Investing Curiouscatblog

Tag: Economics

  • Inflation Shows Up in Huge Commodity Price Increases

    Gold and Silver at up dramatically in the last year. Food prices are up dramatically.

    The World Bank Development Prospects Group shows food price changes Q1 2010 to Q1 2011

    Increase
    Maize (corn) 74%
    Wheat 69%
    Soybeans 36%
    Beef 36%
    Rice -2%

    If food is 10% of your expenses and food overall has inflation of 30% that only increases your expenses 3%. If food is 50% of your income and goes up 30% that increases your expenses 15%. In the USA people spend about 10% disposable income on food (much of that though is really processing the food not the raw material). Spending in Japan on food is 19%, France 16%, China 33% and India 46%. 50% if what most of the people in the world spend. Those people are poor and don’t have the resources to pay more. This is why food prices are so critical. Governments fall from such rises in basic food prices. Also remember even in a country like the USA, where the average is 10% nearly 30% of people spend over 20% of disposable income on food. There are large variances not only between countries but within countries.

    What matter most is local food prices, but global food prices impact the prices in countries. Though many governments subsidize food prices – when food costs more than 30% of people’s income I think not doing so (when prices rise dramatically) would be crazy. When food costs 5% the government really doesn’t need to be involved.

    Inflation is a serious threat to economies in the next few years. Food inflation for non-rich countries is a huge problem now.

    Related: Food and Energy Costs July 2008 – Food Price Inflation is Quite High – You Can Help Reduce Extreme Poverty – Creating a World Without Poverty – Ethanol: Science Based Solution or Special Interest Welfare

    Food Price Watch by the World Bank
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  • Executives Again Treating Corporate Treasuries as Their Money

    A huge problem with current practices at American companies is that senior executives believe they personally are due what the company earns. The repeated ethical lapses perpetrated by the senior executives and supported by their well paid board continues to undermine the economy of the country.

    Two events last week illustrate the level of disconnection with reality the current crop of ethically challenged senior executives.

    First, we have the senior executives at the too big to fail financial institutions that did fail and were bailed out by taxpayers. We all know the economic calamity caused by these executives, throwing millions of people out of work, adding huge burdens to already overburdened future taxpayers with the huge spending governments engaged in, in order to successfully avoid what would have been a depression. Fewer people realize the government has been systemically transferring money to these large, too big to fail financial institution from millions of savers with policies directly providing billions in profits to all the large financial institutions that had failed.

    So what did the senior executives that failed as spectacularly as anyone has ever failed economically in history do last week? They paid themselves tens of millions of dollars, paid for by all those who have received artificially lowered rates (through action by the Federal Reserve in order to save the economy and reward their member banks) on their savings which provided billions in profit to the failed large financial institutions. Just like 5 years ago, as they were doing their best to take such detrimental actions that would cause a depression (but for the government saving us from that outcome) they again use the excuse that they are just doing what all their colleagues are doing.

    The lack of honor of these men is amazing. And the lack of honor of those who continue to treat these people as anything but pariahs is amazing. That we continue to pursue policies that enable and enrich too big to fail financial companies on the backs of those that save and in so doing provide billions in profits for the executives to treat as their personal bank accounts is sad.

    The compatriots of those senior executives at Transocean showed the same disregard for honor, accuracy and truth. First, who is Transocean?

    A presidential commission concluded that the explosion [in the Gulf of Mexico last year] had been caused by cost-cutting and directly blamed Transocean, BP and Halliburton for the disaster.

    So with what was one of the worst (if not the worst) economic safety failures ever and 11 deaths in the explosion, this is what Transocean senior executives say, in their SEC filings:

    “Notwithstanding the tragic loss of life in the Gulf of Mexico, we achieved an exemplary statistical safety record as measured by our total recordable incident rate and total potential severity rate,” the report says.

