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  • Phased Retirement

    I have long thought the binary retirement system we have primarily used is less than ideal. It would be better to transition from full time work to part time work to retirement as people move into retirement. According to this study, from the University of Michigan Retirement Research Center, the phased retirement option is becoming more common.

    Macroeconomic Determinants of Retirement Timing

    partial retirement has been on the rise across all age and income groups. While partial retirement was virtually non-existent for 60-62 years olds in 1960, over the past 20 years more than 15 percent of workers in this age group are categorized as partially retired. For 65-67 year olds, the recent partial retirement rate is over 20 percent, up from 5-10 percent in 1960.

    The paper doesn’t really focus much on what I would find interesting about the details of how we are (or mainly, how we are not) adjusting to make partial retirement fit better in our organization (the paper is focused on a different topic). The paper does provide some interesting details about the changes with retirement currently.

    Related: Career Flexibility – 67 Is The New 55 – Retirement Delayed, Working Longer

  • USA Congress Further Aids Those Giving Them Cash – Risks Economic Calamity Again

    It is no surprise those we elect that have shown there primary concern is providing favors to those giving them lots of cash have given the wall street crowd that showers them in cash what they want yet again. As long as we keep electing these people they will keep providing benefits to those giving lots of cash that the rest of society is stuck paying for.

    Read more about this huge fiasco: Congress Sells Out To Wall Street, Again!

    Even ill-informed politicians now can’t pretend they don’t know the risks they run by providing these favors. But they figure they won’t have to be accountable – they haven’t been held accountable so far. So they are probably right that they won’t be held accountable when the taxpayers suffer huge losses and the taxpayers have to again bail out the too big to fail institutions and savers have to again bail out the too big to fail banks and…

    As bad as the economy has been since the to-big-too-fail crowd created economic calamity it is amazing it hasn’t been much worse. The extraordinary efforts of the Fed have been amazingly successful. I worry they have put us in an extraordinarily risky place but so far the results have been remarkable. Hoping such slights of hand (plus huge transfers of wealth from middle class savers to to-big-too-fail speculators – in the tune of hundreds of billions of dollars – so it isn’t like there are not huge suffering by millions of people – even those that were not thrown out of work) will allow continued reckless giveaways to those paying politicians is a very bad idea.

    But it is no surprise those we elect have chosen that course of action. It seems we are very unlikely to learn without a real depression being forced by decades of extremely foolish behavior by our elected officials in Washington DC.

    Related: Continuing to Nurture the Too-Big-To-Fail Eco-system – The Risks of Too Big to Fail Financial Institutions Have Only Gotten Worse – Adding More Banker and Politician Bailouts is not the Answer – Failure to Regulate Financial Markets Leads to Predictable Consequences (as does letting big contributors create “regulations” that are nothing more than government granted favors to huge organizations) – Congress Eases Bank Laws, 1999, while risks were stated by those not willing to lie down for Wall Street Lobbyists (few though they were)

  • Global Stock Market Capitalization from 2000 to 2012

    Looking at stock market capitalization by country gives some insight into how countries, and stocks, are doing. Looking at the total market capitalization by country doesn’t equate to the stock holdings by individuals in a country or the value of companies doing work in a specific country. Some countries (UK and Hong Kong, for example) have more capitalization based there than would be indicated by the size of their economy.

    It is important to keep in mind the data is in current USA dollars, so big swings in exchange rates can have a big impact (and can cause swings to be exacerbated when they move in tandem with stock market movements – if for example the market declines by 15% and the currency declines by 10% against the US dollar those factors combine to move the result down).

    Chart of stock market capitalization from 2000 to 2012 for USA, China, Japan, UK and world
    The chart shows the top four countries based on stock market capitalization, with data from 200 to 2012. The chart created by Curious Cat Investing and Economics Blog may be used with attribution. Data from the World Bank.

