Investing Curiouscatblog

Tag: economy

  • Looking at the Value of Different College Degrees

    Georgetown University Center on Education and the Workforce has produced a new report looking at the value of different college degrees in the USA. I have seen a great increase in discussions of the “bubble” in education. Those articles often say a college degree doesn’t assure the success it used to. The data I review seems to show extremely large benefits for those with a college degree (higher salaries but, much more importantly, in my opinion, they also have much lower unemployment rates).

    Those benefits are greatest for several majors including science, math and engineering. The problem I see is not so much that significant benefits are lacking for college degrees but the huge increases in costs of getting a degree are so large that for some majors the cost is just so large that even with the benefits it is arguable whether it is worth the cost (while a few decades ago the benefits were universal and so large the economic benefit was not debatable).

    The authors of the report found that all undergraduate majors are worthwhile, even taking into account the cost of college and lost earnings. However, the lifetime advantage ranges from $1,090,000 for Engineering majors to $241,000 for Education majors. As I have written frequently on the Curious Cat Science and Engineering blog, engineering degrees are very financially rewarding.

    The top 10 majors with the highest median earnings for new graduates are:

    • Petroleum Engineer ($120,000)
    • Pharmacy/pharmaceutical Sciences and Administration ($105,000)
    • Mathematics and Computer Sciences ($98,000)
    • Aerospace Engineering ($87,000)
    • Chemical Engineering ($86,000)
    • Electrical Engineering ($85,000)
    • Naval Architecture and Marine Engineering ($82,000)
    • Mechanical Engineering, Metallurgical Engineering and Mining and Mineral Engineering (each with median earnings of $80,000)
    chart showing the salaries by major in the USA (2009)
    Chart of salaries (25th and 75th percentile) by major in the USA based on data from 2009

    Related: 10 Jobs That Provide a Great Return on Investment – Mathematicians Top List of Best Occupations – New Graduates Should Live Frugally

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  • Consumer and Real Estate Loan Delinquency Rates from 2000 to 2011

    chart showing loan delinquency rates from 2000-2011 in the USA
    Chart showing loan delinquency rates from 2000-2011, shows seasonally adjusted data for all banks for consumer and real estate loans. The chart is available for use with attribution. Data from the Federal Reserve.

    Residential real estate delinquency rates increased in the first half of 2011 in the USA. Other debt delinquency rates decreased. Credit card delinquency rates have actually reached a 17 year low.

    While the job market remains poor and the serious long term problems created by governments spending beyond their means (for decades) and allowing too big to fail institutions to destroy economic wealth and create great risk for world economic stability the USA economy does exhibit positive signs. The economy continues to grow – slowly but still growing. And the reduction in delinquency rates is a good sign. Though the residential and business real estate rates are far far too high.

    Related: Consumer and Real Estate Loan Delinquency Rates 2000-2010 – Real Estate and Consumer Loan Delinquency Rates 1998-2009 – Government Debt as Percent of GDP 1998-2010 for OECD

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  • The USA Doesn’t Understand that the 1950s and 1960s are Not a Reasonable Basis for Setting Expectations

    After World War II essentially the only significantly large industrial base was in the USA. The USA was emerging as a national power in the early 1900’s. The wake of World War I and World War II left a very odd situation. You had many formerly very rich countries that were devastated and one rich country that wasn’t. Devastation is not easy to overcome in even 20 years. So for a good 2 decades the USA got wealthier and wealthier even while other formerly rich countries were re-developing their countries rapidly.

    This made the USA even richer as selling to all those around the world was pretty easy, just creating enough stuff was the hardest part. Almost none of the current emerging markets were doing much of anything economically. This resulted in the USA being able to live incredibly well and generate enormous wealth.

    The main legacy of this is a huge benefit to the USA – enormous wealth and experience. However, it seems to have left people thinking the USA is just suppose to be enormously wealthy always no matter if we throw away hundreds of billions a year on a broken health care system, provide huge benefits to political donors (farmers or bankers or phone oligopolists or robbers of the public domain [preventing innovation through repressive, outdated “intellectual property” regimes]), spending many hundreds of billions yearly on military expenditures far beyond those of any other country… It doesn’t work that way.

