"Where economics isn't just a job, but an adventure"
Quote of the Week
Blog Topics 2019
March The Burgeoning US Debt
May China, Trade and Tariffs
June Income taxes: Obama v Trump
July/Aug The China Threat
May China, Trade and Tariffs
June Income taxes: Obama v Trump
July/Aug The China Threat
Blog Topics 2018
January What Kills Bull Markets
May Are Cheap Oil Prices here to Stay
July California and Mandatory Solar Panels
August Tariffs and Trade
September Is a Recession coming?
November Increasing Healthcare Costs
December The Oracle of Omaha
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 for 2013 and 2014 are at page bottom
August Jobs Report
In August the economy created 130,000 jobs when 150,000 were created, which is indicative of a slowing market. The unemployment rate remained at 3.7%. Average hourly earnings increased by .4% making the year over year increase an impressive 3.2%. This is not surprising since employers must offer higher wages to attract and keep workers in a tight labor market. The labor force participation rate increased to 63.2%.
Excluding government hiring, private payrolls grew by just 96,000, the lowest pace since February.The real unemployment rate inched higher to 7.2% from 7%; the real unemployment rate includes discouraged workers and part time workers as unemployed. Gains for the month came from professional and business services at 37,000 and the federal government, which added 28,000 workers ahead of the 2020 population count. Health care contributed 24,000 to the total while financial services increased by 15,000.
Among the major worker groups, the unemployment rates for adult men (3.4 percent), adult women (3.3 percent), teenagers (12.6 percent), Whites (3.4 percent), Blacks(5.5 percent), Asians (2.8 percent), and Hispanics (4.2 percent) showed little or no change in August.
Excluding government hiring, private payrolls grew by just 96,000, the lowest pace since February.The real unemployment rate inched higher to 7.2% from 7%; the real unemployment rate includes discouraged workers and part time workers as unemployed. Gains for the month came from professional and business services at 37,000 and the federal government, which added 28,000 workers ahead of the 2020 population count. Health care contributed 24,000 to the total while financial services increased by 15,000.
Among the major worker groups, the unemployment rates for adult men (3.4 percent), adult women (3.3 percent), teenagers (12.6 percent), Whites (3.4 percent), Blacks(5.5 percent), Asians (2.8 percent), and Hispanics (4.2 percent) showed little or no change in August.
Updates/Advisories 9-14-2019
SAUDI OIL FIELDS ON FIRE
The Dow advanced 37 points on Friday to finish the day and week at 27,220, 139 points shot of its all time high set in July of this year. The Dow is now on an 8 day winning streak and up 11 of the past 12 sessions. This is a result of growing optimism of a US/China trade deal, especially after the US postponed the implementation of additional tariffs and a widening range between the 10 and 2 year treasuries which are 1.9% and 1.8% respectively. September has seen the highest 1 month gain in the 10 year since 2008. Another optimistic sign is that 2 defensive sectors, real estate and consumer staples are down 3.5% and 1% this week. China also reciprocated on a positive note as they agreed to suspend tariffs on various agricultural products.
Trade bellwethers Caterpillar and Boeing rose 1.5% and 1.1%, respectively. Those gains were slightly offset by a 1.9% drop in Apple. The tech giant’s stock fell after an analyst at Goldman Sachs cut his price target on Apple to $165 per share from $187 (CNBC). Apple is currently trading at $218.75. The banking sector was up .5% on Friday as a result of higher interest rates and the expectations that Fannie MAE and Freddie MAC, will be coming out of government receivership, possibly, as early as the end of the month. Both stocks are up over 300% since the beginning of the year. This stock was also a stock pick of the week of mine back in February of this year.
The dollar weakened (good for US exports) to $1.12/Euro, dollar was down to $1495/oz, oil closed the day on Friday down slightly at $54.82/barrel and the price of a gallon of regular gas nationwide decreased to $2.567.
JUST IN FROM CNBC
Expect the price of oil and energy stocks to be up significantly Monday. CNBC is reporting a drone attack on Saudi Oilfields that may possibly casue a closure that would impact production of 5 million barrels/day.
Trade bellwethers Caterpillar and Boeing rose 1.5% and 1.1%, respectively. Those gains were slightly offset by a 1.9% drop in Apple. The tech giant’s stock fell after an analyst at Goldman Sachs cut his price target on Apple to $165 per share from $187 (CNBC). Apple is currently trading at $218.75. The banking sector was up .5% on Friday as a result of higher interest rates and the expectations that Fannie MAE and Freddie MAC, will be coming out of government receivership, possibly, as early as the end of the month. Both stocks are up over 300% since the beginning of the year. This stock was also a stock pick of the week of mine back in February of this year.