    As with so much recent economic data China’s performance here is remarkable. China grew from 1.8% of world capitalization in 2000 to 6.9% in 2012. And Hong Kong’s data is reported separately, as it normally is with global data sets. Adding Hong Kong to China’s totals would give 3.7% in 2000 with growth to to 8.9% in 2012 (Hong Kong stayed very stable – 1.9% in 2000, 2% in 2012). China alone (without HK) is very slightly ahead of Japan.

    The first chart shows the largest 4 market capitalizations (2012: USA $18.6 trillion, China and Japan at $3.7 trillion and UK at $3 trillion). Obviously the dominance of the USA in this metric is quite impressive the next 7 countries added together don’t quite reach the USA’s stock market capitalization. I also including the data showing the global stock market capitalization divided by 3 (I just divide it by three to have the chart be more usable – it lets us see the overall global fluctuations but doesn’t cram all the other data in the lower third of the chart).

    Canada is the 5th country by market capitalization (shown on the next chart) with $2 trillion. From 2000 to 2012 China’s market capitalization increased by $3.1 trillion. The USA increased by $3.6 trillion from a much larger starting point. China increased by 536% while the USA was up 23.5%. The world stock market capitalization increased 65% from 2000 to 2012.

    Related: Stock Market Capitalization by Country from 1990 to 2010 – Government Debt as Percent of GDP 1998-2010 – Manufacturing Output by Country 1999-2011: China, USA, Japan, Germany

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  • Continuing to Nurture the Too-Big-To-Fail Eco-system

    Fed Continues Adding to Massive Quantitative Easing

    In fact, while the Fed has pumped about $2.8 trillion into the financial system through nearly five years of asset buying.

    Bank excess reserves deposited with the New York Fed have mushroomed from less than $2 billion before the financial crisis to $2.17 trillion today. In essence, roughly two-thirds of the money the Fed pumped into the banking system never left the building.

    The Fed now pays banks for their deposits. These payment reduce the Fed’s profits (the Fed send profits to the treasury) by paying those profits to banks so they can lavish funds on extremely overpaid executives that when things go wrong explain that they really have no clue what their organization does. It seems very lame to transfer money from taxpayers to too-big-to-fail executives but that is what we are doing.

    Quantitative easing is an extraordinary measure, made necessary to bailout the too-big-to-fail institutions and the economies they threatened to destroy if they were not bailed out. It is a huge transfer payment from society to banks. It also end up benefiting anyone taking out huge amounts of new loads at massively reduced rates. And it massively penalizes those with savings that are making loans (so retirees etc. planing on living on the income from their savings). It encourages massively speculation (with super cheap money) and is creating big speculative bubbles globally.

    This massive intervention is a very bad policy. The bought and paid for executive and legislative branches that created, supported and continue to nurture the too-big-to-fail eco-system may have made the choice – ruin the economy for a decade (or who knows how long) or bail out those that caused the too-big-to-fail situation (though only massively bought and paid for executive branch could decline to prosecute those that committed such criminally economically catastrophic acts).

    The government is saving tens of billions a year (maybe even hundred of billions) due to artificially low interest rates. To the extent the government is paying artificially low rates to foreign holders of debt the USA makes out very well. To the extent they are robbing retirees of market returns it is just a transfer from savers to debtors, the too-big-to-fail banks and the federal government. It is a very bad policy that should have been eliminated as soon as the too-big-to-fail caused threat to the economy was over. Or if it was obvious the bought and paid for leadership was just going to continue to nurture the too-big-to-fail structure in order to get more cash from the too-big-to-fail donors it should have been stopped as enabling critically damaging behavior.

    It has created a wild west investing climate where those that create economic calamity type risks are likely to continue to be rewarded. And average investors have very challenging investing options to consider. I really think the best option for someone that has knowledge, risk tolerance and capital is to jump into the bubble created markets and try to build up cash reserves for the likely very bad future economic conditions. This is tricky, risky and not an option for most everyone. But those that can do it can get huge Fed created bubble returns that if there are smart and lucky enough to pull off the table at the right time can be used to survive the popping of the bubble.

