Friday, September 24, 2010

Is there a relationship between tourism and the value of the dollar worldwide? After viewing these graphs you make the call.

     The first graph below is from Carpe Diem  and shows the ups and downs of tourism for the last 12 years.  Professor Perry used this data to show an improvement over the last year in tourism spending (see the tail end of the data line to the far right).  In class right now we are covering the foreign exchange market and how appreciation and depreciation of the dollar can affect various interested parties.  The tourism industry depends not only on US consumers but foreign ones as well.  This got me to thinking: How does this graph compare with the value of the dollar over the same time span? See the second graph below BUT, in your mind, shift it over to the right a little bit to aline it with the graph above it.  Keep in mind, the downward slope of the line means the dollar is depreciating against a measured basket of other currencies and an upward slope means it is appreciating.  If the dollar depreciates in value, then US goods and services become relatively less expensive for foreigners. This assume their currency is one that appreciated in value relative to the US dollar.  US vacations become cheaper for foreigners OR they can purchase more vacation (stay more days, stay in fancier places, etc).  
Source: Carpe Diem

Source: HERE

I don't want to suggest that correlation is causation, but there seems to be a relationship.  The only thing left to do is to see, in real terms, if the increase in tourism is from foreign or domestic  sources.  Have you been to a National Park or DisneyWorld in the last few years, or decade? What do you think? Hmmm...

4 out of 20 of the Smartest Professional Athletes have degrees in Economics...Just sayin'...

Sporting News names Smartest Athletes and some background on each of them...It pays to major in Economics...

SN names the 20 smartest athletes in sports

George Parros, F, Anaheim Ducks
• Age: 30
• On-ice accomplishments: One of hockey’s top enforcers: 694 career penalty minutes in 289 games.
• Alma mater, major, GPA: Princeton, economics, 3.18
• SAT score: 1250
• Languages: “English and Spanish. I don’t really speak Greek—I just think I can.”
• If I weren’t a professional athlete, I’d ... “Most likely (be) a business consultant. Either that or some sort of trader on an equity desk. ... In junior (hockey) I took a job as a runner at the Chicago Board of Trade to see if I liked it.”
• Nerdiest thing about me: “I do crosswords on the road and take some heat for that. I hate the New York Times one. USA Today is good for me. The New York Times one, it annoys me because they’ve got 16th century poets and stuff.”
• Smartest teammate I’ve had: “(Ducks goalie) Jonas Hiller. He can speak five languages or something.”

Ryan Fitzpatrick, QB, Buffalo Bills
• Age: 27
• On-field accomplishments: 2004 Ivy League MVP, first Harvard quarterback to rush for more than 1,000 career yards. In 2005 with the Rams, became the fifth quarterback in NFL history to throw for 300-plus yards in his debut.
• Alma mater, major: Harvard, economics
• SAT score: 1580
• Off-field/intellectual interests: “I’m an Apple technology junkie.”
• If I weren’t a professional athlete, I’d ... “Probably (have) done the Wall Street thing for a few years and then maybe branched out a little bit. But finance is what I’d be involved in.”
• Nerdiest thing about me: “That’s probably a better question for my wife. But I love Scrabble. I’m playing Scrabble on my iPad constantly.”
• Smartest teammate I’ve had: “Corey Chavous. The amount of knowledge that dude had about any football player in the locker room was crazy. He knew the name of my high school and my high school coach. He remembers everything about everybody.”

Matt Birk, C, Baltimore Ravens
• Age: 34
• On-field accomplishments: 6-time Pro Bowl selection
• Alma mater, major: Harvard, economics
• ACT score: 34
• What I’m reading now: “I just finished Band of Brothers. I never saw the miniseries, but I just read the book by Stephen Ambrose. It was unbelievable.”
• If I weren’t a professional athlete, I’d ... “I was offered a job out of college to do Wall Street and that whole thing, but then football came along, so I figured I was just delaying Wall Street for about six months. I didn’t think I’d even make the team. Everything happens for a reason.”
• Nerdiest thing about me: “I absolutely cannot dance. (But) just because I can’t doesn’t mean I don’t.”
• Smartest teammate I’ve had: “Robert Smith was pretty smart, and Pete Bercich with the Vikings. He and Robert used to have crazy discussions about physics, the fourth dimension. They might as well have been speaking another language.”

