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Blog Topics 2018
January What Kills Bull Markets
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
March Jobs Report
MARCH JOBS REPORT
The jobs report for March was somewhat of a disappointment as only 103,000 jobs were created when 193,000 were expected. However, given the fact that February blew away expectations when 326,000 jobs were created (it was a generally mild month), it shouldn't be all that unexpected. All but 1000 jobs were created in the private sector.
The unemployment rate remained constant at 4.1%, a 17 year low, and the FED is expecting it to drop another .5% by next year. The real unemployment rate, which includes part-time workers and marginally attached workers fell to an 11 year low of 8%. The real unemployment rate,U6, is generally twice that of the reported U3. However, the long term unemployment rate (those unemployed for more than 26 weeks), remains stubbornly high at 20.3% of those unemployed. It is down from a recession high of 47% which occurred as a result of congress increasing unemployment benefits to 99 weeks. Wage growth was 2.7% on an annualized basis and continues not to remain an inflation threat. This is surprising given the low unemployment rate and the competition for qualified employees. Labor force participation slipped to 62.9 percent as those considered not in the labor force jumped by 323,000 to 95.3 million.
Among the major worker groups, the unemployment rates for adult men (3.7 percent), adult women (3.7 percent), teenagers (13.5 percent), Whites (3.6 percent), Blacks (6.9 percent), Asians (3.1 percent), and Hispanics (5.1 percent) showed little or no change in March. The dollar was constant at $1.23/Euro as was gold at $1345/oz. Nationwide, the price of a gallon of regular gas was up to $2.74/gallon.
Updates/Advisories 4-18-2018
The Dow dropped 83 points today after being down more than twice that much. After strong corporate earnings buoyed the market earlier in the week, talk of $80-$100/barrel oil spooked the market and investors locked in short term profits by finding an excuse to sell today regardless of a spate of good earning reports. Procter & Gamble, Bank of New York Mellon and Blackstone all reported better-than-expected earnings. The Dow finished the day at 24,665, sinking once again wiping out the gains for the year. The fear of expensive oil, and subsequent inflation fears came as a result of Saudi Arabia stating that it would not mind seeing oil at that price. I don't see that happening given the fact that the US is producing oil at record amounts (compliments of fracking technology) and there appears to be plenty more in the spigot. Current US oil production is at record highs at over 10 million barrels/day. Oil was down today at $68.21/barrel but not until it reached an intraday high not seen since 2014. Despite today's finish in the red, the global economy is expected to expand this year at its fastest pace since 2010, from a Reuters poll of over 500 economists worldwide.
Helping the markets today was news, towards the trading days end, that Deputy Attorney General Rod Rosenstein told President Donald Trump last week he is not the target of an investigation by special counsel Robert Mueller. Also hurting the market was rising interests rates as inflation fears (from anticipated high oil prices) saw a sell off in bonds which raised the 10 year yield to 2.91%.
Helping the markets today was news, towards the trading days end, that Deputy Attorney General Rod Rosenstein told President Donald Trump last week he is not the target of an investigation by special counsel Robert Mueller. Also hurting the market was rising interests rates as inflation fears (from anticipated high oil prices) saw a sell off in bonds which raised the 10 year yield to 2.91%.
Updates/Advisories 4-17-2018
Here's something you don't see every day; the Dow was up 213 points yesterday and 213 points today to finish the 2 day winning streak at 24,787, and from a technical analysis view, broke a short term resistance line. Today was all about earnings. The gains were broad based as Netflix surged by almost 10% on meeting expected earnings but having a higher than expected subscriber growth which generally equates to higher revenue and earnings. United Health care also increased on better than expected earnings and as a result, both health and tech sectors had a good day. Goldman Sachs posted better-than-expected earnings and revenue for the first quarter, boosted by a 38 percent jump in equities trading revenue. However, the stock fell 1.7 percent after opening higher; hmmm, a classic case of buy on the rumor a. nd sell on the news. The financial sector was down .31% for the day.
The yield on the 10 year was down slightly to 2.81%, the dollar was up at $1.24/Euro, gold was up to $1347/oz, gold was down slightly to $1347/oz, oil is still strong at $66.82/barrel and the price of a gallon of regular gas nationwide continues its upward surge to $2.72.