    Maybe I will be proved wrong but it seems they are leaning so far into bubble inflation policies that the only way to get competitive returns is to accept the bubble nature of the economic structure and attempt to ride that wave. It is risky but the supposedly “safe” options have been turned dangerous by too-big-to-fail accommodations.

    Berkshire’s Munger Says ‘Venal’ Banks May Evade Needed Reform (2009)

    Munger said the financial companies spent $500 million on political contributions and lobbying efforts over the last decade. They have a “vested interest” in protecting the system as it exists because of the high levels of pay they were earning, he said. The five biggest U.S. securities firms, only two of which still exist as independent companies, paid their employees about $39 billion in bonuses in 2007.

    Related: The Risks of Too Big to Fail Financial Institutions Have Only Gotten Worse – Is Adding More Banker and Politician Bailouts the Answer? – Anti-Market Policies from Our Talking Head and Political Class

  • Too-Big-to-Fail Bank Created Great Recession Cost Average USA Households $50,000 to $120,000

    A report by the Dallas Federal Reserve Bank, Assessing the Costs and Consequences of the 2007–09 Financial Crisis and Its Aftermath, puts the costs to the average household of the great recession at $50,000 to $120,000.

    A confluence of factors produced the December 2007–June 2009 Great Recession—bad bank loans, improper credit ratings, lax regulatory policies and misguided government incentives that encouraged reckless borrowing and lending.

    The worst downturn in the United States since the 1930s was distinctive. Easy credit standards and abundant financing fueled a boom-period expansion that was followed by an epic bust with enormous negative economic spillover.
    …
    Our bottom-line estimate of the cost of the crisis, assuming output eventually returns to its pre-crisis trend path, is an output loss of $6 trillion to $14 trillion. This amounts to $50,000 to $120,000 for every U.S. household, or the equivalent of 40 to 90 percent of one year’s economic output.

    They say “misguided government incentives” much of which are due to payments to politicians by too-big-to-fail institution to get exactly the government incentives they wanted. There is a small bit of the entire problem that is likely due to the desire to have homeownership levels above that which was realistic (beyond that driven by too-big-to-fail lobbyists).

    “Were safer” says a recent economist. Which I guess is true in that it isn’t quite as risky as when the too-big-to-fail-banks nearly brought down the entire globally economy and required mass government bailouts that were of a different quality than all other bailouts of failed organizations in the past (not just a different quantity). The changes have been minor. The CEOs and executives that took tens and hundreds of millions out of bank treasures into their own pockets then testified they didn’t understand the organization they paid themselves tens and hundreds of a millions to “run.”

    We left those organizations intact. We bailed out their executives. We allowed them to pay our politicians in order to get the politicians to allow the continued too-big-to-fail ponzie scheme to continue. The too-big-to-fail executives take the handouts from those they pay to give them the handouts and we vote in those that continue to let the too-big-to-fail executives to take millions from their companies treasuries and continue spin financial schemes that will either work out in which case they will take tens and hundreds of millions into their person bank accounts. Or they won’t in which case they will take tens of millions into their personal bank accounts while the citizens again bail out those that pay our representatives to allow this ludicrous system to continue.

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  • Goldman Sachs, Visa and Nike Added to Dow Jones Industrial Index: HP, Alcoa and Bank of America Out

    At the close of business this Friday Goldman Sachs, Visa and Nike will be added to Dow Jones Industrial Average (DJIA) and HP, Alcoa and Bank of America will be dropped. The DJIA is a not something that deserves attention in my opinion, but it gets it. The index of 30 large stocks is less useful than say the S & P 500 Index with I prefer.

    The “industrial” heritage (represented by the name) is still visible but as the economy has changed the makeup of stocks has moved to reflect the growing importance of services.