Alex Smith, QB, San Francisco 49ers
• Age: 26
• On-field accomplishments: 2004 Mountain West player of the year, 21-1 record as a college starter. 2005 No. 1 NFL draft pick, recaptured the 49ers’ starting job midway through last season.
• Alma mater, major, GPA: Utah, economics, 3.74. Graduated in two years.
• Languages: “A little Spanish. I wouldn’t say I’m fluent, but growing up in San Diego, I can get by.”
• Off-field/intellectual interests: “Traveling. This offseason alone I went to the Dominican Republic, London, France, Italy, Prague and Maui.”
• If I weren’t a professional athlete, I’d ... “One of my aspirations was to go to law school. I’m not totally sure I would’ve practiced law, but I wanted to get my J.D.”
• Nerdiest thing about me: “My teammates would probably say the reading. I mean, I read a lot. I’ve got a lot of random, useless knowledge.’’
• Smartest teammate I’ve had: “(49ers center) Eric Heitmann. He’s just a bright guy, a Stanford grad.”

Wednesday, September 22, 2010

Dollar Depreciates as Federal Reserve signals more money is on the way to the marketplace...

Dollar Slides in Wake of Fed Statement

The dollar stumbled broadly Tuesday after the Federal Reserve said it stood ready to kick-start a slowing U.S. economy.
The euro rose sharply, racking up gains of more than 1.5% against the dollar, while the greenback wilted against the yen, briefly dipping below 85 yen, considered by some analysts to be Japan's threshold for the currency's strength after last week's market intervention.
"What we see is the door being kept open to further quantitative easing," Michael Woolfolk, senior currency strategist at BNY Mellon in New York, said of the Fed's possible fresh round of economy-stimulating asset purchases.
"Quantitative easing is broadly viewed to be corrosive to a currency's value, and so with the increased probability of easing measures, the knee-jerk reaction in the market is to sell the dollar," he said.
Here is a video explaining the concept of "quantitative easing"...hang with it for a few minutes.  The first part is just an introduction but it gets better. I promise!!

Don't worry about the price of tea in China, BUT you better care about the price of cotton in China---that is if you wear clothes...

This is the second day in a row I have an entry concerning China and its impact in commodity makets. Today it is the market for cotton....

Cotton Tops $1 a Pound ""Cotton prices breached the $1-a-pound level for the first time in 15 years as delayed harvests and booming demand in Asia are cutting into supplies, putting clothing makers on edge...Prices have surged 33% since the beginning of the year due to bad weather in China, which is both the world's No. 1 grower and importer, and the flooding that has washed out Pakistan's fields. Global cotton inventories are estimated to fall 22% from a year ago as demand outstrips supply, according to the U.S. Department of Agriculture....""

The first graph shows the Market for Cotton at equilibrium price and quantity "A".  


 Delayed harvests as described above serve to DECREASE the supply of cotton on the world market. This is shown be the shifting of the supply curve to the LEFT ("Supply 1") and movement along the demand curve to a new equilibrium price and market quantity at "B".

 Compounding the problem is the "booming demand" from Asian clothing manufacturers.  This is illustrated by the shifting of the demand curve ( from Demand* to Demand 1) to the RIGHT  and movement along the supply curve to another new equilibrium price and market quantity at "C".  The article suggests there is still have shortage of cotton on the market so we don't quite return to market quantity "Qe". 

There is potentially good news, however:

""High prices are a boon for producers in the U.S., which is the world's biggest cotton exporter. The U.S. is shipping at a torrid pace to keep up with demand. Exports sales have already exceeded half of the 15.5 million bales the U.S. is expected to produce, Ms. Johnson said. The U.S. cotton harvest is running ahead of normal, a situation that could potentially damp prices. The USDA on Monday said 13% of the cotton crop was harvested as of Sunday, ahead of last year's 7%.""

Markets for most commodites are not static and they dont recognize "ceterus paribus" (hold all varibles constant except for the one you are testing).  Many factors effect demand and supply constantly. Some natural, like the weather, and some more concrete, from scarcity to market manipulation.  Change is inevitable, so it provides opportunities for me to make blog entries and create supply and demand graphs...Does life get any better??? :)

Tuesday, September 21, 2010

Price of Steel rises---Can't be China's fault, can it? Dang it! It is...see nifty graphs illustrating this change!!

