Investing Curiouscatblog

Author: John Hunter

  • 20 Most Popular Posts on the Curious Cat Investing and Economics Blog in 2016

    The most popular posts on the Curious Cat Investing and Economics blog in 2016 (by page views).

    1. Top 10 Countries for Manufacturing Production in 2010: China, USA, Japan, Germany… (posted in 2011)
    2. Manufacturing Output as a Percent of GDP by Country (1980 to 2008) (2010)
    3. Default Rates on Loans by Credit Score (2015)*
    4. Stock Market Capitalization by Country from 1990 to 2010 (2012)
    5. Investing in Peer to Peer Loans (2015)
    6. Manufacturing Output by Country 1999-2011: China, USA, Japan, Germany (2013)
      7. Chart of manufacturing output from 1999 to 2011 for China, USA, Japan and Germany
      Chart of manufacturing production by China, USA, Japan and Germany from 1999 to 2011. The chart was created by the Curious Cat Economics Blog using UN data. You may use the chart with attribution. All data is shown in current USD (United States Dollar).
    7. The 20 Most Valuable Companies in the World – October 2015
    8. Manufacturing Output as Percent of GDP from 1980 to 2010 by Country (2012)
    9. Monopolies and Oligopolies do not a Free Market Make (2008)
    10. Government Debt as Percentage of GDP 1990-2009: USA, Japan, Germany, China… (2010)
    11. USA Individual Earnings Levels: Top 1% $343,000, 5% $154,000, 10% $112,000, 25% $66,000 (2012)

      12. (more…)

  • Solar Energy Capacity Continues to Grow Rapidly (Chart of Data by Country)

    Solar energy capacity has been growing amazingly quickly the last few years. Part of the reason for this is the starting point was so low, making it easy to have large gains.

    Chart of solar pv capacity by country 2009 to 2015
    Chart by Curious Cat Economics Blog using data from the International Energy Agency (IEA) and the US Department of Energy. Chart may be used with attribution as specified here.

    The 2014 and 2015 data on this chart is from IAE report for total installed photovoltaic (PV) solar capacity. See previous post on chart of Solar Energy Capacity by Country from 2009 to 2013. Different data sources for different year (and/or countries in the same year) is not ideal but for the purposes of this data in this post is sufficient.

    Installed PV capacity is even more questionable that much other economic data. Economic data are always approximations of reality but with PV you have additional questions. The same plant located outside London or Rome have different capability to produce (and there are many factors that contribute not just the most obvious such as how much sun shines in a particular geography). Installed PV data is based on the capability of the equipment regardless of the solar potential of the location.

    So even with the same investment it is likely Italy gets more production than Germany. The IAE report attempted to determine what was the likely ability of the solar PV capacity to produce for each country as a percentage of total electricity needs. They estimate Italy has the largest percentage of electricity needs capable of being produced by installed PV systems at 8%, with Greece at 7.4% and Germany at 7.1%. Japan is ranked 5th at just under 4%, UK is 12th at 2.5%, China is 22nd at 1%, India 24th and the USA 25th at close to .9%. They estimate the total global percentage at 1.3%.

    These figures also show the huge power needs of China and the USA. Even with huge investments in Solar they us so much electricity that it is slow to make large gains in the percentage of total power generated by solar.

    In the USA in 2013 solar energy capacity was under 1% USA total electrical capacity. In 2013 hydropower was 6.8%, wind was 5.3% and biomass was 1.3%. The increase in solar capacity should continue to grow rapidly and is making significant contributions to the macroeconomic energy picture (even if it doesn’t appear dramatic).

    Related: Chart of Global Wind Energy Capacity by Country from 2005 to 2015 – Leasing or Purchasing a Solar Energy System For Your House – Nuclear Power Generation by Country from 1985-2010 – Manufacturing Output by Country 1999-2011: China, USA, Japan, Germany

  • Dual Momentum Investing

    Dual momentum investing boiled down to the simplest view involves only seeing if the S&P 500 outperformed USA t-bills for the last year. If so, invest in an low cost S&P 500 fund. If not, invest in a high quality short duration bond fund.

    cover image of Dual Momentum Investing

    There are many different tweaks to this idea. Dual Momentum Investing by Gary Antonacci does a good job of exploring this idea and providing evidence on historical returns using this method. 3 big advantages of this strategy are

    1. Simplicity – easy to implement and it takes nearly no time each year
    2. Low cost – uses low cost index fund and has very limited transaction costs (direct or tax costs from sales) as it averages fewer than 1 trade a year)
    3. Good performance historically – the book details performance and the low risk nature of the strategy in backtesting.

