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  • Is it that big a deal that America's manufacturing sector continues to shrink?   [View news story]
    Some of this is semantics and some touches on very powerful economic ideas and concepts

    for example.

    Ford manufactures cars. Very simplistically. To make cars you need to design and test the elements, stamp metal and weld it together, and deliver the cars. If Ford has an in house design and logistics team then those are manufacturing jobs - but if they re outsourced to Design Inc. and Logistics Inc. who have a comparative advantage i.e they are better or cheaper than the in-house solution - then they there "become" services jobs.

    Here's the important part.

    Of the three elements - Design, Metal Stamping and Welding and Logistics. Where is the highest value added per hour of labor? Follow that and you find the jobs that can pay the most. Where are the jobs that productivity can be boosted by substituting capital for labor - that's where jobs are being shed or wages are falling. Mostly you will find that "services"are higher value added and less able to be substituted by capital. But this is not always the case.

    You can do this with any industry or business.

    There are no "good" or "bad" jobs. There are no "good" or "bad" industries. Policy should never try to focus on protecting some jobs or industries at the expense of others. That is not a way to succeed.

    There is only comparative advantage, relative productivity and skills and a price for capital and labor. Good policy can work on all of these.

    Free trade, strong property rights, stable transparent government, flexible labor markets, access to wide and deep pools of capital and good health care and education levelsin the workforce are all necessary for prosperity. You have those and I don't car what doom and gloom scenario you care to dream up you will continue to grow and generate employment.
    Dec 22, 2009. 07:11 PM | 1 Like Like |Link to Comment
  • Is it that big a deal that America's manufacturing sector continues to shrink?   [View news story]
    Manufacturing is shrinking everywhere. It is not a US only phenom. It is going the way of agriculture. Do you really want to condemn yourself to being stuck in amber? Policies that would have "saved" farming jobs in the 1800's would have diverted resources away from more productive uses. The same applies today. This progression is inexorable. We are in the serviced economy and soon will be entering a post-services era with smart bot's and tools delivering virtual services. Google is an example of this. It has crushed "traditional advertising". Would you rather work at Google or at a Newspaper? The choice is clear. In fact it is not even a choice.
    Dec 22, 2009. 02:36 PM | 2 Likes Like |Link to Comment
  • State Street Rolls Out Short Term Corporate Bond ETF  [View article]
    yet another bond etf.

    I think they have jumped the shark.
    Dec 22, 2009. 02:41 AM | Likes Like |Link to Comment
  • After looking at the dismal performance of last decade's stockpickers, Brett Arends comes up with some safe bets for the next ten years: pay off your credit cards; max out your 401(k); run the numbers on buying a home; weed out high-fee mutual funds; avoid inflation risk; EWJ?   [View news story]
    Here's two simple rules you can use.

    Add current dividend rate to the long term real dividend growth rate (somewhere around 1.4%). If this is > the 10 year rate then buying stocks is probably OK. If it is < then probably not OK. Currently the numbers are 4.2 vs. 3.6. Not bad but not as good as it was in March - around 5 vs. 2. You decide.

    For debt subtract the 10 year from the instrument. If the difference is >0 then consider this the implied annual default rate. If this is very high then you have some margin. If it is very slim then you probably don't. e.g. Hi quality long term large corporate are around 6 - 3.6 = 2.4. Implies that 1 in 40 will fail every year. Possible? You decide.

    These concepts are very simplistic. You will need to some more digging to get sartisfied. A good place to start are some books by William Bernstein. Good value.

    Best of luck

    Dec 20, 2009. 09:29 PM | 2 Likes Like |Link to Comment
  • Another V-Shaped Recovery Sign: The Philadelphia Fed's Current Activity Index  [View article]
    Point of clarification. I view the "top" as being the following; a sustained period of 2.5 to 3% growth, very gradual decline unemployment and no inflation. With a very gradual return to normal ST interest rates. Not terrible but not a boom.

    Re: Labor. Yes. I did see. The biggest problem I have with Obama is his rejection of free trade and his love affair with organized labor and the carbon obsession. If he can get over those three things he can make a lot of other mistakes - like expand entitlements - and still do well. If he goes the protectionist route and mandates a bunch of stupid stuff on labor rules and carbon then I don't care how smart Treasury or the Fed are or how low they may ever drop taxes. It will be for nought.

    The F thing is interesting. Unions are still a small piece - except in some states like MI - where soon there will be no employment. It is instructive to see the correlation between union membership and unemployment. My guess this is opportunistic emboldened by the Administration. F should do what Boeing did and build a plant in South Carolina. It is aright to work state. As is Texas.

    Labor flexibility means that wages can go up as well as down, people can be retrained or switched to different jobs without the burden of a classification system and productivity is not regulated by the dead hand of the Government or Trade Unions. I don't see those elements declining soon. And especially vs. Europe the US is doing way better. The catalyst for all is China and trade. Some talk about a race to the bottom - but I disagree. Wages and conditions are improving in China - steadily and as they do they are losing jobs that are being outsourced to other places and the cycle is repeating. It is an overall net positive driven by trade.


