![Freakonomics[Revised and Expanded]](/images/21xRHBWYYML.jpg "Freakonomics[Revised and Expanded]")
Double dip recession is in the offing
Topics: Economy
U.S. unemployment rate ticks up to 9.5% as nonfarm payrolls shed 467,000 jobs in June. MSM spins this as a positive news. But I suspect that we will see another increase in unemployment numbers in the near future.
More on this soon…
Some Ideas for Financial prudence and Eco conservation
Topics: Economy
Recently, I’ve been exchanging/discussing some ideas with other “like minded” people who care about the future of our country and the planet. The majority of them find these ideas valuable, but some feel that I am speaking out of my mind.
Face it, we are trying to cope with a severe global economic slump. Our economy is still in a mess. World Bank forecasts that we will not see a positive GDP growth until late 2010. Economist predicts unemployment will continue to rise and hold steady until the end of this year. Credit card issuers continue to write off a record portion of their loans to their consumers. Most credit card users are unemployed, who will continue to borrow and delay their payments. In a recent poll it was found that over 60% prefer owning an iPod to caring about the environment. I am actually not surprised. The Gen X and Y spend most of their time communicating or interacting with their friends online rather than meeting them in person. Whatever happened to social interaction? The majority of the people in this country (especially the Gen X and Y) live from paycheck to paycheck. They completely lack the knowledge and value of money. Most don’t set aside a portion of their earnings for emergency and/or other big investments. We live a lifestyle that is beyond our means. America’s supply of engineers and scientists is shrinking. A large number of youth are not completing high school. As a society, we are decaying morally, culturally and financially. If we don’t change our lifestyle now, we are digging ourselves deeper and deeper. The future will look very much like played out in the movie Idiocracy.
Here are some ideas that might help you with your finances in this tough economic environment:
- Stay away from credit cards. Use debit cards instead. Preferably use the ones that give you reward points. The ones that give you mileage points are useless, as many airlines are constantly changing their mileage requirement policy. You can use reward points, such as ThankYouPoints, to buy gift cards and apparel.
- Use cash when possible.
- Eat in. It’s healthier and goes easy on your wallet. Don’t eat in front of your TV. Use dinner as an opportunity to interact with your family and friends. Studies have indicated watching TV while eating encourages overeating.
- If you feel the need to go out, do it on the weekends so you can spend more time outside.
- Establish a weekly budget for groceries and dining out and stick to it.
- If you go out, try to eat healthy (sushi or Mediterranean to diner or fast food). Eating fast food has a negative impact on society and environment. Yes, take-outs are bad for environment.
- Staying in shape doesn’t require plumping $100 a month in a health club. Pick up an activity or sport. You can find biking or hiking trails near you. Playing a sport like tennis or swimming in a local pool helps you burn more calories than running on the treadmills in a fancy health club.
- Get rid of the idiot box (I mean cable TV). Premium cable service costs about $100 a month. Watching the garbage (aka reality shows) on cable not only degrades your active brain cells, but also costs you a ton of money. Instead, rent movies and shows from Netflix (basic DVD service starts at $8.99). Find other outdoor entertainment. Go to museums or opera houses. You get better value and mental stimulation for your money.
- Get a basic Internet broadband service. Most popular TV shows are available online for free.
- Do you really need an iPhone? If you’re barely making money or unemployed for that matter, get rid of the expensive iPhone service. If you really want one, buy an iTouch. It has the same functionality as the iPhone (except for the phone function), and uses wireless connection which you can find in many places these days.
Some tips for conserving our environment and leading a healthier lifestyle:
- Don’t throw away used vegetables. Use it as a compost. Composts turn organic wastes into a valuable resource. It can be used as a mulch for anything you grow in your farm/garden. This not only reduces waste, but also saves money spent on expensive fertilizers.
- Energy Saving Tips: Change your incandescent bulbs with CFL bulbs. Turn off lights and electronics when not in use.
- Consider powering your house with solar power. Most states give you a tax rebate and benefits for installing solar panels on your roof. Use an electronic meter to monitor electric usage and an inverter to store excess energy.