    You can waste huge amounts of economic benefit when you are the dominant economic power globally. And when you were as rich as the USA was in the 1950s and 1960s more and more people felt they deserved to be favored with economic gifts. So for a a few decades the USA used the excess wealth to pay off all sorts of special interests and still do very well economically. The only thing surprising is how long we have been able to keep this up.

    It isn’t rational to base expectations on periods when we were granted economic wealth largely by virtue of the world industrial production, other than ours, being destroyed. This isn’t the only reason we were wealthy, we do many things very well (compared to other countries) entrepreneurship, less corruption (still way too much but less than average), from 1950 to about 1990 an equitable distribution of economic gains, until recently a good advanced education system, a brilliant system to turn science and engineering breakthroughs into economic profit (that in the last few decades other countries are starting to do, but they are still way behind)…

    From 1970s until say the 2000s we could use our accumulated wealth to live off and allow huge inefficiencies to continue (lousy job of regulating banks, lousy job of subsidizing farming, lousy job of subsidizing lousy food [making it cheap to eat unhealthy food and expensive to eat healthy food], lousy job of controlling the costs of higher education, lousy job of getting people to realize they cannot expect to live far beyond most everyone else in the world just because they were born in the USA…
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  • Kiva Loans Give Entrepreneurs a Chance to Succeed

    photo of Manuel De Jesus in front of his milling equipment
    Manuel De Jesus, miller and farmer in El Salvador, will use his loan to buy parts for this milling euipment.

    There is a great deal focus recently on the “99%” (via occupy wall street and the like). The truth is these are mainly about the 5% or 10% (those rich, but not quite as rich as the richest 1% – and much further from the richest than they were a few decades ago). As I have written before, most of those in the USA (also Europe, Japan…) are rich (though this is changing, a greater percentage of the USA is not rich, looking globally, than maybe any point since the 1930s).

    We get confused because many near us are even richer and think that means the rest of us are very poor. But those in the USA are often in the 5% or 10% – not the 30% or 60% or 90% they seem to think they are. $50,000 in annual income puts you in the top 1% globally. $25,000 puts you in the top 10%.

    I agree with the desire to reduce the political and market corruption, as I have written for years.

    For the 99% (or the 90% anyway), I really think the best things are government policies that reduce corruption and increase market forces. Letting actually capitalism work instead of political and corporate cronyism failing to let markets work as they should. Also giving education and the chance to build a better life for yourself are important. Thankfully many countries have been doing very well on this front: Singapore, Korea, Brazil, Ghana, China… That doesn’t mean there are not huge issues to still address for most of the 90%, there are.

    Microfinance in general, and Kiva in particular, are one great way to help. Again it isn’t perfect. And those getting the loans are not given an easy life. They are given a chance to try and build there business to improve there economic condition. This isn’t a certain success. And I do worry that taking on too high an interest rate, or loan amount, can leave people worse off than before. But when looking at the system of microfinance I really like the opportunity it gives people, who haven’t been given many.

    Those getting loans have to make smart personal finance and business decisions. If they do well they can greatly improve their financial situation. I made several more loans today, using money repaid by previous borrowers. I try to find loans where I am able to help fund a investment that will improve capacity (but that isn’t always possible) – a new machine that makes them more efficient for example. I also try to avoid loans where the interest rate is over 30% (which might seem very high, but rates below 20% are very rare given the economics of these loans – they are very costly to service). What Kiva does is provide the funds people like me lend as interest free loans to the partner banks. The idea is that this allows partner banks to provide more capital for loans (obviously) and at a lower rate because the bank isn’t having to pay interest on the funds.

    My loans today went to: Mali, Honduras, Senegal, Ecuador, Togo, Philippines and in the photo above El Salvador. The Curious Cat Kivans group has now lent $12,925 in 320 loans. We now have 11 members, join up and help give people an opportunity to improve their economic condition.

    Related: More Kiva Entrepreneur Loans: Kenya, Honduras, Armenia… – Using Capitalism in Mali to Create Better Lives – Funding Entrepreneurs in Nicaragua, Ghana, Viet Nam, Togo and Tanzania

  • Chart of Largest Petroleum Consuming Countries from 1980 to 2010

    chart of petroleum consumption by country 1980-2010
    Chart of petroleum consumption by country 1980-2010 by the Curious Cat Investing and Economics Blog. The chart may be used with attribution.