    The 30 stocks in the DJIA will be:

    • American Express Company – AXP
    • AT&T – T
    • Boeing – BA
    • Caterpillar – CAT
    • Chevron – CVX
    • Citigroup – C
    • Coca-Cola – KO
    • Du Pont – DD
    • Exxon Mobil – XOM
    • General Electric Company – GE
    • General Motors – GM
    • Goldman Sachs – GS
    • Home Depot – HD
    • Intel – INTC
    • International Business Machines – IBM
    • Johnson & Johnson – JNJ
    • J. P. Morgan Chase – JPM
    • Kraft Foods – KFT
    • McDonald’s – MCD
    • Merck – MRK
    • Microsoft – MSFT
    • Minnesota Mining & Manufacturing – MMM
    • Nike – NIKE
    • Pfizer – PFE
    • Procter & Gamble – PG
    • United Technologies – UTX
    • Verizon Communications – VZ
    • Visa – V
    • Wal-Mart Stores – WMT
    • Walt Disney – DIS

  • Chart of Global Wind Energy Capacity by Country 2005 to 2012

    Global wind power capacity has increased 391% from 2005 to 2012. The capacity has grown to over 3% of global electricity needs.

    chart of global wind power capacity by country from 2005 to 2012
    Chart by Curious Cat Economics Blog using data from the Wind Energy Association. Chart may be used with attribution as specified here.

    The 8 countries shown on the chart account for 82% of total wind energy capacity globally. From 2005 to 2012 those 8 countries have accounted for between 79 and 82% of total capacity – which is amazingly consistent.

    Japan and Brazil are 13th and 15th in wind energy capacity in 2012 (both with just over one third of France’s capacity). Japan has increased capacity only 97% from 2005 to 2012 and just 13% from 2010 to 2012. Globally wind energy capacity increased 41% from 2010 to 2012. The leading 8 countries increased by 43% collectively lead by China increasing by 68% and the USA up by 49%. Germany added only 15% from 2010 through 2012 and Spain just 10%.

    Brazil has been adding capacity quickly – up 170% from 2010 through 2012, by far the largest increase for a county with significant wind energy capacity. Mexico, 24th in 2012, is another country I would expect to grow above the global rate in the next 10 years (I also expect Brazil, India and Japan to do so).

    In 2005 China accounted for 2% of wind energy capacity globally they accounted for 30% in 2012. The USA went from 15% to 24%, Germany from 31% to 12%, Spain from 17% to 9% and India from 8% to 7%.

    Related: Global Wind Energy Capacity Exceeds 2.5% of Global Electricity Needs (2011) – Nuclear Power Generation by Country from 1985-2010 – Chart of Wind Power Generation Capacity Globally 2005 to 2012 (through June)

  • Looking at the Malaysian Economy

    Since I am living in Malaysia now, I pay attention to Malaysia’s economy. There are many reasons to be positive but the large consumer and government debt in Malaysia is a serious concern. They do have many administrators that say the right things, the question is going to be whether those statement define policy action or if they are ignored.

    Wahid Says Ringgit Too Weak as Growth Improves: Southeast Asia

    Malaysia and Thailand may be the most vulnerable after India and Indonesia, with the former facing a deteriorating current-account balance and elevated foreign ownership of its debt

    India and Indonesia have experienced large stock market declines and currency devaluations recently. The Malaysian Ringgit has declines 10% against the US $ in the last 3 months. Malaysia is holding up ok, but is venerable as these international loses of confidence often sweep over countries (and move from country to country).

    Malaysia’s current-account surplus probably shrank to 900 million ringgit ($274 million) in the second quarter, according to the median estimate of five economists surveyed by Bloomberg News. That would be the smallest since at least 1999, according to data compiled by Bloomberg.

    There is a real risk that the current account could slip into a deficit for the first time since the fourth quarter of 1997, Macquarie Group Ltd. analysts said in a report this month.
    “We are aware of this situation and we are aware of some of the measures to be undertaken to make sure that Malaysia remains in a surplus position,” Abdul Wahid said, without elaborating on the steps. “It is still a surplus and we are managing it.”

