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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
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
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
September Jobs Report
The economy created 156,000 jobs in September as opposed to 176,000 that was expected with the unemployment rate (U3) creeping up to 5%. The real unemployment rate (U7), which counts marginally attached and temporary workers as being unemployed, remained constant at 9.7%. Among the major worker groups, the unemployment rate for Hispanics increased to 6.4 percent in September, while the rates for adult men (4.7 percent), adult women 4.4 percent, teenagers 15.8 percent (no experience or education), Whites 4.4 percent, Blacks 8.3 percent (low education rates), and Asians 3.9 percent(high education showed little or no change. The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed in September at 5.9 million. These individuals, who would have preferred full-time employment, were working part time because their hours had been cut back or because they were unable to find a full-time job. In September, average hourly earnings for all employees on private nonfarm payrolls rose by 6 cents to $25.79. Over the year, average hourly earnings have risen by 2.6 percent. (BLS). Traders pushed chances for a December rate hike higher, from 63.9 percent prior to the payrolls report to 70.2 percent afterward (CNBC).
After advancing over 100 points over the past 2 days because of favorable earnings and a rally in the oil patch. Wednesday oil inventory numbers showed a surprising decline of over 5 million barrels and this coupled with comments from Saudi Arabia on an agreement in production cuts sent oil to the $52/barrel area. Oil is down today but still over $50 at $50.33/barrel. The gains of the past days have been nullified as the Dow is down 102 points at 18058 one hour into the trading day on Friday. Today's culprits are a stronger dollar, $1.09/Euro, mixed earnings and uncertainty over FED rate hikes. The strong dollar makes American goods more expensive to foreign buyers and since close to 50% of the top 100 S&P firms sales are global, it hurts revenues and profits. Also, since oil is traded in dollars worldwide, the strong dollar puts downward pressure on the price/barrel. Dow component General Electric reported mixed results before the open, beating estimates on earnings but missing on revenues. The industrial giant also narrowed its 2016 earnings per share guidance. It's down 2% at $28.25. Meanwhile, Microsoft, another Dow component, posted better-than-expected results across the board on Thursday. "But, if you take Microsoft out of the equation, it's been ... mostly disappointing reactions to earnings," said Adam Sarhan, CEO at Sarhan Capital. "Caution is king until we get a better reaction to earnings." (CNBC)
Earnings propelled the Dow to 18,162, up 75 yesterday, and earnings will be front and center today. Expectations are that Morgan Stanley and American Express will join the rest of the financial sector and exceed estimates while e-Bay, Mattel and Halliburton will be bell weathers for the retail and oil sectors. Speaking of oil, it is up to $51.03 and the Dow is following up $30 in the pre-market. At 10:30, weekly inventory numbers are released by the Energy Information Administration which generally affects the market. Also, investors will be paying attention to the FED today as a number of FED officials are scheduled to speak. San Francisco Fed President John Williams is set to speak at a conference hosted by Rutgers University around 8:45 a.m. and Dallas FED president will be speaking at the Mayor's International Luncheon in Fort Worth. In other news: The nation’s 65 million Social Security beneficiaries will receive a paltry 0.3% cost-of-living adjustment to their monthly checks in 2017, the government announced Tuesday. In dollars and cents, it means the average retired beneficiary’s check will rise about $5 to $1,360 per month in 2017. Almost a third of Medicare's 56 million beneficiaries could see their premiums jump 22% next year, according to the Medicare Trustees Report, putting the cost at an estimated $149 per month. Gold is up to $1270/oz, the dollar is stable at $1.10/Euro and the price of a gallon of regular gas nation wide is down to $2.235.
I've said it before and I will say it again: America doesn't have a revenue problem it has a spending problem. Figures are just in for fiscal 2015, which ended September 30th this year, and the US recorded record revenues at $3,248,723,000,000 in taxes (chart). That equaled approximately $21,833 for every person in the country who had either a full-time or part-time job (CNN). It is up about $212,927,100,000 in nominal 2015 dollars from 2014. FICA, (Federal Insurance Contribution Act) taxes, which are Social Security and Medicare are also at a record at $1.065 trillion, about double from 2006. The largest share of fiscal 2015's record-setting tax haul came from the individual income tax. That yielded the Treasury $1,540,802,000,000 and in case you're wondering if the rich are paying their fair share, the top 1% paid 40% of all those taxes. The US must be in great shape then; hardly! When you bring in $3.2 trillion and spend $3.7 trillion, that is a serious problem, and once again, the last time the US was without debt was in 1836 and from 1836 to 2008, the US amassed over $10 trillion in debt, bu the time Obama leaves office, it will be over $20 trillion. In other news: The financial sector is kicking butt during earnings season and JPM, C, BAC, and GS all came in with positive earnings surprises. Just before the markets open, the Dow is up over 100 points and investors are wondering if the 5 quarter earnings recession is over. The U.S. central bank continues to be at the back on investors' minds this week, as talk about when the Fed will next raise interest rates remains a big topic and mover of markets. The dollar remains strong at $1.10/Euro, gold is up to $1262/oz, oil still remains above $50 at $50.31/barrel and the average price of a gallon of regular gas nationwide is down to $2.238.