    The USA remains, by a huge margin, the largest consumer of petroleum products (motor gasoline, jet fuel, liquefied petroleum gases, residential fuel oil…) using 22% of the total (with about 4.5% of the population). From 1980 to 2010 the global consumption increased 38% to 87 million barrels a day.

    From 1980 to 2010 USA consumption increased 12% (so less than global consumption). Meanwhile, Germany, Japan and France decreased petroleum use by 19%, 17% and 10% respectively. Many countries have very low use in 1980 and have grown their economies dramatically over this period and increased petroleum use dramatically also: India up 433%, China up 411%, South Korea up 360%.

    Africa, in total, used 3.3 million barrels a day in 2010, up 120% from 1980. Africa used 73% of what Japan used in 2010 and 17% of what the USA used and 50% more than Canada. The data shows no sign of declining petroleum consumption on a global basis. The USA uses as much as China, India, Brazil and Africa combined. I believe, in 2015 those countries (by which I mean all the countries in Africa too, not that Africa is a country, which of course it is not) will use more than the USA (and likely show significant growth from 2010 levels).

    Data is from the US Energy Information Agency.

    Related: Oil Production by Country 1999-2009 – Top Countries For Renewable Energy Capacity – Chart of Nuclear Power Production by Country from 1985-2009 – Increasing USA Foreign Oil Dependence In The Last 40 years

  • Jobs News in the USA is not Good, Unemployment Remains at 9.1%

    This was a bad month for jobs in the USA. Not only did the U.S. Bureau of Labor Statistics report that the number of jobs remained at the same level as last month (125,000 additional jobs are needed for population growth, on average and we have huge losses from the credit crisis recession that have to be gained back) the last 2 months were revised down. The change in total nonfarm payroll employment for June was revised from
    a gain of 46,000 to a gain of 20,000, and the July was revised down from gaining 117,000 job to gaining
    85,000. That results in a total loss for this report of 58,000.

    Still much better than the huge losses of several years ago but, along with the last few months, not a good sign for short term job growth. And the failure to address decades of favors given by politicians to too big to fail banks may actually create serious problems much sooner than most people feared. Pretty much everyone knew that the failure to address the main cause of the credit crisis was setting us up for again having the economy suffer huge blows due to the behavior of too big to fail institutions but I, and I think most people, thought it would be at least 5 years away and maybe even 10 before we had to seriously pay for the failures of our politicians to address this problem they (and their predecessors created).

    It really seems like politicians don’t understand that their predecessors (decades ago) could afford to payoff large political donors and avoid dealing with problems and the enormous amount of wealth the economy was generating would let us prosper (even with lousy leadership), but that is no longer the case. The USA has used up huge economic advantages and that easy time is not coming back. Sadly the main hope for the USA is that other countries leaders create enough waste that the USA can remain competitive with all the waste our create (extremely lousy health care system, for example). It seems the American public doesn’t understand either, if anything we are electing even less intelligent and capable leaders today (over the last 10 years).

    The USA has 14 million unemployed. Among the major worker groups, the unemployment rates for adult men was 8.9%, adult women 8.0% and teenagers 25.4%, whites. Of those 14 million the number of long-term unemployed (those jobless for 27 weeks and over) was about unchanged at 6 million in August.

    The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) rose from 8.4 million to 8.8 million in August. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

    The average workweek for all employees on private nonfarm payrolls edged down by 0.1 hour over the month to 34.2 hours. The manufacturing workweek was 40.3 hours for the third consecutive month; factory overtime increased by 0.1 hour over the month to 3.2 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls edged down to 33.5 hours in August, after holding at 33.6 hours for the prior 6 months.

