Department of Energy (DoE) revealed Wednesday that American oil inventories surged by 7.1 million barrels. The oil market had fallen heavily last week, striking multi-year low points on demand fears in the face of mounting global economic worries. The stock market took its cue from the oil market and down went the Dow. However, crude demand is expected to increase during the upcoming northern hemisphere winter months, when heating fuel usage hits a peak.If you need heating oil, I'd buy it now. Stocks could be rattled again Thursday as traders watch for headwinds in global manufacturing data. A strong multi-day rally reversed course Wednesday as oil sank, taking the wind out of energy stocks and rekindling global growth concerns. Investors also worried a gunman who killed a soldier in Ottawa and fired shots in Canada's Parliament building before being killed himself was part of a broader terrorism effort. On a bright note, a slew of earnings reports may briefly put some sanity in the market if they are favorable. Earnings expected before the bell include: Caterpillar, MMM, General Motors, Raytheon, Untied Continental, Alaska Air, Southwest Air, JetBlue, American Airlines Group, Union Pacific, Comcast (CNBC's parent company), Eli Lilly, Royal Caribbean, Under Armour, Celgene, Dunkin' Brands, Pulte Group, Credit Suisse, Dr. Pepper Snapple, Imax and Brunswick.
In case you haven't heard, Blue Cross Blue Shied is raising rates 13%. Tell me again how good Obamacare is.
IBM missed earnings ans was down 13 points for the day and initially dragged the Dow down over 100 points, 7%. However the Dow struggled back and finished the day up 20 points based on a combination of good earnings from other companies and investors bargain hunting. There is some indication that investor sentiment has shifted, and economic fundamentals, while not strong, are remaining stable and relatively predictable. The Dow is up 90 points in pre-market trading with United Technologies beating earnings and Coca-Cola meeting expectations but guiding lower for the rest of the year and into 2015. Also adding to the rally is apple beating earnings and up nearly 3 points in the pre-market. We're still waiting earnings from Verizon, Lockheed Martin and McDonalds. However, if you look at the Year-to Date Dow chart, it is still trending down and I won't feel overly exuberant until it breaks that resistance line. The mood in Asian stock markets was mixed after new data showed China's economy clocked its worst quarter in more than five years. Gross domestic product expanded by 7.3% in the third quarter versus the same period last year. This raises doubts over Beijing's ability to meet its own annual growth target.
OBAMACARE A new poll that shows a very large percentage of people without health insurance are unaware that open enrollment in individual plans starts anew in November. The Kaiser Family Foundation poll found that nine in 10 uninsured people did not known that enrollment starts again next month. As reported by CNN, "More than half of the uninsured, 53 percent, did not know that those subsidies are available to people with moderate or low incomes, according to the phone poll, which questioned 1,503 adults between Oct. 8 and 14."As of last month, close to 42 million people are without insurance. So we have an estimated cost of $2.6 trillion over 10 years for 6 million people (see below). Good grief!
Oil briefly fell under $80/barrel after finishing the day at $83 and after opening $250 to the downside, The Dow surged to a positive $65 and finally finished the day at 16,117, down $24. The Dow is down more than 1500 points in one month from its all time high of 17,600. To put this in perspective, after it's inception in 1896, it didn't reach 1000 until 1972, 76 years later. No one has really come up with a solid reason as to why the sudden fall from grace. Cramer blames the CDC and Ebola, other analysts feel the the low price of oil is driving the market down (this is really counter intuitive since cheap oil lowers costs and increases profits), other analysts are blaming the global slow down, particularly Germany and China (seriously, China is predicted to have a 7.2% GDP this year and our 40 year average is 3.3%) and others are saying all the above. There are two emotions in the stock market, greed and fear, and right now fear and the desire to lock in profits (most investors are risk adverse) are dominating; this in spite of a good earnings season. At some point, rationality will overcome panic selling, and investors will realize the bargain basement prices of some stocks. I'm not jumping in now, but airlines and oil stocks will show a handsome profit in the next year after being badly beaten down in the past month. Some investors and some of you are probably saying oil will stay low, "this time is different"! Nope. Look at the trends and history. Both oil and stocks will bounce back and it's never different except for the time.
Job's Report September
Today's job report for September didn't disappoint, and finally, Wall Street interpreted good news as good news and it was off to the races. If you're invested in the market, I hope you like roller coasters because after there have been triple digit moves 7 of the last 10 days and the Dow finished the week at 17,009, up 208 points; the best gain in 6 months. The economy did slightly better than expected by creating 248,000 jobs during the month of September, and the August number was revised upwards from 142,000 to a very respectable 180,000. The unemployment rate dropped to 5.9%, the 1st time it has been under 6% since 2008. The labor force participation rate remained relatively unchanged at 62.7% and the long term unemployment rate is down under 32% and continues its downward slide since long term unemployment benefits ended in January. Discouraged workers (those who have given up and stopped looking for a job) have decreased by over 150,000 in the past year. The real unemployment rate, which includes part-time workers and marginally attached workers dropped to 11.8%. Inflation is still tame and wage growth is still relatively sluggish -- 2% over the past 12 months, and consumer prices are up only about 1.7%. This isn't a sign of an economy in danger of overheating and investors are realizing that the FED won't be raising rates sooner than expected.
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 level 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.