    There are ways to adjust the strategy that increase the complexity a bit for those looking to increase returns or reduce risks.

    It is something worth reading in my opinion. The book isn’t the easiest to read but it is decent and worth reading.

    Gary Antonacci also has a blog worth reading.

    Related: Curious Cat Investment Books – Famous Stock Traders: Nicolas Darvas – Market Inefficiencies and Efficient Market Theory

  • Delinquencies on Consumer Closed-end Installment Loans Fall to Record Low

    Delinquencies in closed-end loans fell slightly in the second quarter, driven by a drop in home equity loan delinquencies, according to results from the American Bankers Association’s Consumer Credit Delinquency Bulletin.

    The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, fell 3 basis points to 1.35% of all accounts – a record low. This also marked the third year that delinquency rates were below the 15-year average of 2.21%. The ABA report defines a delinquency as a late payment that is 30 days or more overdue. This is good news but the personal financial health of consumers in the USA is still in need of significantly improvements to their balance sheets. Debt levels are still too high. Savings levels are still far to low.

    Home equity loan delinquencies fell 4 basis points to 2.70% of all accounts, which helped drive the composite ratio down. Other home related delinquencies increased slightly, with home equity line delinquencies rising 6 basis points to 1.21% of all accounts and property improvement loan delinquencies rising 2 basis points to 0.91% of all accounts. Home equity loan delinquencies dipped further below their 15-year average of 2.85%, while home equity line delinquencies remained just above their 15-year average of 1.15 percent.

    Chart of Installment loan delinquency rate in USA: 2000 to 2016

    Bank card delinquencies edged up 1 basis point to 2.48% of all accounts in the second quarter. They remain significantly below their 15-year average of 3.70 percent.

    The second quarter 2016 composite ratio is made up of the following eight closed-end loans. All figures are seasonally adjusted based upon the number of accounts.

    Closed-end loans
    Home equity loan delinquencies fell from 2.74% to 2.70%.
    Mobile home delinquencies fell from 3.41% to 3.17%.
    Personal loan delinquencies fell from 1.44% to 1.43%.
    Direct auto loan delinquencies rose from 0.81% to 0.82%.
    Indirect auto loan delinquencies rose from 1.45% to 1.56%.
    Marine loan delinquencies rose from 1.03% to 1.23%.
    Property improvement loan delinquencies rose from 0.89% to 0.91%.
    RV loan delinquencies rose from 0.92% to 0.96%.

    Open-end loans
    Bank card delinquencies rose from 2.47% to 2.48%.
    Home equity lines of credit delinquencies rose from 1.15% to 1.21%.
    Non-card revolving loan delinquencies rose from 1.57% to 1.65%.

    Related: Debt Collection Increasing Given Large Personal Debt Levels (2014) – Consumer and Real Estate Loan Delinquency Rates from 2001 to 2011 in the USA – Good News: Credit Card Delinquencies at 17 Year Low (2011) – Real Estate and Consumer Loan Delinquency Rates 1998-2009 – The USA Economy Needs to Reduce Personal and Government Debt (2009)

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  • USA Health-Care System Ranks 50th out of 55 Countries

    Even if some lobbyists and their friends in Washington DC try to distract from the long term failure of the USA health care system the data continues to pour in about how bad it is.

    U.S. Health-Care System Ranks as One of the Least-Efficient

    America was 50th out of 55 countries in 2014, according to a Bloomberg index that assesses life expectancy, health-care spending per capita and relative spending as a share of gross domestic product. Expenditures averaged $9,403 per person, about 17.1 percent of GDP, that year — the most recent for which data are available — and life expectancy was 78.9. Only Jordan, Colombia, Azerbaijan, Brazil and Russia ranked lower.