    As bad as this news is, it could be much worse. The economy is actually growing (very slowly), probably. Many companies are actually still very profitable (I am not counting companies that have fake profits with congress approved ability to report fake values for their assets – Congress granted their too big too fail donors, this, and many other favors while most others are left out in the cold). The wealth in the USA, even after we have been consuming our capital to live beyond what we earn each year (for decades) is still extremely high. This allows us to live well and invest even with many bad practices in place. We continue to have many excellent companies doing great work and providing great jobs. Even with all the problems in the USA there are few countries that are in as enviable an economic position. The biggest problem I see is we have been squandering those advantages far too easily and quickly for far too long. That leaves us much more economically venerable than we need to be.

    Related: Paying Back Direct Cash Bailouts from Taxpayers Does not Excuse Bank Misdeeds – USA Unemployment Rate at 9.6% (after losing 54,000 job in Aug 2010)

  • Curious Cat Investing and Economic Carnival #15

    The global economy continue to be fragile and chaotic. At the same time companies continue to make large, and often increasing, profit. Here are some good blog posts on investing, personal finance and the economy.

    • The Economy is Weak and Prospects May be Grim, But Many Companies Have Rosy Prospects by John Hunter – “the prospects in emerging markets look incredibly good to me. Yes they will slow their growth a bit if the large economies stall, but I think it is foolish to avoid investments in China, Singapore, Brazil, Korea, India, Ghana, Malaysia, Indonesia. In fact that is where companies like Google, Tesco, Apple, Toyota and Amazon are going to be making lots of money. Emerging markets are volatile and the companies in them are too. This will continue.”
    • Extreme Early Retirement in Practice: How Two People Did It by Robert Brokamp – “We recently spent three months in Guatemala nestled between three volcanoes, on the shores of beautiful Lake Atitlan, and our average spending was $40 per day for the two of us, which equates to $14,600 per year. Our hotel price included daily cleaning, wi-fi, room service, cable TV, and a view.”
    • Are stocks cheap yet? Not if the economy is slowing, these numbers say by James Jubak – “A 20% drop in forecast earnings—the rough equivalent of an economic slowdown instead of a recession—would put the price-to-earnings ratio of the S&P 500 at 13. That’s below the average of 15 but not really very cheap given the degree of economic risk that an investor is taking on right now.”
    • Private Pensions: Another Gradual Catastrophe by Evan Tarte – “Despite the arguably noble intent of defined benefit plans and the PBGC, these plans demand crippling contributions from employers and inevitably the taxpayer, and make little sense in today’s market environment. PBGC’s current deficit stands at $22 billion”
    • Emergency Savings: is 6 Months Still Enough? by GE Miller – “with the average unemployment duration at 40.4 weeks, 6 months (or 26 weeks) is no longer enough, particularly when you take into account the possibility of medical emergency, pet operations, or other unforeseen circumstances. What is a good length these days? 1 year, at a minimum.”

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  • Economic Consequences Flow from Failing to Follow Real Capitalist Model and Living Beyond Our Means

    The current frustration with economic conditions in the USA and Europe has at its core two main elements. First the anti-capitalist concentration of power in a few monopolistic and oligopolistic corporations (along with the support and encouragement of governments and the governments failure to regulate markets to encourage capitalist practices). And second the consequences of living beyond our means finally becoming much more challenging.

    What we have had has been very questionably capitalist. The largest reason for this “questionable” nature is not related to labor but instead to the inordinate power given to a limited number of large corporations. The corporations are suppose to not have “market power” in real capitalism. They have huge and growing market power. To me the main problem is that power disruption to the functioning of capitalist free markets.

    There is also the problem that we have been living far beyond our means. This has nothing to do with capitalism or not capitalism. It is as simple as you produce 100 units of goods and use 110 that can’t continue forever. The USA started building a surplus in the 1940’s, I imagine Europe did in the 1950’s. Since about the 1980’s both areas have been living far beyond their means. While they were consuming what they saved over the previous decades it wasn’t so bad. While they mortgaged their future to live lavishly today that was worse. We continue to live beyond our means and are beginning to see some consequences but we haven’t come close to accepting the lavish lifestyles we enjoyed (while Europe and the USA lived off past gains and off very advantageous trade with the rest of the world) is not possible any longer. We can’t just have everyone in Europe and the USA live exceeding well and the rest of the world support us. Eventually we have to realize this (or in any event we will experience it, even if we don’t realize it).

    Those 2 factors need to be addressed for our economic future to be as bright as it should be.