    On Dec 20 12:00 AM Old Trader wrote:

    > Econdoc,
    > I follow your logic..esp. re: the square root shape for GDP. I guess
    > that where we may differ is to how long well the flat top of the
    > "square root" may continue?
    > As far as "inflexible labor" in Europe, versus DID see
    > the news about the UAW rejecting a contract because F is doing better
    > than GM (not to mention Chrysler)?
    Dec 20, 2009. 12:43 PM | 1 Like Like |Link to Comment
  • Not a single bear in Barron's 2010 survey. (via Roger Nusbaum, whose 2010 S&P target is 1,000)   [View news story]
    Gross runs a bond fund. He went from -7% cash October to 7% cash in December. He reduced holdings of government bonds because he believes they are overvalued relative to potential inflation. This is not a bearish view for stocks. In fact it is mildly bullish stocks. IT is a bearish view for government paper - although I think that it means that TIP's are undervalued. Just my opinion.

    Does that make sense?

    As for the experts. The panel has a decent track record. They should be viewed in the aggregate not as individuals.

    On Dec 19 05:51 PM untrusting investor wrote:

    > For a totally opposite viewpoint, Hugh Hendry's commentary (per link
    > below) makes a lot of sense. Well worth the read. And Hugh Hendry
    > has made a ton of money for his hedge fund clients and himself over
    > the last decade. Personally, we have a lot more confidence in Hendry
    > than the Wall Street talking heads who have gotten it wrong more
    > often than they have gotten it right.
    > And when you combine that with Bill Gross and Pimco going overweight
    > cash and much more defensive since early Nov/09, it does not bode
    > well for the market going into 2010.
    Dec 19, 2009. 09:01 PM | Likes Like |Link to Comment
  • Unimpressed with Bernanke's victory at the Senate Banking Committee, Larry Kudlow thinks the Fed Chairman should throw in the towel: "Bernanke's zero-interest-rate policy and continued money creation through the expansion of the Fed's balance sheet continues to fight an emergency that ended this past spring."   [View news story]
    I watch him when I have time. He has decent guests but I feel sorry for him. He is stuck in 1983.

    Larry's basic thesis is that taxes and regulations are too high and reducing them will solve all. Government is the enemy. Lately Big Business is also the enemy. It is a very populist message. He is going the way of Lou Dobbs.

    Larry has a point on Corporate taxes they could come down and the tax system could be simplified and a number of subsidies to companies and individuals removed but overall the tax burden is reasonable. In my view.

    The Bernanke hatred is irrational. Bernanke was the one at the controls at the time and his policies have averted Armageddon. Maybe we could be in a better position, maybe it could have cost less. I don't know. Nobody can. But the truth is we were on the brink and now we are not.

    Larry is also very "strong dollar obsessed". I find this point tiresome. The dollar is not "controlled" by anyone. It is an outcome of fiscal and monetary policy. A strong or weak dollar is not the focus of policy. Fiscal and monetary policy is focused on employment, inflation, paying for stuff people need etc.

    Dec 19, 2009. 08:01 PM | 1 Like Like |Link to Comment
  • Another V-Shaped Recovery Sign: The Philadelphia Fed's Current Activity Index  [View article]
    "Old". Sure, happy to oblige.

    We just saw 3% growth in the latest quarter. The data quoted in this article and the other indicators that I have seen suggests an underlying real GDP growth rate that is faster - about 6%. I am not certain I buy that yet - nor does the Fed but there are some people calling for hikes around spring next year - those folks are in the "checkmark" camp. Although some are just cranks who seem to think that a general liquidation is the way to "start again" - the "scorched earth" camp - I call them.

    I am more in the "square root" camp as of today and am invested accordingly. Then you get those in the "new normal" camp who see a decline from here. I cannot get there. Intellectually I find it hard to see how that happens. Maybe in Europe where you have very inflexible labor markets and a rapidly ageing demo. but in the US very hard to see - unless we get a major trade war or terrorist attack.

    Just my opinion.


    On Dec 19 03:55 PM Old Trader wrote:

    > Econodoc,
    > Where did you get "3-4%" rise? From anything I've seen, so far, 3%
    > is about it, and that's assuming no more "stuff" hits the fan, which
    > might be a big "if".
    Dec 19, 2009. 06:50 PM | 3 Likes Like |Link to Comment
  • Another V-Shaped Recovery Sign: The Philadelphia Fed's Current Activity Index  [View article]

    Not understanding you.

    The data seems to be very solidly lining up around recovery and now is even pointing to stronger than expected. Maybe we will get there maybe we won't. But the talk about double dip etc. is just about dying away. My guess is a nice gentle rise 3 to 4% growth not the 6 to 8% implied in the numbers.

    So what are these facts or data that we should be aware of.
    Do enlighten...what are these hidden data that ostriches like me cannot see

    But please only state the facts that point in the opposite direction.