China increasingly is able to influence the price of raw materials in the world-wide marketplace...

Steel-Price Rise Defies Forecasts
Despite predictions that world-wide steel prices would remain weak for the rest of 2010, they have started to climb for several types of the metal used in products ranging from ships to tin cans, appliances and oil pipelines. The recent increases, which follow a summer of soft prices, are as high as 12% and as low as 1%, depending on the kind of product and the location. They reflect cutbacks in China as steel producers there lower output to meet the government's year-end energy-savings target.

The first graph represents the steel market in equilibrium...
This second graph illustrates the highlighted portion from the quote above.  The supply curve shifts to the LEFT ("Supply 1") representing a decrease in SUPPLY.  We know the supply curve shifts to the left because as a result of the Chinese action, at EVERY price there is going to be LESS quantity supplied RELATIVE to the quantity supplied on the original supply curve.  As the supply curve shifts left, we move upwards and to the left ON the demand curve until we reach a new market equilibrium at P1 and Q1.  The market quantity is less than it was and the market price is higher than it was. 
How much are prices going to rise? The graphic below gives you some idea of how spot prices in the steel market have been affected...Please note that the prices COULD be affected by other varibles in the market, but this article suggests that the decrease in production by the Chinese plays a significant role.
Wall Street Journal

Cartoon for Social Studies Teachers---BUT better for Math teachers... :)

Source: HERE

Thanks, Califorinia---we will take your cast-offs---Texans LIKE jobs!!

If you increase the cost of doing business, you will increase the loss of business. Businesses do need to pay taxes and follow regulations, yes, no doubt, I get that. But when taxes and/or regulations become too onerous or unnecessary then you will have business flight, not only at the margin, but deep into the core. Options abound--another state or another country...I am not a lackey for business--I am a lackey for economic recovery and prosperity.  Gotta have businesses to do that---As you were, California, continue---we in Texas are happy to pick up you throw-aways... (HT: Carpe Diem and Joseph Vranich)   
"California is in serious trouble because many people refuse to admit to one of our big problems - the flight of businesses, capital and jobs to other states and nations. Businesses are shrinking their California footprint because high taxes and intense regulation damage their ability to compete.

The top states gaining our businesses since January 2009 show Texas in the top spot, followed by Arizona, Colorado, Nevada, Virginia and Utah. Also, companies have moved functions to Taiwan, Mexico, Brazil and Chile. The jobs include R&D, which used to be a California hallmark. Now we're seeing unusual losses."

It IS possible to tax your way into prosperity!! No, really it is! See enclosed to find out...

    Well, it only works if you are a criminal or an organized crime figure.  Get your state legislature to enact high taxes on a product that is legal, but people just have to have.  Tell the legislators that it is good for the people AND it will raise LOTS of money for the state government.  Then you smuggle the product into the state and sell it for less than any business can sell it for because of the high taxes that the store must collect. Obviously this outcome was not the intention of lawmakers, but it is one of the "unintended consequences" that Frederic Bastiat warned would emerge from the "bad economist". I am certain Bastiat was not actually referring to economists, but politicians who played one on the floor of the legislature. I have no problem with taxing cigarettes, BUT the rate of taxation has to be rationally determined not just for the revenue it might raise, but for the additional PREDICTABLE results such as the one described below. 

Trade In Black-Market Cigarettes: Hot, Dangerous

Black-market cigarettes are costing many states hundreds of millions of dollars a year in lost tax revenue. And the lucrative, illicit trade is attracting violent criminal gangs that can be lethally ruthless.
Criminals buy cigarettes in bulk, in states with relatively low taxes such as Virginia or North Carolina. They load the cigarettes into tractor-trailers or rented trucks and drive them north, for example, to New York. They follow the same routes they would use to traffic illegal drugs.

Police say a carton that costs less than $40 including tax in a store in Virginia goes for more than $100 in a store in New York City.

Because of high taxes in the city, selling contraband cigarettes at rates even slightly lower than their value in the store can mean big money for criminals.

"They can be sold from ... the back of a van on the corner. They can be brought in through big trucks across the border and taken to warehouses and distributed from there," Gore says

Monday, September 20, 2010

Walmart, Midnight, the last day of the Month...why is the store so crowded? The answer enclosed--you might be surprised.

