Investing Curiouscatblog

Category: Economics

  • Traveling To Avoid USA Health Care Costs

    More who need major surgery are leaving U.S.

    Americans are going overseas for increasingly complex surgeries. In addition, more patients seem willing to accept that quality of care in some foreign hospitals may be the same or higher as that found on U.S. soil, at a fraction of the cost.
    …

    Medical tourism – surgery cost estimates

    Procedure United States India Thailand Singapore Costa Rica
    Coronary bypass $130,000 $6,650-$9,300 $11,000 $16,500 $24,000
    Spinal fusion 62,000 4,500-8,500 7,000 10,000 25,000
    Angioplasty 57,000 5,000-7,500 13,000 11,200 9,000
    Hip replacement 43,000 5,800-7,100 12,000 9,200 12,000
    Knee replacement 40,000 6,200-8,500 10,000 11,100 11,000

    Source: Medical Tourism Association (2007).

    Related: Traveling for Health Care – International Health Care System Performance – USA Spent $2.1 Trillion on Health Care in 2006 – Broken Health Care System: Self-Employed Insurance – Personal Finance Basics: Health Insurance

  • Berkshire Hathaway Annual Meeting 2008

    Every year at the Berkshire Hathaway Warren Buffett and Charlie Munger provide great insights on investing and the economy. Here are some thought from today – Buffett to investors: Think small

    “We would be very happy if we earned 10%, pre-tax” on the additions to Berkshire’s equity portfolio, said Buffett. “Anyone that expects us to come close to replicating the past should sell their stock; it isn’t going to happen. We’ll get decent results over time, but not indecent results.” Added Munger: “You can take what Warren said to the bank. We are very happy at making money at a rate in the future that’s much less than the past… and I suggest that you adopt the same attitude.”
    …
    “Overall I think that the U.S. continues to follow policies that will make the dollar weaken against other major currencies
    …
    Asked what’s in store for the economy, Buffett said he doesn’t have a clue and doesn’t care. “I haven’t the faintest idea,” he said. “We never talk about it, it never comes up in our board meetings or other discussions. We’re not in that business [of economic forecasting], we don’t know how to be in that business. If we knew where the economy was going, we’d do nothing but play the S&P futures market.”
    …
    In terms of the [chief] investment officer, the board has four names, any one or all of whom would be good at my job. They all are happy where they are now [working outside of Berkshire], but any would be here tomorrow if I died tonight, they all are reasonably young, and compensation would not be a big factor…. There will be no gap after my death in terms of having someone manage the money.

    Related: Live From Omaha 2007 – Buffett’s 2008 Letter to Shareholders – 2005 annual meeting with Buffett and Munger – Why Investing is Safer Overseas
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  • Food Price Inflation is Quite High

    At work people have been talking about the increasing prices of food and the price increases sure are noticeable to me. With the exception of gas, I have not heard discussion of inflation outside of a classroom, maybe ever, I can’t recall hearing it anyway. Egg prices are up 35 percent, with milk and bread not far behind

    Since March 2007, according to the Bureau of Labor Statistics, the price of eggs has jumped 35 percent. A gallon of milk is up 23 percent. A loaf of white bread has climbed 16 percent. And a pound of ground chuck is up 8 percent.
    …
    The crunch for American shoppers pales compared with the challenges faced by those in the developing world. Americans spend just 9.9 percent of household income on food, according to the Agriculture Department. Compare that with poor countries such as Ethiopia and Bangladesh, where it’s not uncommon for families to spend 70 percent.

    Consumer Price Index Summary – March 2008:

    The index for energy, which rose 17.4 percent in 2007, advanced at a 8.6 percent SAAR in the first quarter of 2008. Petroleum-based energy costs increased at a 5.6 percent annual rate and charges for energy services rose at a 12.8 percent annual rate. The food index rose at a 5.3 percent SAAR in the first quarter of 2008, following a 4.9 percent increase in all of 2007. The index for grocery store food prices increased at a 5.9 percent annual rate

    Related: what is inflation risk? – Manufacturing Productivity – What Do Unemployment Stats Mean?

  • Bond Yields 2005-2008

    graph of 10 year bond rates

    From January 2005 to July 2007 the Federal Funds Rate was steadily increased. The rate was held for a year. Since then the rate has been decreasing (dramatically, recently). As you can see from the chart, 10 year bond yields have been much less variable. The chart also shows 10 year corporate bond yields increasing in February and March when the federal funds rate fell well over 100 basis points.

