I try to spend a day a week reading and thinking about a wide variety of topics that affect my clients’ financial success. From time to time I post links here to articles and books that I think are particularly interesting or thought-provoking.
Time Waster of the Day: What is the world’s actual low-hanging fruit?
“Oddly enough, the answer brings a complicated tale of devil strawberries, insurance companies, inferior fruit, and the messy line between literal and metaphorical interpretation.”
Map of the Day: How many countries escaped European colonisation?
This map shows every country put under partial or total European control at some point during the colonial era. Only four escaped completely: Japan, Korea, Thailand and … Liberia.
Time Waster of the Day #2: There are whales alive today born before Moby Dick was written.
Some of the bowhead whales off Alaska’s north coast are over 200 years old.
One more thing to keep you awake at night
NASA recently reported on a large solar eruption in 2012 that generated a coronal mass ejection which narrowly missed the earth. “If it had hit, we would still be picking up the pieces”. Enterprising Investor examines the likelihood and possible economic damage resulting from such an event.
Amazing China fact for the day
China has eight cities that each have a bigger bike share system than all of the US.
More amazing Apple facts
If IPhone were its own company, it would be as big as McDonald’s and Coca-Cola combined.
Important US Economic Charts
1. The Federal deficit is in pretty good shape – about in line with historical averages.
2. Productivity has quadrupled since 1947 and until 1980 the median real income tracked productivity growth. Since then a gap has opened with median incomes barely growing while productivity has maintained an upward trend.
3. The employment to population ratio continues to decline. This may be less an effect of the Great Recession and more a result of demographics: the prime working age population – those aged 24-54 – is falling as a share of the total population.
Stuff cheap, people expensive
“Things are getting cheaper and cheaper, and people -- services provided with their expertise -- are getting more and more expensive”.
This long term trend may be behind many of our social and economic issues: long term unemployment, declining middle class, slow economic growth. “What does an economy look like when [many] goods are essentially free, and all value consists of paying other people for their expertise?”
Long Read: the world’s 3rd largest private-sector employer is … G4S?
A company you have probably never heard before employs 620,000, operates in 120 countries and commands a force three times the size of the British military. Meet “global security company” G4S, profiled in Vanity Fair.
Time Waster of the Day: Spurious Correlations
It is a well-established fact that 78% of quoted statistics are bogus. The Spurious Correlations website goes deeper and demonstrates, among other things, that eating margarine causes divorce. Good fun and definitely a time waster.
Map of the Day: Nuke Scale Asteroid Strikes
Large asteroids frequently hit the earth’s atmosphere. A global infrasound network – set up to detect nuclear bomb explosions – identified 26 strikes in the last 13 years that released energy in the kiloton range. This video visualization maps the impact strikes.
Chart of the Day: Spurious Projections
In 2000, the US Federal Reserve thought that the US would pay off its entire national debt in little more than a decade, a forecast based on the then-current government surpluses.
In 2010, the forecast was for a dramatic and geometrically increasing federal debt. Today, projections show a stable debt-GDP ratio over the next 10 years.
The moral? At least as far as the US federal debt is concerned, projections based on the current trend will prove wrong because the government will change its behaviour. In the early 2000’s, tax cuts and increased spending took care of the surplus. Over the last 4 years, lower spending and higher growth has substantially reduced the deficit.
Real Estate Goes Global. The Result? Vancouver
“When price-to-income or price-to-rent ratios get out of whack, it’s often a sign of a housing bubble. But the story in Vancouver is more interesting. Almost by chance, the city has found itself at the heart of one of the biggest trends of the past two decades—the rise of a truly global market in real estate.” James Surowiecki at the New Yorker magazine calls Vancouver a “hedge city”.
The IMF’s Global Housing Watch identifies Canada as having the highest house price-to-rent and house price-to-household income ratios the OECD.
Amazing China facts (continued)
From 2011 to 2012, China produced more cement than the US did in the entire 20th century (from an article in the Financial Times about the real estate downturn in China).
The value of China’s online shopping may soon surpass Switzerland’s entire GDP, according to Alibaba’s recent IPO filing.
Action Bias: Why we are impelled to do something even when doing nothing is the correct response?
Long Read: Why We Fear Google
Google CEO Eric Schmidt said in 2010: “We know where you are. We know where you’ve been. We can more or less know what you’re thinking about. “
The 1 Hour China Book
This short primer on China covers 6 major trends from urbanization to the internet that reflect a changing China. A great read if you’d like a bit better understanding of what China is about and how the country affects the rest of the world
Time Waster of the Day: How much does Captain America’s shield weigh?
Map of the Day: Why is north at the top of our maps?
“The orientation of our maps, like so many other features of the modern world, arose from the interplay of chance, technology and politics in a way that defies our desire to impose easy or satisfying narratives.”
A fascinating summary of the many influences – religious, historical, ethnic, geographical – on the evolution of map-making through the ages.
America’s greatest export is its debt
Clean energy milestones
Wind energy is now producing close to 5% of US electricity. While the investment in turbines has been supported by tax subsidies, declining costs in wind generation have made wind energy a competitive source of new capacity without subsidies in parts of the US and many parts of the world.
Amazing facts about China’s demographics
From the World Population Review:
- China is one of the most rapidly aging populations on the globe.
- The working age population shrank by 3.5 million in 2012.
- Total population will peak in 2026 and decline thereafter.
The Washington Post notes that male births continue outnumber female to such a large extent that by 2030 at least 20% of men will be unable to marry. This imbalance may have sizeable negative social repercussions.
Bill Gates: The Rolling Stone Interview
“At 58, Bill Gates is not only the richest man in the world but he may also be the most optimistic. In his view, the world is a giant operating system that just needs to be debugged.”
A wide ranging interview covering topics such as taxation of the rich, polio eradication and raising the human condition.
Charts of the Day
The Big Mac Index is a semi-serious measure of exchange rates and purchasing power parity. The Economist’s update of the index continues to show the Canadian dollar as overvalued.
Time Waster of the Day: What is “sea level”?
We use many measures in day-to-day life that are far more complicated than we realize. This Youtube video (3 minutes) explains how sea level is determined. After watching it, you’ll be able to use the word “geodesist” in casual conversation.
Map of the Day
The Older Mind May Just be a Fuller Mind (I’m sticking to this story)
“It’s not that you are slow. It’s because you know so much”. New evidence suggests that age-related mental decline (absent a disorder such as Alzheimer’s) may be not be as steep as conventional wisdom suggests. “The larger the library you have in your head, the longer it usually takes to find a word”. If more knowledge equates with slower response time on tests, then common tests are biased towards younger people.
…nothing to do with my recent birthday …
The Biggest Myths in Economics (Highly Recommended)
This is an outstanding – and short - summary of economic myths and reality. An explanation of 10 fallacies that are prominent in the thinking of too many politicians and market commentators, such as:
- The government “prints money”
- Quantitative easing is inflationary money printing
- Hyperinflation is caused by money printing
- The US government is running out of money and must pay back the national debt.
“Long term thinking is a great way to live as an investor. It’s a terrible way to live as a person”
“If you view crossing the finish line as the measure of your life, you’re setting yourself up for a personal disaster”
A great interview with Chris Hadfield about life, the universe and coming back to earth.
US Economic Update
The US Industrial Renaissance: either good news or bad
“Reshoring” - the trend in overseas jobs moving back to the U.S. – continues to garner press attention. An optimistic NPR profile here. On the other hand, Steven Rattner does a deep analysis and concludes the renaissance is really just a trickle of relatively low-paying jobs that are often dependant on large public subsidies.
International Employment Growth Rankings
Why are Japanese Homes Disposable?
Freakonomics examines the odd nature of the Japanese residential housing market. Despite homes that are built to a higher quality than in most countries, the buildings decline in market value to near zero after 30 years. Home buyers often bulldoze their purchase – half of all Japanese homes are demolished within 38 years and rebuilt. As a result, Japan supports twice as many construction workers per capita and four times as many architects as the US.
China installed more solar power in 2013 than the US has in history
Argentina: What Went Wrong?
“There are four kinds of countries in the world: developed countries, undeveloped countries, Japan and Argentina”. One hundred years ago, Argentina ranked in the ten richest countries of the world and ahead of Germany and France. Today, not so much.
You Can’t Make This Stuff Up: Cephalopods and Security
Time Waster of the Day: Art in Surprising Places
Japanese manhole covers as art.
Chart of the Day
Canada’s Shrinking Federal Government
With little fanfare and very little public debate, Canadian federal government spending and tax revenues (as a % of GDP) are nearing historical lows.