The dollar weakened (good for US exports) to $1.12/Euro, dollar was down to $1495/oz, oil closed the day on Friday down slightly at $54.82/barrel and the price of a gallon of regular gas nationwide decreased to $2.567.
JUST IN FROM CNBC
Expect the price of oil and energy stocks to be up significantly Monday. CNBC is reporting a drone attack on Saudi Oilfields that may possibly casue a closure that would impact production of 5 million barrels/day.
Updates/Advisories 9-11-2019
The Dow, after seesawing all day, finished up 75 points at 26,910 and is once again approaching a record high. The Dow has now been up 8 of the past 9 days on optimism of a China trade deal and a FED rate cut. this optimism is being reinforced by China waiving tariffs on a dozen US goods, which is the 1st time this has happened since the trade wars inception more than a year ago. In pre-market trading, the Dow is up 20 points on low volume in anticipation of US inflation data set to be released. The Producer price Index, prices on the wholesale level, will be announced at 8:30. In spite of health wage growth, 3.2% for the past year, inflation to the consumer has remained tame at under 2%. Even though the number of job openings slipped in August, there are still 7.2 million jobs in the US looking to be filled which is greater than the number of unemployed workers at 6 million. The all time high for job openings was 7.6 million in 2018. Apple released it's new iphone 11 yesterday which has a price of under $700 (compared to the iphone 10 of around $1000). The new iphone has 3 camera lenses. In addition to the normal lens, it also has a zoom and macro. Apple is up 55 cents in the premarket.
The yield on the 10 year is up to 1.7%, the dollar remains strong at $1.10/Euro, gold is down on $1500, oil is up to $58.07 and the price of a gallon of regular gas nationwide is up to $2.568.
The yield on the 10 year is up to 1.7%, the dollar remains strong at $1.10/Euro, gold is down on $1500, oil is up to $58.07 and the price of a gallon of regular gas nationwide is up to $2.568.
Updates/Advisories 9-9-2019
The Dow advanced 38 points today and over 1000 points in the past 8 days when it was in the green 7 of those 8 days. At 26,836, it is poised for further gains. the impetus was a jobs report (see August jobs above) that came in lower than expected and trade optimism with China, The August jobs numbers was a classic case of bad news being good. With the lower jobs number, it almost assures a FED jobs cut this month as a result of a slowing economy and the announcement that low level trade negotiations will begin later this month with China as the trade was has been ongoing for more than a year. Federal Reserve Chairman Jerome Powell said late last week the central bank would "act as appropriate" to sustain economic expansion, a phrase that financial markets have read as signs of an interest rate cut. The Fed cut interest rates for the first time since 2008 in July and bets of another cut rose after data on Friday showed the U.S. economy added fewer-than-expected jobs in August. U.S. Treasury Secretary Steven Mnuchin said he did not see the threat of a recession as the Trump administration seeks to revive trade negotiations with China, adding that he expected a positive year ahead for the U.S. economy. Caterpillar (a trade bellweather) was the biggest contributor to the Dow’s gains, jumping 3.7% in its best one-day performance since Jan. 4. The stock surged 5.5% that day. China also agreed to purchase more US agricultural products in the short term.
Treasury Secretary Steven Mnuchin said Monday morning that China and the U.S. have a “conceptual agreement” on enforcement mechanisms around intellectual property theft, one of the more contentious negotiation points between the two countries. (CNBC).
The biggest sector was financial and Fannie Mae (FNMA) and Fredie MAC (FRMC) was up over 40% as Treasury Secretary Mnuchin stated on Fox Business in the premarket that that an agreement between the Treasury and the Federal Housing Finance Agency soon that ends the Fannie and Freddie profit sweep. Mnuchin said the deal would allow the government-sponsored enterprises to begin retaining earnings. This in turn buoyed the entire sector.
The 10 year yield is up to 1.62%, above the 1.58% 2 year, the dollar remains strong at $1.10/Euro, gold dropped to $1507 as stocks increased, oil is up to $58.05 on hopes that a worldwide recession will be averted and the price of a gallon of regular gas nationwide is down to $2.56.
Treasury Secretary Steven Mnuchin said Monday morning that China and the U.S. have a “conceptual agreement” on enforcement mechanisms around intellectual property theft, one of the more contentious negotiation points between the two countries. (CNBC).