    The surplus is narrowing on increased overseas investment and property buying, higher imports for infrastructure projects, lower palm oil and rubber export prices and the acquisition of new aircraft by Malaysian Airline System Bhd., the minister said.

    The main foreign exchange earner recently seems to be selling property, that isn’t a good way to be earning foreign currency (selling assets). It is ok to do this to some extent, but relying on large inflows this way is very risky (and self defeating over the long term if it is too large). Even though palm oil and rubber exports are declining a bit, I believe they are still strong sources of foreign currency so that is good.

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  • Commerce Takes More People Out of Poverty Than Aid

    Bono (who is fairly well known 🙂 as the lead singer for U2): “Commerce — entrepreneurial capitalism — takes more people out of poverty than aid, of course, we know that.”

    That is my belief and something I believe in strongly. Real capitalism will bring people out of poverty. That isn’t the same thing as any businesses will do that. Businesses that use monopolistic powers to extract benefits to themselves and suppress free markets may well do more damage than good. But we will continue to bring more people out of poverty through economic development and capitalism than through aid.

    Related: Helping Capitalism Make the World Better – Kiva – Giving Entrepreneurs an Opportunity to Succeed – Dr. Deming’s personal aim was to advance commerce, prosperity and peace – Business 901 Podcast with Me: Deming’s Management Ideas Today – Monopolies and Oligopolies do not a Free Market Make

  • The Growing Market for International Travel for Medical Care

    Medical “tourism” is a potentially huge market. The size of the market is greatly aided by the extremely expensive and broken USA health care system. Even while the standard rich country provides the same, or better, results than the USA for half the cost they are not doing well either (so the USA is very bad compared to pretty bad results for rich countries on average).

    Medical tourism is on of the most attractive economic growth areas. However the competition is fairly high as the attractiveness of building such an industry is well known. Countries that have very good potential are: Thailand, Mexico, Malaysia, Singapore (for high end solutions), Costa Rica, India, Philippines and Panama. India has some great advantages but they have a deeply ingrained and extremely unhelpful bureaucracy. It seems to me that that creates a burden that likely means India can’t complete with the others effectively.

    Even for the simplest aspect – visas for those seeking to bring income into the country as medical tourists I don’t have confidence India can do well.

    Cayman to Singapore Gain as Rules Stump Clinics: Corporate India

    India, which offers the world’s biggest savings for U.S. medical tourists, is losing clients to Singapore and Thailand as visa rules and greater awareness of drug-resistant germs that spread from the South Asian nation scare away patients. Government neglect means India may fail to tap the $40 billion market that’s expanding 25 percent a year, said Josef Woodman, founder of the guidebook “Patients Beyond Borders.”

    “They’ve done everything to ruin our prospects of becoming a tourism center,” Reddy said. “I once said India should become the global health-care destination–now I’m swallowing those words. It could grow 10-fold in the next five years, if only the government would facilitate it, the way others have.”

    India continues to be held back economically (across the entire economy not just in health care) by ineffective and burdensome regulation and government inefficiency.

    The USA actually has a portion of the medical tourism market – those that have no concern about price (royalty, trust fund babies, movie stars etc.). Those with any concern about price can find the same level of care in Singapore, Japan, France, etc. at a fraction of the price.

    I believe 2 or 3 countries in South East Asia will do very well with international medical care. The extent to which Thailand, Philippines, Singapore and Malaysia (and potentially others) do in this field could greatly impact their economic success. There is a great potential for Singapore and Malaysia to cooperate in this area (in Malaysia’s Iskandar region, which borders Singapore).

    Related: Traveling To Avoid USA Health Care Costs –
    Traveling for Health Care (2007) – Leading Countries for Economic Freedom: Hong Kong, Singapore, New Zealand…