Archive for June 2013
Darling Deflation!
The Friday File: With fear of inflation finally receding, the new concern is deflation. While high unemployment keeps wage growth in check, the price for sage business advice has absolutely tanked. Last year, lunch with Warren Buffet was auctioned off for a record $3.5 million; this year, just $1,000,100, a stunning 71.4% decline! At that…
Read MoreWorkless Policy
With the Obamacare requirement that most employers offer affordable health insurance to their employees soon to become law, expect total employment to rise and hours worked/worker to fall. This is because employers will force their employees, where possible, to work less than 30 hours/week. But employers will have to compensate by hiring more workers to…
Read MoreHot Houses
With house prices soaring by double digits and investors buying large numbers of homes, there is suddenly talk of another housing bubble. I doubt it. Affordability is still remarkably high, credit is being extended to only the best borrowers, and housing inventory, which is exceptionally low, has probably hit bottom and will now rise and…
Read MoreMaking Bank
The key problem holding Europe back isn’t high interest rates, it’s the weak condition of their banks and thus their unwillingness to lend. Exacerbating the problem is that in Europe banks are the basically the only source for money and as a result, they hold 80% of financial assets. Here, by contrast, banks hold just…
Read MoreTake Your Pick
This past week of economic data had something for everyone. For bulls, it was an improving non-manufacturing sector, higher auto sales and record breaking household wealth. For bears, it was a weakening manufacturing sector, a worsening trade deficit and a decline in mortgage applications. The best news: the labor force added 420,000 workers and now…
Read MoreHigh Priced Innovation
The Friday file: Ever wonder why US credit card technology is substandard compared to Europe and Asia? The answer, cheap phone calls. Because calls here are cheap, credit card transactions are called in for authorization. In Europe, where state-owned monopolies charge a fortune for each call, the work-around was embedding microchips in credit cards. The…
Read MoreNo Free Lunch
With the Fed, the Bank of England and recently the Bank of Japan engaging in massively expansionary monetary policy, central banks in South Africa, India, Australia, Poland, Korea, Denmark, Israel and elsewhere are lowering their interest rates too. They are doing this to stimulate growth and in some cases prevent their currencies from appreciating and…
Read MorePolitics and Pipelines
In an upset, the British Columbia Liberal Party narrowly won re-election over the left-leaning New Democratic Party. Importantly, the biggest plank in the Liberal’s platform was backing pipelines to transport oil and gas from Alberta through BC to the Pacific coast, as well as the building of tanker terminals. Now, since oil from the tar-sands…
Read MoreDisappearing Inflation
Adding to the low inflation environment we’re in, is Japan’s central-bank bond buying. By reducing the value of the Yen by about 20% in just a few months, it has made buying Japanese cars and other Japanese goods cheaper. And that puts downward pressure on prices of substitute goods. For example, to hold domestic market…
Read MoreDeductible Instability
Because interest to bondholders is tax deductible, while dividend payments to shareholders are not, lowering the corporate tax rate will reduce the incentive of all corporations including banks to raise capital by issuing debt. Assuming the top corporate tax rate falls from 35% to 25%,that would result in banks increasing their reliance on equity by…
Read More