    Related: Too big too fail, too big to exist – Using Capitalism in Mali to Create Better Lives – Creating a World Without Poverty

  • The Economy is Weak and Prospects May be Grim, But Many Companies Have Rosy Prospects

    The fundamental truth right now is that the overall economy in Europe, the USA and Japan is weak and has some serious long term problems. But the connection between that and company weakness is not incredibly strong. Many companies have huge cash hoards, built up through the large profits they continue to make. Yes, the economy entering a serious downturn will hurt many companies. A railroad is going to lose some sales if retail sales decline (and so they don’t have to be shipped). Airlines (historically problematic companies to begin will) will struggle. Banks that pay exorbitant amounts to senior staff have trouble making money without handouts of taking huge risks that then result in more handouts once the risks fail (as usually a bad economy will expose the risks they have taken). Companies that can only do well based on large top line growth will suffer. But that isn’t all companies.

    When you look at companies like Google, Apple, Tesco, Danaher, Amazon even Toyota I really don’t see many problems looking forward. They seem perfectly capable of staying profitable, even growing profits, even in the face of economic decline in Europe, the USA and Japan (if that happens: it is possible, but not certain – very low growth is possible). Companies that have very good prospects at staying profitable, even getting more profitable going forward are hardly the type of investment I want to sell. Especially not to put it in the bank and get 0%, or a money market fund and pay someone for the privilege of having my money.

    The options for investing today don’t look so great. But I really don’t see any reason to be concerned about owning stocks that have good prospects to do well even if the quite a few large economies do poorly in the next decade. In fact I am happy to own them. Frankly the biggest worry I have is that the senior executives will loot the owners profits with exorbitant pay (this is not a worry at Toyota and less of one at Amazon). I would worry more about owning index funds in such an environment. But even as bad as things look now, I am not sure they will really turn out as bad as we fear – especially for many companies, for some yes, but many are well prepared for change).

    And the prospects in emerging markets look incredibly good to me. Yes they will slow their growth a bit if the large economies stall, but I think it is foolish to avoid investments in China, Singapore, Brazil, Korea, India, Ghana, Malaysia, Indonesia. In fact that is where companies like Google, Tesco, Apple, Toyota and Amazon are going to be making lots of money. Emerging markets are volatile and the companies in them are too. This will continue.
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  • USA add 117,000 Jobs in July and Adjusts Previous Growth in May and June Up 56,000 More

    The report on employment released today was not good news but it was less bad than feared. Total nonfarm payroll employment rose by 117,000 in July, and the unemployment rate was little changed at 9.1%, the United States Bureau of Labor Statistics reported today. Employment growth in July, follows little growth over the prior 2 months. Total private employment rose by 154,000 over the month. Sectors experiencing growth include: health care, retail trade, manufacturing, and mining. Government employment continued to trend down.

    Some good news is found in the adjustments to the last two months job numbers. The change in total nonfarm payroll employment for May was revised from +25,000 to +53,000, and the change for June was revised from +18,000 to +46,000. That adds 56,000 jobs to the 117,000 jobs added in July and brings to the total for this report to 173,000 additional jobs. Still not great but much better than the last 2 months. The economy needs to add 125,000 a month to keep up with population growth.

    And currently the economy needs to add much more to make up for all the jobs lost due to the too big to fail institution created credit crisis. The damage done to the economy by those institutions and continuing to be done in order to support those companies remains enormous. I believe we need to see 230,000 jobs added a month consistently (in order to be making ground up for the damage done), before we can believe we are doing well.

    Remember it was just over 2 years ago we were losing hundreds of thousands of jobs a month. We are doing much better now, but fixing how broken things were is not easy. Between January of 2008 and February of 2010, the economy lost 8.75 million jobs. Since February 2010, 1.94 million jobs have been added. That means we have still lost 6,810,000 jobs and when you consider we have to add 125,000 a month to keep up we have 43 * 125,000 = 5,375,000 we haven’t added bringing a the total of jobs needed to over 12,000,000 (the number we need to add to get back to where we were). But truthfully we probably were at a bubble induced level at the peak so 12,000,000 is probably an overestimate of how many jobs we need to gain back.
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