Fortunately, the Supreme Court is considering this egregious sentencing double standard.
What’s going to happen to the U.S. dollar over the next year? Stronger, weaker? The best place to find out is in the forward markets for foreign exchange, where the dollar is already trading against the currencies of about 30 countries for delivery one year from now.
According to yesterday’s one-year currency forward rates, the dollar is expected to continue depreciate over the next year, and is trading at a one-year forward discount, against 11 major currencies like the euro, Swiss franc, yen, Canadian dollar, etc. (see chart above, click to enlarge). The USD is expected to appreciate over the next year, and is already trading at a one-year forward premium against 18 currencies including the UK pound, Mexican peso, Indian rupee, etc.
Bottom Line: The fall of the USD has probably stabilized and will actually appreciate over the next year against some currencies like the UK pound, and will depreciate only mildly against many other currencies.
NEW YORK (AP) — Wall Street shot higher Monday, sending the Dow Jones industrial average above 14,000 for the first time in 2 1/2 months (closing at 14,087.55) as investors moved back into stocks at the start of the fourth quarter. The blue chip index rose more than 200 points as it surged to a new trading high.
The market grew more optimistic that the Fed might lower rates to boost the economy after a report showed that manufacturing grew in September at the slowest pace in six months.
“People are getting more confident there is going to be an October rate cut.”
The Fed (FOMC) meets again on October 30-31. What are the chances of another rate cut?
1. According to Fed Funds futures contracts for November, the chances of a rate to 4.5% are about 74%.
2. According to trading on Intrade.com (“The Prediction Market”) for the contract “Fed Funds Rate to be ON or OVER 4.75% on Year End 2007,” there is only a 19.5% of that happening, indicating about an 80% of a rate cut by year end.
From today’s WSJ front page article “Dollar Lifts Exporters“:
As long as the dollar’s decline is gradual, most economists see it as a modest plus overall.
Real exports have grown faster than real imports for nearly two years, and this trend is expected to continue. U.S. exports rose 2.7% to a record $137.68 billion in July, and stronger exports have contributed a half percentage point of added growth to GDP since 2005.
At the moment, strong foreign economies are soaking up U.S.-made goods and services.
Visits by foreign tourists to U.S. theme parks and other attractions are up, which means more bookings for hotels, restaurants and rental cars. The convention bureau in Orlando, Fla., forecasts a 3.9% increase in foreign visitors this year compared with 2006. Canada’s dollar recently hit parity with its U.S. counterpart for the first time since 1976, which is why Disney recently ran ads north of the border urging Canadians to “enjoy the magic” of a strong currency by traveling to Florida.
People like James Mallon are seeing yet another dimension to the falling dollar. The 34-year-old native of Ottawa, who now lives in Ann Arbor, Mich., says he’s gotten a flurry of phone calls in the past few weeks from friends in Canada who want to stay with him for weekend shopping excursions. Several asked him to accept mail-order shipments — including a surfboard, cookware and bicycle parts — that they’ll pick up in the future.
“I feel richer for my friends,” he says, “but poorer.” Mr. Mallon, an engineering consultant who specializes in ergonomics, has his student loans in Canadian dollars that now cost more to pay back. And a loan of C$25,000 that he took from his parents to buy his house in 2003 has suddenly grown far more onerous. “When I took out that loan, it was the equivalent of $14,000 U.S., but now I owe them $25,000.”
We don’t hear much about it in the U.S., but Australia is in the middle of a huge economic boom, with a record low unemployment rate of 4.3% and a record high stock market that has more than doubled in the last three years (see chart above).
Here’s a report on job vacancies reaching a record high in Australia, and how “the unemployment rate is tipped to fall to a fresh historic low as bosses struggle to keep young and restless workers seeking to cash in on the commodities bonanza (coal and iron ore are Australia’s two largest exports).”
WASHINGTON — Existing-home sales slipped 0.2% in July to a seasonally adjusted annual pace of 5.75 million homes, the lowest in five years, according to the National Association of Realtors (see top chart above). The median sales price dropped to $228,900, down 0.6% from the July 2006 level, which was the highest on record.
