Carpe Diem

Goldilocks Rocks; Stock Market Rallies

NEW YORK (AP) — Wall Street rallied Wednesday after new data showed the U.S. economy is in good shape. Investors were encouraged after the Labor Department reported worker productivity advanced by an annual rate of 6.3% in the summer, the fastest pace in four years (see chart above).

MP: Note also that the 6.3% growth in U.S. worker productivity was 2.5 times the average growth of 2.5% since 1995, and was the fourth highest quarterly growth rate in since 1995.

“The best news for the market is good news on the economy,” said Jack Ablin, chief investment officer at Harris Private Bank. “There might be a general malaise among homeowners these days, but as long as more people are getting paychecks then the economy can withstand the stress.”

“We’ve really got to revisit how fast the economy has been slowing down,” said James Paulsen, chief investment strategist at Wells Capital Management. The new reports have “reminded us that there are huge portions of the economy enjoying the easing of credit conditions, which hasn’t been largely discussed.”
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Monster’s Online Employment Index UP in OCT

The November report should be out any day, but above is the October Monster Employment Index, and here are some October 2007 Index Highlights:

• The Index climbed to its highest level since May, demonstrating greater overall online job availability at the outset of the fourth quarter

• Year-over-year growth rate rose moderately to 9% – a slight improvement from August and September

• There were expanded online opportunities in October for management; and business and financial operations; suggest a reassuring corporate hiring outlook

• Demand within construction and real estate industries declined, reflecting continued hardship in the building and housing sectors

• New England reports largest rise among regions, while Cincinnati, Kansas City and Cleveland registered the highest rate of increase on the month among the top 28 metro markets

Note: The Monster Employment Index is a broad and comprehensive monthly analysis of U.S. online job demand based on a real-time review of employer job opportunities culled from a large, representative selection of corporate career sites and job boards, including Monster. The Monster Employment Index presents a snapshot of employer online recruitment activity nationwide.

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What About Outsourcing TO The US: INSOURCING

The International Organization for International Investment (OFII) recently released the “Insourcing 50” list of the 50 largest U.S.-based subsidiaries of foreign-headquartered companies. Topping the list are BP Global (UK), Royal Dutch Shell (Netherlands), Toyota (Japan), HSBC (UK), and Honda (Japan).

According to the OFII, “This list demonstrates the extensive business activity generated by foreign-owned businesses that insource into the United States. Revenue generated by these businesses is an indication of investment in infrastructure, jobs and markets in the United States.”

U.S. subsidiaries of foreign companies employ 5.1 million Americans, with a total annual payroll of $336 billion, at an average compensation of $66,000, according to the OFII’s Insourcing Statistics.

Bottom Line: We hear a lot about U.S. companies outsourcing jobs overseas, but we haven’t heard much about the outsourcing of 5.1 million jobs TO the U.S. from foreign companies headquartered outside the U.S. Outsourcing, like trade, works both ways.

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Happy 6th Birthday, U.S. Economic Expansion

Nobody else reported this, so let me be the first to belatedly wish the U.S. Economic Expansion a hearty “Happy Sixth Birthday“!

According to the Business Cycle Dating Committee of the National Bureau of Economic Research, “a trough in business activity occurred in the U.S. economy in November 2001. The trough marks the end of the recession that began in March 2001 and the beginning of an expansion.”

So technically the current economic expansion actually started in November 2001, so the 6th year of the expansion is now officially a month old already, and we are in the 74th month of expansion.

The NBER’s historical business cycle data show that the average economic expansion since WWII lasted 57 months (4 years, 9 months), so the current expansion is already 17 months longer than average.

Not bad for the disparaged “Dangerfield Economy,” which gets no respect. And forget about “Goldilocks,” this should be called the mighty “Paul Bunyan Economy.”

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US Banks: Stronger Than At Any Time in History?

The top chart above is the ratio of all nonperforming loans to total loans, at all U.S. commercial banks, from 1988-2007 (third quarter). The bottom chart is the ratio of nonperforming commercial loans to total loans during the same period.

Both graphs reflect the relative health of the U.S. banking system through the third quarter of this year. Compared to the early and mid-1990s, nonperforming loans (total) are 3-4 times lower today, and nonperforming commercial loans are 7-8 times lower today. Considering also that only 3 commercial banks in have failed during the last three years, out of about 8,500 banks, the commercial banking system in the U.S. has probably never been stronger at any point in American history than today.
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What Is Global Warming NOT Repsonsible For?

