Carpe Diem

Forbes 400 as a Lesson in the Invisible Hand

The Forbes 400 As a Lesson in Economics:

Of the charter members of the first Forbes 400 in 1982, only 32 remain today. Far from a country where only the rich get richer, the wealthy in the US are very much a moving target. While there are 74 Forbes 400 members who inherited their entire fortune, 270 members are entirely self-made. Though many attended Harvard, Yale and Princeton, there are countless stories within of high school and college dropouts, not to mention others who grew up extremely poor. Politicians who regularly engage in class warfare would do well to keep the Forbes 400 out of the hands of their constituents, because it makes a mockery of the kind “Two Americas” rhetoric suggesting the existence of a glass ceiling that keeps hard workers at the bottom of the economic ladder. To read the Forbes 400 is to know with surety that the U.S. is still very much the land of opportunity.

To read many business journalists today, one might assume that the U.S. economy is stratified, offers little room for advancement, and that those at the top are impervious to market forces while enjoying market power that enables them to fleece the less fortunate. Thanks to the lessons offered up yearly in the Forbes 400, we know the opposite is true. Successful people are that way because they make our lives exponentially better, while yearly dropouts from the Forbes list frequently offer evidence showing that consumers punish those who falter. For that, we should be glad that the Forbes 400 goes against the conventional grain and celebrates successful American enterprise.

Here’s the Forbes 400 article.

Bottom Line: Consumers ultimately determine the Forbes 400 list with their dollar votes in the marketplace. If you want to get on the list next year or in the future, first figure out some way that you can significantly improve the lives of millions of consumers and you might have a chance.

Carpe Diem

Socialism Works, But Only if You Know Their Names

I’m attending a Free Market Forum at Hillsdale College featuring Robert Barro from Harvard, James Gwartney of Florida State (author of the textbook I use for economics), Alan Reynolds of Cato, Mary Anastasia O’Grady of the Wall Street Journal, Walter Williams from George Mason among others.

After Walter Willams’ dinner speech last night, Robert Barro asked a question about whether the government had any obligation to provide any socialist-type safety-net programs for the general good.

Walter responded something like this. “Let me make this perfectly clear. I support and practice many types of socialist programs including income redistribution, welfare payments, disability support, free health care, and social saftey nets. But I only practice socialism IN MY OWN FAMILY; and socialism like this only works when you know the names of the people involved. In any situation when you personally can’t name everybody involved, then the market is superior to socialism.”

Bottom Line: Within a family, socialism works much better than the market. Outside of a family, the market usually works much better than socialism. Good point, Walter!
Carpe Diem

If GM Can’t Buy and Sell Globally, Why Should UAW?

Washington Post: “The UAW got the assurances it wanted that GM would invest in building new products in the United States, thereby providing job security for members.”

Detroit News: “The contract offers assurances from GM that it will continue to invest in its U.S. factories and maintain union jobs.”

Just wondering, wouldn’t it be fair then to ask UAW members to:

1. Agree to not take any vacations out of the U.S. or engage in any foreign travel to maintain U.S. tourism jobs.

2. Agree not to make any investments in stock or bonds outside the U.S.

3. Agree not to wear any foreign-made clothing, thereby providing job security for American apparel workers.

4. Agree not to eat any foreign-produced food products like bananas or coffee, to maintain U.S. agricultural jobs.

5. Agree not to watch any foreign-made movies, read any books by foreign authors, or listen to any foreign music.

In other words, if the UAW wants to restrict GM’s ability to invest, buy and sell globally, shouldn’t UAW workers agree to the same restrictions?

Carpe Diem

India’s Stock Market Rocks; New High Above 17,000

NEW YORK (Associated Press)India’s benchmark stock index crossed 17,000 for the first time Wednesday after zooming up 1,000 points in just six sessions since the U.S. Federal Reserve cut its key interest rate last week. That’s the fastest ever 1,000-point gain for the Bombay Stock Exchange’s 30-share Sensex. The index took 51 trading sessions to get from 15,000 to 16,000 (see chart above).

The benchmark index has risen 22% this year – and 6 percent in the past week – as foreign investors have pumped money into the market amid brisk economic growth that is averaging about 9% annually the last couple years.

Here’s another report
on India’s red-hot stock market, with a timeline on the rise of the Sensex through Indian stock market history back to 1990, when the BSE closed above 1,000 for the first time.

(HT: Sanil Kori)

Carpe Diem

For the American Car Buyer, It’s Never Been Better

From today’s Wall Street Journal:

“Over the decades that the Big Three have struggled with their American operations, foreign auto companies have rapidly established and expanded U.S. production through foreign direct investment.

Broaden the view even more, to all American consumers, who have benefited greatly from the global engagement of the U.S. auto industry. The easiest way to see this is to visit any parking lot. The tally this morning outside my office? Five Big Three vehicles and 10 foreign-company vehicles. At the national level, in 1980 the Big Three had 73% of the U.S. automobile market. In recent months this share has slipped below half.