    Treasury bond yields are down but a huge part of the reason is a “flight to quality,” where investors are reluctant to hold other bonds (so they buy treasuries when they sell those bonds). Therefore other bond yields (and mortgage rates) are not decreasing. I guessed last month that the data “may well decrease some for both 10 year bonds once the March data is posted” which wasn’t the case. But I was right in “expect[ing] the spread between treasuries be larger than it was in January.”

    Data from the federal reserve – corporate Aaa – corporate Baa – ten year treasury – fed funds

    Related: 30 Year Fixed Mortgage Rates versus the Fed Funds Rate – After Tax Return on Municipal Bonds

  • Housing Prices Post Record Declines

    Housing prices posted large declines over the last year. One important thing to keep in mind when looking at the recent results is how rare significant declines in housing prices have been. In general housing prices decline very little (less than 10% drops and normally less than 5%). Normally the turnover just decreases dramatically as people refuse to sell at lower prices and just stay in their house until prices recover. Housing Prices Post Record Declines:

    The S&P Case/Shiller Home Price Index, which tracks 20 of the largest housing markets, showed prices plummeting by 12.7% in the 12 months ending February. That’s the biggest fall since the index began tracking prices in 2000.

    Of those 20 metro areas, 17 posted their largest year-over-year declines ever. Ten of the 20 cities posted double-digit dips. The 10-city Case/Shiller index is down 13.6% year-over-year, the biggest drop since its launch in 1987
    …
    Prices in the Las Vegas metro area have plunged more than any other city, down 22.8% over the 12 months through February. Miami prices plummeted 21.7%. In Phoenix, they’ve fallen 20.8%. Of the 20 cities Case/Shiller tracks, only Charlotte, N.C. showed higher prices, up 1.5% over the 12-month period.

    Other metro areas recorded only modest price declines, including Portland, Ore., down 2.0%, Seattle, off 2.7% and Dallas, 4.1%. In the nation’s largest city, New York, metro area prices dropped a modest 6.6%.

    Related: Home Price Declines Exceeding 10% Seen for 20% of Housing Markets (Sep 2007) – How Not to Convert Equity – Housing Inventory Glut (Aug 2007) – Mortgage Defaults: Latest Woe for Housing (Feb 2007)

  • Capitalism in China

    Horatio Alger Multiplied by 1.3 Billion

    Mr. Feng, the chief executive of Aigo, a large Chinese consumer electronics company, is a classic Chinese entrepreneur: starting with $31 in his pocket, he has built a business whose products are a staple of urban China, including digital cameras, MP3 players and a new iPhone-like all-in-one device. Before telling me his Horatio Alger story, though, he had something he wanted me to understand.

    “My mother and father went through the Cultural Revolution,” Mr. Feng said. “They had no chance.” He continued: “When I was in grammar school, the Cultural Revolution ended. When I graduated from university in 1992, that was the year of real reform. Deng Xiaoping encouraged students to go into business and become entrepreneurs. Before then, if you wanted to be an entrepreneur, you would sink like a stone. But after that, anyone could be an entrepreneur.”
    …
    But look at what else happened: motivated by the prospect of wealth, people started companies. And as those companies succeeded, millions of new jobs were created.

    I have written about the importance of capitalism to improve life for people around the globe. I have also discussed how many don’t understand what capitalism is (the general idea that capitalism is largely about those with the gold making the rules, which it is not).

    Capitalism fundamentally is about allowing market to determine how to allocate resources (and government protecting that function along with others such as providing security, regulating externalities…). There are serious problems with in the USA in this regard – with enormous political favors granted those giving politicians enormous payments and oligopolies restricting the market from working properly. The government fails to properly regulate oligopolies, as dictated by capitalism – to prevent the markets to be dictated to by organizations pursuing their own interests, again due to large payments to politicians by those favored by preventing capitalism from working (either that or just a co-incidence that those making big payments just happen to give to politicians legislating [and overseeing regulators] against capitalism).

    Just to state the obvious, Chinese government policy and practices also conflicts with capitalism frequently.

    Related: Estate Tax Repeal – What is Wrong with Copyright Taking Public Good for Private Special Interests – Bill Gates: Capitalism on the 21st Century – The Future is Engineering – Making a Difference – Diplomacy and Science Research

  • Longer Commutes Translate to Larger Housing Price Declines

    Home Prices Drop Most in Areas with Long Commute by Kathleen Schalch

    Economists say home prices are nowhere near hitting bottom. But even in regions that have taken a beating, some neighborhoods remain practically unscathed. And a pattern is emerging as to which neighborhoods those are. The ones with short commutes are faring better than places with long drives into the city. Some analysts see a pause in what has long been inexorable — urban sprawl.