In other News:
All is not copesthetic in California. an Diego County's Board of Supervisors voted Tuesday to join the federal government's legal challenge of California's "sanctuary state" legislation. n a 3-1 vote, supervisors for San Diego — home to more than 3.3 million residents — voted to direct the county counsel to file a friend-of-the-court brief supporting the Trump administration's lawsuit against California's sanctuary law. Critics of the state sanctuary law say it jeopardizes public safety and puts law enforcement officers in the state in a tough spot. They also say it can increase the danger down the line for federal immigration agents. The case against California is being heard in the U.S. District Court for the Eastern District of California in Sacramento (CNBC).
The yield on the 10 year was down slightly to 2.81%, the dollar was up at $1.24/Euro, gold was up to $1347/oz, gold was down slightly to $1347/oz, oil is still strong at $66.82/barrel and the price of a gallon of regular gas nationwide continues its upward surge to $2.72.
In other News:
All is not copesthetic in California. an Diego County's Board of Supervisors voted Tuesday to join the federal government's legal challenge of California's "sanctuary state" legislation. n a 3-1 vote, supervisors for San Diego — home to more than 3.3 million residents — voted to direct the county counsel to file a friend-of-the-court brief supporting the Trump administration's lawsuit against California's sanctuary law. Critics of the state sanctuary law say it jeopardizes public safety and puts law enforcement officers in the state in a tough spot. They also say it can increase the danger down the line for federal immigration agents. The case against California is being heard in the U.S. District Court for the Eastern District of California in Sacramento (CNBC).
Updates/Advisories 4-11-2018
OIL 3 YEAR CHART
After advancing 429 yesterday on reduced trade war fears, the Dow is down 122 points at 24,288 with about 2 hours left in the trading day. It is off its lows of down 200 points, but also off its highs of down 30 points. The rebound was due mainly to tech stocks recovering and it's being led by Facebook (this weeks stocks recommendation) which is up nearly 2% as CEO Zuckerbeg is testifying before Congress. I had the misfortune to watch about 15 minutes of this on CNBC and the sight of Congressmen pontificating, and being relatively clueless as to what they are talking about, made me want to read the telephone book. Hurting the market was a, what else, tweet from president Trump which stated, "Russia vows to shoot down any and all missiles fired at Syria. Get ready Russia, because they will be coming, nice and new and 'smart!' You shouldn't be partners with a Gas Killing Animal who kills his people and enjoys it!". Safe havens like gold, $1359/oz and U.S. Treasurys, 2.79% yield on the 10 year, rose on the news. Crude oil prices also spiked higher and are currently at 3 year highs (see previous day update/advisory) at $66.85/barrel. Gas is expected to be at least 25 cents higher per gallon then last summer on both increased demand and higher oil prices. The energy sector is up .73% and the price of a gallon of regular gas nationwide is up slightly to $2.66.
BlackRock and Delta Air Lines kick off the first-quarter earnings season on Thursday, with J.P. Morgan Chase, Citigroup and Wells Fargo scheduled to report Friday. Investors have high expectations for this earnings season. According to FactSet, S&P 500 earnings are forecast to have grown by 17.1 percent last quarter. That would be the biggest quarterly earnings growth since the first quarter of 2011, when they rose 19.5 percent. (CNBC).
BlackRock and Delta Air Lines kick off the first-quarter earnings season on Thursday, with J.P. Morgan Chase, Citigroup and Wells Fargo scheduled to report Friday. Investors have high expectations for this earnings season. According to FactSet, S&P 500 earnings are forecast to have grown by 17.1 percent last quarter. That would be the biggest quarterly earnings growth since the first quarter of 2011, when they rose 19.5 percent. (CNBC).
Updates/Advisories 4-10-2018
Who keeps track of these statistics. According to MarketWatch, the Dow just logged it's worst final hour of trade in 4 years. The Dow was up over 300 points, but dropped 400 points in the final hour to still finish the day in the green, up 46 points at 23,979. The underlying cause appears to be the news that the law offices of President Trumps personal lawyer, Michael Cohen, were raided by the FBI. The records that were seized relate to Cohen's $130,000 payment to Stormy Daniels as well as emails, tax documents and business records. Late Monday, the Washington Post reported Cohen was being investigated for possible bank fraud, wire fraud and campaign finance violations. However, what a difference a day makes. About an hour before the open the Dow is up over 300 points in premarket trading on, what else, decreased fears of a trade war. China's President Xi speaking at an Asian forum, mentioned plans to lower import tariffs, enforce intellectual property regulations and to improve the environment for international trade.