“Everyone seems to think that ethanol is a good way to make cars greener. Everyone is wrong. The political rush to back ethanol is a mistake.”
Read more of the article “Ethanol, Schmethanol” here in The Economist.
The World Bank just released its “Doing Business 2008″ report, an annual study that tracks a set of regulatory indicators related to business startup, operation, getting credit, trade, payment of taxes and closing a business, by measuring the time and cost associated with various government requirements in 178 countries.
The top 10 and bottom 10 countries are displayed above (click to enlarge) for the “Ease of Doing Business Index,” along with the GDP per capita of those countries. As expected, the more favorable the overall business climate, the higher the income per capital. Poor countries are poor and remain poor because they stifle private businesses, especially in Africa, which has 9 of the bottom 10 countries, and 19 of the bottom 20. Here are the complete rankings.
From the FT Times: “The U.S. may be the economic superpower, and China the new manufacturing powerhouse, but there is one industry in which Africa still leads the world: the manufacture of red tape. This year’s edition of “Doing Business” is a depressing but important reminder of what we already knew: poor countries tend to stifle their economies with impossibly burdensome regulations, while most rich countries let entrepreneurs start businesses, buy and sell property, and ship goods through customs.
Read a Business Week report here, and an article from Financial Express in India here.
Bottom Line: Wealth, income, jobs and prosperity are created by businesses that start and operate in the private sector of the economy. Business-friendly countries create wealth, income, jobs and prosperity, and business-unfriendly countries don’t.
Slate.com: It’s hard to dislike the idea of free municipal wireless Internet access. Imagine your town as an oversized Internet cafe, with invisible packets floating everywhere as free as the air we breathe. That fanciful vision inspired many cities to announce the creation of free wireless networks in recent years. This summer, reality hit—one city after another has either canceled deployments or offered a product that’s hardly up to the hype. In Houston, Chicago, St. Louis, and even San Francisco, once-promising projects are in trouble. What happened—was the idea all wrong?
Setting up a large wireless network isn’t as expensive as installing wires into people’s homes, but it still costs a lot of money. Not billions, but still millions. To recover costs, the private “partner” has to charge for service. But if the customer already has a cable or telephone connection to his home, why switch to wireless unless it is dramatically cheaper or better? In typical configurations, municipal wireless connections are slower, not dramatically cheaper, and by their nature less reliable than existing Internet services. Those facts have put muni Wi-Fi in the same deathtrap that drowned every other company that peddled a new Net access scheme.
From “The UAW’s Awakening” in today’s Wall Street Journal:
“The problem with unions is not all that dissimilar to that posed by entrenched management: Once they win comfortable contracts, they often become impediments to the kind of innovation and flexibility essential to success in today’s economy. So in the name of “job security,” they undermine a company’s — or a nation’s — competitiveness. The result, over time, is less job security for everyone, especially the union workforce. There’s no better example of this than GM, where the UAW now represents about 74,000 hourly workers, compared to 246,000 in 1994. Some security.”
This is classic textbook economics, paraphrased from Gwartney and Stroup:
For a time, unionized workers enjoy higher wages and job security. In the long run, however, investment will move away from firms with low profitability (Ford and GM). To the extent that the profits of unionized firms are lower (GM, Ford), investment expenditures will flow into the nonunion sector (Toyota, Honda, Nissan) and away from unionized firms. As a result, the growth of both productivity and employment, as well as market share, will tend to lag in the unionzed sector.
The larger the wage premium of unionized firms and the greater the guarantees of job stability, the greater the incentive to shift production toward nonunion operations. Empirical evidence shows that industries and companies with the largest union wage premiums and greatest guarantees of job stability are precisely the industries and companies with the largest declines in the employment of unionized workers.
Bottom Line: Gains in the short run of higher-than-market wages and benefits, and greater job security, eventually undermine the companies employing unionized workers, destroying hundreds of thousands of union jobs in the long run. The more success a union has in the short-run, the greater the failure in the long run. The discipline of the market eventually dominates and prevails.