This Deutsche Bank analysislooks at two ratios, home prices to rent and home prices to income, and concludes that Canadian house prices are 60% higher than average historical values. Canada tops the list of 20 countries.
US Economic Update
The US federal deficit was down to 4.1% of GDP for 2013 and is forecast to decline to 2% of GDP by 2015. This compares to an average of 3.3% for the last 30 years.
A big reason for the US recession and subsequent slow recovery has been deleveraging of US consumers and businesses. These two sectors of the economy have reduced debt so fast that total US debt has actually declined despite massive increases in government borrowing. Recent numbers suggest that the great deleveraging may have ended.
Technology and the Cost of Living
Fascinating:: a 1991 Radio Shack add lists 13 devices costing a total of $5,100 (in current dollars) that can be replaced by a single iPhone.
The Case for Global Progress
“Contrary to what you might have heard, virtually all of the most important forces that determine what make people’s lives good … are trending in an extremely happy direction.”
1. Life expectancy worldwide has jumped from 47 years in 1950 to over 70 years today.
2. Fewer people live in extreme poverty than ever. Since 1981, people living on less than $1.25 per day has declined from 40% of the world’s population to 14%.
3. War is becoming more rare and battle deaths to date in the 21st century may be at the lowest rate in human history.
4. Rates of violent crime are dropping fast around the world.
Long Read: Bill Gates and 3 Myths That Block Progress for the Poor
“The belief that the world can’t solve extreme poverty and disease is not just mistaken. It is harmful.”
Time Waster of the Day: How Many Earths?
Map of the Day: Every country in the world not using the metric system …
Thoughts for the Day
“Avoiding stupidity is easier than seeking brilliance.” - Charlie Munger
Frightening Charts of the Day
Canadian personal debt burden compared to the U.S.
U.S. Fiscal Sanity
The U.S. federal government needs three things to return to fiscal equilibrium: lower spending, gdp growth and higher tax rates. There is good progress on the first of these, slow but reasonably steady progress on the second and no progress on the third.
This short Business Insider article shows that federal spending is 23% of GDP, compared to a 30 year average of 21%, and declining rapidly. Federal revenue is 16.5% of GDP spending, compared to a 30 year average of 18%. Revenue is showing growth due to an improving economy but the primary cause of the revenue gap is the Bush tax cuts.
Barry Riholtz looks more deeply into tax rates and deficits. Scroll to the bottom of his post for easier to digest charts on marginal tax rates and inequality measures.
Bill Gross, co-founder of bond fund giant PIMCO, adds to the calls for higher tax rates on the wealthy in his widely discussed article “Scrooge McDucks.”
Not Your Father’s Mexico
Mexican immigration to the US has declined dramatically since 2008 and in the last few years net migration may actually have reversed.
According to the New York Times, Mexico is increasingly becoming an immigrant destination, attracting people from the US, Europe and Asia who are seeking economic opportunity.
Mexico now has the highest obesity rate in the world and the government is taking steps to combat the epidemic
Demographics and Employment
Global Trade and Industrial Activity
World industrial production has hit a new record high and is almost 25% above the recessionary low hit in February 2009. World merchandise trade volumes are also at a record high.
The US has overtaken Saudi Arabia to become the world’s biggest oil producer in the second biggest oil boom in history.
The Wall Street Journal – not always the most liberal of publications – looks at renewable energy myths. Findings: US wind power generation is huge in global terms, for instance more than double Switzerland’s entire electricity generation from all sources. Renewable energy costs are getting more competitive. But clean energy has not been the major job creator envisaged by the Obama administration.
Wal-Mart’s huge commitment to solar energy is helping to reduce costs in the whole solar power industry. The company is now generating more electricity from solar than most US states.
Long Read: Do You Want a Meaningful Life or a Happy Life?
Aeon Magazine: Meaning and happiness in life overlap but they are two separate things, according to a study of hundreds of adults.
Getting what you want and need (e.g. health and wealth) increases happiness but adds nothing to a sense of meaning.
Happiness is about the present and is fleeting while meaning is about linking the past, present and future. In this dimension, higher meaningfulness is connected with lower happiness.
Meaningfulness comes from contributing to other people; happiness comes from what they contribute to you.
Struggles, problems and stress in life are connected with higher meaningfulness and lower happiness. Does this mean that people tend to seek meaning by pursuing things that are difficult and uncertain?
Self-oriented activities such as expressing yourself, defining yourself and building a good reputation are more about meaning than about happiness.
A meaningful life has four properties: purpose to give direction, values to judge what is good and bad, efficacy in that one make progress, and self-worth derived from the previous three properties.
Time Waster of the Day
The Great Language Game challenges you to distinguish between different tongues based on audio samples. Can you tell the difference between, for instance, Northern Sami, Maltese and Swahili?
The Sounds Of Shakespeare (opens a YouTube video) is a fascinating demonstration of the difference between the modern pronunciation of Shakespeare and the original. Linguistic research has recreated the original pronunciation of Shakespeare’s plays and uncovered puns and word play that is otherwise obscured by the modern pronunciation. At times I hear what sounds like a Newfoundland twang in the original pronunciation.
Map of the Day: Countries that the British Have Never Invaded
“Analysis of the histories of almost 200 countries in the world found only 22 which have never experienced an invasion by the British.” Among those spared: the Marshall Islands, Tajikistan and Bolivia.
Poster of the Day: A Plethora of Pasta Permutations
Amaze your friends and mystify your enemies with your in-depth knowledge of the permutations of pasta: penne is easy but what about similar types such as sedani, gargati, eliche, elicoidali? Open this page then click directly on the poster to zoom in.
20 Things 20-year-Olds Don’t Get
I passed this Forbes article on to my daughter … and have re-read it a couple of times myself. Some great advice.
The Optimistic case for the US
Rapid US growth is missing, not gone forever: “private sector deleveraging has been so severe that it overwhelms all the federal tax cuts and spending increases …”
Six reasons why the US will dominate: 1) Demographics 2) Entrepreneurial spirit 3) Labour flexibility 4) Declining need for foreign financing 5) Rising savings rate 6) Strong dollar.
Why demographics? By 10 years from now, the largest population cohorts in the U.S. will all be under age 40. See this animated chart of US population by age from 1900 to 2060.
And then there is the pessimistic view
The threat of a government shutdown is the latest political crisis in America’s deeply polarized debate about what kind of country it wants to become.
The Republican and right-wing view of the federal budget problem is based on a rear-mirror view of the world: the deficit has declined dramatically since Obama took office. See this chart.
The US budget deficit is on track to be 4% of GDP in 2013 and just 2% in 2015 (see the third chart on this page), and both those numbers are within the average range for the last 50 years. Of course, the big difference today is that the federal debt has ballooned to about 75% of GDP from a historical average of 40%.
Alternatively, there is the Swedish Model
Sweden is a very different place today than it was in the 70’s as the first “cradle-to-grave” welfare state. After a long slide culminating in a deep economic crisis in 1991, the country “reversed course and has become a paragon of sensible economic and social policy”.
Sweden has been experiencing higher growth with lower inflation, runs a budget surplus and current account surpluses, and has low public debt-to-GDP. Yet it remains a social welfare society with government expenditures close to half of its economy. “The country’s guiding principle is that a successful social welfare society must be fiscally conservative and administratively efficient.”
Energy, Poverty and Climate
The U.S. continues to be, by far, the world’s largest energy consumer by virtue of an economy that is twice the size of the next largest (China) and a higher per capita consumption than another country. On the other hand, “total energy use per dollar of goods produced is down, as are gasoline use per mile driven, cost of energy services (from lighting to refrigeration) and greenhouse gases emitted” Total energy use in the U.S. is now at 1999 levels, in spite of a 25% increase in the economy. Oil use is now lower than 1973, primarily because of improved vehicle mileage. Installation of solar-electric panels in new home construction in California is now so common it jeopardizes the state power grid.
But the BRIC nations - Brazil, Russia, India, China – surpassed the US in liquid-fuel consumption in 2011 and the gap continues to widen. This chart“ represents hundreds of millions of people worldwide emerging from energy poverty”.
World Housing Prices vs Canada
The Economist charts the global housing market. This interactive guide demonstrates Canada’s, er, long term bull market in housing. Canada is at or near the top of other OECD nations by a variety of measures: long term price increase, price against average income, price against rents.
Long Read: How to Make a Clock Run for 10,000 Years
Amazon CEO Jeff Bezos has a number of interests outside of Amazon, including founding Blue Origin, a private space-flight engineering firm, and his recent purchase of the Washington Post.