    “As measured by these standards, we recorded the best year in safety performance in our company’s history, which is a reflection on our commitment to achieving an incident free environment, all the time, everywhere,” it adds.

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  • Curious Cat Investing and Economics Carnival #12

    Welcome to the Curious Cat Investing and Economics Carnival: find useful recent personal finance, investing and economics blog posts and articles.

    • The Myth of Japan’s ‘Lost Decades’ by Eamonn Fingleton – “Japan’s surplus is up more than five-fold since 1990. And, yes, far from falling against the dollar, the Japanese yen has actually boasted the strongest rise of any major currency in the last two decades. How can such facts be reconciled with the ‘two lost decades’ story? I don’t think they can.”
    • Investment Risk Matters Most as Part of a Portfolio, Rather than in Isolation by John Hunter – “It is not less risky to have your entire retirement in treasury bills than to have a portfolio of stocks, bonds, international stocks, treasury bills, REITs… This is because their are not just risk of an investment declining in value. There are inflation risks, taxation risks…” (including structural imbalances introduced by the Feb depressing short term yields to provide billions to large banks from the pockets of savers).
    • Cheating Investors As Official Government Policy by Daniel R. Amerman – “When you put your savings into a money market fund, and the policy of the US government is to force interest rates to unnaturally low levels – you are being cheated out of the yield you should be receiving. When you buy a corporate bond or corporate bond fund – you are being cheated by overt government market interventions that have the explicitly stated purpose of lowering corporate borrowing costs.”
    • Force Yourself to Save by – “Save 50% of any bonus or raise… Theoretically you could save 100% of your raise and maintain the same lifestyle, but that’s no fun. What’s the point of a raise if it doesn’t include a new PS3?” (I have long favored putting a portion of each raise toward a saving plan – John)
    • Who holds the most U.S. Treasuries in the world? (Hint: It’s not China.) by James Jubak – “For a while China was the biggest holder of U.S. government debt. But now with $896 billion China has slipped to No. 2. As of last week, the leader of the pack is—the envelope, please–the New York Fed, which holds the Federal Reserve’s Treasury bills, notes, bonds, and TIPs. (TIPS are Treasury Inflation Protected Securities.) As of last week the Fed’s System Open Market Account held $1,108 billion in U.S. government debt. “
    • 15 Things You Need to Do, Before Reading Another Financial Blog – “Set up a system to monitor your next goal – Now that you have a goal, set up a system to monitor your progress. I have Mint email monthly progress reports on my financial goals. Another way is track your goal is by doing a monthly review.”
    • How Much House Can You Afford? by Ryan Guina – “if your mortgage payment is expected to jump $500 a month, set that money aside for a few months as part of your normal budgeting. Do this for other spending categories that may increase, such as utilities, home owner’s insurance, taxes, etc.”
    • MERS: Stop Foreclosing in Our Name by Barry Ritholtz – “Allow me to spell this out for you more specifically: MERS is an abomination, a legal blasphemy that should be destroyed before it unleashes the four horsemen of the apocalypse.”

    Related: investing books – articles on investing – Curious Cat Investing and Economics Search

  • Manufacturers Coming Back to the USA

    An increasing number of news articles are reporting on the increasing strength of manufacturing in the USA (and globally, actually).

    Made (once again) in America

    NovaSom chose Zentech Manufacturing Inc. for two key reasons: Executives here could oversee quality control, and the kits could be shipped to domestic customers in just days, not weeks or months.

    After years of American companies shipping jobs and contracts overseas, some are choosing local manufacturers or even “re-shoring” – bringing those jobs and work back to the United States.
    …
    One-fourth of more than 850 companies surveyed by MFG.com, a global online marketplace for manufacturers looking to source custom parts, returned work to North America from overseas in the last quarter of 2010.

    The “decrease” in manufacturing in the USA has been exaggerated as I written for year (manufacturing has grown steadily over the last few decades in the USA). It is true though manufacturing in some plants has moved overseas. Over the last few years more and more stories report on American companies moving manufacturing back to the USA that they had moved offshore previously.