    No conspiracy theories, no political ideological nonsense

    List them. What are they?


    On Dec 19 11:01 AM conceptwizard wrote:

    > Doesn't anybody read the facts of the enormity of the gravity of
    > the situation the US and the world is in right now.
    > Its like everyone has their heads stuck in the sand, grasping on
    > any single monthly glimpse of hope and grandstanding it into a recovery,
    > while ignoring the true facts.
    > We had better get a handle on awareness of what is going on, or we
    > are doomed to failure. All the facts are out there, educate yourselfs
    > for crying out loud.
    > We have many "severe headwinds" Ben B says. And thats an understatement
    > because he cant panic anyone.
    > Do yourself a favour and open your eyes.
    Dec 19, 2009. 12:30 PM | 4 Likes Like |Link to Comment
  • Another V-Shaped Recovery Sign: The Philadelphia Fed's Current Activity Index  [View article]
    Can't beat this news with a stick

    The facts are the facts. This plus ECRI read plus all the other weight of data is tilting the scale towards a stronger than expected 2010.

    Happy New Year. Good luck to all.
    Dec 19, 2009. 12:45 AM | 4 Likes Like |Link to Comment
  • 17-Month High for ECRI Leading Indicators  [View article]
    My guess is that Edwards' quote is either inaccurate or taken out of context. Although I guess the facts are never as exciting as the hyperbole.

    ECRI has a very good track record.

    This from their website

    "The simple fact is that the worst bear markets are normally associated with recessions. Therefore, you should sell your stocks in anticipation of a recession, and buy stocks ahead of a recovery.

    Fortunately, good leading indexes are designed to flag recessions and recoveries before they arrive. Not all leading indexes are created equal, but the best of them can help avert much of the damage that recessions wreak on stock portfolios. ECRI’s leading indexes are a case in point.

    In mid-September 2000, for the first time in nearly a decade, ECRI warned publicly of a coming recession (see right-hand column of page). Then, in early February 2002, it made its economic recovery call. Six years later, in March 2008, ECRI announced that the economy was in recession – a call that remained in force until April 2009, when it predicted a recovery this summer."

    Below is an article published in March 2008 that makes the point.


    My guess is that if ECRI data is improving then this is a good thing.

    Dec 19, 2009. 12:38 AM | 3 Likes Like |Link to Comment
  • PPI, Empire Reports Both Bad: Uh-Oh  [View article]
    I have read a few of this fellows articles and find them to be grossly misleading. How he manages to publish is baffling.

    This is indicative....

    "Isn't it funny how heating oil is down 7% while gasoline is up 36% - yet both come from the same place (crude oil)? Hmmm.... is there a bit of a game being played here?"

    In fact the truth is that they are very different products. Both are fractions of crude but prices for the two are driven by demand and supply for the two which are distinct. Crude that provides higher fractions of gasoline may at various times of the year be in shorter supply. Venezuelan vs. Saudi light give pretty different outcomes. The capacity and make-up of the refineries also varies. Not all are equally efficient or able to use the crude that might be readily available. These are basic facts of the downstream and upstream oil industry. The odd little statement about "games being played" is ludicrous.

    The rest of the article equally makes no sense. I have commented elsewhere on the PPI data. I will not repeat. No need to go into hysterics either we are not at risk of inflation.

    Beware of of cynical insinuation and FUD'ism masquerading as hard analysis. It isn't.

    Dec 18, 2009. 10:52 PM | Likes Like |Link to Comment
  • Inflation Scorecard: CPI and PPI Turn Up  [View article]
    Interesting points "Hard" but it is difficult to get too excited about the data at this point. The yield curve is nailed down at the short end by the Fed. The curve is steep and it points to future growth but is it going to be as spectacular as the steepness suggests - not sure. Maybe.

    In the meantime we have 70% capacity utilization, 10% unemployment, low housing starts, low per capita car sales, increased saving and low velocity means that inflation is not a today issue - more like a 2011 issue.

    Can't get too excited about gold either - I doubt that it tells us a lot about inflation. IT is telling us something else not sure what.

    A little inflation here is not a bad thing - 1 to 2% is ok. At least we are growing again - very gently, productivity is strong and employment probably is very mildly positive at the moment. Recovery is here it is a "grandpa" recovery - taking it nice and slow but its here and it will probably take.

    We won't need to worry about inflation until 2011.

    A tip. Not sure if you are an economist or whatever but regarding the yoy price change. The others have commented. You typically measure this sort of stuff using an index and sequential changes. If your quarterly (assume for a moment) CPI moves from 100 to 80 to 90 to 95 to 100. You had: -20%, +12%, +5%, +4%. Overall the correct rate of inflation over the 4 quarters is 0%. It is not misleading to do what you did but you have to remember the context of the data before drawing a lot of conclusions.

    Dec 18, 2009. 09:08 PM | Likes Like |Link to Comment