- If you live in an apartment and can’t install solar panels, change your local energy supplier to wind or solar power.
- Plant a tree in your backyard (if you have room). For every tree we cut, we need to grow one. Reforestation is good for our environment.
- Don’t buy bottled water. It is a waste of plastic. Plus, bottled water is no better than filtered water. Take your coffee mugs with you to Starbucks. You will not only get a discount on your coffee purchase, but you’re also helping the environment.
- Cut out sodas and other artificially sweetened drinks. Diet sodas have a chemical compound called Aspartame. Studies have linked Aspartame to cancer. Also, soda prevents your body from flushing out toxins. Soda contains high fructose corn syrup which is the number two reason behind America’s obesity problem.
- The number 1 cause of American’s obesity problem is processed food. The majority of Americans don’t eat food. They eat food-like substances. Processed food sends signals to your brain telling your digestive system to slow down, which in turn inhibits your body from digesting food properly. This will make your body store more fat.
- Do not use Dishwasher. This consumes ton of water and electricity. Hand wash dishes instead. Use cold water and not hot water if possible. The only time it makes economical sense to use dishwasher is when you have a lot of dishes to wash at once.
Eight ways to supercharge the U.S Economy
Topics: Economy
Read this on “The Futurist”. Agreed with many of the points posted in this article.
Here are the main topics covered
1) Immigration Reform
2) Tax Simplification
3) Tax Exemption for Entrepreneurial Innovators
4) Make Sarbanes-Oxley Voluntary
5) Reform Divorce Laws
6) Make Tax Day One Day Before Election Day
Big Historical Bailouts
Topics: Economy
Via BigPicture
Jim Bianco of Bianco Research crunched the inflation adjusted numbers. The bailout has cost more than all of these big budget government expenditures – combined:
• Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion
• Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
• Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
• S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
• Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
• The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)
• Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion
• Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
• NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion
TOTAL: $3.92 trillion
The disconnect between Market and Economy
Topics: Economy
June 11, 2009
New York
Some say “Green shoots”; others say “Brown shoots”. What I am referring to is the status of the current economic conditions (aka recovery). Is the economy really improving or is it all smokes and mirrors? U.S Debt continues to pile up. Housing market is still trying to find a meaningful bottom (if there is one). Retail sales continues to look awful. Number of people claiming unemployment is still at an elevated level. Durable goods order hovers near 13 year low. We learned today that Americans saw trillions of their net worth wiped out in the first months of the year.
But despite all these bad news, the stock market still managed to put up an impressive rally in the last 3 months. What is really moving the markets higher lately? There are a few reasons. The main one being the fact Fed and PPT are buying S&P futures to help stabilize the market to avoid another plunge. Banks are using TARP money to inflate stock prices to execute their stock offering (for repaying TARP debt). We are also seeing a concerted effort from media and our government spinning all bad news into a “better than expected” news. This is meant to somehow make average “Joe” feel better about the economy and start spending money? Some money managers and investors are buying this story and jumping into the foray. Market didn’t have any meaningful correction since it started making its move upward in mid March. This 35% rally is not sustainable. It reminds me of the sharp rally that we saw back in 2001 and during the Great Depression.
Why am I skeptical? Because, we still haven’t addressed the fundamental source of the problem: Over leveraging of credit. The current approach taken by Fed and Treasury is take more debt to get out of the existing debt. Dumb idea, I must say! Late last year, Helicopter Ben and Treasury started the campaign of printing more money and buying long dated Treasury notes and bonds to contain the meltdown in the Financial system. They were hoping to prevent further deterioration in the housing market by creating an artificial bottom. But as we have seen from recent Treasury auctions, rates for the 10 year notes and 30 Year treasury bonds spiked higher as there were lack of buyers. In recent auctions, it was the Fed who had to chip in and buy their own Treasury notes and bonds. This is a major concern for anyone hoping for economic recovery.
