Pay It Forward

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Two Public Service Announcements

If you are a McCombs alumni in Houston, please consider coming to the alumni event on Thursday, February 18^th.  I’ll be speaking about the economy.  For information, check out this link:

http://utmsb.convio.net/site/Calendar/1055609623?view=Detail&id=108161




I received an email from the News Director at www.teamusanews.org asking me to plug their site on my site.  I don’t know much about their site, but I briefly looked at it.  Their site is dedicated to promoting the US Olympic athletes.  You can sign up for update or scores.  I recommended that some people might like to be able to keep up with the actual athletes and not the crazies or the skateboarders.  I didn’t get much of a response to that request.




NOW, on to what I read today…




1. Markets

The Dow rose 106 points after being down as many as 82.  As mentioned yesterday, news that Chinese inflation is moderating was very good news to the market, as was a reduction in the fear about Greece and the EU.




The EU “sort of” “kind of” “I think” declared that they would support Greece. (I haven’t seen such hemming and hawing since I asked Jenny whether she would marry me all over again.)  There were no details given about the plan.  The EU countries really seem to be saying that they want a stable euro.  Rather than a bailout, the EU countries simply seem to be saying that they will prod Greece to get their finances under control.  It sounds like telling a drug addict to “get your crap together.”  I’m not quite sure that does it.

As I mentioned yesterday, don’t forget that Greece is not simply going through a cyclical downturn.  Rather, they are structurally unsound.  No problems have been solved.  All that’s happened is you have others guaranteeing Greece.  Bailing out Greece is very unpopular in Germany and France.




A financial bailout would wildly unpopular. Approximately 70% of Germans oppose financial support for Greece.  This is also unpopular in France, but it’s hard to tell the significance of this since the French whine about everything.




It’s always interesting to see how the markets respond. The euro fell.  Greek bonds rallied.  In other words, this was a wealth transfer.  Investors believe that Greece became safer and the currency became weaker.




Is this Greece’s future? Latvia has undertaken austerity measures so that they could adopt the euro in 2014.  Government spending has been reduced during the recession.  The estimates are that their GDP has shrunk 24%.




2. Economy

Some job losses are permanent. Economists predict that approximately two million jobs that were lost since the recession began won’t be returning.  They need to be replaced by new jobs in growing industries.  The idea is that there has been a particularly large amount of automation and outsourcing that occurred.  The economists estimate that we will add about 133K jobs per month over the next year.  That will not be enough to significantly lower the unemployment rate.  Interestingly, the White House projects just 95K jobs to be created each month.  That could result in a higher unemployment rate.




The President’s Economic Report predicted 95K jobs being produced each month this year, 190K in 2011 and 251K in 2012.  This was premised on a $100 billion job package.  The result was a prediction of unemployment of 10% this year, 8.2% by 2012 and only reaching 5% again by the end of the decade!




The President’s economic paper said that there are three choices for bringing the deficit down:

1. curb the rising costs of health care
2. undo many of President Bush’s tax cuts
3. eliminate wasteful spending

Is #3 just a euphemism for getting rid of Congress?




Home prices rose in more than a third of metropolitan areas in Q4.  The median price for home sales was up from a year earlier in 67 of the 151 areas.   The national median price for a home was $172,900 in Q4, down 4.1% from last year.  That was the smallest decline in two years.

The biggest gain was in Cleveland, which may provide an answer to the age-old question of why the hell anyone would want to live there.  Apparently, this increase is merely a reflection of fewer foreclosed homes being sold (compared to last year).  Nationally, foreclosures accounted for 32% of Q4 sales, compared to 37% last year.

Las Vegas, Ocala (FL) and Orlando showed the largest declines (20%+).




We may be under water, but at least we’re not alone. At the end of 2009, 21% of households with mortgages were under water.  Approximately 3.9% of first-lien home mortgages were 120+ days delinquent but NOT in foreclosure.  (That’s approximately 2MM households.)




Really interesting thought. A new IMF paper suggests that central banks should aim for a higher inflation rate (closer to the 4% level, rather than 2%).  That way, they have more room to act when crises erupt.  There would be less chance of getting to a zero percent interest rate (like we’re at) – at which point, you’re out of ammo.




Farm income bouncing. The Department of Agriculture forecast that farm income would climb 12% this year (after falling 35% in 2009).  As a result, Caterpillar and Deere rallied.




3. Banking

Small banks hurting. The Congressional Oversight Panel warned that 3000 banks may have to curtail their lending because of commercial real estate losses.




This seems crazy to me. Georgia, the state that leads the nation in the number of banks which have failed, has eased their lending laws.  Banks chartered by the state may now loan more than 25% of their capital to one single borrower if it is secured with collateral or 15% if it is unsecured.  Allowing banks to have a concentration risk is not a good idea.




Europe’s big banks have been lobbying EU countries to bail out Greece. There’s a shock…a bank wanting the government to bail out a debtor. French lenders to Greece (government and corporations) had $78.9B of exposures, Switzerland has $78.6B, Germany has $43.2B and the UK has $12.5B.

If Spain has troubles, German lenders have $240B of exposure, France has $185.3B, the Netherlands has $125.5B and the UK has $120.7B.




4. Random

India thinks that they’re China. Interesting article in the WSJ argues that India is not doing anything to protect patents and this is making it very difficult for pharmaceutical companies to do business there.




It’s going to be more difficult to hire foreign farm workers. New rules were passed that require documentation that farmers unsuccessfully tried to hire Americans.  Doesn’t anyone realize…we’re service workers?




Human rights alert. Chinese courts upheld the 11-year sentence for Liu Xiaobo.  He was convicted of “inciting subversion.” He was arrested after he co-wrote “Charter 08.” The US and EU called for his immediate release.  Both the EU and the US have expressed dissatisfaction with China’s human rights violations.  I encourage everyone to read, think and TALK more about these issues.  We don’t question our freedom here because of what a lot of other people have done for us.  We can’t pay them back…but we can pay it forward.




US sales of videogames and consoles fell 13% in January. Maybe sales will pick up when they make videogames an Olympic sport.




Former President Clinton is in the hospital after having two stents put in. Doctors say that he’ll stay in the hospital until he grabs a nurse.  At that point, they’ll know that he’s regained at least 25% of his strength.




We set a date! The President is going to meet with the Dalai Lama on February 18^th.  China disapproves of this meeting and has urged us to cancel it.  Fortunately, we don’t take orders from China’s communist party.
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