Wednesday, March 31, 2010

Off to Sangri La

Back later.

Electric vehicles a fraud?

Zero Hedge points us to an alternative energy site which makes the claim.
The low hanging fruit for investors in the fuel efficiency race can be found by pushing forward existing, simpler, and cheaper technologies.

An E Traffic system moves forward

Traffic technology reports an important win for Raytheon in E Traffic:
Raytheon Company has been selected by Transurban (USA) Inc to deliver an integrated tolling and traffic management system for a 22.5km (14-mile) section of the I-495 Capital Beltway in Northern Virginia.
This industry is now growing faster than I can track.

Another one, transportation trucks are being networked:
US truck manufacturer, PACCAR, has announced a proprietary navigation and infotainment technology system that will be available on its Peterbilt and Kenworth vehicles. The new in-dash system will be badged as SmartNav in Peterbilt models and NavPlus in Kenworth trucks, and is the trucking industry’s first factory-installed, in-dash system designed for life on the road.

Not quite right Dean Baker

Dean on productivity growth:

While productivity growth has been strong over the last year, growing by 5.8 percent from the fourth quarter of 2008 through the fourth quarter of 2009, this is common for a period of recovery. Productivity grew at a 4.7 percent rate in the four quarters following the end of the last recession, a 4.9 percent rate in the four quarters following the 1981-82 recession and a 4.6 percent rate in the four quarters following the end of the 1974-75 recession.
The productivity growth this recession seems significantly higher by about 20% then the last recessions. Not, as Dean says one sentence later:
The rapid productivity growth seen in the last four quarters is a typical pattern at the end of a recession

What about Caplan's Economic model?

Caplan discusses his bet with Mish:
All you need to employ any number of people at any state of technology is for prices and wages to adjust.
Technology adjusts faster when resources are distorted. There seems to have been surplus technology in the wings ever since the early 1800s.

I take Caplan's side in the debate, but agree with Mish's model.

Tuesday, March 30, 2010

Great Report on education and technology

Instapundit points us to Katherine Mangu-Ward in the Washington Post talking about on line education.

I would add one thing. The brick schools do not completely go away, they remain for the irregular seminar, labs and extracurricular functions. But the books, notes, lessons all go on-line and the traditional class room is mostly gone.

Theachers no longer parent the parentless children, they can delegate the task.

Has Fed research debunked the housing theory?

Mark Thoma points us to this research:
The U.S. still is feeling the effects of widespread housing bust, but a new report serves as a reminder that large swaths of the nation didn’t experience a boom in home prices and hasn’t suffered from the bust.
We are rapidly eliminating the various suspects in the crash of 2008. Dean Baker and housing boom seems to be ruled out.

The stimulus multipliers are too low for Galbraith and 'Government too Small' culprit.

The coincidence of technology and cycles is eliminating the Austrian 'rates too low for too long' theory.

I see no one except Yglesias and Pelosi are pointing to the sudden shortage of medical services as the culprit.

Krugman has pointed out the wide variance in debt levels and makes a good case against the too much debt culprit.

The Schumpeter creative destruction theory does not have enough detail to be useful.

The volatility of money itself, the Scott Sumner theory, implies nothing more than discomfort on the part of bankers and savers.

Any other candidates? The Hamilton energy shortage works, but needs a cause. Why did we suddenly discover energy shortages when we have been talking about them for years?

There still remains the Asian savings glut theory, but that seems to be confused with the American over consumption theory.

What are we left with? The continuing information revolution and its affect on our need to equalize to a biological constant of uncertainty, and a resulting Quantum Mechanical theory of economics, my theory. A specific form of the Recalculation Theory. Another metaphor for my theory is the we seek our constant level of incompetence.

What can I say? I suggest we give me credit and call this the Mini Depression, rather than the Great Recession.

The real cause of the crash in 1825 England

I knew the change in asymmetric information prior to the crash of 1825 must have been associated with information technology. I checked the growth of Post Office services and found nothing. Then I switched to Newspaper and found the jackpot. Of course, the rise of mass circulation newspapers educated the populace about world events much better. It was the steam powered rotary press, brought to England in 1814.

Once in operation, the mass circulation newspapers raised the accuracy on return on investment for overseas investment. The stock market in England collapsed as small investors discovered the relative low returns.

From Wiki:

Industrial Revolution

By the early 19th century, many cities in Europe, as well as North and South America, published newspaper-type publications though not all of them developed in the same way; content was vastly shaped by regional and cultural preferences.[13] Advances in printing technology related to the Industrial Revolution enabled newspapers to become an even more widely circulated means of communication. In 1814, The Times (London) acquired a printing press capable of making 1,100 impressions per minute.[14]

Soon, it was adapted to print on both sides of a page at once. This innovation made newspapers cheaper and thus available to a larger part of the population. In 1830, the first penny press newspaper came to the market: Lynde M. Walter's Boston Transcript.[15] Penny press papers cost about one sixth the price of other newspapers and appealed to a wider audience.[16]

You gotta love Wiki!

