Investing Curiouscatblog

Category: Economics

  • Democratising Commerce

    C.K. Prahalad on Democratising Commerce: The Challenge for the 21st Century – audio – pdf:

    Just the four carriers of cell phone services in India have created a market capitalisation of $75 billion plus in the last five years. So there is a huge opportunity to create economic value for the companies and at the same time getting people to be connected. This connectivity has changed the lives of ordinary people, from taxi drivers to small corner shops, road-side shops, to people who are plumbers and carpenters. All of their business models have changed. Now they can use the cell phone to increase their yields, increase their productivity.
    …
    we cannot have in the 21st century a society which does not pay attention to five billion or 80 per cent of people who do not get the ability to participate in the benefits of globalisation. If we just leave them alone and do not pay attention to them I think it is very hard to maintain both peace and some form of law and order.

    Listen to more podcasts from the Times: Ten of the world’s leading business thinkers provide the latest thinking in economics, management, finance, strategy and marketing.

  • Alternative Minimum Tax

    Congressional Budget Office on the Alternative Minimum Tax (AMT):

    Until 2000, less than 1 percent of taxpayers paid the AMT in any year. Under current law, however, the number of taxpayers affected by the AMT will grow from just over 1 million in 2001 to nearly 30 million in 2010 before falling back to about 23 million in 2014 after the expiration of the 2001 and 2003 tax cuts. Twenty percent of all taxpayers–and 40 percent of married couples–will owe AMT in 2010. AMT receipts in 2010 will total about $90 billion, roughly 7 percent of total individual income tax revenue.

    The Looming Challenge of the Alternative Minimum Tax, Alan D. Viard, Federal Reserve Bank of Dallas:

    While the AMT applied to 200,000 taxpayers in 1990, roughly 4 million will pay it this year, according to the Urban-Brookings Tax Policy Center. But that is only the beginning. Under current law, the AMT rolls will explode to 22 million in 2007. The AMT’s revenue yield follows a similar pattern, having risen from $2 billion in 1990 to $22 billion this year. It’s projected to nearly triple to $65 billion in 2007.

    Related: Families Face Alternative Minimum Tax, NPR – Brookings Institution article on the AMT – Preparation Softens Blow of Alternative Minimum Tax – IRS on the AMT

  • The Great Risk Shift

    The Great Risk Shift by Jacob Hacker presents some interesting data. I don’t always agree with his conclusions but I think the information he presents is interesting.

    The most interesting piece of data to me: The chance of a 50% drop in income in 1970 was 7% for any person. By 2002 it had grown to 16%. While this seems to include some questionable “data” such as divorces, retirees… Still the fairly steady climb (see chart page 31) from 1970 to 2002 shows this is one factor that should be a consideration in saving and spending plans. Don’t assume you will earn more and more every year. You will likely have some fairly large drops in income during your lifetime. Plan for it.

    Some more interesting data in 1992 7.9% of 25-34 year olds in the USA had debt payments over 40% of their income. In 2001 that rose to 13.3%. In 1984 median wealth for families with a head of household 55-64 was 4 1/2 times as wealth as those of 25-34 year olds, in 2003 it was 13 1/2 times as great. (page 99)

    While the average 401(k) balance is $47,000 the median balance is $13,000 (a relatively few large balances skew the average to make it much higher).

    Overall I tend to look at the data he presents and think people better consider these realities and plan knowing them. Jacob Hacker seems to more often say that this is unreasonable and show the hardships faced by those that either could not plan better (it was out of there hands which I would agree is part of the problem and requires some public policy changes) or who choose not to (which I would find the case more often than he would). Well worth reading in my opinion.

  • The Real Threat Is Decreased Productivity

    The Real Threat Isn’t Housing by Michael Mandel:

    In short, the productivity acceleration of the past 10 years has created a total of $6.4 trillion in extra output since 1995, measured in 2006 dollars. That helps explain why American households, taken together, are so much richer than they were: Household nonhousing net worth, adjusted for inflation and federal debt, has soared by almost $14 trillion over the same period, despite the dot-com debacle that crashed the market.

    The massive amount of additional production is a key reason why the U.S. has not faced upward pressure on prices. And good productivity gains gave the economy enough momentum to fight off the disasters of 2001–the terrorist attacks, the stock market crash, the collapse of Enron–with only a minimal recession.

    But the bonanza starts to disappear if productivity growth drops much further below its current level. Such a decline is a lot more possible than most economists realize or are willing to accept.

    Related: Manufacturing Productivity – Be Thankful for Lean Thinking – Manufacturing Jobs Data: USA and China

  • USA Job Growth

    Job growth weakest in two years:

    The economy created 97,000 jobs last month, the Labor Department said, down from a revised 146,000 gain in January, which was 35,000 more than the original estimate.

    The unemployment rate fell 4.5 percent from 4.6 percent in January. The consensus among economists was that the unemployment rate would stay at 4.6 percent, although a bit more than 20 percent of those surveyed by Reuters had been looking for a rise to 4.7 percent. Few had forecast a decline.