The biggest sector was financial and Fannie Mae (FNMA) and Fredie MAC (FRMC) was up over 40% as Treasury Secretary Mnuchin stated on Fox Business in the premarket that that an agreement between the Treasury and the Federal Housing Finance Agency soon that ends the Fannie and Freddie profit sweep. Mnuchin said the deal would allow the government-sponsored enterprises to begin retaining earnings. This in turn buoyed the entire sector.
The 10 year yield is up to 1.62%, above the 1.58% 2 year, the dollar remains strong at $1.10/Euro, gold dropped to $1507 as stocks increased, oil is up to $58.05 on hopes that a worldwide recession will be averted and the price of a gallon of regular gas nationwide is down to $2.56.
Updates/Advisories 9-4-2019
What a difference a day makes. Yesterday, the Dow sank 285 points on trade and increasing recession fears. In addition to additional tariffs being imposed on Chinese goods the PMI manufacturing index dropped yo 49 when 52 was expected. Any reading below a 50 represents a contraction in manufacturing activity in the US. Many analysts, myself included, attribute this to a decrease in exports as a result of retalitory tariffs imposed on the US as a result of the presidents trade war. Trade-sensitive industrials fell 1.4%, making for the biggest percentage loser among the S&P 11 major sectors and technology stocks fell 1.3%, weighed down by chipmakers, which have a large revenue exposure to China. In addition, the yield curve inversion continued with the 2 year yield being above the 10 year.
About 1 hour into the trading day today, the Dow is up 140 points and the yield on the 10 year at 1.48% is above the 2 year yield of 1.46%. Today's rally is a result, in part, of easing tensions in Hong Kong. Hong Kong leader Carrie Lam said that she will withdraw a contentious extradition bill that has sparked months of mass protests. The Hang Seng index in Hong Kong had soared around 4% on reports overnight that the withdrawal of the bill was imminent. (CNBC) Also adding to the optimism was an increase in China's service sector which expanded at its fastest rate in 3 months. In addition, The US trade deficit decreased to $54 billion in July as exports went up and imports went down, according to the Bureau of Economic Analysis. That is a drop of $1.5 billion versus June, but less than economists had expected.
Starbucks is down over 5% on an earnings miss and lower guidance for 2020. I have been boycotting Starbucks since a manager in Az asked officers to leave because they were making a customer uncomfortable.
The dollar weakened to $1.210/Euro, gold remains strong at $1557/oz, oil followed the stock market up at $55.45/barrel and the price of a gallon of regular gas nationwide is constant at $2.573.
About 1 hour into the trading day today, the Dow is up 140 points and the yield on the 10 year at 1.48% is above the 2 year yield of 1.46%. Today's rally is a result, in part, of easing tensions in Hong Kong. Hong Kong leader Carrie Lam said that she will withdraw a contentious extradition bill that has sparked months of mass protests. The Hang Seng index in Hong Kong had soared around 4% on reports overnight that the withdrawal of the bill was imminent. (CNBC) Also adding to the optimism was an increase in China's service sector which expanded at its fastest rate in 3 months. In addition, The US trade deficit decreased to $54 billion in July as exports went up and imports went down, according to the Bureau of Economic Analysis. That is a drop of $1.5 billion versus June, but less than economists had expected.
Starbucks is down over 5% on an earnings miss and lower guidance for 2020. I have been boycotting Starbucks since a manager in Az asked officers to leave because they were making a customer uncomfortable.
The dollar weakened to $1.210/Euro, gold remains strong at $1557/oz, oil followed the stock market up at $55.45/barrel and the price of a gallon of regular gas nationwide is constant at $2.573.
Updates/Advisories 9-3-2019
1 MONTH PRICE OF CORN
The Dow is down over 200 points about an hour before the markets open as a result of new tariffs being imposed on Chinese goods. This shouldn't come as a surprise, however it appears that the market was expecting the White House to postpone the implementation of the tariffs as it has done a number of times previously. The US has imposed 15% tariffs on products such as clothing, footwear, diapers, televisions and golf clubs. The complete list of goods encompasses 114 single-spaced pages. Both countries have imposed tariffs on billions of dollars worth of one another’s goods since early 2018, hurting financial markets and consumer confidence.