    The Institute for Supply Management most recent survey reports a surge in US manufacturing to its highest reading in nearly seven years.

    Related: Manufacturing Cars in the USA – Leading Manufacturing Countries Globally (1980-2009) – Global Manufacturing Employment Data – 1979 to 2007

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  • 40 Billionaires Pledge to Donate Half Their Wealth

    40 billionaires pledge to give away half of wealth

    In addition to Buffett and Gates – America’s two wealthiest individuals, with a combined net worth of $90 billion, according to Forbes – 38 other billionaires are taking the give-it-away pledge. They include New York Mayor Michael Bloomberg, entertainment executive Barry Diller, Oracle co-founder Larry Ellison, energy tycoon T. Boone Pickens, media mogul Ted Turner, David Rockefeller, film director George Lucas and investor Ronald Perelman.

    This is great news. We need more charity. And we don’t need more trust fund babies. The Giving Pledge was established by Bill Gates and Warren Buffet to encourage this spirit.Charity should be a part of your personal finance plan if you are reading this (if you have access to a computer you are wealthier than most people alive today).

    To many of the rich today act like they made their money by creating it by themselves. You can’t be a billionaire without getting it given to you by your parents or making your wealth from society. It is wonderful when people provide great solutions to society and become wealthy. It is ridicules to think those people’s wealth is not the result of the society others created. Using that wealth to make society better is right. Spoiling kids and grandkids with it is acceptable, to a certain level. After a couple million that is insulting, however.

    Related: House Votes to Restore Partial Estate Tax Very Richest: Those with Over $7 Million – Rich Americans Sue to Keep Evidence of Their Tax Evasion From the Justice Department – Gates Foundation and Rotary Pledge $200 Million to Fight Polio

  • 10 million More Renters In the Next 5 Years

    Renter Nation by Gene Epstein

    From now through 2015, the long slog that will unfortunately characterize the economic expansion will bring slow growth in jobs and wages. That pace of improvement should be just strong enough to permit new households to form, but not robust enough for the members of those households to afford to own homes
    …
    Demographics also will deal home sellers and builders a clear blow. Not surprisingly, the home-ownership rate tends to rise with age. For example, while the overall U.S. rate is 67.2%, the rate for households headed by someone under 35 is just 38.9%.

    Thus, whenever the age distribution of households tilts in favor of younger adults, the overall home-ownership rate declines.
    …
    Largely because the echo boomers are more numerous than the baby busters, there are now more U.S. residents aged 15 to 29 than 30 to 44. So five years from now, the nation will have more 20-to-34-year-olds than 35-to-49-year-olds.
    …
    Dallas-based Axiometrics tracks monthly price and occupancy data on apartments in 305 markets around the country. Its research chief, Jay Denton, reports that, on new leases written through this year’s first six months, effective rents—those after all concessions are taken into account—rose a robust 3.2%, after declining through 2009 and much of 2008. And occupancy growth, adds Denton, is close to the best he’s seen in the past 13 years.

    Related: articles on real estate investing – Real Estate and Consumer Loan Delinquency Rates 1998-2009 – Apartment-vacancy Rate is 7.8%, a 23-year High (Nov 2009)

  • Greenspan Says Congress Should Let Tax Cuts Expire

    Alan Greenspan made several huge errors while chairman of the Federal Reserve. Failing to deal with the massive risk taking and fraud by the member banks of the Federal Reserve was one. And supporting tax cuts for a country that was hugely in debt (while current deficits were still huge was another. Yes anyone can claim (and he did) future surpluses, but there had yet to be a single year of surplus, and obviously we would have been in deficit even before the tax cuts put us much much further in debt, history has shown .

    But Greenspan said government estimates project more than enough surplus funds to pay off the debt and reduce taxes too.