How to Buy Happiness
Map of the Day: How Oil Travels Around the World
Chart of the Day: Current U.S. Military Spending
The Vitamin Myth – Just when I thought I had some things figured out …
… a large number of high quality studies shows that taking supplemental multivitamins increases the risk of cancer and heart disease and shortens lives. The Atlantic looks at the evidence and traces the role of a man “who was so spectacularly right that he won two Nobel Prizes and so spectacularly wrong the he was arguably the world’s greatest quack”.
“There is zero correlation between the Fed printing and money supply.”
Why does inflation remain low despite the massive increase in the Fed’s balance sheet? Economist Mark Dow argues that the historical mechanism for money supply growth – an increase in bank reserves deposited at the Fed, resulting in more lending by banks – no longer holds.
On a related note, deleveraging in the US economy continues but at a slower rate. Overall consumer indebtedness remains much below its peak in 2008. As long as the deleveraging continues, consumer demand and inflation will remain muted.
China’s impending transformation
China’s economy is transforming from “one driven by export and investment to one driven more by domestic household spending.” Foreign Policy thinks that Beijing is showing determination to see this transformation through but it is playing a difficult game with current growth estimates of 7% still too high.
Paul Krugman (yes, Gerald, I know you don’t like him) concurs that China’s balance between investment and consumption is lopsided. Investment spending seems far too high – how can all this new infrastructure be productive? – and consumption spending too low. China’s economy is now just bigger than Japan’s and about half of that of the US or the EU.
The price of growth in pollution is immense. This study concludes that 500 million people living in north China will have their average life expectancy cut by 5 years just from air pollution caused by coal burning.
Surprising Truths About the World
Reason.com outlines seven surprising truths. The most interesting:
1. The incidence of cancer and the death rate from cancer has been going down in the U.S. for the last 20 years.
2. Increases in life expectancy result in lower population growth and, possibly, a decline in total population.
3. People everywhere are getting smarter – or, more precisely, they are scoring higher on IQ tests. “About half of Americans two generations ago would have been diagnosed as mentally retarded based on today’s IQ tests”.
4. Markets make people nicer.
The U.S. Energy Revolution - continued
The United States surpassed Saudi Arabia as the world’s number one petroleum producer last November and its lead appears to be growing. In Texas, oil production has doubled in 27 months.
The tremendous increase in recoverable hydrocarbons brought about by the fracking revolution has already changed the global energy picture, and it has only just begun. See this article: UK Shale Gas Estimate Goes Stratospheric.
The Great Puzzle of the US Economy
Corporate profits in the US are at an all time high but investment is stagnant. Profits and overall net investment in the US have historically tracked each other closely. That relationship has changed dramatically and mystifyingly. “We have this strange thing that the return on capital really does seem to be high, the cost of equity capital is low, and yet we’re getting … not much investment”. For investors, the concern may be that the today’s strong profits are unsustainable, for everyone, investment today is what leads to a better standard of living tomorrow.
Good news for Our Golden Years … and for our tax-paying children
New studies have found that dementia rates are declining sharply among the aged- in these studies, Europeans born in the first two decades of the last century. Previous studies have shown that the incidence of dementia is lower among the better educated as well as those who control cholesterol and blood pressure. So, since education and health management improved throughout the 1900’s, the expectation was that dementia rates would decline. The new studies are the best evidence to date to support this prediction.
Long Read: Do Some Harm – Traditional Chinese Medicine
Time Waster of the Day: Pittsburgh Rare
Video of the Day: This is Why You Can’t Outrun a Cheetah
This YouTube video explains how cheetahs achieve their amazing speed. But their real hunting secret is their blazing acceleration: 0 to 100 km/hr in three seconds and just three strides.
Map of the Day: Everyone lives in Asia
A startling image.
Chart of the Day: The Global Fertility Decline
“ A Momentous Transformation of Human Behaviour”
The fertility decline in many countries has been so fast that popular knowledge has not kept pace. What countries would you be surprised to learn have fertility rates lower than the current US rate of 2.1 births per woman? Try Brazil (1.8), Thailand (1.7), Costa Rica (1.9). What countries have fertility rates in the same range as the U.S.? Mexico (2.3), Indonesia (2.2), Botswana (2.4), India (2.6).
This “momentous transformation of human behaviour” has been ignored by scholars and journalists, according to Stanford lecturer Martin Lewis. In this essay, he summarizes the trends and looks at the factors linked to lower fertility such as urbanization and female education. He cites interesting evidence that television viewing, in particular soap operas (!), has played a critical role in Brazil’s fertility decline.
Africa and Population Growth
India’s Last Telegram will be sent in July
Avoiding the Next Bangladesh Garment Tragedy
This Bloomberg essay follows a Dhaka city engineer for a day as he attempts to complete an initial structural survey of four buildings – out of more than 3,500 - in the immense capital city.
Africa on the Rise
Journalist Howard French outlines key trends in Africa: a demographic transformation is underway with Africa’s population growing faster now than ever in history; education spending is rising; governments are becoming more stable and more democratic.
China and Africa
After landing at the Chinese-financed Maputo International Airport and driving by the Chinese-built Mozambique National Stadium, I looked a bit more into the Chinese influence in Africa.
Long Read: Senseless
Bike helmets “are great at softening rare catastrophic blows. But what about more common crashes, the ones that happen at slower speeds but can still result in concussion?” Bicycling Magazine examines the interplay between brain injury research, helmet design and government regulations.
Chart of the Day: US Gun Deaths and 143.000 Stolen Years
This stunning chart visualizes the 3,200 US gun deaths so far this year. Each victim is shown as dot moving along the arc of their life then dropping at the time of their death. Life expectancy data fills in estimates of the years lost.
Chart of the Day 2: Generational Attitudes …
Long Read: An Empty Passion for War
Colombia’s Revolutionary Armed Forces of Colombia (FARC) is one of the biggest guerrilla armies in the world and has controlled up to one third of Colombia’s land area. But after 50 years of conflict, FARC is the among the last of Latin America’s revolutionary armies. What keeps the guerrillas fighting?
“You’ve got to spend money”
The UK experience“shows how austerity policies, when applied without regard to the state of the economy, can often lead to more government borrowing and debt creation”.
Bill Gross, Co-founder PIMCO, says“The UK and almost all of Europe have erred in terms of believing that austerity is the way to produce real growth. It is not. You’ve got to spend money”.
US Budget Deficit Narrows
Switzerland is an Industrial Juggernaut
While Swiss banks have been getting headlines, Swiss manufacturing is the real story. Despite significant job losses at banks, Switzerland has one of the lowest unemployment rates in Europe. Manufacturing employs four times as many people as the financial sector. The country has the world’s highest industrial production per capita and is the most competitive nation overall, according to a Global Competitiveness Report.
Today’s New Vehicles are Cheaper and More Reliable Than Ever Before
How Textile Kings Weave a Hold on Bangladesh
Reuters profilesthe industry that employs 4.5 million Bangladeshis and accounts for 80 per cent of the country’s exports.
Canadians Surpass Americans in Net Worth …
… but as the Wall Street Journal points out, the wealth advantage is built mostly on the big run-up in housing prices.
US Housing Continues to Recover
Understanding the US Jobs Recovery
Demographics: More than an extra decade of life expectancy
The US Energy Revolution is Technology-driven.
But it is Old Energy, not New Energy. US net petroleum imports fell to their lowest level in 20 years and domestic production is the highest in 25 years, driven by the a variety of new technologies to find and extract oil.
Chart of the Day: China’s coal use
China is now burning as much coal as the rest of the world combined … and India’s coal use is soaring.
Yet China is also the biggest global producer of hydro power after having built more large dams than the rest of the world combined. China’s neighbours are increasingly concerned because the country is turning its dam-building attention from internal rivers to major trans-border rivers.
Video of the Week: The Incredible Progress of the Developing World
Hans Rosling of Gapminder has created another amazing presentation (just 3 minutes long). He shows that, in country after country, an increase in wealth results in a steep decline in child mortality, a reduction in the fertility rate and finally to lower population growth.
Time Waster of the Day: Impact Earth!
The recent large meteor over Russia has heightened our awareness of the dangers of falling rocks. Use this handy simulator to model your own catastrophe.
Bonus terminology reminder:
Meteoroid – a rock travelling through space
Meteor – a rock blasting through the atmosphere
Meteorite – the rock after having hit the earth
Does Canada have an unsustainable housing bubble?