    None of these rankings are perfect and neither is this one. But it is clear beyond any doubt that the USA healthcare system is extremely costly for no better health results than other rich countries (and even more expensive with again no better results than most poor countries). It is a huge drain on the economy that we continue to allow lobbyists and special interests to take advantage of the rest of us via the Democrats and Republican parties actions over the last few decades.

    We have to improve. The costs imposed on everyone to support those benefiting from this decades old transfer of economic wealth to health care special interests should no longer be accepted.

    The top 5 countries are: Hong Kong, Singapore, Spain, South Korea and Japan. The first four have costs about 25% of the USA. Japan costs about 40% of the USA per person cost.

    Mylan’s despicable actions with Epi-pen and the direct participation of both political parties in increasing the costs foisted on the health care system by Mylan is just one in hundreds of the individual actions that continue to saddle the rest of USA economy with huge costs.

    Related: Out of Pocket “Maximum”, Understanding USA Health Care Costs – Decades Later The USA Health Care System is Still a Deadly Disease for Our Economy – 2015 Health Care Price Report, Costs in the USA and Elsewhere – USA Health Care Spending 2013: $2.9 trillion $9,255 per person and 17.4% of GDP – USA Spends $7,960 Compared to Around $3,800 for Other Rich Countries on Health Care with No Better Health Results (2009 data)

  • 2015 Health Care Price Report – Costs in the USA and Elsewhere

    The International Federation of Health Plans has published the 2015 Comparative Price Report, Variation in Medical and Hospital Prices by Country. Once again this illustrates the excessive cost of health care in the USA. See related posts for some of our previous posts on this topic.

    The damage to the USA economy due to inflated health care costs is huge. A significant portion of the excessive costs are due to policies the government enacts (which only make sense if you believe the cash given to politicians by those seeking to retain the excessive costs structure in the USA the last few decades buy the votes of the political parties and the individual politicians).

    In 2015, Humira (a drug from Abbvie to treat rheumatoid arthritis that is either the highest grossing drug in the world, or close to it) costs $2,669 on average in the USA; $822 in Switzerland; $1,362 in the United Kingdom. This is the cost of a 28 day supply.

    All the prices shown here are for the prices reported are the average allowed costs, which include both member cost sharing and health plan payment. So it only includes costs for those covered by health plans (it doesn’t include even much larger price tags given those without insurance in the USA).

    Harvoni (a drug from Gilead to treat hepatitis C is also near the top of drugs with the largest revenue worldwide). This is also a drug that has been used as a lightning rod for the whole area of overpriced drugs. One interesting thing is this is actually one that is not nearly as inflated in the USA over other countries nearly as much as most are. Again, for a 28 day supply the costs are $16,861 in Switzerland; $22,554 in the United Kingdom and $32,114 in the USA. Obviously quite a lot but “only” double the cost in the USA instead of over triple for Humira (from Switzerland to the USA).

    Tecfidera is prescribed to treat relapsing multiple sclerosis. The cost for a 30 day supply vary from $663 in the United Kingdom to $5,089 in the USA ($1,855 Switzerland).

    There are actually some drugs that are more expensive outside the USA (though it is rare). OxyContin is prescribed to treat severe ongoing pain and is also abused a great deal. The prices vary from $95 in Switzerland to $590 in the United Kingdom ($265 in United States).

    The report also includes the cost of medical procedures. For both the drugs and the procedures they include not only average but measures to show how variable the pricing is. As you would expect (if you pay attention to the massive pricing variation in the USA system) the variation in the cost of medical procedures is wide. For an appendectomy in the USA the 25th percentile of cost was $9,322 and for the 95th was $33,250; the average USA cost was $15,930. The average cost in Switzerland was $6,040 and in the United Kingdom was $8,009.

    As has been obvious for decades the USA needs to stop allowing those benefiting from the massively large excessive health care costs in the USA from buying the Democrats and Republicans support to keep prices so high. But there has been very little good movement on this front in decades.

