"The heart of the case against the Detroit bailout is that it saps the life-blood of entrepreneurial capitalism. The bailout reinforces the debilitating precedent of protecting firms deemed ‘too big to fail.’ Capital and other resources are thus kept glued by politics to familiar lines of production, thus impeding entrepreneurial initiative that would have otherwise redeployed these resources into newer, more-dynamic, and more productive industries.
The ‘success’ of the bailout is all too easy to engineer and to see. The cost of the bailout – the industries, the jobs, and the outputs that are never created – is impossible to see, but nevertheless real."
~Don Boudreaux at Cafe Hayek responding to Paul Ingrassia's defense of the auto bailout in yesterday's WSJ ("Two Cheers for the Detroit Bailout").
See also "What Is Seen and What Is Not Seen" by Bastiat who wrote in 1848: "There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.
Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil."
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Tuesday, August 3, 2010
Monday, August 2, 2010
ISM Reporting: Upbeat vs. "Gloom and Doom"
The upbeat version from Scott Grannis: "The ISM manufacturing index (above) was stronger than expected, and as my chart suggests, this is fully consistent with the 3-4% economic growth rate (if not more) that I've been expecting to see for the past year. It's a bit weaker than the fabulously strong levels that were showing up recently, but it is not supporting the popular "new normal" economy theory, in which growth registers a feeble 2-3%.
Most encouraging was the employment index (bottom chart above) which is still at very strong levels that have been seen only rarely in the past several decades. This is very good news, since the weakest part of the recovery so far has been jobs and business investment, and the ISM index suggests that the manufacturing sector has shrugged off this malaise quite nicely.
My thesis is still in place: this economy is growing at a 3-4% pace, which is not very impressive given the extent of the recent recession, but it is stronger than the market has been expecting, and that is enough to drive equity prices higher and corporate spreads lower.
The "gloom and doom" version of the exact same ISM report from FT.com:
"The ISM Survey of the US manufacturing sector (published on Monday) offers the first reliable glimpse of activity in the US economy in the third quarter of the year. It is not encouraging.
Although the headline reading was rather better than widely anticipated (an out-turn of 55.5 compared to 56.2 in June), the details of the survey showed that new orders are now slowing markedly, and inventories have started to rise more rapidly than companies may be intending. Taken together with the GDP data for Q2 (discussed in an earlier blog), the ISM survey points to a significant danger that the US economy will continue to slow sharply in the months ahead. Although this can be a somewhat volatile series on a monthly basis, the underlying trend in the series (also shown in the graph) is now definitely headed downwards.
It is surprising to me that the stock market has so far been so resilient in the face of the mounting weight of evidence that growth rate in the US economy has dipped below trend, with no knowing where this will end."
Markets in Everything: Condos Cheaper Than Cars
Or check here for 33 Las Vegas condos for only $20,000 or less, starting at $10,000; and here you'll find 31 condos in the Phoenix area (Glendale) for $28,000 or less, starting at $12,500.
You'll probably never get a better deal on U.S. real estate than right now, especially with mortgage rates at historical lows. So if you've been thinking about a Florida condo, vacation home, rental property, or a first home, now's the time - everything's on sale.
Miami Home Sales Increase in June for 16th Month
1. Sales of existing condos rose to a five-year high in June, and total escrow closings were the highest for any June since 2007.
2. In June 9,296 new and resale houses and condos closed escrow in the Miami metro area, up by 18.3 percent from May and up 20.4 percent from June 2009 (see chart above).
3. Miami-area home sales have increased on a year-over-year basis for 16 consecutive months, starting in March 2009.
4. June resales (excludes new homes) of single-family detached houses and condos combined were the highest for the month of June since 2006, and rose in June year-over-year for the 19th consecutive months.
5. The median home price for the Miami region in June was $150,000, up 1.4% from $148,000 in May but down 6.3% from $160,000 in June 2009. The Miami area's median price has fallen on a year-over-year basis for 33 consecutive months.
Chart of the Day: Record Corporate Profits in Q1
Sunday, August 1, 2010
House Dems Will Take a Thumping in November
In Michael Barone's latest column, he surveys the most recent polling data and writes that "most signs suggest Democrats will take a thumping this year." Michael concludes that:
"These metrics -- the generic ballot results and polls in individual districts -- suggest that House Democrats are headed toward historic losses. Quite a swing in 18 months."
In addition to the polling data, the "pay-to-play" futures contracts at Intrade support Barone's conclusion.
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