" Where economics isn't just a job, but an adventure"
Quote of the 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
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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
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!
After a week in which the Dow Jones industrial average tumbled by triple digits one day, only to soar by nearly as much the very next day; by Friday's close, after a 263 point gain (the best day of the year), investors deserved a cocktail (or dube if you live in Colorado or Washington). What may be disconcerting, is that the roller coaster ride is going to continue. What reversed the market on Friday was a favorable earnings report from both GE and Morgan Stanley, a lessening of tensions between Russia and Ukraine (a deal was reached on energy for the winter) and investors bottom fishing. We are no in correction territory for the DOW since it dropped more than 10% (an intraday low less than 16,000 on Wednesday) and the price of oil in Bear market territory after dropping 20% in the past 1/2 year. What will drive the market next week is continuing earnings (APPLE and Coca Cola) reports, and economic data. On the upside, unemployment is back under 6% and jobless claims came in this week at the lowest level since 2000. According to figures released Friday, Consumer Confidence hit its highest level in seven years this month, although the reading was taken before the worst of the market dip.
EBOLA How about some facts on Ebola. It is difficult to contract. It is not airborne and is transmitted by direct contact with bodily fluid. What Ebola does in plain english is turn your internal organs to mush and you bleed to death internally, if you don't first die from kidney or liver failure. How did this strain reach America and what makes it so resiliant. Prior strains of Ebola had a 95% mortality rate. Only those people with extreme immune systems beat the disease and a victim died quickly. As the disease is transmitted from person to person, it looses a little of its potentcy and eventually vanishes. This particularly strain has only a 60% mortality rate; as a result, more people are living longer before they succumb (in addition to surviving), however by living longer, the disease is being transmitted to a greater amount of people I feel relatively confident that the disease will be contained and eventually diminish. Also, since the virus has reach America, I also plan on seeing a vaccine within a year (probably from Glaxo Smith Kline).
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.
On October 19, 1987, Black Monday, the Dow Jones Average plummeted 508 points loosing 23% of its value. The greatest 1 day percentage loss ever and twice that of Black Tuesday in October of 1929. To put it in perspective, the Dow would have to drop close to 4000 points to exceed the 1987 loss. There is still debate as to what caused the loss, but most analysts contribute it to computer trading with no safeguards that can halt a precipitous plunge. Today, the Dow opened down over 350 points, partially recovered to only being 175 points down, dropped to a negative 450 points and finished the day down 173 points, a decline of 1.06%. Obviously, the bi-polar Dow hasn't been taking its lithium. The opening numbers reflected a poor retail sales number, which was combined with a large European down market and a 2nd health worker in Dallas who contracted Ebola. The September retail sales report showed the first decline in eight months. Sales were down 0.3 percent, in large part due to fewer vehicle purchases and a decline in gasoline. Inflation data also disappointed with the producer price index for final demand decreasing 0.1 percent, versus expectations for a 0.1 percent increase. The increase in inflation would have been indicative of a healthy economy where consumer dollars would be chasing too few goods. If there are too few goods, prices go up. If there is deflation, consumers are not buying all the good produced. When there is a surplus of goods, prices generally go down. In today's market the Dow came off session lows of a 458-point drop to below 16,000, a level it has not breached since February 14. The drop was the index's largest intraday loss since a 552-point decline on Sept. 22, 2011. The Dow has had triple-digit moves for about 78 percent of the last 23 trading sessions. That meets my definition of volatility and unless there is some clear direction, this will continue with a downward bias. What should you do? Batten down the hatches and weather the storm. In simple terms, the stock market mirrors the American economy and over the time, the economy goes nowhere but up. There are a few potholes along the way, but they get patched and the journey continues. If you look at the charts below, as the economy moves, so does the Dow, and it is an upward bias. The best long term investment continues to be the market.
DOW 20 year
Dow 20 year chart
Finally a day that didn't have a triple digit move; not so fast. Even tho the Dow was down 5 points for the day, at one point, it was up 140 points. A strong early rally faded as investors remain jittery about global growth prospects and volatility continues to dominate the market. Investors are looking to corporate earnings and forecasts as stocks have been hammered lately amid fear that the growth slowdown in places like the Eurozone and China would infect the U.S. economy in a major way, says JJ Kinahan, chief strategist of TD Ameritrade. If you look at the year to date chart of the Dow (below), it is still tending down. However, if you look at the big picture, the Dow 20 year chart, the trend is still onward and upwards. Oil continues its downward trend and remains under $85/barrel. It is officially a bear market in oil since it is down more than 20% since its high earlier this year. Earnings season, meanwhile, just kicked off with major banks reporting mixed results Tuesday, and Intel releasing positive after-the-bell results. Intel gained more than 2 percent in late trading, and stock futures were higher. Earnings expected ahead of Wednesday's open include Bank of America, BlackRock, Charles Schwab, KeyCorp, Commerce Bancshares, PNC, MGIC Investment and St. Jude Medical. American Express, Netflix, Las Vegas Sands, eBay and Kinder Morgan report after the close.
A late day sell off on wall street sent the Dow into a 223 point downward spiral to close the day at 16,321. In a 2 week period the Dow has dropped more than 5% and is down for the year by about 1%. The main impetus is fear of a global slowdown that can affect 50% of all big businesses sales and this is occurring in spite of 4.6% quarter 2 GDP growth and a 5.9% US unemployment rate. As I stated in an earlier, post, there was some support at 16,500 which was broken and from a technical analysis standpoint, the next support level is at 16,000 (chart). The other major U.S. stock indexes also took big hits Monday, adding to the increasing financial pain. The Standard & Poor's 500 index dropped 31.39 points, or 1.7%, to 1874.74, leaving it down 6.8% from its Sept. 18 high and at its lowest level since late May. The tech-heavy Nasdaq composite index fell 63 points, or 1.5%, to 4213.66, knocking it down 8.4% from its Sept. 2 high. The small-cap Russell 2000 also lost more ground Monday and is now down 13.2% from its March record close. It appears that the late day sell off could be a function of computer generated trading. The S&P 500 broke below its 200 day moving average which is a bearish signal that quite possibly initiated the computer generated sell programs. Analysts agree that the market is oversold, but beginning this week, earning seasons kicks into high gear and positive earnings could turn the market around (tho I suspect volatility will continue). Oil dropped below $85/barrel and the average price of gas nationwide is $3.20 according to AAA (I gassed up for $3.17 today in Lee NH) and there are 28 states where gas can be found under $3.00. This is a function of diminished demand and plentiful supply (i.e. fracking technology).
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.