The market has absolutely no direction and notwithstanding any shocks to the economy, it will continue to trade sideways until after the election. The best scenario is a Clinton win, and Republicans remain in control of a least one branch of Congress. The Senate is a toss up and it seems that Republicans will keep control of the house. You now have gridlock and that is good for Wall Street since the status quo is maintained, and you now have some predictability. Remember, Congress does 2 things well, nothing and overreact. In a recent CNBC poll, Clinton is 11 points ahead of Trump as he continues to self-destruct. After dropping 46 points on Thursday, the Dow gained 40 points (off it's high of over 150 points) back to finish the week at 18,138. Citigroup reported third quarter earnings of $1.24 a share, eight cents above the Wall Street consensus. Revenue dropped 4.8% year to year but still came in at $17.8 billion, above the $17.32 Wall Street projection; at JP Morgan Chase, earnings of $1.58 a share were 19 cents above Wall Street projections. Revenue rose 8.3% year over year. As a result, the entire financial sector did well posting a gain of .67% for the day. The big uncertainty is whether the FED will raise rates by its December meeting. Fed Chair Janet Yellen said the Fed might want to let inflation run hotter for a while. She pointed out that the economy has seen an unusual tendency of weak demand against strong supply, making it reasonable "to ask whether it might be possible to reverse these adverse supply-side effects by temporarily running a 'high-pressure economy,' with robust aggregate demand and a tight labor market." (CNBC) In economic news, In economic news, U.S. retail sales rose 0.6 percent in September, matching expectations. Meanwhile, the Labor Department said its producer price index for final demand increased 0.3 percent (inflation at the wholesale level) after being unchanged in August. The dollar remained strong at $1.10/euro, gold was down slightly at $1251/oz, oil remained above $50 at $50.32/barrel and the price of a gallon of regular gas nationwide is down to $2.244.
Dollar Index = red; S&P = Green
On Tuesday, the Dow was down over 200 points. The day started on a bad note with a negative earnings surprise from Alcoa (Alcoa typical starts the beginning of earnings season). That was exacerbated by a decline in oil and the the negative sentiment continued through the day. However, according to market watch, what is really hurting the economy is the strong dollar. A strong dollar, makes our goods more expensive to foreign consumers, and foreign good cheaper for American consumers. With our goods more expensive, and with close to 50% of all sales in the top 100 S&P 500 companies overseas, it spells lower revenues/profits, which in turn translates to lower stock prices. From the attached chart (from Market Watch), you can see the inverse relationship, as the dollar strengthens, the S&P sinks and vice versa. Currently the dollar is trading at $1.10/Euro. By contrast, 2 years ago it was $1.36/Euro. In yesterday's trading, the Dow regained 15 points to close at 18,144. In pre-market trading the Dow is down over 100 points on disappointing earnings from Delta and disappointing export figures (signalling a worldwide economic downturn) from China. Oil is still above $50 at $50.30/barrel, gold is up slightly trading at $1261/oz and the price of a gallon of regular gas nationwide is constant at $2.253.
“If we’re going to leave our children with oceans like the ones that were left to us, then we’re going to have to act, and we’re going to have to act boldly,” Mr. Obama said at the State Department.