    Related: USA Heath Care System Needs Reform – USA Health Care Spending 2013: $2.9 trillion $9,255 per person and 17.4% of GDP – Decades Later The USA Health Care System is Still a Deadly Disease for Our Economy – USA Spends $7,960 per person Compared to Around $3,800 for Other Rich Countries on Health Care with No Better Health Results (2009) – Drug Prices in the USA (2005)

  • Chart of Global Wind Energy Capacity by Country from 2005 to 2015

    chart of wind power capacity by country from 2005 to 2015 for top 7 countries
    Chart by Curious Cat Economics Blog using data from the Wind Energy Association, data for 2014 and 2015. Chart may be used with attribution as specified here.

    After a slowing of additional capacity added in 2013, both 2014 and 2015 saw a bit of a rebound in additions to global wind energy capacity. In 2013 capacity increased only 13% while in both 2014 and 2015 it increased 17%. Still 17% is less than any year in the last 10, except 2013.

    At the end of 2013 China had 29% of global capacity (after being responsible for adding 62% of all the capacity added in 2013). In 2005 China had 2% of global wind energy capacity.

    At the end of 2015 China accounted for 34% of global capacity, the only country in the top 8 increasing their share of global capacity. The USA now has 17% of capacity. Germany has 10%.

    Europe moved first in adding large scale wind energy capacity but has added capacity very slowly in the last 5 years. Germany had 31% of global capacity in 2005. Spain had 17% in 2005 and now has just 5% (during that time Spain has more than doubled their wind energy capacity).

    The 6 countries shown on the chart account for 76% of total wind energy capacity globally. From 2005 to 2015 those 8 countries have accounted for between 74 and 77% of total capacity – which is amazingly consistent.

    Wind power now accounts for approximately 4 to 5% of total electricity used.

    Related: Chart of Global Wind Energy Capacity by Country 2005 to 2013 – Solar Energy Capacity by Country (2005 to 2013) – Nuclear Power Generation by Country from 1985-2010 – Chart of Largest Petroleum Consuming Countries from 1980 to 2010

  • Foreign Ownership of USA Stocks Reached 26% in 2015

    The report, The Dwindling Taxable Share Of U.S. Corporate Stock, from the Brookings Institution Tax Policy Center includes some amazing data.

    Graph showing the percent of foreign, tax-free and taxable holdings of USA stocks over time

    In 1965 foreign ownership of USA stocks totaled about 2%, in 1990 it had risen to 10% and by 2015 to 26%. That the foreign ownership is so high surprised me. Holdings in retirement accounts (defined benefit accounts, IRAs etc.) was under 10% in 1965, rose to over 30% in 1990 and to about 40% in 2015. The holdings in retirement accounts doesn’t really surprise me.

    The combination of these factors (and a few others) has decreased the holding of USA stocks that are taxable in the USA from 84% in 1965 to 24% in 2015. From the report

    We treated foreigners as nontaxable as their income from stock generally is not subject to U.S.tax — or subject to just a little tax. Their stock gains almost always are exempt from taxation.Their dividends are subject to a 30 percent U.S.withholding tax for portfolio investments, which is typically reduced, by treaty, to 15 percent…

    As with much economic data it isn’t an easy matter to determine what values to use in order to get figures such as “foreign ownership.” Still this is very interesting data, and as the report suggests further research in this area would be useful.

    Related: There is No Such Thing as “True Unemployment Rate” – The 20 Most Valuable Companies in the World – February 2016 (top 10 all based in the USA) – Why China’s Economic Data is Questionable – Data provides an imperfect proxy for reality (we often forget the proxy nature of data)

  • Curious Cat Tax Proposals

    We have tax plans from the major USA Presidential candidates. I don’t like any of them, though I actually like Ted Cruz’s plan more than the others, but it has a huge problem. His plan doesn’t fund the government he wants, not even just as poorly as we have been doing. He would increase the debt substantially.

    My plan would have 3 parts. I like a flat tax, I doubt it will ever happen, but if we could get one I would be happy. Cruz proposes that (at 10%). I am fine with his proposal to eliminate all deductions but mortgage interest and charity. I would definitely tweak that some – no more than $50,000 in mortgage interest deduction a year and the same for charity. Basically subsidizing it a bit for the non-rich is fine. Subsidizing these for the rich seems silly so I would cap the deductions in some way. I also wouldn’t mind an almost flat tax, say 12% up to $200,000 and 15% after that (or some such rates).