In economic news, the PPI, Producer Price Index, a measure of inflation on the wholesale level is due out prior to the markets open, and the president of the Atlanta FED (there are 12 Federal Reserve Districts), is scheduled to speak at Harvard.
The yield on the 10 year is down to 2.79%, gold and the dollar are stable at $1339/oz and $1.23/Euro, bitcoin is at $6,700, off its $20,000 high earlier this year, oil is up to $64.23/barrel and the price of a gallon of regular gas nationwide is, yaaay, down to $2.658. The price of gas has been increasing for a number of reasons: first, and not surprisingly, the price of oil has been increasing as a result of increased demand, the summer driving season is upon us and the refineries are in the process of changing over from winter gas to summer gas. Summer gas has less butane in it (so it doesn't evaporate as quickly in the higher temperatures) and as a result, you have more BTU's/gallon (better gas mileage), which makes it more expensive.
In economic news, the PPI, Producer Price Index, a measure of inflation on the wholesale level is due out prior to the markets open, and the president of the Atlanta FED (there are 12 Federal Reserve Districts), is scheduled to speak at Harvard.
The yield on the 10 year is down to 2.79%, gold and the dollar are stable at $1339/oz and $1.23/Euro, bitcoin is at $6,700, off its $20,000 high earlier this year, oil is up to $64.23/barrel and the price of a gallon of regular gas nationwide is, yaaay, down to $2.658. The price of gas has been increasing for a number of reasons: first, and not surprisingly, the price of oil has been increasing as a result of increased demand, the summer driving season is upon us and the refineries are in the process of changing over from winter gas to summer gas. Summer gas has less butane in it (so it doesn't evaporate as quickly in the higher temperatures) and as a result, you have more BTU's/gallon (better gas mileage), which makes it more expensive.
Updates/Advisories 4-9-2018
Read yesterday's post, and today is just the opposite. Sanity has somewhat prevailed and even tho there have been threats and counter threats of tariffs, and much sabre rattling, no tariffs have yet to be imposed. In addition, investors are looking at the weak jobs report, and instead of it being disappointing, it may know be an indication that the FED will not be aggressive in raising interest rates. With about 1.5 hours left in the trading day, the Dow is up 372 points at 24,302 as a result of overblown fears on Friday. It is off it's highs of over 400 points. However, if you look at the attached chart, it still needs to break through a downward resistance line that it is approaching.
Today's gain comes as a result of softening language from Treasury Secretary Mnuchin and Economic Advisor Larry Kudlow. Mnuchin stated that he doesn't expect a trade war and Kudlow emphasized that no tariffs are in place and he would be surprised if it came to fruition.
In one of his many tweets, the president stated Sunday that: "President Xi and I will always be friends, no matter what happens with our dispute on trade. China will take down its Trade Barriers because it is the right thing to do. Taxes will become Reciprocal & a deal will be made on Intellectual Property. Great future for both countries!"
The yield on the 10 year is up to 2.8%,Gold is up slightly at $1340/oz, the dollar remains steady at $1.23, oil is up to $63.55 and the price of a gallon of regular gas nationwide is steady at $2.661.
Today's gain comes as a result of softening language from Treasury Secretary Mnuchin and Economic Advisor Larry Kudlow. Mnuchin stated that he doesn't expect a trade war and Kudlow emphasized that no tariffs are in place and he would be surprised if it came to fruition.
In one of his many tweets, the president stated Sunday that: "President Xi and I will always be friends, no matter what happens with our dispute on trade. China will take down its Trade Barriers because it is the right thing to do. Taxes will become Reciprocal & a deal will be made on Intellectual Property. Great future for both countries!"
The yield on the 10 year is up to 2.8%,Gold is up slightly at $1340/oz, the dollar remains steady at $1.23, oil is up to $63.55 and the price of a gallon of regular gas nationwide is steady at $2.661.