What do all of these problems and illnesses have in common: asthma, childhood insomnia, dermatitis, suicide, floods, West Nile fever, landslides, food poising, cancer deaths, Lyme disease, wild fires, melanoma and the I-35W Minneapolis bridge collapse?

They are all supposedly caused by global warming. Check out the list of 600 things caused by global warming here from Numberwatch website, and check out the article “Global Warming as Religion and Not Science,” about how global warming has become the core belief in a new eco-theology.

(HT: Cafe Hayek)

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Subprime Crisis May Be Windfall for Indian BPOs

NEW DELHI: The sub-prime crisis in the US may turn into a windfall for India’s outsourcing industry. According to consultants and BPO insiders, the new lending laws, being worked out in the US, will significantly increase outsourcing by American banks to India. These new laws will be fairly stringent and will require greater outsourcing as lowering costs assumes prime importance. All of which will be a huge opportunity for Indian BPO and IT companies which already have some of America’s top banks as clients.

Over 40% of India’s $8-billion business process outsourcing firms’ revenue comes from the banking, financial services, and insurance sectors.

“With more stringent norms for loan origination coming into force, the US companies will have no option but to offshore to keep costs low.”

(HT: Sanil Kori)

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Could Be Worse: We Could Have EU’s Jobless Rate

BRUSSELS, Belgium: Unemployment in the 13 nations that use the euro fell to a new record low of 7.2% in October, the EU statistics agency Eurostat said Monday, as Europe’s recent growth spurt cut jobseeker queues that are the longest in the industrialized world.

The difference between the EU and USA?

In Europe, a 7.2% jobless rate is celebrated as an historical record low (see chart above).

In the U.S., a 6.0% unemployment rate in 2003 was condemned and criticized as a “jobless recovery” during the economic expansion that started at the end of 2001.

Bottom Line: In terms of unemployment rates, the U.S. economy, even during its worst years of recessionary labor market conditions like 2001-2003, is still better than the European economy during its best years.

Update: Some comments have suggested that unemployment rates are calculated differently in the U.S. and Europe, making a comparison misleading or invalid. Comparing the official German unemployment rates from
EUROSTAT and the adjusted German unemployment rates from the BLS “approximating U.S. concepts,” I agree that there might be a difference. But the official German jobless rates are actually LOWER than the rates adjusted to U.S. standards.

For example, the official rates for German unemployment from April-August 2007 are 8.5%, 8.5%, 8.4%, 8.4% and 8.3%, and the adjusted rates approximating U.S. concepts for the same months are 9.0%, 9.0%, 8.9%, 8.8% and 8.7%.

In other words, the German unemployment rates adjusted according to BLS standards are almost .50% HIGHER than the official rates. If that is the case for the rest of EU contries, the adjusted jobless rate for the EU might actually be higher than the official rate of 7.2%.

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Want A World of Idiots? Taxpayer Bailout Will Work

A taxpayer bailout of distressed homeowners would be expensive, unfair to the vast majority of homeowners and renters who have made prudent financial decisions, and set a troubling precedent that would invite reckless behavior in the future. What’s more, a bailout will not stop the inevitable correction in home prices, and is unlikely to prevent the associated economic repercussions.

It is self-evident that any bailout fund will be complex to administer, as well as arbitrary and unfair. While the plight of many who were caught up in the housing mania is tragic, a bailout package would almost certainly reward the least deserving. Those facing the greatest risk of foreclosure — and presumably those who would get most of the taxpayer aid — are those who bought a much more expensive house than they could afford, spent the equity of their once-affordable home, or lied about their income to qualify for a loan they otherwise would not have received.

Policies designed to suspend the laws of economics inevitably produce unintended consequences. Today’s housing bust is itself the unintended consequence of an easy Federal Reserve monetary policy designed to cushion the economy from the fallout of the bursting of the tech bubble. Congress should reject a taxpayer bailout.

From today’s WSJ editorial by Andy Laperriere

Bottom Line: If we make the world safe for idiots (and reckless borrowers) with taxpayer bailouts, we’ll create a world full of idiots (and reckless borrowers).