    Cruz’s rate is far too low given the government he wants. The government budget is largely: Social Security, Medicare and Military. Then you also have debt payment which have to be paid. Those 4 things are over 80% of the spending. All the other things are just in the last 20%, you can cut some of that but realistically you can’t cut much (in percentage terms – you can cut hundreds of billions theoretically but it is unlikely and even if you did it isn’t a huge change).

    We are piling on more debt than we should. Therefore we should increase revenue, not reduce it. But if we can’t increase it (for political reasons) we definitely should not reduce it until we have shown that we have cut spending below revenue for 2 full years. After that, great, then decrease rates.

    view of the White House, Washington DC
    The White House, Washington DC by John Hunter. See more of my photos of Washington DC.

    The VAT tax on businesses replacing the corporate tax system is in Cruz’s plan and this is the best option for corporate taxes in my opinion. Another decent option is just to pass through all the earnings to the owners (I first heard this proposal from my Economics professor in College) and tax them on the earnings.

    Increasing the giveaways to trust-fund baby as Cruz and Trump propose is the single worst tax policy change that can be made. I have explained previously how bad an idea this is: The estate tax is the most capitalist tax that exists. The trust-fund-baby favors should be reduced not increased. I would roll back to the Reagan Administration policy on estate tax rates.

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  • Buybacks, Giveaways to Executives and Non-GAAP Earnings

    Alphabet (Google) writes how they purchased 3.2 million shares this quarter in their earnings release:

    In Q1 2016, we repurchased 3.2 million shares of Alphabet Class C capital stock for an aggregate amount of $2.3 billion, of which $2.1 billion was paid during the quarter. The total remaining authorization for future repurchases is approximately $1.4 billion. The authorization has no expiration date.

    And they tout non-GAAP earnings, while of course reporting the GAAP earnings as required. One of the things executives like about non-GAAP earnings is they pretend the stock they give away to themselves doesn’t have a cost to shareholders. When you call attention to spending over $2 billion in the quarter to buy back 3.2 million shares it seems silly to then claim that the stock you gave away shouldn’t be considered as an expense.

    How can you pay over $2 billion just to get back the stock you gave away and also pretend that money is not really a cost? And on top of that you promote the buyback as evidence that the stock is really worth more than you paid (after all why would you pay more than it is worth). But when you give the stock away to yourself that shouldn’t be seen as a cost? It is amazing they can do this and think they are not doing anything wrong.

    And where does Google stand compared to last year for outstanding shares? 689,498,000 last year compared to 699,311,000 now. So nearly 10,000,000 more shares outstanding, even after they bought back 3.2 million this quarter. In the previous quarter there where 697,025,000 shares outstanding. All these figures are weighted-average diluted share balances for the entire quarter.

    Google CEO, Sundar Pichai, got a $100 million stock award in 2015 (before being promoted to CEO). After the promotion he will be taking an additional “$209 million in stock granted every other year (he has to stay at Google for four years after each grant to cash them out).” He was granted $335 million in stock in 2014 and $78 million in 2013. You can see how quickly the executives paying themselves this well (this is 1 executive, a highly ranked one but still just 1) can dilute stockholders positions even with multi billion dollar buybacks in a quarter.

    You don’t hear companies promoting how much dilution they are imposing on shareholders in order to provide windfalls for executives. I wonder why? No I don’t. I do wonder why reporters promote the buybacks and ignore the fact that the dilution is so extreme that it even overwhelms billions of dollars in buybacks.

    Alphabet reported $6.02 a share in earnings and $7.50 a share in non-GAAP “earnings” for the latest quarter.

    As I have said before I believe Google’s ability to extract enormous profit from their search dominance (as well as YouTube and adwords) makes it a very compelling long term investment. It would be better if the executives were not allowed to take such huge slices from the cash flow Google generates. But it is able to sustain those raids on stockholder equity and still be a good investment and appears likely to be able to continue to do so. Though I think they would be better off reducing the amount executives take going forward.

    Related: Google Diluted Shareholder Equity by 1% a year (2009-2013) – Executives Again Treating Corporate Treasuries as Their Money (2011) – Another Year of CEO’s Taking Hugely Excessive Pay (2009) –