Coffee and the confirmation bias
The “confirmation bias” is our tendency to select or favour information that confirms our existing beliefs and ignore or underweight evidence that would disconfirm. The effect is stronger for deeply entrenched beliefs. Even though I know that I am subject to this bias, I was happy to see this article: “7 Reasons Why Coffee is Good For You”.
Some progress in Greece
Is “Made in the US” Coming Back?
More evidence that jobs are moving back to the US as costs rise in China. But, as this article notes, part of the equation is that the new jobs in the US pay much less for similar work than they used to.
World Industrial Output at a New Record High
US Housing Update
The Insourcing Boom
Time Waster of the Day: Bombsight – Mapping the London Blitz
The Bomb Sight project maps the London WW2 bomb census for the period of the Blitz from September 1940 to June 1941.
Long Read: Earning Billions in the Congo
In the world’s most-destitute nation, an Israeli amasses a fortune through private deals for mines. Dan Gertler is either looting the Congo or should get a Nobel Prize for development. Bloomberg profiles Gertler and his relationship with the country
The Balance Sheet Recession is Not Over
Three Charts of America’s Bright Energy Future
Domestic energy production climbed to 83% of consumption in 2012. Per capita CO2 emissions continue to decline as shale gas supplants coal in power generation.
History Lesson: When Washington feared there would be no national debt
Just thirteen years ago, President Bush and Fed Chair Greenspan were concerned that the United States would soon have zero debt. It was Greenspan’s warning to Congress that helped Bush get traction on his pledge to cut taxes. Ignored, however, was Greenspan’s caveat that the tax cuts should be halted if targets for the federal debt were not satisfied.
Is the US deficit declining too fast?
Human fertility is falling faster than expected and the current trend will result in the world at replacement rate by 2022. Many of the world’s most populous countries – including Indonesia, India, Bangladesh and Brazil – are currently at or below the 2.1 births per woman that is the replacement rate.
Update on US Real Estate
Public Healthcare Spending: Higher in the US than Canada
When our southern cousins look north, they are sometimes surprised by what they see. Data on public-sector healthcare show that government per capita spending is higher in the US than in Canada. Mathew Yglesias argues that Canada benefits from more bulk purchasing power (but in my view neglects the impact of the substantially lower incomes of Canadian health care professionals as well as higher capacity utilization in Canada).
What would happen to crime rates if the US were to spend more on hiring police than locking up prisoners? The U.S. has the world’s highest reported incarceration rate, yet the “United States today is the only country I know of that spends more on prisons than police”. Researchers suggest that money diverted from prison to policing would buy at least four times as much reduction in crime.
If Italian corruption were its own country …
Time Waster of the Week: 200 Years that Changed the World
The relationship between the health and wealth of nations over the past 200 years is visualized in a moving graph that presents impressive amounts of data in an engaging way. Open the Graph Menu (upper left) to explore a variety of economic, health, educational and geographic relationships across the world and through time.
Gapminder is a Swedish non-profit founded by Hans Rosling. See his TED talk on “Stats that reshape your worldview” here.
Greece: A tale of two ports
When the Greek government leased half of the port of Piraeus to a Chinese shipping company in 2010, it left the other half run by Greece. The New York Times describes the contrast between the two operations. “It’s like another country over there” says the deputy director of the Greek operated side
Total US Debt is at a Six Year Low
No, that headline is not a mistake. The dramatic de-leveraging of US corporations and consumers has more than offset the increase in government debt since the financial crisis, so total US debt (government, corporate and private) is at a 6 year low.
Bond guru Bill Gross of PIMCO reviews the US’s central economic challenge: the federal government must cut spending and/or raise taxes by 11% of GDP or risk significant damage in the form of inflation and currency depreciation. The good news? There is still a window of five to ten years to accomplish the task.
Mexico: Fact of the Day
Mexicois currently the fourth largest exporter of cars in the world. One in ten cars sold in the US last year was made in Mexico and that market share is increasing.
An interesting trend … indirectly related, I suspect, to the following.
Is Canada Suffering from the Dutch Disease?
The “Dutch disease” is a term economists use the describe the apparent relationship between resource sector growth and manufacturing sector decline in an economy, coined to describe the decline in Dutch manufacturing after the discovery of a large natural gas field in 1959.
The Wharton School reviews Canada’s situation. Since 2002, the Canadian dollar has risen over 60% against the U.S. dollar, largely driven by the soaring prices of commodities, especially oil. Manufacturing output and employment have declined sharply over the same period and by mid-2011 resource exports accounted for two-thirds of total exports, the highest figure in decades. But the growth in resource exports has not offset the decline in other sectors and total exports comprise a much smaller proportion of GDP than 10 years ago. On the other hand, Canada has diversified from its extreme dependence on the US as a trading partner, resource revenues have been utilized relatively prudently by governments and employment remains fairly healthy by world standards.
More on Demographics
A carefully monitored measure of U.S. employment – the employment-population ratio – likely understates the extent of the recovery. This ratio is the proportion of people age 16 and over who are employed. Since it includes seniors, the ratio would fall in any case from 2008 to 2015 because of retiring baby boomers.
Demographics is also expected to reverse the decline in home ownership rates, a longer term trend that bodes well for US housing (more about which below).
As noted in several of my previous emails, a recovery in US residential construction will have a significant impact on the overall economy. The statistics on existing homes show continued improvement: foreclosures have hit a five year low and home prices had their biggest monthly increase in 7 years. On the other hand, while the number of properties with negative equity has declined, they still comprise 22% of all properties with a mortgage. There are signs that household formation, an important driver of housing demand, is picking up.
Why does Canada Have a Strategic Maple Syrup Reserve?
Which health supplements are a waste of money?
A chartof the scientific evidence for popular health supplements.
An Economics Experiment on a Grand Scale
Economics as a science suffers from its inability to do controlled experiments. But we are actually in the middle of the closest thing we can get to an experiment on the effectiveness of a Keynesian versus austerity approach to an economic crisis. The U.S. has been following a stimulative course whereas Europe has taken the opposite approach. The results so far? Follow this link.
Business Profile: What’s a $4,000 Suit Worth?
The few remaining tailors who make bespoke suits illustrate the difference between the craftsman-based economy of centuries ago and today’s high efficiency manufacturing. To construct a bespoke suit takes 75 hours of skilled hand work and there is no scalability: make one or many and they each cost the same. The NYT profilesthis niche industry. And for your next suit purchase, see this graphicfor the difference between a $99 suit and a $4,000 suit.
I’ve posted a number of links to support an optimistic outlook for the US’s (and by extension Canada’s) long term prospects. In America’s Edge, The Wilson Quarterly examines the country’s advantages: favourable demographics, continued leadership in innovation, and an energy revolution. The risk? Toxic politics.
In an overlapping article, the FT looks at how technology and energy in America may reduce Asia’s growth.
Manager Profile: Jamie Dimon, JPMorgan Chase and the London Whale
Jamie Dimon is viewed by many as a managerial genius whose defining success was to steer JPMorgan Chase through the financial crisis as the only bank that didn’t need a bailout. Vanity Fair examines the conundrum: “How did one of the most anal, numbers-oriented C.E.O.’s on Wall Street allow a bunch of traders in London to make such a huge, concentrated—and losing—bet and not know about it until it was too late?”
And, speaking of bank bailouts, is the US government recovering its money?
NPR outlines where the bailouts stand: the big banks have repaid their bailouts at a profit to the government; Fannie Mae and Freddie Mac remain deep in the hole; AIG’s bailout has returned a small profit with a recent sale of sharesby the government; the auto company bailouts are still in the red.
Romney’s 47% in more detail.
Thisis the best (most succinct and clear) analysis that I’ve seen.
Deleveraging – Is debt actually a big problem for America?
A key component of the financial crisis since 2008 has been deleveraging and the resulting reduction in economic demand. While the explosion in US government debt garners headlines, total U.S. debt (including corporate and consumer) has actually declined by 16% since 2008, suggesting that the US is on a better path than many industrial nations. Canada’s total debt is 17% higher than 2008, a worse performance than the U.S., South Korea, and Italy (yikes!), but much better than Japan, the UK, or France.
The difficult balancing act between deleveraging, investment, consumption and taxes is outlined in detail by economist Michael Spence.
Japan – The next financial crisis?
“Who could be next in line for a gut-wrenching loss of confidence in its growth prospects, its sovereign debt, and its banking system? Think about Japan.”
Japan is an anomaly amongst industrialized nations: a sky-high national debt but low unemployment and good productivity growth. While the country does not seem vulnerable to an externally-imposed debt crisis since most of its government debt is held locally, the problem is that the debt is backed only by a taxpayer base that is shrinking and aging. Japanese are trading their savings to fund the government’s current deficits in return for … what?