     Walmart, midnight, the last day of the month and people roaming it is not a chance to get a photo on the website "the people of Walmart".  But there is an interesting social phenomena occurring that dovetails with economics. Walmart has taken notice that people are shopping around 11:00pm and checking out just after midnight on the last day of the month because that is when electronic transfers of credits to benefit cards take place.  In macroeconomics these are called PUBLIC TRANSFER PAYMENTS.  This is certainly not a new thing happening but Walmart notes it is obviously much more prevalent during the recession.  Another nugget of info from the passage below is Walmart apparently varies the size of "value packs"--larger during the first part of the month and smaller towards the end, presumably because people have fewer credits and or actual dollars at that time. Catering to the customer and their situation---good business!  I did not know this was a marketing technique.  Guess I should have known, Walmart knows everything... 

Watching Walmart At Midnight

Bill Simon, CEO of Wal-Mart’s U.S. business, at a Goldman Sachs conference last week, on behavior at a Walmart store around midnight at the end of a month:
“The paycheck cycle we’ve talked about before remains extreme. It is our responsibility to figure out how to sell in that environment, adjusting pack sizes, large pack at sizes the beginning of the month, small pack sizes at the end of the month. And to figure out how to deal with what is an ever-increasing amount of transactions being paid for with government assistance.
“And you need not go further than one of our stores on midnight at the end of the month. And it’s real interesting to watch, about 11 p.m., customers start to come in and shop, fill their grocery basket with basic items, baby formula, milk, bread, eggs,and continue to shop and mill about the store until midnight, when electronic — government electronic benefits cards get activated and then the checkout starts and occurs. And our sales for those first few hours on the first of the month are substantially and significantly higher.
“And if you really think about it, the only reason somebody gets out in the middle of the night and buys baby formula is that they need it, and they’ve been waiting for it. Otherwise, we are open 24 hours — come at 5 a.m., come at 7 a.m., come at 10 a.m. But if you are there at midnight, you are there for a reason.”

ATTN: High School Seniors and College Freshman!! PLEASE, PLEASE, PLEASE READ THIS ENTRY!!!

This is some of the BEST, basic advice I have seen for graduating high school seniors, college freshman and/or sophomores. Those of you that know me know I have been suggesting some of these things for a while now...In some combination, you MUST do all of these and do them to the best of your ability!! Please read the whole article, but I have pasted the 5 must do's below---learn them, live them...

The Current Recession Is Apparently Scaring Millennials
1.Do at least one internship during your college career, two if possible. First, it signals to future employers your passion and career objectives, not that you just wasted four years seeking any higher paying job. Second, it allows you to build a network that you can rely on later while job searching.

2.Network. Make connections throughout your college career, on and offline, including students, faculty, and work-related colleagues and bosses, and keep them active.

3.Participate in extra-curricular activities (and network).

4.It's your education, which means you should be an active participant in your education. Your education does not take place in the classroom; it takes place outside the classroom when you spend time reading and discussing with your classmates and friends the ideas discussed in the classroom. My job as a professor is to pique your interest in the material, but it's your job to follow through and pursue the learning and teaching of yourselves. I employ provocative examples in the classroom as a means of piquing your interest.

5.Don't forget opportunity costs. Life is balance and too much time spent doing one activity means giving up time doing others. Those others might be beneficial also. Too much partying means you're giving up valuable learning in the classroom. On the other hand, valued and marketable skills can be learned through athletics and competition, which means some sacrifice of your school work to participate may pay higher returns than just focusing on schoolwork. Give it your best shot for both, but understand the balance.

Sunday, September 19, 2010

"We need Inflation like we need a hole in the head!!" Don't think of it as a hole, think of it as AC for the mind---It could be a good thing! (inflation, not the hole)