The idea of a penny paper was not new in the 1830s. By 1826, multiple editors were experimenting with sports news, gossip, and a cheap press.[4]

Most newspapers in the early nineteenth century cost 6 cents and were distributed through subscriptions. On July 24, 1830, the first penny press newspaper came to the market: Lynde M. Walter's Boston Transcript. Unlike most later penny papers, Walter's Transcript maintained what was considered good taste, featuring coverage of literature and the theater.This paper sold for four dollars a year. [4]

In the 19th century, the replacement of the hand-operated Gutenberg-style press by steam-powered rotary presses allowed printing on an industrial scale,[11] while Western-style printing was adopted all over the world, becoming practically the sole medium for modern bulk printing.

Two ideas altered the design of the printing press radically: First, the use of steam power for running the machinery, and second the replacement of the printing flatbed with the rotary motion of cylinders. Both elements were for the first time successfully implemented by the German printer Friedrich Koenig in a series of press designs devised between 1802 and 1818.[52] Having moved to London in 1804, Koenig soon met Thomas Bensley and secured financial support for his project in 1807.[50] Patented in 1810, Koenig had designed a steam press "much like a hand press connected to a steam engine."[50] The first production trial of this model occurred in April 1811. He produced his machine with assistance from German engineer Andreas Friedrich Bauer.

Koenig and Bauer sold two of their first models to The Times in London in 1814, capable of 1,100 impressions per hour. The first edition so printed was on November 28, 1814. They went on to perfect the early model so that it could print on both sides of a sheet at once. This began the long process of making newspapers available to a mass audience (which in turn helped spread literacy), and from the 1820s changed the nature of book production, forcing a greater standardization in titles and other metadata. Their company Koenig & Bauer AG is still one of the world's largest manufacturers of printing presses today.

The Crash of 1825 marks the beginning of the modern information age.

Yglesias figures it out

He has been speaking out more on E Traffic opportunities and less on Bullet Train opportunities:

If you look at it in strict dollars and cents terms, the policy ;E Traffic]looks great. A relatively small fee can eliminate large economic losses due to congestion, and then the fee can finance useful public services or reductions in other taxes. But when you add in the fact that commuting time makes people miserable, you can see that the social gains from congestion pricing in our most-trafficked metro areas would be extremely large.
Mind you, Yglesias has, like Oberstar, been an iron and concrete advocate of Bullet Trains for years. This brings to mind DeLong's insistence that central planning should guarantee large transportation projects. Unfortunately, the only thing the government has guaranteed with its Bullet Train advocacy is malinvestment.

This happens every depression, the government jumps out and guarantees the old technology, and this can only be construed as the last push before the Minsky Moment as the economy moves on to new technology.

Are they reading my posts?

Business Week reports:

March 30 (Bloomberg) -- Oregon’s Department of Transportation leads this week’s issues with its first Build America Bond sale as yields on municipal debt rise to a five- month high after a surge in supplies last week.

The department will bring to market $582 million in so- called highway user-tax revenue bonds, including $556.4 million in Build Americas and $25.7 million in tax-exempt securities. The sale will help finance the state’s capital improvement program, which includes road and bridge work, according to James Sinks, a spokesman for Treasurer Ben Westlund.

But is was just yesterday I suggested Oregon issue transportation bonds based on their 30% ROI with E Traffic technology; as part of our plan to exit the Great Recession:

Here is a three point plan:

1) The next step is to move the GM driverless car project up from ten years to five.
2) See if Oregon can float a transportation bond based on E Traffic income
3) Get more technologists and engineers and venture capital folks up to Oregon or Utah to agglomorate a new Silicon Valley.
No, couldn't be, I think we simply have a convergence as to the cause and solution to this recession.

In related news regarding the value of local transportation consider Mark Perry's discussion of Taxi fees in NYC. The return on investment is 20% for a taxi license! The very fact of high metropolitan returns from transportation investment should be a sure sign to economists that we suffer the traditional last mile congestion problem, which I pointed out over two years ago.

These types of recessions should be called Depressions, by definition. All three recent Depressions, the Long Depression of 1870, the Great Depression, and this, the Mini Depression; all caused by technology changes in last mile transportation. And further, the last mile constraints all caused by advances in information technology.

Build America Bonds

Congress promises to cover 35% of the interest cost for taxable municipal bonds issue by states and localities. California market yield on these bonds was 7.48%, Congress paying 2.62% of that rate. Where does Congress get 30 yr money? They borrow it at the Treasury rate of about 4.5%.

This is a puzzle because Congress will be on the hook anyway for a California default, states have only federal receivership as a bankruptcy option.