More stereotyping - Greece and tax evasion
The Greek’s penchant for tax evasion has been widely reported. A recent study has provided an estimate of the magnitude of this tax evasion. Based on self-reported income figures in credit applications to Greek banks, evaded taxes conservatively total more than 1/3 of the Greek budget deficit.
Time Waster of the Day: The Higgs Boson Explained
Earlier this summer, scientists at the Large Hadron Collider near Geneva announced the possible discovery of the Higg’s boson, a hypothesized elementary particle that plays a role in how matter acquires mass. This link opens a fun and informative Vimeo video by PhD Comics to improve your knowledge of modern physics.
The Wealth of Nations
In comparing today’s nations on measures of wealth and quality of life, we fail to recognize how much our scorecard has changed over time. Today’s life expectancy in Ghana and Bangladesh is greater than that of Portugal in 1961. The average citizen 15 years and older in Zambia and Haiti has spent more years in school than the average German adult had in 1970.
Business Profile: Amazon – from warehouse to powerhouse
“Behind the scenes, Mr Bezos is turning Amazon into a back office infrastructure provider that sells access to a digital market place with millions of customers, to petabytes of server space and to state-of-the-art warehouse facilities serving myriad forms of commerce … ‘they’re becoming as important as utilities’”.
The “Golden Age of Books” and the Internet
In 1930 there were only 500 bookstores in all of America, most of which were in just 12 cities, and 2/3 of American counties had no bookstores at all. Alexis Madrigal of the Atlantic points out that much of 20th century literature was aimed at a tiny elite, in contrast to the written material that is available today to anyone with an Internet connection.
The Gold Standard and Price Stability: “Is a return to the gold standard the world’s worst economic idea?”
This Atlantic article compares price stability during a period when the gold standard was in effect (1919-1933) to our most recent history – the last five years since QE. The conclusion? Prices were much more volatile under the gold standard.
On a related subject, Paul Krugman summarizes his view on the Great Recession and claims the evidence – the lack of the runaway inflation predicted by supply-siders - shows the slump to be caused by inadequate spending due largely to the overhang of debt from the bubble years.
The China Slowdown
Chinais encountering an unfamiliar problem: a huge build up of unsold goods. While the Chinese slowdown has been in the financial headlines for some months, this New York Times article posits part of the issue is that “the Chinese government’s leaders have decided to put quality-of-life concerns ahead of maximizing economic growth when it comes to two of the country’s largest industries: housing and autos.” If this is true, it signals a major change in Chinese national and economic goals.
Economist Mark Perry continues to gather evidence to support his optimism about long term prospects for the United States:
This is what a housing recovery looks like.
Auto sales in August could reach a 4 ½ year high.
July shipments of durable goods set new record.
Global trade and US exports are at record highs.
Random Long Essay: The Bounty Hunter’s Pursuit of Justice
Wilson Quarterly examines the uniquely American system of bail bondsmen and bounty hunters. The “commercial surety system” that evolved in the U.S. has its roots in the invention of bail in medieval England. The writer argues that the system is effective – “bail bondsman and bounty hunters get their charges to show up for trial, and they capture them quickly when they flee” – and efficient, because bondsman and bounty hunters work at no cost to the taxpayers.
Bounty hunters have robust, er, “rights”. They can lawfully break into a suspect’s house without a warrant, and search and seize without the constraint of the Fourth Amendment’s reasonableness requirement, not to mention detain and hold suspects at will.
Missing from the writer’s review is a bit of introspection: if this system is so remarkably effective, why is the U.S. the only country in the world that uses it? An answer can possibly be found in the previous paragraph, above.
Stereotyping: Why Does the Laziest Country in Europe Work the Most?
A survey of European’s views reveals that the Greeks view themselves as the most hardworking of the EU nations. Other Europeans don’t completely agree. The Atlantic shows that the Greeks are right if you measure average hours worked per person. By this measure, Germany is one of the least hard working nations of the world. The key difference is productivity. With state-of-the-art technologies, large and well-run companies, low corruption and a healthy financing sector, Germans produce far more for each hour worked. “Countries aren’t rich because their people work hard. When people are poor, that’s when they work hard.”
Map of the Day
New and controversial legislation in Quebec requires that protesters provide their route to police prior to a demonstration. This map was produced in response.
Time Waster of the Day: Do we have the weapons to fight off an alien invasion?
Foreign Policy magazine provides this handy survey of advanced weapons currently under development by the Pentagon’s Defence Advanced Research Projects Agency.
The ever-entertaining Michael Lewis recently gave a commencement speech at Princeton. Lewis takes lessons from his life and books to draw an uncomfortable conclusion. Money quote: “Life’s outcomes, while not entirely random, have a huge amount of luck baked into them. Above all, recognize that if you have had success, you have also had luck — and with luck comes obligation. You owe a debt, and not just to your Gods. You owe a debt to the unlucky”.
US Housing Update
More evidence from the Case-Schiller housing report that US housing is bottoming. And, in a strong sign that American’s home-loan debt burden is easing, home equity had the biggest quarterly increasein 60 years as homeowners paid down principal.
But housing demand and new construction remains depressed in a large part due to lower household formation as a result of the recession. An estimated two-thirds of the excess vacant housing in the US is caused by that drop in demand rather than the glut of construction during the boom years.
Business Profile: Deep-Sea Treasure Hunting
Odyssey Marine Exploration (OMEX:Nasdaq) is a publicly traded company that explores, discovers and recovers treasure from the ocean floor. Business Week profiles the company and its ocean recovery – and subsequent loss in the courts – of a fortune in Spanish coins.
The Changing World of Energy - continued
The centre of gravity of the energy world is shifting towards the Americas: “From Canada to Brazil, oil and gas production in the Western Hemisphere is booming”.
Copious natural gas supplies have quickly driven a major shift from coal to gas in electricity generation. This has resulted in a stunning drop of CO2 emissions by the U.S, the largest reduction by any country in the world.
Energy and the Department of Remarkable Consequences
Thousands of small-scale farmers in northern India are scrambling to take advantage of the shale gas boom and an opportunity to lift them out of poverty. How? Fracking makes use of vast amounts of guar gum which is harvested from a bean grown by these farmers. Guar is also used extensively in food production and northern India supplies 80% of the world’s demand.
The World’s New Numbers
Wilson Quarterly reviews the world’s demographic trends and argues against several common assumptions: aging populations will place intolerable demands on governments to maintain benefits; Europe’s population is in steady and serious decline; mass migration into Europe is transforming the cultural and religious identify of the continent.
Other startling observations:
- Russia is suffering a demographic decline on a scale that is normally associated with the effects of a major war.
- Iran is experiencing what may be one of the most dramatic demographic shifts in human history.
- Total dependency ratios of the 21st century are going to look remarkably similar to those of the 1960s. The difference is that most dependents in the 1960s were young, while most of the dependants of 2009 are older.
- The latest UN projections suggest that China’s population, now 1.3 billion, will increase slowly through 2030 but may then be reduced to half that number by the end of the century.
- The United States will be the only Western country to have been in the top 10 largest countries in terms of population size in both 1950 and 2050.
A Life Worth Ending
In this distressing essay in New York Magazine, a son chronicles his mother’s decline and the unintended consequence of promoting longevity. “The longer you live the longer it will take to die. The better you have lived the worse you may die. The healthier you are—through careful diet, diligent exercise, and attentive medical scrutiny—the harder it is to die.”
How the Big Mac explains the world
The Big Mac Index has been used for years, semi-seriously, as a measure of currency over-or-under valuation. Recently, a Princeton economist has taken Bigmaconomics a step further to help answer the question “How do poor nations get rich?” He computes how many Big Macs a worker can buy on an hour’s salary over time and across countries to explain the rise in Western wealth, the catch up by more recently developed nations, and the Great Recession.
Time Waster of the Day: Scale of the Universe
An interactive graphic steps you through the scale of the universe in powers of 10. Zoom from the edge of the universe to the quantum foam of spacetime and everything in between.
The Importance of Being Social
A slew of recent studies show that people with weak social connections are more at risk for health problems and twice as likely to die as those who have strong connections. This result holds after correcting for other risk factors A summary of the findings here.