    That is either amazingly bad economic forecasting or a lie. My guess is he knew this wasn’t true. Which would make it a lie. If he really was that out of touch with economic reality, we have to question why we ever thought he had insight into the economy.

    Greenspan Says Congress Should Let Tax Cuts Expire

    WOODRUFF: On those tax cuts, they are due to expire at the end of this year. Should they be extended? What should Congress do?

    GREENSPAN: I should say they should follow the law and let them lapse.

    WOODRUFF: Meaning what happens?

    GREENSPAN: Taxes go up. The problem is, unless we start to come to grips with this long-term outlook, we are going to have major problems. I think we misunderstand the momentum of this deficit going forward.

    Related: Estate Tax Repeal (2006) – Charge My Government to My Kids (2007) – USA Federal Debt Now $516,348 Per Household

    Accepting that, I don’t agree with those that vilify his performance. He was Fed chairman from 1987-2006. He made some very bad decisions that cost people dearly. But it isn’t very surprising someone in such power for so long would make some very bad and costly decisions. My guess is he caved to pressure from political allies that reminded him how the current President Bush’s father blamed Greenspan’s decisions for his losing the Presidency. And so Greenspan was trying to do what he could to do what the then President Bush wanted. Not a very honorable explanation but people often do not make the most honorable choices.

    In 2003 he publicly disagreed with the wisdom of additional cuts:

    Alan Greenspan, the Federal Reserve chairman, today rebutted many of President Bush’s arguments in favor of big new tax cuts, saying that the economy probably does not need any short-term stimulus and warning that budget deficits could spiral out of control.

    Politicians, eager to give favors, at the expense of the future, went ahead and passed more tax cuts – weakening the country for their (and their political allies) short term benefit.

    Related: Estate Tax Repeal (2006) – Charge My Government to My Kids (2007) – USA Federal Debt Now $516,348 Per Household

    Greenspan’s thoughts on the economy, from his July 16th 2010 interview:
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  • Have We Lost Our Capitalist Heritage?

    I read various things stating that the USA is behaving in socialist (or similar ways). And there are often attempts to state that what the writer desires is capitalism and what they don’t like is an attack on motherhood, apple pie and capitalism.

    I’m not sure when or where those writers would say capitalism did exist. It is true we have corporations using their power (political power and market power [oligopolies, monopolies]) to serve their interests. This would not surprise Adam Smith at all, from the Wealth of Nations:

    People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise the prices/

    He knew that is what they would attempt to do and said they had to be regulated to allow capitalism to function (but many that say they want capitalism don’t want any regulation of the sort they don’t want). Some seem to agree that some regulation is needed but any regulation they don’t want is seen as “socialist” or “anti-capitalist” or… At least the Libertarians are very consistent about practically no regulation – I question that being capitalism, but at least I understand their position.

    Maybe the amount of direct cash payments and sheer amount of not very indirect subsidies (free money from the Fed, huge government contracts to political friends, tax breaks for big contributors [hedge fund managers, corporations using offshore tax havens…], quotas to aid political contributors) have been very high recently. But those changes are more a matter of degree than a qualitative change from the few years before that and few year before that and so on.

    I am not sure if people are thinking back to the days when we had large trusts as “capitalism”? Some people equate “capitalism” with essentially no government (no FDA, no SEC, no DoD, no FDIC, no EPA…) – so then maybe the wild west or Afghanistan today is capitalism. I don’t. I would say that we have been become less interested in maintaining a free market (allowing oligopolies and monopolies to exist and distort markets) and an excessive amount of letting those with gold pay politicians to get special deals lately (the last 20-30 years). But it is really just a matter of being worse in those areas not some huge qualitative change.

    We broke up trusts for awhile but lately have been supporting those with lots of clout using the clout to prevent competition.