Russia and China have started expressing by either dumping or staying away from buying our debt. Russia just recently announced that it will dump US Dollar as the reserve currency. Fed is stuck between a rock and a hard place. Just how long will they continue this charade? As always, government is looking for an easy way out of this mess. History says our politicians are short term thinkers and we have seen this movie played out over and over again. These voter pandering, lobbyist controlled parties are adept at resolving impending problems (finding short term solutions) at the cost of long term consequences. To summarize, our government is just buying time, hoping this massive debt will go away or left to future generations to deal with. But eventually it will come back to bite us.
Current Credit to Debt ratio
You can find our public debt here.
Traders note:
Markets seem to be in its last breath. I doubt major indices will be able to break 200 ema (currently S&P is at 960), as they were turned down a few times from that level. I also think Oil trade is over. It has gone up too much too fast like the rest of the commodity shares.
Some Interesting Charts
1. Case Shiller Index (March 2009)
2. U.S Federal Budget Deficit
3. U.S Civilian Unemployment Rate
Ron Paul: Audit the Fed, Then End It!
Topics: Economy, Financial Press, Finance, Global Finance
I am in complete agreement with Ron Paul’s commentary.
The main argument seems to be that Congressional oversight over the Fed is government interference in the free market. This argument shows a misunderstanding of what a free market really is. Fundamentally, you cannot defend the Federal Reserve and the free market at the same time. The Fed negates the very foundation of a free market by artificially manipulating the price and supply of money – the lifeblood of the economy. In a free market, interest rates, like the price of any other consumer good, are decentralized and set by the market. The only legitimate, Constitutional role of government in monetary policy is to protect the integrity of the monetary unit and defend against counterfeiters.
You can read more here
Is “Better Place” the future of Car industry?
Topics: Economy, Energy, Science & Technology, Alternative Energy, Electric and Flying Cars
As I predicted earlier this year, Chrysler on last Thursday filed for Chapter 11. U.S Car Sales continues to decline in sync with the weakening consumer confidence and the economy.
GM is not far from it, I think it will follow suit with its own bankruptcy plan within a month. I strongly deplore U.S government’s financial support for the U.S auto majors. We need to stop throwing good money after bad companies/plans.
While the American Car industry is on a verge of a major collapse (technically on life support thanks to American tax payers), some new innovative business models are taking roots in the automobile sector that will fundamentally redefine our driving experience in the future. I strongly feel that we will see hybrid and pure Electric cars (atleast in the developed countries) on our roads within the next decade. There is significant interest in the Venture capital community. There are many plans and ideas on how to build the Electric car infrastructure.
Among all the plans, Better Place, started by the former Israeli software entrepreneur Shai Agassi, offers the most promising solution because it addresses the root of the problem - building the core infrastructure to support electric cars. Agassi is leveraging his experience building software companies in the car industry as this Economist article describes
“his novel approach is to look at electric transport as a system in which cars, batteries, recharging points, electrical utilities and billing systems must all work together.”
As Japanese Auto makers are proving to be pioneers in this space by introducing the new generation hybrid/Electric cars, one also needs to consider the importance of building the necessary infrastructure to support these new Electric cars (if the solution needs to be realistic and scalable in the future).
Here is an excerpt from “The Economist” magazine on Better Place model.
“Better Place’s business model involves selling electric cars (provided by its partner, Renault-Nissan) using a scheme borrowed from the mobile-telecoms industry—charging not by the minute, but by the kilometre. Customers will be able to pay as they go or sign up for a contract that includes a certain number of kilometres. They will even get a subsidised car if they subscribe to big enough packages, just as mobile operators subsidise handsets for their highest-paying customers. Better Place will build networks of recharging points, plus battery-swapping stations along motorways that will, in effect, enable customers to recharge their cars in minutes in order to travel further than the 160km (100-mile) range of their cars’ battery packs.”