The Changing World of Energy – Continued
The shale gas revolution has increased U.S. gas reserves to over a 100 year supply and caused gas prices to drop 80% over the last five years. Both a feedstock in most industrial processes and an energy source, cheap and abundant natural gas creates a “really wonderful opportunity to kick off an industrial renaissance in the U.S.” The cost of producing electricity from coal is now twice that of natural gas. Coal producers are getting hammered as utilities have been switching to gas and coal prices have dropped 25-40%. Electricity consumers are benefiting, as is the environment: by 2015, stringent new emissions requirements will result in some 250 old coal-fired plants being retired. They are likely to be replaced with clean burning natural gas plants.
No More Nukes in Japan
For the first time in 50 years, Japan has no nuclear power plants generating electricity. In a reaction to the Fukushima disaster, public opposition has forced all of Japan’s 54 nuclear plants offline. These plants account for 30% of Japan’s generating capacity. While hydrocarbon-fuelled plants are taking up the shortfall, there are concerns about electricity shortages, effects on Japan’s trade balance from energy imports and reduced industrial competitiveness.
The World’s Best Zippers
YKK is a little-known Japanese company that manufactures most of the world’s zippers – estimates of its global market share range from 50-90%. With over 40,000 employees around the world, it is a textbook story of the successful exploitation of a niche. YKK is highly unusual in today’s world of extended supply chains as it is vertically integrated from smelting its own brass to building its own machines and making the boxes it ships zippers in. Seth Stevenson explains the economics of zippers.
The Biggest Company You Heard of Only Recently
Foreign Policy publishes a long essay on Glencore, the giant commodities trading company that went public a year ago and is proposing a takeover of Viterra. A famously secretive company, it is one of the world’s largest grain exporters, controls half the international trade in zinc and copper, a third of the sea-going coal, and a measurable portion of world daily oil consumption. The essay gives an absorbing account of Glencore’s growth and its business practices as it operates “in countries where many multinationals fear to tread”.
Economic Growth and Immigration: Mexico, the U.S. and Canada
According to the Pew Center, the net migration from Mexico to the U.S. has fallen to zero and may have reversed. But it has still set a record: the U.S. “today has more immigrants from Mexico alone than any other country in the world has from all the countries in the world. “
Immigration as a driver of economic growth is receiving more attention from the media. In the U.S., The Atlantic views immigration as America’s secret growth weapon. And, in case you missed it, see the Globe & Mail’s series The Immigrant Answer.
A related analysis suggested that 50% of the decline in U.S. labour force participation is due to demographics, particularly age.
The Difference Between the U.S. and Europe in One Graph
Another good reason for not eating armadillo
It turns out that armadillos can be carriers of the leprosy bacterium and are likely responsible for some of the 200 or so new cases of leprosy in the U.S. each year. Despite its stigma, leprosy is not highly transmissible, is easily treated with antibiotics and, if treated early, is not disabling.
18th century trade routes mapped with 21st century technology
Admittedly a timewaster, this mapping of 18th century economic activity is quite interesting.
Asia’s demographic dividend, leisure time, and Chinese military power
Economic growth, simply put, is the product of work force growth times productivity growth. David Piling outlines the end of Asia’s demographic dividend. The work force in South Korea and Taiwan will begin to decline in 2016, China’s labour force will start to shrink in 2017, Thailand’s in 2022.
In a related development, companies in China are noticing a significant shift amongst young Chinese in their attitudes to leisure. Where just a few years ago business leaders scoffed at the concept of free time, “the younger generation of Chinese workers have begun to discover the joys of sloth”. Read FT’s China’s young warm to the west’s work-life balance.
Thomas Barnett speculates that a more relaxed work force combined with rapid demographic aging could well result in China heading towards a “Nordic socialist-heavy” model rather than a “Kaiserian Germany push” for military great-power status.
The changing world of energy – continued
U.S. oil production could surpass Saudi Arabia by 2013. The U.S. “now enjoys an incredible energy price advantage that is transforming industries”. This is “the most dramatic change that is happening beneath the U.S. economy today”.
More on re-shoring and the nascent U.S. industrial renaissance
From the Wall Street Journal: “Investors who have favored emerging markets like China in recent years should pay attention to another growing manufacturing center. It boasts plenty of skilled workers; cheap and abundant energy; stable institutions; and a large middle class that likes to shop. It is the U.S., where a long industrial decline might be in reverse.”
Caterpillar Inc. is the poster child: “In 24 months, 15 Caterpillar facilities have been built or updated in the U.S., tens of thousands of workers have been added to the payroll and $2 billion is committed for capital investments on its home soil this year.”
GE CEO Jeffrey Immelt in the Harvard Business Review: “What GE is doing at Appliance Park, and what GE’s employees are doing in research labs and on factory floors across the United States, says something about how we make decisions concerning where to manufacture our products. It shows that when we invest in our people and our technologies and create new business models, we can bring manufacturing back to the United States and be profitable.”
Two perspectives on inflation risk
Marc Faber - “Dr Doom” - warns investors about an impending “massive wealth destruction” resulting from inflation triggered by “uncontrolled money printing” .
Missing from this view is an understanding of the effect of credit activity on money supply. In an economy with a fractional reserve banking system – ie. all modern economies – lending activities increase the money supply through the multiplier effect. Since U.S. corporations have been reluctant to borrow and consumers have been deleveraging, the massive increase in banking liquidity provided by the Fed has simply not translated into a similar growth in money supply.
Professor Martin Feldstein discusses Fed Policy and Inflation Risk and points out that the money supply has increased only 25% since 2008, despite a 40-fold(!) increase in bank reserves. The risk, of course, is that banks start using those reserves to lend to corporations and consumers and that will cause money supply to grow much more rapidly.
50 amazing numbers about today’s economy
From the Motley Fool. A sampling:
44. In November 2009, the nationwide unemployment was around 10%. But dig into demographics, and the rates are incredibly skewed. The unemployment rate for young, uneducated African-American males was 48.5%. For Caucasian females over age 45 with a college degree, it was 3.7%.
39. As the market was "flat" from 2000 to 2010, S&P 500 companies paid out more than $2 trillion in dividends
35. According to Goldman Sachs' Jim O'Neill, China's growth creates the equivalent of a new Greece every 90 days.
25. According to Pew, for every dollar newspapers make in new digital advertising, they've lost $7 from traditional print media.
27. In 2011, the federal government took in $2.3 trillion in tax revenue, and spent the exact same amount on military, Social Security, Medicare, and Medicaid alone.
3. The combined assets of Wal-Mart's (NYSE: WMT) Walton family is equal to that of the bottom 150 million Americans.
The 60 year job
More Intelligent Lifeposts short profiles of seven individuals, starting with the Queen, who have held their jobs for more than 60 years. My favourites: cider farmer Frank Naish and physicist Freeman Dyson. Also profiled are theatre director Sir Peter Hall, model Daphne Selfe, and furniture designer Jens Risom.
What happens to the coke in Coca-Cola?
The original Coke (circa 1886) contained a significant amount of cocaine. Today’s Coke continues to be flavoured by coca leaves but contains no cocaine. What happens to it? Dan Lewis explains.
The collapse of print advertising …
… in one graph.
How 105 companies are tracking you on the web
“This morning, if you opened your browser and went to NYTimes.com, an amazing thing happened … Data from this single visit was sent to 10 different companies, including Microsoft and Google subsidiaries, a gaggle of traffic-logging sites, and other, smaller ad firms. Nearly instantaneously, these companies can log your visit, place ads tailored for your eyes specifically, and add to the ever-growing online file about you.”
Alex Madrigal explores the meaning of privacy and the relationship between our physical and digital selves in the on-line world in this Atlantic essay.
· A bookstore café is prevented by local regulations from selling books after six pm and from making coffee at all.
· Entrepreneurs working on an e-commerce startup are required, as part of their licensing, to provide chest x-rays and stool samples to the health department.
I have posted several articles on Canada’s housing price boom and increasing household debt. I recently came across a young couple who typify the kind of behaviour that creates such concern in this environment. They purchased a condo in Vancouver some years ago and, after a healthy increase in market value, borrowed against that higher value in order to make a down payment on a condo in Whistler. That condo promptly declined in value so they are now carrying mortgages totalling 85% of the sale value of their properties. While rental income covers the condo carrying costs, their joint employment income does not go much beyond covering their other living costs. This couple is highly vulnerable to an “economic shock” like a decline in Vancouver condo prices, a rise in interest rates, or a decline in rental income.
Another amazing Apple fact
Much has been made about U.S. corporations’ historically high cash balances and whether their reluctance to spend has slowed the economic recovery. It turns out that corporate cash balances would have declined in 2011 had it not been for Apple’s $46 billion increase. Apple alone holds 12% of the total cash held by US corporations.