For the wealthy who pay about 35% in Federal taxes, this is an even trade. However a lot of the super wealthy pay 30% in taxes, so Build America Bond are a direct subsidy for loan sharking by the wealthy.

What is worse, in a rising interest rate environment, the transfer of wealth from the middle class to the wealthy rises disproportionately.

Stimulus Debates

Two models exist that purport to show the effects of a Congressional stimulus on GDP. Fitst notice the similarity, they both get an initial effect of 1.0, each dollar spent by Congress shows up in GDP. The first point is verified in my opinion by comparing empirical results of the spending in the first year of the recession. The empirical seems seems to follow the pink lines.

The models differ based on whether government spending competes for scarce resources. This effect is called Ricardian Equivalence and will show up as a rise in interest rates for the Treasury curve, and money set aside by firms to pay taxes. A short hand way to think about this is that one model assumes Congress makes a profit, the other assumes Congress will make a loss, when Congress is considered a firm.

Which model do we have? We will find out in two or three months.

Consider David Merkels rule on sector manias:
When a sector as a whole borrows far more than in the past, it is often a mania, and the management teams are expanding capacity all at once, because conditions are so favorable. I experienced this twice as a bond manager. When I came on the scene in 2001, I tossed out all of my investment grade telecom bonds (aside from some of the Baby Bells), and auto bonds. I could not see how they would make money over the long haul.
David applies this to Congress today:

Still, I would underweight Treasuries relative to high quality bonds in other sectors. Issuance is high as far as the eye can see — and beyond 2050, given all of the difficulties with entitlement programs. Many high quality corporates won’t have much issuance over that same period; they will be scarce versus the massive amount of government debt to pay. Beyond that, when the Fed tightens, debt costs for the government will rise dramatically. Perverse, huh? When you have so much to refinance, everything fights against you.
David, the investor, is applying Ricardian Equivalence.

Monday, March 29, 2010

Qualcomm and Audi to Make the Connected Car a Reality

Another major partnership competing for space in the automobile Black Box.

BARCELONA, Spain, Feb. 15 /PRNewswire-FirstCall/ -- Qualcomm Incorporated (Nasdaq: QCOM), a leading developer and innovator of advanced wireless technologies, products and services, and AUDI AG today announced that Audi's Mobile Media Interface (MMI) Plus in-car navigation system, featuring integrated UMTS connectivity from Qualcomm, will be available on select Audi A8 vehicles this year. The solution brings 3G high-speed data connectivity to the automobile and enables previously unseen navigation capabilities. The MMI's embedded 3G connectivity also allows the car to perform as a mobile "hot spot," allowing passengers to connect their Wi-Fi devices to the Internet from the vehicle.

Venture Capital gets interested:

IntelliOne Closes on $3.8M Round With Genuity Capital, Gets New CEO in David Winters - CBL

According to a Reg D filing with the U.S. Securities and Exchange Commission, IntelliOne Technologies Corp., an Atlanta-based provider of traffic and location services information, has completed its $3.8 million offering, raising the equity from two existing international shareholders and changing up its leadership.

ITS in Europe with an Intel slant

Some key points. Europe is leading these real trials. It took as much as two actual weeks to equip signs,cars, and trains with the network car technology. It is an open platform, much like the Internet. Second point, the US DOT signed a joint research and test program with this European group.

Oberstar opposes new transport technology

Along with Shelly Silver.

Oberstar's problem is that he wants to be the Bullet Train hero from central planning and thus will not support advance traffic technology, like congestion pricing.
Chairman Oberstar also objected to so-called “congestion pricing”, which basically charges people for driving at certain times.
Shelly Silver has his own reasons for holding back progress.

The point is that if we suffer energy shortages, then we suffer them because of this lack of knowledge.

Here is Oberstar's main point:
Oberstar isn't about to quietly accept Transportation Secretary Ray LaHood's admonition that the 18-month extension is necessary to "face reality." In fact, the committee's outline of its bill warns that an extension could be devastating to state DOTs that have "been unwilling to invest in large, long-term projects until enactment of the reauthorization act."
The problem here is that LaHood has figured out that Bullet Trains might not compete against the new E Traffic, and that localities are starting to adopt the E Traffic approach because it solves so many problems right away. But politicians have made commitments to Bullet Trains, and they have a stack of fanatics supporting them.

But there is some hope with Oberstar as the next quote shows:

Oberstar's bill would establish the National Infrastructure Bank proposed by Rep. Rosa DeLauro (D-CT) and other senior lawmakers, making the bank part of a broader metropolitan access program that would support urban areas in achieving "improved transit operations, congestion pricing, and expanded highway and transit capacity."
Oberstar is forced to accept words about congestion pricing, he has evidently been hearing about rapid returns on investments from DeFazio and the Oregon reps who can point to the Portland trials.