Understanding why there is so much buzz on Electric Cars is a no-brainer. We will eventually run out of oil sooner or later. Oil dependence on middle east and other less friendlier nations (Russia, Venezuela, Iran etc) has proven to be costlier and insecure for both America and other countries. Even Warren Buffet sees the opportunity. Otherwise he wouldn’t have bought a 10% equity stake in the Chinese battery maker BYD (short for Build Your Dream).
References:
2. Start-up company Better Place wants electric car market in California by 2012
Housing Crisis still not over
WASHINGTON (AP) — First-time homebuyers looking for bargains snapped up about half of all homes sold last month, but the spring selling season is getting off to a lackluster start with sales falling more than expected from February levels.
The median sales price in March was $175,200, a plunge of 12.4 percent from a year ago, but higher than February’s median price of $168,200. While median sales prices typically rise slightly in early spring, the 4 percent monthly increase was larger than expected.
Read the complete article here
Also see where NY city is with respect to House Price to Median Income.
Bear Market Rally to correct
Topics: Financial Markets, Trading Strategy, Finance
Back in early March, I called the possibility of a short term snap-back bear market rally. The rally led mostly by Financials lasted about 6 weeks (longer than I expected). I think it is time for some profit taking. I expect the market to start the correction process sometime this week. While I don’t think the major indices will retest the March lows again (agree with Doug Kass on this), I think the market will zig-zag from here (780-830 on S&P??) until the 2nd quarter earnings (mid summer) and then followed by another major rally in mid to late summer.
I like this chart posted by Michael Ashbaugh on Marketwatch.
You can read his complete article here
Capital One reports deeper loss than expected
Topics: Economy, Financial Markets, Finance
Consumer credit card is the next shoe to fall. Commercial real estate is not too far off. All the amazing bank earnings (fake+convenience) that we saw in the last week or so are already baked into the market. I say it is fake because it is our TARP money that were recycled into earnings.
“The credit card company also said it expects managed charge-off dollars in 2009 will be higher than the $8.6 billion it previously projected. Its shares dropped $1.74, or 12 percent, to $13.31 in after-hours trading. They had risen 12.5 percent, or $1.67, to close Tuesday at $15.05 before the earnings report.”
http://finance.yahoo.com/news/Capital-One-reports-deeper-apf-14990908.html?.v=2
I think all major indices will test the 50 dma this week.
NY Real Estate Market
I pulled up these charts from Trulia. If you think NY Real estate market will not see 2002 prices or below, you are blinded.
1. Historical Median Sales Price (All Properties)
2. Historical Number of Sales (All Properties)
Financial Institutions Market Cap 1999, 2009
Topics: Economy, Finance, Global Finance
What a difference a decade makes huh?
Courtesy of Financial Times
The fearsome become the fallen
China challenges Dollar status as world’s currency
Topics: Economy, Forex, Global Finance
Zhou–backed by Russia, Brazil and India–wants to break the dollar’s hegemony in global finance. In a paper grandly called “Reform the International Monetary System,” Zhou has called for the creation of an international currency unit that he admits will require “extraordinary political vision and courage.” He suggests that we start with a blend of the dollar, pound, yen and euro–the so-called Special Drawing Rights (SDR) created by the IMF in 1969 that borrowed a concept first recommended by famed economist John Maynard Keynes.
http://finance.yahoo.com/banking-budgeting/article/106817/Dollar-Slams-Up-Against-a-Great-Wall
Moreover, he blasted the way “the global financial system relies heavily on the external credit ratings for investment decisions and risk management.” Having three U.S. ratings agencies dominate the world results in “a massive herd behavior at the institutional level. Moreover, the rating models for mortgage-related structured products are fundamentally flawed.” All true. The massive write-downs across the globe were the result of these flaws in the American way of doing things.
South Park take on the Economy
Topics: Economy
GDP and Unemployment
Topics: Economy, Financial Markets, Economy Statistics, Finance
The economy shrank at a 6.3 percent pace at the end of 2008, the worst showing in a quarter-century.
More than 5.5 million are getting jobless benefits
As usual major media news outlets put a positive spin on a the negative news this morning. I think this short term bear market rally will be coming to close soon. Then we are off to testing new lows.
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