Carpe Diem

Has the Dollar Bottomed Out?


From the International Herald Tribune: “Has the dollar bottomed out?”

“Foreigners are buying American assets at cut-rate prices. To make their purchases, foreigners need dollars; more demand for dollars pushes the exchange rate higher. And, according to some important measures of the dollar’s value, the greenback may have hit bottom over two months ago.”

More evidence: The USD is now selling at a one-year forward premium against almost two dozen currencies, see chart above, including almost a 2% forward premium vs. the British Pound, and almost a 1% premium vs. the Euro.

Carpe Diem

UK’s National Health Care=Third World Dental Care

From the UK Telegraph “Bad Teeth – The New British Disease“:

In Britain today, you can stuff yourself on deep-fried Mars bars, drink 20 pints of beer a night, inject yourself with heroin, smoke 60 cigarettes a day or decide to change your sex — and the National Health Service (NHS) has an obligation to treat you. You might go on a waiting list, but it will do its best to cure your lung cancer, patch up your nose after a drunken brawl or give you a hip replacement.

But if you have bad teeth, forget it. You may be rolling on the bathroom floor in agony with an abscess, your gums may be riddled with disease, or people may recoil at the sight of your fangs as you walk down the street, but the NHS doesn’t have to help you.

It is now virtually impossible for many people to find an NHS dentist, and if they do manage to squeeze on to a list, they could still be charged 80% of the cost of treatment. A recent survey found that seven and a half million Britons have failed to gain access to an NHS dentist in the past two years (UK population = 60 million). In one quarter of the country, no NHS dentists are allowing new patients to join their lists. And despite government targets that every child should have his teeth seen by an expert every year, more than one in three children never see an NHS dentist.

Now because of our first-world diets and third-world dental care, we have 19th-century teeth.

According to today’s related IBD editorialLike so many British teeth, national health care systems are rotten.” (Note: The IBD editorial mistakenly reported that “2.7 million Britons have gone nearly two years without dental work. It should be 7.2 million.)


Here’s another article “
7 million patients can’t find a dentist.”
Carpe Diem

Largest-Ever Stock Subscription in Global History

MUMBAI — Reliance Power Ltd.’s 117 billion rupee ($2.98 billion) initial public offering has been set at 450 rupees a share, company Chairman Anil Ambani said.

India’s largest capital raising closed to record subscriptions as investors submitted bids valued at more than 7.5 trillion rupees. Demand for the issue, which was open for subscriptions between Jan. 15 and Jan. 18, exceeded supply by 72.9 times.

This is the largest-ever subscription in the history of global capital markets. It received applications from more than five million retail participants,” Mr. Ambani said.

Carpe Diem

Unintended Consequences:Do-Good Laws Often Fail

From “Economics: Public and Private Choice” by Gwartney, Stoup, Sobel and Macpherson:

Pitfall #2 to Avoid in Economic Thinking: “Good intentions do not guarantee desirable outcomes.”

In a Sunday NY Times article “Unintended Consequences,” Freakonomics authors Steven Levitt and Stephen Dubner explain why “do-good” laws often fail:

1. The Endangered Species Act is actually endangering, rather than protecting, species.

2. The Americans with Disabilities Act, enacted in 1992, has led to a sharp drop in the employment of disabled workers.

Carpe Diem

Export Sector is 2X As Big as the Housing Sector

Wall Street Journal: Robert Gordon, an economist at Northwestern University in Illinois who is also a member of the National Bureau of Economic Research committee that determines (usually long after the fact) when recessions begin, is hopeful that overseas growth may continue to bolster the U.S. economy. He notes that exports, which have been growing rapidly and account for more than twice as large a share of GDP as home construction does, will continue to post strong growth, easing the pain of the housing decline.

The chart above (click to enlarge) using BEA data (via the St. Louis Fed) verifies what Robert Gordon is saying: The export sector of the U.S. economy is more than twice as large as the residential housing market, and continued strong export growth will help absorb some of the weakness in the much smaller housing sector.