Thanks to all the competition among the Big Three and foreign companies, consumers have enjoyed massive innovation, new variety — and lower prices. From 1990 through 2006, the overall U.S. consumer price index rose 53%. The rise in the autos CPI component? Just 13.4% (see chart above).”

MP: We hear a lot of bad news for U.S. automakers, especially in Michigan, e.g. about the decline of the Big Three’s market share, the huge losses suffered by GM and Ford, the decline in UAW membership, the $90 billion in health-care benefits the Big Three owe to hundreds of thousands of union retirees, etc.

What we don’t hear as much about though is the good, great, and even spectacular automotive news for U.S car buyers. Consider that the CPI for new cars is the same in August 2007 (about 160) as it was in 1994 (see chart above). In other words, new car prices have been flat for 13 years, are lower today than 10 years ago, and are only 12% higher than in 1990.

American car buyers have never had it better in terms of price, quality and selection. Globalization and competition have produced a true car buyer’s heaven. It might be getting worse and worse for GM and the UAW, but it’s getting better all the time for the group that really counts: the U.S. CONSUMER.

Carpe Diem

UAW-GM Battle: Showdown About the Past

In the grand scheme of things, the latest installment of the UAW-GM battle has the makings of this fall’s Army-Navy football game—a match between two ancient powers whose rivalry once dominated the headlines but who now play a largely symbolic role. GM and UAW—the largest American manufacturing enterprise and the nation’s largest manufacturing union—brawled in bloody 1930s battles and ultimately reached an accommodation that led to a golden age. But GM and the UAW matter less and less to the U.S. economy, and the U.S. economy matters less and less to GM.

Both GM and the UAW will argue that the outcome of these contract talks is vital to the future of the U.S. auto industry. But the subject of the talks—the creation of a trust to guarantee health benefits for retirees and workers, the union’s desire for job security commitments, and GM’s demands for significant cost reductions so it can compete in the United States—prove that the showdown is really about the past.

From today’s Slate.Com article “
Strike Out: The Sorry Little Conflict Between GM and the UAW.”
Carpe Diem

Bayer Bails On the NYSE, Cites U.S. Regulations

Relieving itself of the pain of high regulation fees in the U.S., German aspirin maker Bayer left the New York Stock Exchange today. Bayer says leaving the NYSE will save more than $20 million in listing fees and accounting costs.

Bayer joins British Airways and 32 other foreign companies that have delisted from the New York Stock Exchange this year. Nine other foreign companies have announced they plan to do so as well this year. Another 20 foreign firms said this year they plan to leave the Nasdaq or have done so already.

One reason is cost. The NYSE listing fee for most foreign companies is $38,000 a year. But fees needed to comply with Sarbanes-Oxley rules and convert books to meet U.S. accounting standards can add millions of dollars in costs.

Expect the exodus to continue,
a global market expert says. “You will see more (foreign companies) delisting from U.S. markets,” she says. “I’m hearing everyone in Europe discussing it.”

Bottom Line: If you tax or regulate something, you get less of it.

Carpe Diem

Carpe Diem Milestones

1. Carpe Diem is now officially one year old. This was my very first post on September 20, 2006, and this is now post #1424, which is an average of 3.84 posts per day.

2. The number of visits to Carpe Diem just went over 200,000 a few days ago, view the SiteMeter statistics here.

3. Carpe Diem was just included in the “Top 100 Academic Blogs Every Professional Investor Should Read,” published today by CurrencyTrading.Net.

Carpe Diem!

Carpe Diem

BIS: Global Currency Markets Explode

According to a triennial central bank survey of foreign exchange activity just released by the Bank for International Settlements (BIS):

1. Daily turnover in global currency markets rose to $3.2 trillion in 2007, which is a 71% increase since the last survey in 2004, when daily foreign exchange trading volume was $1.87 trillion.

2. The 71% increase is the largest percent jump in daily currency trading since the BIS began conducting its benchmark survey in 1989.

3. Foreign exchange trading in the U.S. increased by 44% over the last three years, from $461 billion in 2004 to $664 billion this year (see chart above).

4. Trading in financial derivatives linked to currencies soared to $2.1 trillion a day, the report said, a rise of more than 70% since 2004. Large companies are also taking a more active and sophisticated approach to managing currency exposure.

5. Currency trading in the U.K. ($1.359 trillion per day), the world’s largest currency center, represented 42.5% of world currency volume, and trading in the U.S. (ranked #2 at $664 billion daily) represented about 21% of world currency volume. Together, the U.K. and U.S. account for more than 63% of the world’s currency trading every day.

6. To put $3.2 trillion of daily currency trading in perspective, consider that $3.2 trillion is greater than the ANNUAL Gross Domestic Product of Germany ($2.9 trillion), China ($2.6 trillion) and the U.K. ($2.4 trillion). In the U.K., more currency is traded in London in two days ($2.77 trillion) than the value of all goods and services ($2.4 trillion) produced in the country in a year!

Read more here in today’s Wall Street Journal.