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  • Government Debt Compared to GDP 1990-2007

    Government debt as percent of GDP 1990-2007Chart showing government debt as a percentage of GDP by Curious Cat Investing Economics Blog, Creative Commons Attribution, data from OECD, Sept 2009.

    For 2007 most countries slightly decreased their government debt to GDP ratio – as economic growth exceeded debt growth. The OECD is made up of countries in Europe and the USA, Japan, Korea, Australia, New Zealand and Canada. The overall OECD debt to GDP ratio decreased from 77% in 2005 to 75% in 2007. The USA moved in the opposite direction increasing from 62% to 63%: still remaining far below the OECD total. Most likely 2008, 2009 and 2010 will see both the USA and other OECD national dramatically increase the debt burden.

    Compared to the OECD countries the USA is actually better than average. The chart shows the percentage of GDP that government debt represents for various countries. The USA ended 2007 at 63% while the overall OECD total is 75%. In 1990 the USA was at 63% and the OECD was at 57%. Japan is the line way at the top with a 2007 total of 171% (that is a big problem for them). Korea is in the best shape at just a 29% total in 2007 but that is an increase from just 8% in 1990.

    Related: Government Debt as a Percentage of GDP Through 2006 – Oil Consumption by Country in 2007 – Federal Deficit To Double This Year – Politicians Again Raising Taxes On Your Children – True Level of USA Federal Deficit – Top 12 Manufacturing Countries in 2007
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  • Loan Delinquency Rates Increased Dramatically in the 2nd Quarter

    chart of loan default rates 1998 to 2009Chart showing loan delinquency rates for real estate, consumer and agricultural loans for 1998 to 2009 by the Curious Cat Investing Economics Blog, Creative Commons Attribution, data from the Federal Reserve.

    Delinquency rates on commercial (up another 151 basis points) and residential (93 basis points) real estate continued to increase dramatically in the second quarter. Credit card delinquency rates increased but only by 20 basis points.

    Real estate delinquency rates exploded in 2008. In the 4th quarter of 2007 residential delinquency rates were 3.02% by the 4th quarter of 2008 they were 6.34% and in the 2nd quarter of this year they were 8.84% (582 basis points above the 4th quarter of 2007). Commercial real estate delinquency rates were at 2.74% in the 4th quarter of 2007, 5.43% in the fourth quarter of 2008 and 7.91% in the 2nd quarter of 2009 (a 517 basis point increase).

    Credit card delinquency rates were much higher than real estate default rates for the last 10 years (the 4-5% range while real estate hovered above or below 2%). Now they are over 200 and 300 basis points bellow residential and commercial delinquency rates respectively. From 4.8% in the 3rd quarter 2008 to 5.66% in the 4th and 6.5% in the 1st quarter of 2009.

    The delinquency rate on other consumer loans and agricultural loan delinquency rates are up but nowhere near the amounts of real estate or credit cards.

    As I wrote recently bond yields in the last few months show a dramatic increase in investor confidence for corporate bonds.

    Data from the Federal Reserve

    Related: Loan Delinquency Rates: 1998-2009 – The Impact of Credit Scores and Jumbo Size on Mortgage Rates – 30 Year Mortgage Rate and Federal Funds Rate Chart

  • Oil Consumption by Country in 2007

    The largest oil consuming countries (and EU), in millions of barrels per day for 2007. China increased use by 1 billion barrels a day, the USA and Europe decreased use by 100 million barrels a day from our post last year on Oil Consumption by Country.

    Country consumption % of oil used % of population % of World GDP % of oil used in 2006
    USA 20.7 24.3 4.5 21.0 25.9
    European Union 14.4 16.9 7.4 21.9 18.1
    China 7.9 9.2 19.9 10.8 8.6
    Japan 5.0 5.8 1.8 6.5 6.7
    India 2.7 3.1 17.3 4.5 3.0
    Russia 2.7 3.1 2.0 3.1 3.6
    Germany 2.5 2.8 1.2 4.2 3.3
    Brazil 2.4 2.7 2.9 2.8 2.6
    Canada 2.4 2.7 0.4 1.9 2.9
    Mexico 2.1 2.4 1.6 2.0 2.6
    South Korea 2.1 2.4 0.7 1.8 2.7

    Data is from CIA World Factbook 2009 (downloaded August 2009). GDP calculated using purchasing power parity from 2008 fact book with estimated 2007 data.

    Related: Government Debt as a Percentage of GDP – Global Manufacturing Production by Country – Manufacturing Contracting Globally (March 2009)

  • Capacity Utilization Rate Up Slightly From All Time Low

    chart of USA capacity utilization rate 1972-2009The chart shows the capacity utilization rate in the USA. By Curious Cat Investing Economics Blog, Creative Commons Attribution, data from the Federal Reserve.

    Industrial production increased .5% in July and capacity utilization rate increased to 68.5% from an all time low of 68.1%. Capacity utilization has averaged 80.9% from 1972 to today.