    Wages are now up 4.1 percent from a year earlier, and kept worker pay ahead of price increases. There was a 2.1 percent increase in prices over the 12 months ending in January

    The recent history is that the initial estimates have been revised up consistently – which means the accuracy of the initial read is less reliable recently that it had been previously.

    Employers downshift out of hire gear:

    After Labor Department readings showing that employers added an average of 187,000 jobs a month throughout 2006…
    it is natural and perhaps overdue that hiring should slow down, given the below-trend economic growth that the U.S. economy started showing with the second quarter of 2006. “Employment is a lagging indicator,” he said.

  • Bernanke Calls for Stronger Regulation of Mortgages

    Bernanke Calls for Stronger Regulation of Fannie, Freddie

    Federal Reserve Chairman Ben S. Bernanke said yesterday that the scale of Fannie Mae’s and Freddie Mac’s mortgage investments could pose risks to the financial system, and he called for them to limit their holdings almost exclusively to loans for affordable housing.
    …
    His solution: “Tying the portfolios to a purpose that provides measurable benefits to the public would help to ensure that society in general — not just GSE shareholders — receives a meaningful return in exchange for accepting the risks inherent in the portfolios,” Bernanke said in the text of remarks prepared for delivery by satellite to a gathering of community bankers in Hawaii.

  • Buffett’s Newest Letter to Shareholders

    Buffett’s letter to shareholders. Always a required read for investors.

    We’ve come close to eliminating our direct foreign-exchange position, from which we realized about $186 million in pre-tax profits in 2006 (earnings that were included in the Finance and Financial Products table shown earlier). That brought our total gain since inception of this position in 2002 to $2.2 billion.

    Interesting. The following (and more in the letter – page 15) is extremely important.

    As our U.S. trade problems worsen, the probability that the dollar will weaken over time continues to be high. I fervently believe in real trade – the more the better for both us and the world. We had about $1.44 trillion of this honest-to-God trade in 2006. But the U.S. also had $.76 trillion of pseudo-trade last year – imports for which we exchanged no goods or services. (Ponder, for a moment, how commentators
    would describe the situation if our imports were $.76 trillion – a full 6% of GDP – and we had no exports.) Making these purchases that weren’t reciprocated by sales, the U.S. necessarily transferred ownership of its assets or IOUs to the rest of the world. Like a very wealthy but self-indulgent family, we peeled off a bit of what we owned in order to consume more than we produced.

    Related: On Warren Buffett – 2004 Annual Report by Buffett

  • China Economy Report by the World Bank

    Highly recommended: the World Bank’s latest China Quarterly by Brad Setser:

    Most likely because more and more components are made in China. Stage one involves shifting final assembly to China. But once the one-off cost savings from that shift have been realized, getting more cost savings requires shifting parts production. Stage two consequently involves shifting component production to China. The development of an internal Chinese supply chain for its final assembly plants is, I suspect, a bit reason why China’s trade surplus has increased so dramatically recently.

    Brad’s blog is one of those in our blogroll for a reason: when he highly recommends a report that is a good indication of value. Enjoy reading the report.

    Related: Top 10 Manufacturing Countries – Manufacturing Data – Accuracy Questions – Manufacturing Jobs Data: USA and China

  • USA and European Economies

    Who are the champions?

    Compared with the awesome strength of America and the raw power of emerging Asia, Europe is sometimes portrayed as a has-been, excelling in luxury goods, fine food, wines and fashion but weighed down by too many old industries and old ideas.
    …
    America enjoys awesome advantages over Europe. It is a huge, truly single market with a relatively youthful, growing population. It is the world’s economic superpower, with much higher productivity than its competitors (though productivity growth has recently been disappointing, and last year was slightly below Europe’s). It has world-class universities that work hand in glove with business. Americans have not only won more Nobel prizes, they have turned more scientific advances into profitable businesses than anyone else. Many of these firms have gone on to become the giants of modern business.

    It may have been a British scientist, Sir Tim Berners-Lee, working at a laboratory in Switzerland, who invented the world wide web, but America is the home of the internet and all the business sectors it has spawned. And even where Europe is holding its own against America, it seems unable to retain its advantage.

    I thought the aritcle was then going to say equally positive things about Europe. It did say positive things but not really with the same gusto. It is good to remember that most countries has strong and weak factors economically. The USA continues to take advantage of the best minds from elsewhere but I believe this flow will reduce and in fact flow in both directions increasingly. Tim Berners-Lee works at MIT now.

  • Growing Size of non-USA Economies

    Developing nations poised to challenge USA as king of the hill

    For more than half a century, Americans could take for granted that the world economy would orbit around them. No longer. The USA today produces about 30% of world output at market prices. That figure already is down significantly from about 46% in the aftermath of World War II, when European and Japanese factories lay in ruins. And it is headed lower still as China and India continue their ascent.

    Over the next generation, fast-growing developing nations are expected to see a significant uptick in their share of world output from 23% today to about 33% in 2030, according to a recent World Bank study.

    This trend is among the major economic and investment forces over the next several decades.

    Related: Science and Engineering in Global Economics – China now the 5th Largest Economy – Top 10 Manufacturing Countries