Chinese companies start looking offshore to reduce production costs
As previously noted, rising costs in China are making the country less attractive as a lowest-cost location for manufacturing. More evidence: a Chinese car manufacturer opened an assembly plant in the European Union and bicycle manufacturers are looking to shift some production to southeast Asia.
U.S. housing: very affordable, but no one is buying
Housing construction has historically been such a large part of the US economy that it is difficult to see how employment can fully recover without the home construction industry returning to its long-term trend line. A widely watched index of housing affordability has recently reached an all-time high. And Warren Buffet believes that ongoing household formation will soon lead to the release of pent up demand for new housing. But Derek Thompson thinks that the home ownership rate among young families is in a long-term decline as marriage rates sink and student debt limits financial flexibility.
Two notes on the changing world of energy
- In my last email, I posted several articles on the dramatic changes in energy economics resulting from the shale gas boom. Now the U.S. steel industry is betting on natural gas to make it more competitive domestically and in the export market.
The Best Explanation of the Greek Crisis Involving Rubber Duckies …
… that you are likely to see. Click here to open a YouTube video.
How Your Cat is Making You Crazy
Is a microscopic, mind-altering parasite spread by cats responsible for car accidents, hoarding behaviors, and schizophrenia? Czech biologist Jaroslav Flegr studies Toxoplasma gondii, the protozoan that causes toxoplasmosis and the reason why pregnant women are told to avoid cats’ litter boxes. T. gondii infects a significant portion of the world population but up to now was thought to be benign in adults. However, “if Flegr is right, the ‘latent’ parasite may be quietly tweaking the connections between our neurons, changing our response to frightening situations, our trust in others, how outgoing we are, and even our preference for certain scents.” Other research suggests the parasite can turn a rat’s strong innate aversion to cats into an attraction, luring it into the jaws of its No.1 predator.
Three Amazing Apple Facts for the Day
1. Apple’s iPhone business alone is now biggerthan all of Microsoft and is likely more profitable too.
2. Apple’s overall size and earnings growth are skewing market metrics, according to Barclays Capital. If Apple’s results were stripped out, earnings growth of S&P 500 companies in the last quarter would be 2.9% rather than 7%.
3. Smartphone shipments in 2011 – led by iPhone - topped PC shipments for the first time ever.
So, What Would Your Plan for Greece Be?
Do you think the Greek crisis is being handled appallingly and – perhaps - you have some ideas of your own? You can test out your ideas here. Blogger Daniel Davies presents the crisis in the form of a “Choose Your Own Adventure” book in which alternative decisions lead you down different – but often equally disastrous – paths. Educational and great fun, even if you don’t have a prescription for the crisis. Caution: this game could be a significant time-waster.
The Economics of Big Ski Resorts
Vail and Whistler Blackcomb have created stable businesses around inherently unpredictable snowfall. This Atlantic article explains how the resorts utilize two core strategies. First, they create a base of revenue and skier visits through the sale of season passes. Second, they make half their money from rentals, food and snow school because the resort owns the right to commercial activities on the mountain. The result is a business model that is much more stable than year-to-year snowfall numbers.
Canada’s Housing Market: “Look out below”
Canada’s booming real estate market continues to attract attention – and concern - from abroad. The Economist reviews the numbers: Canada’s ratio of household debt to disposable income has risen 40% in the last decade and now surpasses the U.S.; the ratio of house prices to income is now 30% above historical averages. It provides faint comfort to hear economists debating whether we are experiencing a bubble or just a balloon. On the other hand, by several measures shown in this interactive chart, Canada is in good company. Australia and France, in particular, show high real estate valuations.
Big Changes in U.S. Energy
Significant changes in U.S. hydrocarbon production are underway which will have broad effects across the economy with ripple effects into Canada. The U.S. has reversed a 20 year decline in energy independence with domestic production now over 80% of demand. Oil production is surging from new shale oil supplies. Shale gas production has become so large it has driven gas prices down 80%, throwing energy markets into turmoil and depressing the use of coal while at the same time stirring fears it could inhibit renewables. The energy boom is likely to energize the chemical industry, help to increase industrial competitiveness and reduce the trade deficit.
For Some U.S. Manufacturers, Time to Head Home
The trend to “reshoring” manufacturing jobs in the U.S. continues. A cheaper dollar has lowered wage costs while shipping costs have jumped. Lower natural gas costs (see above) are especially appealing to the metals and chemicals industry. And a rethinking of the fragility of global supply chains after the Japanese tsunami and Thai floods last year may encourage the trend. The number of reshored jobs is not large at present but many think this is a long term trend.
How doctors die
“Doctors don’t die like the rest of us. What’s unusual about them is not how much treatment they get compared to most Americans, but how little … they know the choices … but they go gently.” In an essay that garnered much attention, Dr. Ken Murray, a Clinical Assistant Professor of Family Medicine at USC, explains why their experience causes doctors to prefer less aggressive treatment and why patients, families and the medical system create a bias towards over-treatment.
When will China’s economy truly eclipse America’s?
The Economist provides a handy chart showing the relative size of China and the U.S. on 15 measures from steel consumption through to defence spending.
Professionals flock to jobs in Brazil’s prosperous economy
Professionals from the U.S. and Europe are joining workers worldwide who are seeking jobs in Brazil's booming economy. High-level jobs in Brazil's big cities often pay more than comparable positions in New York and Paris. Brazil recently replaced Britain as the sixth-largest economy in the world.
The battle between our present and future self
“To abstain from the enjoyment which is in our power, or to seek distant rather than immediate results, are among the most painful exertions of the human will.” N.W. Senior
Every day, we make decisions that have good or bad consequences for our future selves. It is an unequal battle with the present self heavily favoured. Daniel Goldstein studies how we make decisions about our present and future financial selves and in this TED podcast, talks about tools that he creates to help people make smarter choices for their future selves.
Why is the iPhone not built in the U.S.?
Most of us probably think that the main answer to this question is lower wage costs in China. The New York Times tackles the question in a lengthy essay and concludes that the iPhone’s margins could easily support domestic U.S. assembly. The real reasons are at the heart of the changes and challenges of the new economy: better supply chains in Asia, greater availability of mid-level technical skills (with implications for North American education policy), vastly different labour market expectations, and a much less U.S.-centric attitude on the part of key executives.
China: The paradox of prosperity
Deng Xiaoping’s realization just 20 years ago that without economic growth, the Communist party would be history set the party cadres on remaking China. The resulting mix of political control and market reform has yielded huge benefits. The Economist argues in this short essay that the model cannot remain the same.
U.S. house prices hit post-bubble low
Prices of U.S. homes are the lowest since 2003, according to recent data. “Continued weakness in the housing market poses a significant barrier to a more vigorous economic recovery”. Housing starts have remained at 60 year lows for more than three years with attendant effects in employment in the residential construction industry. A related study shows that housing wealth has a large effect on how much households consume so current house prices are a significant drag on demand.
Has the Chinese real estate bubble popped?
Real estate woes are sending shockwaves through China's broader economy. Chinese steel production -- driven in large part by construction -- is down 15% from June, and nearly one-third of Chinese steelmakers are now losing money. The impact of a housing downturn could have a significant impact globally as international suppliers of construction commodities and equipment see demand drop. The biggest unanswered question is whether existing investors -- the people holding all those sold but empty "ghost" condos and villas -- will join in the sell-off, which could turn the market's retreat into a rout. So far, that has not materialized.
China's Real Estate Bubble May Have Just Popped – Foreign Affairs
Peak “Stuff” Theory
Will rich societies start consuming less? A study finds that Britons are consuming less than they did a decade ago with similar patterns being seen across Europe. The U.K. reached “peak stuff” between 2001 and 2003 and since then has been consuming less building material, paper, cars, textiles and as well as producing less waste. The trend began well before the 2008 economic crisis and holds true even after accounting for the manufacture of imported goods.
There are early hints of a similar trend in North America. Underlying causes are unclear and may be demographic changes, a result of increasing efficiency in the economy, or possibly cultural shifts.
The New Story of Stuff– Fred Pearce, Reuters
Christmas 1964 versus 2011 – There’s no comparison
Compare a major consumer purchase from 1964 to today and see the startling result of long term trends in technology and productivity. A basic Sears console colour TV from 1964 was priced at $750, equivalent to $5,500 in 2011 dollars! For that amount of money today, a household could fully equip a kitchen with 8 new appliances as well as buy 9 state-of-the art electronic items. While we have many economic concerns today, we often fail to consider how much progress we have made – at least on material things.