    Of course perfect competition is not really reasonable to expect in many markets in the real world. But the aim of shooting toward open and competitive markets is just not something we seem to have paid much attention to for decades. I’m not sure when we did. And paying attention to sensible things like externalities is still very weak. Even in the trust busting era the actions (to move toward a more capitalist economy where markets could function more freely) were fought by many. And while the efforts made a huge difference, it isn’t as though they went to anything close to perfect competition.

    Countries like Hong Kong (questionably a “country”) and Singapore do lots of things that are nice capitalistic practices. But they have plenty of practices that are not very capitalistic. I’m not really sure what paragons of Capitalism those that appose regulating markets suggest as better models than the USA. Perhaps they believe the USA is the most capitalistic but it is still not capitalistic enough. A perfectly reasonable positions, I would think, but I am not sure if that is their belief or not.

    Related: Ignorance of Capitalism – USA Spent $2.2 Trillion, 16.2% of GDP, on Health Care in 2007

  • You Can Help Reduce Extreme Poverty

    The Life You can Save

    But extreme poverty is not only having unsatisfied material needs…
    You have a pervading sense of shame and failure because you cannot provide for your children. Your poverty traps you and you lose hope of ever escaping from a life of hard work for which, at the end, you will have nothing to show beyond bare survival.
    The number of people currently living in such conditions is 1.4 billion. This is bad, but not as bad as things were in 1981, when there were 1.9 billion people living in extreme poverty. That was about 4 in every 10 people in the world, whereas now fewer than 1 in 4 are extremely poor.
    …
    UNICEF, the United Nations International Children’s Emergency Fund, estimates that about 24,000 children die every day from preventable, poverty-related causes.

    Personal finance is not just about living within a budget and making sensible steps to make safe financial decisions (safe investment portfolio, proper insurance, adequate savings, emergency fund) it is also about using your finances appropriately for you. I believe strongly in helping those that have not been as lucky to have the opportunities I have economically.

    Some of my favorite ways to help reduce extreme poverty are Trickle Up, Kiva and using Global Giving to find small organizations (like the Anupshahar’s Girls School, Build Women’s Fair Trade Businesses, Profit for Poor Farmers, and Vegetable Gardens for India). I encourage you to join me: let me know if you contribute to Kiva and I will add your Kiva page to our list of Curious Cat Kivans. Also join the Curious Cats Kiva Lending Team (I am happy to say we have made over $7,500 in loans so far).

    If you like that webcast you will like The Girl Effect.

    Related: Creating a World Without Poverty – Financial Thanksgiving – 100th Micro Finance Entrepreneur Loan (I am not over 200) – 2006 Nobel Peace Prize to Founder of Micro-finance Bank – High School Team Project to Provide Clean Water

  • 5 painful health-care lessons from Massachusetts

    5 painful health-care lessons from Massachusetts:

    Costs are rising relentlessly for both families and for the state government. The median annual premium for family plans jumped 10% from 2007 to 2009 to $14,300 — again, that’s a substantial rise on top of an already enormous number. For small businesses, the increase was 12%. In 2006, the state spent around $1 billion on Medicaid, subsidies for medium-to-lower earners, and other health-care programs. Today, the figure is $1.75 billion. The federal government absorbed half of the increase.

    Hence reform’s proponents boast that expenses have risen only $354 million or around 6% a year. But the real increase is double that, including the federal share. And it’s highly possible that given the current budget pressures, the U.S. will reduce the contribution that has encouraged the state to spend so lavishly…

    Interesting article. I don’t agree with all their claims. It isn’t as though expecting to go from the extremely broken system we have suffered with for decades to one without flaw is a likely outcome. What would be nice is if we can learn from experiments and adjust. Those who profit enormously at the expense of society from the current system are going to provide critiques of any changes. And those that want to fix the broken system should listen to sensible criticism and make improvements (not just defend any changes because the existing system is so bad).

    Related: USA Heath Care System Needs Reform – International Health Care System Performance – USA Spends Record $2.3 trillion ($7,681 Per Person) on Health Care in 2008