    Manufacturing output increased 1.0% in July but remained 14.4% lower than its year-earlier level. The factory operating rate rose to 65.4% in July, 70 basis points above the historical low recorded in June; the series begins in 1948. Production in durable goods industries advanced 2.2% in July. In addition to the sharp increase in motor vehicles and parts output, large production gains occurred for nonmetallic mineral products and for primary metals. The indexes for wood products, computer and electronic products, aerospace and miscellaneous transportation equipment, furniture and related products, and miscellaneous goods also rose. The indexes for fabricated metal products, machinery, and electrical equipment declined.

    The production of nondurable goods fell 0.1% in July. The indexes for textile and product mills and for printing and support recorded sizable declines; the indexes for food, beverages, and tobacco and for petroleum and coal products also declined. The output of paper, of chemicals, and of plastic and rubber products increased.

    The index for other manufacturing, which consists of publishing and logging, was down 0.6% in July.

    The output of electric and gas utilities decreased 2.4%, and the operating rate for utilities dropped 21 basis points, to 77.6%. Mining production moved up 0.8%; its utilization rate in July, at 81.7%, was 59 basis points below its 1972-2008 average.

    Data from the St. Louis Federal Reserve and Federal Reserve August 14th Industrial Production and Capacity Utilization press release.

    Related: Loan Default Rates: 1998-2009 – Government Debt as a Percentage of GDP – USA Spent $2.2 Trillion, 16.2% of GDP, on Health Care in 2007
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  • Financial Services for the Poor from the Gates Foundation

    The behavior of banks is despicable enough when they are merely trying to trick educated, financially secure people out of their money. Banks charged $38.5 billion in fees last year according to the Financial Times. But that behavior, toward the poor, by banks (paying millions to hundreds of executives for, I guess, getting congress to send the companies billions) is immoral.

    The Gates Foundation has decided to go into improving financial services for the poor. The are supporting micro-credit but also micro finance. Saving is key for poor people to get and stay out of poverty. Most already save money informally but want better, safer options. Setting aside money in a safe place will allow poor people to weather setbacks, build assets and financial security, and invest in opportunities for the next generation. Formal savings accounts also help them keep more of what they earn and easily access their money when they need it.

    The poor need better banking options in poor countries. But the poor need better banking options in at least one rich country (the only one I know is the USA and banks in the USA provide lousy options for the poor). Credit Unions are much more likely to actually try and provide value to customers. Unfortunately banks in the USA seem to operate on the principle that customer are suckers that exist to pay for Porches for the children of bank executives.

    Related: FDIC Study of Bank Overdraft Fees – Microfinancing Entrepreneurs – Incredibly Bad Customer Service from Discover Card – 10 Things Your Bank Won’t Tell You

  • Bond Yields Show Dramatic Increase in Investor Confidence

    graph of 10 year Aaa, Baa and corporate bond rates from 2005-2009Chart showing corporate and government bond yields by Curious Cat Investing Economics Blog, Creative Commons Attribution, data from the Federal Reserve.

    The changes in bond yields over the last 3 months months indicate a huge increase in investor confidence. The yield spread between corporate Baa 10 year bonds and 10 year treasury bonds increased 304 basis points from July 2008 to December 2008, indicating a huge swing in investor sentiment away from risk and to security (US government securities). From April 2009 to July 2009 the yield spread decreased by 213 basis points showing investors have moved away from government bonds and into Baa corporate bonds.

    From April to July 10 year corporate Aaa yields have stayed essentially unchanged (5.39% to 5.41% in July). Baa yields plunged from 8.39% to 7.09%. And 10 year government bond yields increased from 2.93% to 3.56%. federal funds rate remains under .25%.

    Investors are now willing to take risk on corporate defaults for a much lower premium (over government bond yields) than just a few months ago. This is a sign the credit crisis has eased quite dramatically, even though it is not yet over.

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

    Related: Continued Large Spreads Between Corporate and Government Bond Yields (April 2009) – Chart Shows Wild Swings in Bond Yields (Jan 2009) – investing and economic charts

  • Lazy Portfolios Seven-year Winning Streak

    Here is an excellent article on how to invest in the stock market. I personally tweak this advice a bit but it is much better than most advice you get. Basically keep costs down (don’t pay large fees) and diversify. Lazy Portfolios seven-year winning streak by Paul Farrell

    Greed drives this [mutual fund] industry. The “world’s largest skimming operation” has now lost over 50% of America’s savings in the decade since the peak of 2000. The track record of actively managed funds during the recent subprime-credit meltdown continues to prove that the industry is failing America. The only way to invest is with index funds, which make up just 14% of the total.
    …
    In short, even though we know that the average compensation of portfolio managers is often $400,000 to more than a $1 million, the hot-shot managers of these actively managed funds provided no value-added to their funds’ performance. Conclusion: Their investors would be better off investing in index funds.
    …
    Yes, the market was in negative territory the past few years, but still all eight Lazy Portfolios outperformed each of the six actively-managed funds.
    …
    Customize your own Lazy Portfolio following these six rules and you’ll win. More important, you’ll have lots of time left to enjoy what really counts, your family, friends, career, sports, hobbies, living.
    …
    2) Frugality, savings versus financial obesity. Tools like starting early, autopilot saving plans, dollar-cost averaging, frugal living and other tricks are familiar to long-term investors. Trust your frugality instincts — living below your means — it’s a trait common among America’s “millionaires next door.”