Tariffs are paid by businesses that import the goods and those increased costs are passed on to consumers, which, you may guess, increases inflation; but that hasn't been the case as overall inflation remains tame. There are a number of reasons. Since there are Chinese tariffs on American food imported to China, this has cut down on US exports of food to China which has resulted in a surplus of certain foods such as corn and soy. As a result of the surplus, prices have actually come down to US consumers. In addition, energy and gas prices have decreased which was a plus for consumers during the summer vacation season. However, long term effects of tariffs will hurt the consumer. There are more tariffs set to go into effect Oct 1 and Dec 15 which will place tariffs on 98% of all Chinese goods exported to the US. Hopefully, the trade war will come to an end by then especially with the spectre of presidential primaries beginning next year. The 1st in the nation NH primary is scheduled for February 11, 2020.
The Dow, in August, decreased by 6% from July highs and there is some concern from investors going into September, historically the worst month of the year for the stock market. In addition, the yield curve remains inverted with the yield on the 2 year at 1.52%, being above the 10 year yield of 1.49%. The pessimism could be easily reversed if the FED cuts rates during its September FOMC meeting and a trade deal is reached.
The dollar remains strong at $1.09/Euro, gold is up to $1542/oz on trade uncertainty and recession concerns, oil is down sharply to $53.81/barrel for the same reasons that gold is up and the price of a gallon of regular gas nationwide is down to $2.573. It is $3.63 in California and $2.51 in NH.
Tariffs are paid by businesses that import the goods and those increased costs are passed on to consumers, which, you may guess, increases inflation; but that hasn't been the case as overall inflation remains tame. There are a number of reasons. Since there are Chinese tariffs on American food imported to China, this has cut down on US exports of food to China which has resulted in a surplus of certain foods such as corn and soy. As a result of the surplus, prices have actually come down to US consumers. In addition, energy and gas prices have decreased which was a plus for consumers during the summer vacation season. However, long term effects of tariffs will hurt the consumer. There are more tariffs set to go into effect Oct 1 and Dec 15 which will place tariffs on 98% of all Chinese goods exported to the US. Hopefully, the trade war will come to an end by then especially with the spectre of presidential primaries beginning next year. The 1st in the nation NH primary is scheduled for February 11, 2020.
The Dow, in August, decreased by 6% from July highs and there is some concern from investors going into September, historically the worst month of the year for the stock market. In addition, the yield curve remains inverted with the yield on the 2 year at 1.52%, being above the 10 year yield of 1.49%. The pessimism could be easily reversed if the FED cuts rates during its September FOMC meeting and a trade deal is reached.
The dollar remains strong at $1.09/Euro, gold is up to $1542/oz on trade uncertainty and recession concerns, oil is down sharply to $53.81/barrel for the same reasons that gold is up and the price of a gallon of regular gas nationwide is down to $2.573. It is $3.63 in California and $2.51 in NH.
Updates/Advisories 8-31-2019
Friday was a bit of a roller coaster for the Dow as it was up over 150 points shortly after the open to down over 100 at mid-day before finishing up 41 points to finish the day, week and month at 26,403. It was the best week for the Dow since June, however, it was down 460 points for the month, 1.7%, as a result of the ongoing US/China trade war. The reason that the Dow was up for the week was "calming" talk from China's minister of Finance concerning negotiations with the US on trade. He also stated that China would not retaliate with tariffs next week as the US is set to increase tariffs on $10 billion dollars of Chinese exports to the US. The Dow was up 4 of the 5 days this week as a result, however, ambivalence still reigns. “For U.S.-China trade to cause a sustainable rally, we need some proof of actual movement towards a trade ‘truce,’” said Tom Essaye, founder of The Sevens Report, in a note. “While rhetoric has improved, that did not happen.” Also hurting a damper on sentiment is the continued inversion of the yield curve with the 2 year yield of 1.5% compared to the 10 year's yield of 1.49%. Regardless, recent U.S. economic data has been strong. U.S. consumer spending rose 0.6% in July, according to the commerce department, while consumer confidence remains near its highest level in nearly 20 years.
August was a volatile month for the Dow. After breaking a long term support line (chart), the Dow has traded within a range of
August was a volatile month for the Dow. After breaking a long term support line (chart), the Dow has traded within a range of
Updates/Advisories 8-29-2019
WHOLESALE GALLON PRICE OF REGULAR GAS
After advancing 258 points yesterday to finish at 26036, it is up another 260 points today about 30 minutes before the market open. Helping the market yesterday was a strong demand for oil. Weekly US oil inventories unexpectedly declined causing an uptick in the price of oil which is currently trading at $56.23/barrel. Oil inventories dropped by over 10 million barrels when only a 2 million barrel decline was expected. The sign of healthy demand quelled to some extent the fears of a severe economic downturn prompted by the inversion of the U.S. Treasury yield curve as a result of the 2 year yield being higher than the 10 year which is still the case today. The 10 year is currently 1.5% and the 2 year at 1.52%.