As a side note, apropos the above article, the Sears TV utilized hundreds of pounds of metal, glass and wood to produce a not very good colour picture. Today a flat screen TV of similar screen size produces a vastly superior picture using perhaps 15 pounds of materials and much less electricity.
Kim Jong Il’s Economic Legacy
As recently as 1970, the per capital GDP of North and South Korean were similar. Today, North Korea’s per capital income is less than 5 per cent of that of South Korea.
Kim Jong Il’s Economic Legacy, in one chart – The Washington Post
The Washington Post asked economists and investor for their favourite charts of 2011. My picks:
Chart 1 – For the U.S. government, revenue has to be part of the deficit solution.
Chart 9 – U.S. households are rapidly deleveraging (as opposed to their Canadian counterparts).
Chart 10 – High youth unemployment is a major social factor around the world.
The Year 2011 in 18 Charts - The Washington Post
Re-examining the cause of the Great Depression
“Forget monetary policy. Re-examining the cause of the Great Depression—the revolution in agriculture that threw millions out of work—the author argues that the U.S. is now facing and must manage a similar shift in the “real” economy, from industry to service, or risk a tragic replay of 80 years ago.”
The Book of Jobs - Vanity Fair
In the category of boring but absolutely necessary …
… B.C. recently passed new legislation affecting Powers of Attorney and Representation Agreements. Now would be a good time to review with your lawyer your personal planning documents – will, power of attorney, representation agreement – to make sure they still meet your needs. Too many of us put off this necessary but unexciting task. The B.C. Public Trustee has published this very good summary of personal planning options to get you started.
Posted December 4
Your best $25 investment ever.
If you suffer serious injury in a car crash that is not your fault, you may be out of luck if the at-fault driver does not carry enough insurance. ICBC’s basic autoplan includes up to $1 million in underinsured motorist protection but that won't be enough to cover significant wage loss or disability. For just $25 per year, ICBC will top that up to a limit of $2 million. But you have to ask for it (“Excess Underinsured Motorist Protection”) and purchase it separately from your Autoplan. Everyone should carry this coverage.
6 Ideas for the Ash Heap of History
Tyler Cowen of Foreign Policy Magazine weighs in on the “just-plain-wrong notions that (hopefully) bit the dust this year.”
Posted December 4
Thinking, Fast and Slow; book by Daniel Kahneman
Kahneman was awarded a Nobel prize in 2002 for his integration of behavioural research and economics. In this outstanding book, he summarizes decades of research on intuition and decision-making to explore unconscious (fast) and conscious (slow) modes of thought. Through a series of ingenious experiments, he shows how much of our analytical capabilities are hidden to us yet are amazingly powerful. But these very capabilities cause us to fall prey to cognitive illusions, predictable biases and systematic logical errors.
Kahneman explains why we tend to mistake random fluctuations for meaningful patterns, how we bring a lottery-like approach to stock-picking, why we tend to be ridiculously over-confident, what environmental cues can influence our decisions without our awareness, and a myriad other fascinating – and sometimes alarming – characteristics of our thought process.
This is a captivating and well-written book. Highly recommended.
Posted December 3
Has North America entered an extended period of economic malaise?
No, argued Larry Summers and Ian Bremmer in last week's Munk Debate in Toronto. The U.S. continues to have enormous advantages, including an expanding workforce (see "Youthful and Growing Economies", below) and a legislative system that is getting work done, notwithstanding the partisan infighting, especially compared to the Eurozone. And Canada's fiscal stability, strong banks and large natural resource base makes it a haven on a volatile globe.
... on the other hand, it is taking much longer to recover employment after recessions.
Increasingly long periods of high unemployment have followed the U.S. recessions of the last two decades. From 1945 to the 1980's, employmnet rebounded roughly six months after GDP did. At recent rates of job creation, the lag this time will be upward of 60 months.
Formerly the American Dream ...
U.S. housing prices leveled off in the last quarter but still down about 4% from year ago levels. While the worst of the price declines seem behind us, an estimated 29% of U.S. homeowners with mortgages owe more than the market value of their homes. Backlogs in the foreclosure process will take years to clear.
... and speaking of housing market busts ...
... the Irish - who know a thing or two about housing bubbles - are noticing that the Canadian housing market looks distinctly frothy. From The Irish Times: "The average priced home in Canada today is valued at more than five times median family income, as against just three times a decade ago, when valuations were close to their historic average. The situation is even more alarming in Vancouver, where the average price exceeds 11 times family income, more than double the national average and the figure that prevailed at the start of the new millennium. "
Boomerang: Travels in the New Third World, by Michael Lewis
"The tsunami of cheap credit that rolled across the planet between 2002 and 2008 was more than a simple financial phenomenon: it was a temptation, offering entire societies the chance to reveal aspects of their chacters they could not normally afford to indulge." Lewis (Moneyball, The Blind Side, Liar's Poker) is an insightful, funny and compelling author who became a financial disaster travel writer, visiting shaky countries - Ireland, Greece, Iceland, the U.S. - and examining their ruined finances. He draws fascinating connections between national characteristics and the nature of each country's own version of the meltdown. Some of this book has previously been published as essays in publications such as The Atlantic.
Posted November 12, 2011
The U.S. and Canada: Youthful and Growing Economies?
The U.S. and Canada may have a demographic advantage that will drive economic growth over the coming decades: their populations will be younger and grow more than many other countries. While the entrance into the workforce of the "echo boomers" - children of the baby boomers - is probably one of the reasons for today's very high unemployment rates among young adults, in the longer run this is likely to accelerate economic growth. Further, North America continues to have relatively high rates of immigration and immigrants tend to be relatively young. Japan, Russia and most of Europe will experience significant population decline with up to 40% of the population over age 65, compared to 20% in Canada and the U.S. Even the developed nations of East Asia - as well as China - will have a higher proportion of over 65's than North America. Relative youth and population growth have been two significant drivers of economic growth in the past. If the relationship holds in the future, we may grow more than many other economies.
When borrowing stops: how debt deleveraging is killing the economy.
Surely reducing debt is good? Consider the paradox of deleveraging. "This occurs when economic actors on all sides - consumer, business, government - retire their debts at once. Unless their incomes are rising, they can pay off debt only by cutting what they spend. This, in turn reduces the demand for goods and services, which drives prices down, further trimming the businesses' revenue and thus their ability to pay emplyees, who in consequence spend less. The cycle continues ..." The Atlantic's Harris Collingwood discusses The Recovery's Silent Assassin.
Posted Oct 23, 2011
What if the U.S. government had paid off its debt?
Amazing as it now seems, at the end of the Clinton presidency in 2000, budget officials thought the U.S. might pay off its entire national debt by 2012. The U.S. had been running massive budget surpluses and reducing its debt since the mid-90's and an extrapolation showed a debt-free nation within 12 years. The NPR article citing a secret government report can be found here. And how did the U.S. get from there to here? This Pew Trusts report shows that the major drivers of the increase in debt are: tax cuts (21%), revenue reduction - primarily due to the recession - (28%), increased defense spending (15%) and increased interest payments (11%).
Posted Oct 22, 2011
"Re-shoring" of manufacturing jobs from China to the U.S. may be a new driver of long term U.S. job growth.
Rising Chinese labour, energy and land costs are changing the economics of global manufacturing and could contribute to the creation of millions of U.S. jobs by 2020, according to a study by Boston Consulting Group. By 2015, in fact, many goods destined for North American consumers will be more economical to produce in parts of the U.S. than China. Manufacturers will respond by moving production capacity from China to the U.S., resulting in significant job growth.
Can a More Conservative Portfolio Outperform a Growth Portfolio?
Recent research suggests that the relationship between risk and return in the financial markets may not be conform to theory. Low volatility stocks held over the last 10 and 20 years not only had less instability but also had higher returns - assuming reinvested dividends - than the general market.
Baby Boomers and the Markets Posted Oct 1, 2011
Demographer David Foot discusses how people's financial behavior change as they move through each stage of the life cycle and how the number of people in each stage determines economic trends. Starting in a few years, the leading edge of the baby boomers will be selling equities and increasing fixed income investments. Foot believes that the "echo boomers", who by then will be in their early forties and just starting to invest, will prevent a further meltdown in the equity markets.
Greece and the European Financial Crisis Posted Sept 24, 2011
How did a Greek monastery become a major landowner in that country and what does that have to do with the Greek debt crisis? In a fascinating and funny article, Michael Lewis (The Blind Side, Moneyball) argues that Greece's problem is, at root, cultural rather than economic. Reading time about 45 minutes.