Thursday, December 15, 2011

Household Debt

Free Trade Works: Japanese Auto Edition

1. Japanese automakers like Toyota, Honda, and Nissan are responsible for more than 407,000 jobs in the U.S. The vast majority of employees are those working at Japanese auto dealerships in the U.S., but Japanese automakers employ 50,000 American workers at 29 American vehicle, engine and parts plants, and another 4,000 at 34 major R&D and design centers, reflecting $34 billion of investment in the U.S.

2. Japanese makers are producing most of the cars they sell in America in North America -- 68% altogether.

3. Exported vehicles from Japanese plants in the U.S. last year increased to more than 145,000, up from 94,000 in 2009. With a strong yen today, the trend will continue, and will be be supplemented by new exports of U.S.-built Toyotas to South Korea following the recent ratification of the free trade agreement.

Economic Recovery: A Solution

Bill Bonner writes:

Trying to fix a depression it is not only expensive…. The US government spends $1.60 for every $1 it receives in taxes. This is a recipe for a disaster, not for a recovery.

Worse. It actually prevents a real recovery from happening, by blocking the market’s natural self-healing system

Let us ask you this, dear reader: what’s the cure for a depression?

Answer: a depression!...

The unemployment problem is a “tough nut to crack,” says The Financial Times.

Of course, we could fix the jobless problem overnight. But people wouldn’t appreciate it. We would simply remove all subsidies for unemployed people…and all restraints on hiring. Labor prices would fall fast. Within days, we’d have full employment again.

read the entire essay

Wednesday, December 14, 2011

Regime Uncertainty and the Non-Recovery

Robert Higgs introduced the concept of “regime uncertainty”, government policies and actions that threaten property rights, in his outstanding paper, Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War to explain the depth and duration of the Great Depression with special attention to the “Roosevelt recession” of 1937 to 1938, a recession within a depression. Commentators have applied the concept to predict or explain why the current recovery would be, or is, a slow jobless recovery.

As examples see:

Today’s Wall Street Journal, “Regulation for Dummies” (p. A20) provides more evidence that regime uncertainty is a major factor in leading forward looking entrepreneurs and managers to be hesitant to expand old or create new enterprises. The evidence is provided in this chart (below) reproduced in the Journal from the Unified Agenda, Regulatory Service Center.

The Journal observes, it is not just existing or newly approved regulations that matter. “(T)he regulatory future matters as much. The Administration’s pipeline is clogged with proposed rules and plans to propose rules, which every business survey says are contributing to the policy uncertainty that is harming growth and hiring.”

Echoing Higgs, the Journal concludes, “The evidence is overwhelming that the Obama regulatory surge is one reason the current economic recovery has been so lackluster by historical standards. Rather than nurture an economy trying to rebuild confidence after a financial heart attack, the Administration pushed through its now-famous blitz of liberal policies on health care, financial services, energy, housing, education and student loans, telecom, labor relations, transportation and probably some other industries we’ve forgotten. Anyone who thinks this has only minimal impact on business has never been in business.” What should be added to the list is the real threat of significantly higher future tax burdens.


Tuesday, December 13, 2011

Revenues, Taxes, and Government Growth

This chart contrasts total federal revenues with the portion that comes from individual income tax receipts. Here we see that the biggest source or rising tax revenues has been income taxes, since they have risen at a much faster rate. One reason for the sluggish growth in total revenues, of course, is the cut in social security withholding rates that has been in place for the past year and is quite likely to be continued. The chart also highlights the fact that since the Bush tax cuts were first instituted in mid-2003, income tax receipts are now substantially higher—36% higher (almost $300 billion on an annual basis)—than they were when tax rates were higher. Once again, we see here concrete evidence that Art Laffer's vision (and his famous curve) was anything but crazy: lower tax rates can promote stronger growth, and thus result in higher tax revenues. If it weren't for the 20080-9 recession, which had everything to do with a collapse of the housing bubble and a 6 million decline in the number of private sector jobs, and almost nothing to do with low tax rates, both the economy and tax revenues would now be considerably higher.

lots of graphs and more analysis

My thoughts: Looking at the chart it should be obvious that the recession lowered tax revenues, not "the Bush tax cut".

8% Unemployment by November 2012?

Many forecasters think the unemployment rate will increase next year because of sluggish growth. Right now the FOMC is forecasting the unemployment rate will be in the 8.5% to 8.7% range in Q4 2012, and private forecasters are even more pessimistic. Goldman Sachs is forecasting 9% in Q4 2012, and Merrill Lynch is forecasting 8.8%.