    The Washington, D.C., metropolitan area has been hit hard. Prices tumbled an average of 11 percent in the past year. That’s the big picture. But a look at Ashburn, Va., about 40 miles from the center of town, finds a steeper fall.
    …
    Jonathan Hill, vice president of Metropolitan Regional Information Systems, which tracks home sales, sat in his office recently, clicking through page after page of price data sorted by ZIP code. There were a lot of negative numbers, but not in places that are close in or near public transit.
    …
    David Stiff, chief economist for the company that produces the Case-Shiller Home Price Index, saw the trend in other cities, as well – including Los Angeles, San Francisco, New York, San Diego, Miami and Boston. Stiff recently matched home resale values against commute times and found that in most of these major metropolitan areas, the trend is the same. The longer the commute, the steeper the drop in prices.

    Related: Urban Planning – How Walkable is Your Prospective Neighborhood – Exurbs Hardest Hit in Recent Housing Slump (Feb 2007)

  • Gen X Retirement

    Half of Gen X Doesn’t Expect to Retire

    Boomers who are frustrated that they can’t afford to retire may turn out to be lucky compared to their kids. A new survey shows that more than two-thirds of Generation X don’t think they’ll be able to retire at all.
    …
    “They are earning money and paying into Social Security and yet they fear they may never see the payback,” said Moloney. “They feel they deserve it, but it looks like a financial black hole to them right now.”

    The government certainly is failing to pay for future obligations today instead choosing to raise taxes on the future. But Social Security itself is actually in better shape than most think. We really do need to move out the benefit payment date (when it began projected life expectancy was almost the same as the date payments would start – which would mean moving the retirement date more than 15 years later, I believe). Going that far is not needed but it should be moved back. But really social security is in good shape for 30 years or more. First, it isn’t going to go from good shape to failed in a day. And second, they will make adjustments as they have in the past to make it work (the adjustment they made in the last 15 years helped a great deal so now they can just add some additional delays in when it starts paying out… and extend the good condition of Social Security without too much trouble).

    Medicare is the huge problem. The country either needs to stop paying an extra 50-80% for health care than other countries do (and thus reduce the cost of Medicare liabilities) or massively cut benefits or massively increase taxes. Likely a combination of all 3.
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  • World’s Wealthiest People

    Nationalities of the 25 richest people:

    Country Number
    Russia   7
    India   4
    USA   4
    Hong Kong   2
    Germany   2
    France   2
    Mexico   1
    Sweden   1
    Spain   1
    Saudi Arabia   1

    11 Richest in order: Warren Buffett, USA $62Billion; Carlos Slim Helu & family, Mexico, $60B; William Gates III, USA $58B; Lakshmi Mittal, $45B; Mukesh Ambani, India, $43B; Anil Ambani, India, $42B; Ingvar Kamprad & family, Sweden, $31B; KP Singh, India, $30B; Oleg Deripaska, Russia, $28B; Karl Albrecht, Germany, $27B; Li Ka-shing, Hong Kong $26.5B.

    Data from Forbes 2008 Billionaires List, using country of citizenship. Using stock values on 11 February, 2008.

    Related: Best Research University Rankings (2007) – Top 10 Manufacturing Countries (2006) – How Rich Are You?

  • The Budget Deficit, the Current Account Deficit and the Saving Deficit

    Read a nice review of The Budget Deficit, the Current Account Deficit and the Saving Deficit:

    Reducing the Deficits. What are the policy implications of these interdependent imbalances? Here are three:

    • Tax incentives to encourage saving would likely also stimulate investment and lower both the budget deficit and the trade deficit.
    • Reducing the budget deficit would reduce the vulnerability of the U.S. economy to foreign creditors; rising deficits could lead to foreigners dumping dollar assets, causing equities to decline, interest rates to spike and the dollar to plunge.
    • Reducing the budget deficit doesn’t necessarily mean higher tax rates; marginal rate cuts reinforced by slower government spending growth would be ideal incentives.

    Unfortunately, the recent tax “rebates” designed to stimulate the economy dealt a setback to budget discipline. Most people probably understand that. What they probably don’t understand is that the increased budget deficit will also tend to worsen our international balance of payments and weaken the dollar. The hip bone is connected to the thigh bone; so policymakers need to study these interconnected deficits. They need to borrow my boxes.

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