Exports in 2007 were up by 55% from 2003, the strongest 4-year period of export growth since 1991; and from November 2006 to November 2007, exports of goods increased by almost 14% and service exports increased by 11.4%. The strong economic growth forecast for 2008 in countries like India (8.4%), China (10%), Vietnam (8.2%), Russia (6.5%), should continue to provide strong demand for U.S. exports, and help offset the sluggish growth expected here.
Carpe Diem

We’ve Tried Tax Rebates Before; They Don’t Work

There is virtually no empirical evidence that tax rebates are an effective response to economic slowdowns. The main benefit of a tax rebate would seem to be political — giving politicians a way of appearing to be doing something about the nation’s economic problems that is superficially plausible.

It’s an insult to Keynes even to call a tax rebate Keynesian economics. It should be called “feel good economics” because its only real effect is to make politicians feel good about themselves and buy re-election with the public purse.

~Bruce Bartlett in Saturday’s WSJ editorial “Feel Good Economics”

Carpe Diem

The Packer Fan

A Packer fan was enjoying himself at the game in a packed Lambeau Field, until he noticed an empty seat down in front. He went down and asked the guy next to it if he knew whose seat it was. The guy said, “Yes, that’s my wife’s seat. We haven’t missed a game since the Lombardi days, but my wife just died suddenly.” The fan offered his sympathy and said it was really too bad he couldn’t find a relative or friend to give the ticket to and enjoy the game together. “Oh no, none of them were available” the guy said, “they’re all at the funeral right now.”

Carpe Diem

Psychology is the Joker in Economy’s Deck of Cards


From Time Magazine, December 2, 1957 issue:

The uneasy sign in the nation’s economic picture is not the statistical droop but the mood. If too many consumers postpone purchases out of worry, shrinkage in sales may bring on a real recession. “Psychology,” says Vice President Dr. Arthur A. Smith of Dallas’ First National Bank, “is the joker in the economy’s deck of cards.”

Now I’m not saying I think the U.S. economy is about to go into a recession, but it does seem like there is a certain amount of “recession psychology” going on, and some have suggested that we might be “talking ourselves into a recession.” Recessionary fears seem to generate more media attention than maybe more realistic talk of an economic slowdown, which feeds the “recession psychology” (see the increase in “recession” hits above on Google Trends for January).

According to futures trading on Intrade, there is now about a 71% chance of a U.S. recession in 2008. So let’s assume it happens: the U.S. economy goes into a recession this year. How bad will it be and how long will it last? The chart above shows the average length of U.S. recessions going back to 1854, using data from the NBER.

We know this for sure: It could be a lot worse, recessions used to last almost two years during the 1854-1919 period, and 1.5 years in the 1919-1945 period. Since WWII, the average recession lasted 10 months, and the last two recessions (1990-1991 and 2001) lasted only 8 months. With the support of a booming world economy, we could expect a short and shallow 2008 recession, IF if happens. If futures trading is correct, there’s a 29% of NOT having a recession, so don’t give up hope.

We would have to experience at least 6 months of significant economic downturn to have a recession, and there’s no evidence yet that there’s even been one month yet of serious decline in the important recession-indicating variables. I’m still saying the U.S. economy is not in recession. But then there’s always the joker….

Carpe Diem

Why Is $5 Gas Good for America? Many Reasons

“High Gas Prices Truly Cut Dependence on Foreign Oil,” Wired Magazine 2008

“Why $5 Gas is Good for America,” Wired Magazine 2005, here’s an excerpt:

Rising oil prices are more than just an irritant or even an ominous nick out of the GDP. For anyone with a fresh idea, expensive oil is as good as a subsidy – with no political strings attached. Indeed, every extra penny you pay at the pump is an incentive for some aspiring energy mogul to find another fuel.

For the better part of a century, cheap oil has fatally undercut all comers, not to mention smothered high-minded campaigns for conservation, increased efficiency, and energy independence. The changing outlook opens horizons – for conventional drilling, sure, but also for alternatives. Some new technologies merely produce more crude. But others tap energy supplies that have nothing to do with black pools under the Middle East.

What to do? Keep driving. In fact, drive more. The longer gas stays expensive, the higher the chance we’ll see alternatives.