But it is possible that we could see 8% by the election. It depends on job creation and the participation rate...

If the participation rate falls to 63.5%, the economy needs to add 74 thousand jobs per month for the unemployment rate to fall to 8%. But a further decline in the participation rate would not be good news. I expect the participation rate to increase if the economy improves at all.

Most likely I think the participation rate will be in the 64.0% to 64.5% range next November. That would mean the economy would need to add somewhere between 167,000 and 260,000 jobs per month. The bottom end of that range seems possible with sluggish growth, but the top end is less likely.

source and chart

Crony Capitalism

Monday, December 12, 2011

Paying For Financial Advice

A quick review of each shows their strengths and weaknesses.

2% & 20% is primarily used by hedge funds. You pay a hefty premium plus one fifth of your profits for the privilege (many funds have an extended lock up period as well). Unfortunately, performance at funds has been lacking.

Bottom line: Top managers earn their fees, but the rest, not so much. If your manager(s) are making you outsized profits and avoiding the crackups, stay with them. Otherwise, rethink the fees you pay for under-performance

Commission driven is my least favorite of all the structures. Fees tend towards 4 or 5%, as brokers must constantly spin assets to generate revenue.

Bottomline: I simply do not understand how this business continues to exist . . .

Percentage basis is my preference how to conduct fin planning (and how I do my asset management work); Adviser is on the same side of the table as the client — no commissions, no compromised payments, no legal kickbacks from 3rd parties. If I am doing my job, I am helping clients plan for the future, avoid major drawdowns where possible, and capture upside.

Bottomline: Work with someone you are comfortable with to develop a plan for you; you should be able to tap someone for advice on a wide range of finance related issues. Your job is to manage someone else who does the day to day work.

Flat rate is a business model that I believe warrants further exploration. It has typically been used for accounts sized under $500k; Numerous firms offer this; they all seem bedeviled by under-performance and de minimus customer service. I believe this is an area that has potential for huge growth if someone can figure out a way to radically improve the performance problem.

Bottomline: One day . . .

Do it yourself is something I have long advocated for, but with some caveats: Dollar cost averaging into a handful of broad indices on a monthly basis is how you start; overlay a risk management approach (like the 10 month moving average) and you are onto something very doable. The downside is your own cognitive biases, the tendency to be overwhelmed by the daily noise, and a lack of discipline in following through on your own plan.

Bottomline: Very doable if you know who you are and have the ability to follow through.

San Francisco: $10 Minimum Wage

Come New Year's Day, he'll have a few more coins in his pocket as San Francisco makes history by becoming the first city in the nation to scale a $10 minimum wage. The city's hourly wage for its lowest-paid workers will hit $10.24, more than $2 above the California minimum wage and nearly $3 more than the working wage set by the federal government.


Friday, December 2, 2011

November Unemployment: 8.6%

The number of unemployed people fell from 13.9 million in October to 13.3 million in November while the labor force shrank from 154.2 million to 153.9 million, so, it was a combination of these two factors that drove the jobless rate lower. The broader U6 measure of under-employment (including discouraged workers and those settling for part-time work) fell from 16.2 percent to 15.6 percent.


November Unemployment: 8.6%

There were only 120,000 jobs added in November. There were 140,000 private sector jobs added, and 20,000 government jobs lost.

The change in total employment was revised up for September and October. "The change in total nonfarm payroll employment for September was revised from +158,000 to +210,000, and the change for October was revised from +80,000 to +100,000."

U-6, an alternate measure of labor underutilization that includes part time workers and marginally attached workers, declined to 15.6% - this remains very high. U-6 was in the 8% range in 2007.

Cartoon: Job Interview

Cartoon: Unemployment and Morale

Thursday, December 1, 2011

NY Fed Q3 Report on Household Debt and Credit

Aggregate consumer debt fell approximately $60 billion to $11.66 trillion in the third quarter of 2011 according to the Federal Reserve Bank of New York’s latest Quarterly Report on Household Debt and Credit.

New Home Prices: Average Lowest since 2003

From the Census Bureau: "The median sales price of new houses sold in October 2011 was $212,300; the average sales price was $242,300."The following graph shows the median and average new home prices.

The average new home price is at the lowest level since August 2003.

Philly Fed State Coincident Indexes increase in October

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for October 2011. In the past month, the indexes increased in 43 states, decreased in five, and remained unchanged in two (Georgia and New Mexico) for a one-month diffusion index of 76. Over the past three months, the indexes increased in 42 states, decreased in seven, and remained unchanged in one (Delaware) for a three-month diffusion index of 70.