. The Dow finished up 88 points on Monday to finish at 18,329. It was off it's highs as we saw profit taking in the last hour which has been typical of previous Dow intraday rally's. Alcoa, formerly a Dow component, started off 3rd quarter earnings season on a down note, reporting earnings of 32 cents/share as opposed to an expected .35/share. In premarket trading, it is down over 6%. With over an hour left prior to the market's opening, the DOW is down 20 points. Oil prices are set to be one of the big events on Tuesday, after prices rose as much as 3 percent on Monday, helping both U.S. and European markets close in positive territory. Oil rise on Monday was a function, according to Reuters, of both Russia and Saudi Arabia, said a deal between leading OPEC and non-OPEC producers was possible which would curtail production. However, even if a deal is reached, OPEC members have been notorious for cheating on production quota's. Oil is down slightly today but still above $50/barrel. Overnight, Chicago Fed President Charles Evans said the central bank should engineer monetary policy to spur inflation to rise above its 2 percent target because the costs of doing so are less than in past decades (CNBC). This was seen as a positive note for keeping interest rates low. In case you've been living under a rock, Samsung's Galaxy 7 smartphone, even the replacements, have had a total recall (great name for a movie), as a result of batteries catching fire. There appears to be no quick solution in sight which means Samsung users will probably be flocking to i-phones. In pre-market trading, Apple is up over $2 at $118/share. Gold is down to $1256/oz, the dollar is staedy at $1.11/euro and the price of a gallon of regular gas is down to $2.255
In other news: Obama used a presidential proclamation to expand the Papahānaumokuākea Marine National Monument off the coast of Hawaii by over 400,000 square miles and expanded a no fishing area in the Gulf of Maine. At 1st blush you may say this is a good thing but local politicians and fisherman are up in arms. "Closing 60 percent of Hawaii's waters to commercial fishing, when science is telling us that it will not lead to more productive local fisheries, makes no sense," said Edwin Ebiusi Jr., chairman of the Western Pacific Regional Fishery Management Council. "Today is a sad day in the history of Hawaii's fisheries and a negative blow to our local food security." (FOX)
After dropping 28 points on Friday, the Dow is up 110 points, at 18,350, with 2 hours left in the trading day. Friday's trading was all over the place with investors trying to digest a disappointing jobs report, but not disappointing enough to assure them that there won't be a rate hike this year. However, it seems that as a result of last nights debate, some of the uncertainty has been taken out of who will be the next president which is helping today's rally along with the price of oil rallying 3%, currently at $51.30/barrel. In a recent CNBC poll, most investors feel that Clinton will be better than Trump for Wall street. Propelling crude was a speech from Putin where he said that he hoped that OPEC members would confirm the decision to adopt quotas for output when the organization meets in November. In economic news, there are no major data due Monday. The U.S. bonds market was also closed due to the Columbus Day holiday. In corporate news, Mylan agreed to pay $465 million to settle charges that it overcharged the government for its EpiPen products. Meanwhile, Twitter shares fell more than 13.5 percent after Bloomberg reported the company was unlikely to be bought out by another company (CNBC). The dollar is slightly stronger at $1.11/Euro, gold is also up at $1260/oz and the price of a gallon of regular gas nationwide is up to $2.258.
After climbing 112 points yesterday, the Dow was down over 115 points today only to recover within a 20 minute span to down 17 at 18263, with 2 hours left in the trading day. The turnaround was caused by an unconfirmed report that European Central Bank Vice President Vitor Constancio refuted reports from earlier this week that the central bank is going to taper its quantitative easing program. What is also helping the market is the price of oil which is up over $50 for the 1st time since June. This is a function of a surprising large drop in weekly oil inventory numbers that were released by the Energy Information Administration yesterday, analysts said the market was well supported at current levels, especially because of the proposed output cut announced last week by the Organization of the Petroleum Exporting Countries (CNBC). Gold is holding at $1254/oz, as is the dollar at $1.12/Euro and the cost of a gallon of regular gas nationwide is following oil and is up to $2.246. In other news: In the recent debate, 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 above 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 and contained live stock.
Here's something you don't here everyday, a prominent democrat bashing a serving democratic president. While speaking in Spokane Washington on behalf of his wife, Bill Clinton said the following; ""If you believe we can rise together, if you believe we've finally come to the point where we can put the awful legacy of the last eight years behind us", obviously a slam at Obama and his failed presidency. The Web site is cnn and the following link will get you there. http://www.cnn.com/2016/03/21/politics/bill-clinton-hillary-obama-legacy/index.html.
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 fantasyland 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.
This platform has now been adopted by Hillary Clinton and the Democratic Party
With all the talk of interest rate hikes, I've received a number of e-mails concerning an explanation of what interest rates are relevant to us as consumers. The Federal Funds Rate This is the interest rate that is followed most closely and affects all other short term interest rates. It is the rate that one bank charges another bank on an overnight loan and has a direct effect on the prime rate. The current rate is .25%. Prime Rate This is the rate that the larger banks charge their best customers on short term loans (under 3 months). Once the federal funds rate is changed, the prime rate is changed by, usually, the largest bank, JP Morgan-Chase, and all other banks follow. The prime rate is generally 3% higher than the Federal Funds rate. The current prime rate is 3.25%. This affects all other short term loans: HELOC's (Home Equity Line Of Credit), boat loans, car loans, etc. What it does not affect directly is the mortgage rate.
Yield on the 10 Year Government Bond The government finances it's deficit by borrowing money and it does this by issuing bonds that have a maturity value anywhere from 30 days to 30 years. Technically, Treasury bills are issued for terms less than a year.Treasury notes are issued in terms of 2, 3, 5, and 10 years and Treasury bonds are issued in terms of 30 years. The price of a bond is inversely related to its yield and the mortgage rate is usually 2-3% higher than the 10 year yield.
California Drought of 2015 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 below right, California has 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 current climate alarmists were predicting an ice age in the 1960's (click on pictures below).
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 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."
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
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 $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.
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?
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.