   I am covering the basics of supply and demand right now in my AP and "regular" economics classes.  One of the determinants of demand is "consumer expectations".  A common example is to suggest today that we have complete knowledge that the price of a good is going to increase in the near future.  How do consumers respond to this information? Well, even high school students know you go out and buy the good TODAY!  That increases the demand for the good (shifts the demand curve to the right).  Ceterus Paribus (holding all other variables constant), this will cause the market quantity to increase, as well as the price. See graph below:
    Economic logic/theory suggests that the more a producer produces, the more workers they will need to produce the good. So far so good, but this is only ONE industry/business that hired some workers because the price of the good they produce increased.  So, what is good for one industry (in a Micro sense) MIGHT be good for all industries (in a Macro sense), right? How do we get ALL prices to rise simultaneously so the above process can play out and we have LESS UNemployment nationwide but at the cost of some inflation? Gahh! There is that "inflation" word! BUT is it really a bad word given our present circumstances?
   Currently there is a clog in the process. Business and banks are sitting on piles of money right now and are not spending or lending, repectively. Consumers are hesitant to spend because of an uncertain economy and, to a lesser extent, deflation (one puts off buying today in anticipation of lower prices in the future). All these things contribute to a stagnant economy. 
    The worry that DEFLATION is the problem of the day. We need to induce a little inflation (by increasing the money supply) AND have the Federal Reserve publicly TELEGRAPH that they are pursuing a moderate (3%?) inflationary policy. The thinking is this will prompt consumers to do just what I illustrated at the beginning of this post, but on an economy-wide basis.  Anticipation of higher prices of homes, cars, other consumer goods will incentivize people to go buy today.  Consumers and businesses will want to spend dollars that are worth more TODAY than they will be worth in the future.The result will be an increase in the aggregate level of demand for goods/services, a movement to Full-Employment ("FE RGDP") and an increase in the price level, as one would expect. See graph below.

   There is lots of controversy about this in the economic blogosphere, and since I am just a simple-minded  high school teacher, this is as easy an explanation as I can make.  Hey, it gets me through the day...What do you think---Inflation, deflation, leave alone?? Would love to hear from you...

Stop watching movies on your computer or phone---Don't you care about the employees at Blockbuster? You are SOOO uncaring!!!

This article (NYTIMES: Why Bricks and Clicks Don’t Always Mix) offers an excellent illustration of Creative Destruction.
""NOT so long ago, in 2005, Blockbuster seemed invincible. However you preferred to rent movies — in stores or online — the company was ready to accommodate you. At the time, Netflix could offer only one way of obtaining a movie (the mail) and one way of returning it (the mail). It was clicks, with no bricks.
Of course, we now know that Netflix has done just fine. In January 2005, its shares traded in the $11 range. On Friday, they closed at $140.46, giving the company a market capitalization of $7.35 billion.
As for Blockbuster, which was spun off from Viacom in 2004, it’s now a penny stock, and its woes are as visible as the “Closing” banner in the window of a store in your neighborhood. The company recently warned that it might file for Chapter 11 bankruptcy protection..."
 Creative Destruction is an important process in a market economy that allows societal resources to move from one use to another, with relative ease, based on changing market conditions. It is how we get new and improved goods and services.  But there is a price to be paid for it. Two things come to mind.
   One: With the free movement of physical and financial capital we get alot of things produced that perhaps should not be produced.  I always ask for examples in my economics class and the number 1 item mentioned by students is the Snuggie! We all have wandered around a store and thought "who buys this stuff?".  Do you have any good examples from your own experience? Let me know.
   Two: This is more serious.  When an industry goes away so does the financial and physical plant investment from the entrepreneur AND the jobs that existed in that industry.  Harm is inevitably imposed on some as resources morph to an alternative use.  If workers skills are not fungible then they will become structurally unemployed.  If, due to rapid technological change and implementation, this process is accelerated, then numerically more people are affected.  Some suggest this is a part of our unemployment problem right now. 
    I am guessing while the stories of negatively affected workers touch our hearts we are not willing to give up, say our cell phones, for to help them...Take out your phone, look at it, and think of the number of workers who lost their jobs due to the massive consolidation of industries compacted into your phone.  You watch T.V. on it? Does that hurt TV manufacturing/support/repair? Do you listen to music? Does that hurt stores that sell music /CD's and the devices to play music on? Do you use the GPS? How does that affect mapmakers and sellers?  Do you make calls? Does that hurt telephone makers, installers and operators and....The list goes on.  Your phone is a Creative Destruction machine!!!
  The bright side is we get improved "stuff" and new jobs in new industries created by the "destruction".  Yes, jobs are lost but new ones come along to replace them. 
   Creative Destruction has its benefits, which we should maximize, but it does have its costs. How do we minimize the costs, if we should even do so...What do you think?  Any ideas....
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