Today's jump in the pre-market is a result of the Chinese trade minister stating that they are not looking to escalate tensions in the ongoing US/Chimes trade war. Trade bellwethers Boeing and Caterpillar are up over 1% each in the pre-market. Micron Technology (chip maker) gained 2%. What seemed to have no effect on the market was a revision on 2nd quarter GDP from 2.1 to 2% which was expected. The airlines industry, which has been hard hit because of a grounding of the 737 max, saw some upgrades today in Jet Blue and Delta. Both are up in the pre-market. Retail is doing better in the pre-market also as a result of better than expected earnings from Best Buy, Abercrombie & Fitch and Dollar General.
The dollar remains strong at $1.11/Euro, gold dropped slightly to $1548/oz and gas is at a 3 year labor day weekend low at $2.579 for a gallon of regular gas.
Today's jump in the pre-market is a result of the Chinese trade minister stating that they are not looking to escalate tensions in the ongoing US/Chimes trade war. Trade bellwethers Boeing and Caterpillar are up over 1% each in the pre-market. Micron Technology (chip maker) gained 2%. What seemed to have no effect on the market was a revision on 2nd quarter GDP from 2.1 to 2% which was expected. The airlines industry, which has been hard hit because of a grounding of the 737 max, saw some upgrades today in Jet Blue and Delta. Both are up in the pre-market. Retail is doing better in the pre-market also as a result of better than expected earnings from Best Buy, Abercrombie & Fitch and Dollar General.
The dollar remains strong at $1.11/Euro, gold dropped slightly to $1548/oz and gas is at a 3 year labor day weekend low at $2.579 for a gallon of regular gas.
The last 5 recessions have been preceded by an inverted yield curve where the yield on the 2 year is higher than the yield on the 10 year. Currently, the yield on the 2 year curve is 2.32%, which is greater than the yield on the 3 and 5 year, but the yield on the 10 year is 2.46%. As a result, I'm not yet predicting a recession. However, if you look at the table above, once the yield curve has inverted, all is not lost. The market continues upward until a recession is imminent. For instance, the yield curve inverted in January of 2006 and the S&P peaked 20 months later in October of 2007, and the recession started in December of 2007. I will be concerned if the 2 year yield is greater than the 10 year. ON THE BRIGHT SIDE, mortgage rates have decreased by 1/2% since last summer and it is now worth it to refinance if you took out a mortgage last year.
PRICES AS OF 8-31-19
The wealth effect is an increase in consumption (and accompanying decrease in savings) as a result of an individuals assets (usually a portfolio or land/home) increasing in value. A negative wealth effect is just the opposite, and since most indexes declined more than 10% and tested bear market territory, this appears to be the case. Conversely, the market recovered in January and all losses and more were covered. T
Prices as of 9-19-2019
In other news:
The new carbon tax that dem's want includes up to 20 cent tax on gas over and above the more than 40 cents/gallon we are already paying. We already have amongst the highest energy costs in the nation, but at least dem's are consistent with tax and spend; to put it in Perspective. The Federal tax is 18.4 cents and in NH, the state gas tax is 23.8 cents for a total tax of 42.2 cents. The avg price of a gallon of gas in NH is $2.256, the price before taxes is $1.834 which makes the current taxes on gas 18.7%. Add 20 cents to that and the gas tax is now 27.6%. THAT meets my definition of ridiculous and exorbitant.
The Energy Information Administration reported that oil output will increase from its current 11 million barrels/day to close to 13 million by 2020 and we will most likely be the #1 producer in the world. This is an increase from 5.5 million/day from 2005 and it has occurred as a result of hydraulic fracturing drilling techniques.
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 reached 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 baron 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 33 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 1" 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.
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 — 96 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 — 96 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
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%.
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?
Blog Topics 2014
January Will Lake Meade become another Aral Sea
February Does Taxing the rich hurt the economy
March The Cause of the Great Depression
April Temporary Agricultural Subsidies lead to wealthy Farmers and Higher Prices
May The Presidents Stance on Gun Control leads to Increased Gun Ownership
June Is there really a Gender Pay Gap
July Did the Supreme Court decision in Roe v. Wade lower the crime rate
August 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
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 |