Updates/Advisories 4-8-2018
The markets up on reduced trade war fears. The markets down on renewed trade war fears. Friday, it was down 572 points to 23,933 on Trumps doubling down on China by announcing that he would impose an extra $100 billion in tariffs on Chinese imports after China announced tariffs on 106 US exports to China. It's time that both Presidents stopped doubling down and put on their big boy pants and sit down at the negotiating as China has already expressed an interest in doing. However, these tariffs have yet to be imposed and no dates, to my knowledge, have been set for their implementation. Boeing and Caterpillar, two companies that could be adversely affected by a trade war with China, both fell more than 3 percent.
Shares of large-cap tech companies also fell. Amazon dropped 3.2 percent (in part because of the Presidents continuing verbal attacks) while Apple fell 2.6 percent. Netflix dropped 1.7 percent after briefly trading higher. The weak jobs report (see above) also contributed to the general malaise on the street.
Earnings season is about to start this week with the banks, JPM, C and WFC reporting later in the week. Results will probably be very strong. Wall Street is predicting that earnings for the S&P 500 will rise 17% from a year ago, and the banks should do even better. Analysts are forecasting quarterly profit gains of about 20% from a year ago for Black Rock and Citigroup and a nearly 40% jump for JPMorgan Chase(CNN).
With the drop in the Dow, the yield on the 10 year dropped to 2.78% as bonds became a safe haven play. Gold was also a safe have as it increased to $1336/oz, the dollar was constant at $1.23/Euro, oil dropped to $62.06/barrel and the price of a gallon of regular gas nationwide is up to $2.662.
Shares of large-cap tech companies also fell. Amazon dropped 3.2 percent (in part because of the Presidents continuing verbal attacks) while Apple fell 2.6 percent. Netflix dropped 1.7 percent after briefly trading higher. The weak jobs report (see above) also contributed to the general malaise on the street.
Earnings season is about to start this week with the banks, JPM, C and WFC reporting later in the week. Results will probably be very strong. Wall Street is predicting that earnings for the S&P 500 will rise 17% from a year ago, and the banks should do even better. Analysts are forecasting quarterly profit gains of about 20% from a year ago for Black Rock and Citigroup and a nearly 40% jump for JPMorgan Chase(CNN).
With the drop in the Dow, the yield on the 10 year dropped to 2.78% as bonds became a safe haven play. Gold was also a safe have as it increased to $1336/oz, the dollar was constant at $1.23/Euro, oil dropped to $62.06/barrel and the price of a gallon of regular gas nationwide is up to $2.662.
Updates/Advisories 4-5-2018
How do you define volatility? When the Dow has a swing of 785 points, down over 500 points and then finishes up over 230 points for the day, is a pretty good start. The Dow sank on fears of a trade war yesterday and over the course of the day those fears lessened as a result of both presidents of China and the US are posturing in light of upcoming trade talks. With a little over an hour left in the trading day, the Dow is off its 300 point highs, but is up 200 points at 24,465. Tech is leading the rally with Facebook and Amazon up 4 and 3% respectively. Boeing and Caterpillar are also up after taking hits yesterday. Markets have been on edge in recent sessions amid concerns of a potential trade war between China and the U.S. On Wednesday, China announced fresh tariffs on 106 U.S. products, including cars, whisky and soybeans — less than 24 hours after the U.S. administration issued a list of Chinese imports that it would target (CNBC). Tomorrow, all eyes will be on the March jobs report, which is expected to be strong, and the FED's actions as a result.
More investors are buying equities as opposed to bonds, and as a result, the yield on the 10 year is up to 2.82%, the dollar has strengthened and is trading at $1.22/Euro, with lower volatility, gold has lost some of its luster and is down to $1328/oz, oil is up for the 2nd day in a row since there was an unexpected draw on weekly oil inventories (down 4 million barrels), and the price of a gallon of regular gas nationwide is constant at $2.658.
More investors are buying equities as opposed to bonds, and as a result, the yield on the 10 year is up to 2.82%, the dollar has strengthened and is trading at $1.22/Euro, with lower volatility, gold has lost some of its luster and is down to $1328/oz, oil is up for the 2nd day in a row since there was an unexpected draw on weekly oil inventories (down 4 million barrels), and the price of a gallon of regular gas nationwide is constant at $2.658.
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 |