    Related: Lazy Portfolio Results (April 2008) – Allocations Make A Big Difference – 12 stocks for 10 years – 401(k)s are a Great Way to Save for Retirement

  • 12 Stocks for 10 Years – July 2009 Update

    I originally setup the 10 stocks for 10 years portfolio in April of 2005. In order to track performance created a marketocracy portfolio but had to make some minor adjustments (and marketocracy doesn’t allow Tesco to be purchased, though it is easily available as an ADR to anyone in the USA to buy in real life – it is based in England). The current marketocracy calculated annualized rate or return (which excludes Tesco) is 3.5% (the S&P 500 annualized return for the period is -1.7%) – marketocracy subtracts the equivalent of 2% of assets annually to simulate management fees – as though the portfolio were a mutual fund – so without that the return is about 5.5%).

    The current stocks, in order of return:

    Stock Current Return % of sleep well portfolio now % of the portfolio if I were buying today
    Amazon – AMZN 136% 9% 9%
    Google – GOOG 105% 15% 13%
    Templeton Dragon Fund – TDF 80% 11% 11%
    PetroChina – PTR 78% 11% 10%
    Templeton Emerging Market Fund – EMF 28% 5% 6%
    Cisco – CSCO 15% 6% 8%
    Toyota – TM 7% 9% 11%
    Danaher – DHR -14% 6% 9%
    Tesco – TSCDY -14%* 0%* 10%
    Intel – INTC -15% 4% 6%
    Pfizer – PFE -38% 5% 7%
    Dell -60% 4% 0%

    The portfolio is beating the S&P 500 by 5.2% annually (which is actually quite good. Also it is a bit confused due to to Tesco not being included. View the current marketocracy Sleep Well portfolio page.

    Related: 12 Stocks for 10 Years Update – June 2008 – posts on stocks – investing books
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  • Loan Default Rates: 1998-2009

    chart of loan default rates 1998 to 2009Chart showing loan default rates for real estate, consumer and agricultural loans for 1998 to 2009 by the Curious Cat Investing Economics Blog, Creative Commons Attribution, data from the Federal Reserve.

    As you can see real estate default rates exploded in 2008. In the 4th quarter of 2007 residential default rates were 3.02% by the 4th quarter of 2008 they were 6.34% and in the 1st quarter of this year they were 7.91% (471 basis points above the 4th quarter of 2007). Commercial real estate default rates were at 2.74 in the 4th quarter of 2007, 5.43% in the fourth quarter of 2008 and 6.5% in the 1st quarter of 2009 (a 366 basis point increase).

    Credit card default rates were much higher for the last 10 years (the 4-5% range while real estate hovered above or below 2%). In the last 2 quarters it has increased sharply. From 4.8% in the 3rd quarter 2008 to 5.66% in the 4th and 6.5% in the 1st quarter of 2009. The default rate on other consumer loans are up but nowhere near the amounts of real estate or credit cards.

    Agricultural loan default rates are actually about as low now as they have every been 1.71%. That is up a bit from the 1.06% low the default rate hit in the 1st quarter of 2009 but actually lower than it was for half of the last decade (the last 5 years it has been lower but prior to that it was higher – in fact with higher default rates than either real estate loan category).

    Data from the Federal Reserve

    Related: Mortgage Rates: 6 Month and 5 Year Charts – Jumbo Loan Defaults Rise at Fast Pace – Continued Large Spreads Between Corporate and Government Bond Yields – Nearly 10% of Mortgages Delinquent or in Foreclosure

  • Managing Retirement Investment Risks

    The Society for Actuaries has published a good resource: Managing post-retirement risks.

    Experts disagree about when annuitization is a good strategy. Disadvantages include losing control of assets, costs, and inability to leave money to one’s heirs. Annuities without inflation protection are only partial protection against living “too long.”
    …
    Many investors try to own some assets whose value may grow in times of inflation. However, this sometimes will trade inflation risk for investment risk.
    • Common stocks have outperformed inflation in the long run, but are
    poor short-term hedges. The historically higher returns from stocks
    are not guaranteed and may vary greatly during retirement years.
    …
    Retirement planning should not rely heavily on income from a bridge job. Many retirees welcome the chance to change careers and move into an area with less pay but more job satisfaction, or with fewer demands on their time and energy.

    Terminating employment before age 65 may make it difficult to find a source of affordable health insurance before Medicare is available.
    …
    Insurance for long-term care covers disabilities so severe that assistance is needed with daily activities such as bathing, dressing and eating. Some policies require a nursing home stay; others do not. The cost of long-term care insurance is much less if purchased at younger ages, well before anticipated need.

    The full document is well worth reading.

    Related: Many Retirees Face Prospect of Outliving Savings – How to Protect Your Financial Health – Financial Planning Made Easy – personal finance tips