What is going on is that Brad Templeton, myself, Randall O'Toole of CATO and Ford motor executives, DARPA and so on are starting to win this battle. The central planners are backing off.

Here is a three point plan:

1) The next step is to move the GM driverless car project up from ten years to five.
2) See if Oregon can float a transportation bond based on E Traffic income
3) Get more technologists and engineers and venture capital folks up to Oregon or Utah to agglomorate a new Silicon Valley.

The income from E Traffic can be split between vendors, the local governments, and the consumers. There is no need for central planning. LaHood's best shot is to delay, delay, and delay until more and more localities awake to the opportunity.

This is a case of a negative stimulus has the greatest multiplier! That is, in Mark Thoma's case, the lack of spending by Congress will likely make Oregon rich beyond his imagination, just the opposite advice he gives to Oregon voters.

More driverless technology

The Stanford racing team shows off their Robocar. Also showing interviews with the engineering team.

Another driverless car video, but the RoboDriver spins out on the race track, it seemed a little drunk. The car evidently was from the North Carolina State racing team.

Peter Hollings says the driverless car will takeover the world and make us extinct. He also mentions:
In late 2007 General Motors announced that it was working towards a target date of 2018 for a driverless car that would be available to the public. The car, using GPS guidance and an array of sensing equipment, would be capable of completing long or short journeys involving all the challenges of today’s driving, including stop lights, stop signs and parking.

Government Motors will be late, the fully driverless car is here today, in the form of personal Rapid Transit, Robotaxi.

And a large scale testing of automated driving technology in Europe:
Vehicle manufacturers, automotive suppliers, institutes and other stakeholders have joined forces in a "smart drive" to test various intelligent in-vehicle systems across Europe, with the aim of making our road transport safer, more efficient, and more comfortable. The large-scale European Field Operational Test on Active Safety Systems (euroFOT) is a research project supported by European funds, involving 28 organisations.
BBC Reports that automatic platooning, "roadtrains" are being tested in Europe, with this tidbit:

Road trains that link vehicles together using wireless sensors could soon be on European roads.

An EU-financed research project is looking at inexpensive ways of getting vehicles to travel in a 'platoon' on Europe's motorways.

Each road train could include up to eight separate vehicles - cars, buses and trucks will be mixed in each one.

The EU hopes to cut fuel consumption, journey times and congestion by linking vehicles together.

Early work on the idea suggests that fuel consumption could be cut by 20% among those cars and trucks travelling behind the lead vehicle.

This stuff is pulling us out of today's Great Recession.

Everyday the same market

First this:
Though there haven't been any major trading catalysts, this session's tone has been positive since the start.
Then this:
Stocks have entered into a sideways drift that has left the broader market's gains intact.
I conclude the stock market will do nothing until I quit looking.

Wait, this is new:
In contrast to the past couple of sessions, stocks managed to maintain solid gains into the close on Monday.

Top ten congested cities, USA

From Traffic scorecard:

2009 Top Congested Metros
Rank Metro Area Change*
1.Los Angelessame
2.New Yorksame
4.Washington D.C.Rank  increased 2 points from 2008 ranking
5.Dallas/Fort Worthsame
6.HoustonRank  decreased 2 points from 2008 ranking
7.San Franciscosame
10.PhiladelphiaRank  increased 1 point from 2008 ranking
View All Metro Rankings
*Change in congestion rank from 2008

Here is video of the Singapore electronic congestion control.

Sunday, March 28, 2010

Are anchor babies illegal?

George Will quotes professor Lino Graglia of the University of Texas law school:

Congress has heard testimony estimating that more than two-thirds of all births in Los Angeles public hospitals, and more than half of all births in that city, and nearly 10 percent of all births in the nation in recent years, have been to mothers who are here illegally. Graglia seems to establish that there is no constitutional impediment to Congress ending the granting of birthright citizenship to those whose presence here is "not only without the government's consent but in violation of its law."
The professor says the 14th amendment was misinterpreted.

My chosen presidential candidate, Bill Richardson, was an anchor baby, but I do agree the 14th has been misinterpreted.

Oregon E Traffic, Case study

I go through the rough outline of the Portland Oregon E Traffic system, in random order.

Somebody is ripping off the Portland Oregon traffic district:

According to Pamela O’Brien, senior transportation engineer with transportation engineering firm DKS Associates, installing coordinated actuated traffic signals can cost between $50,000 to $100,000 per intersection. She is currently working on a coordinated actuated traffic signal project along Southeast Powell Boulevard.
These prices are ridiculous. But they are mining gasoline nonetheless:
“By improving signal timing at just 17 arterials in Portland using ITS, the city was able to retire 157,000 metric tons of CO2. We’re desperately in need of a long term bill that funds these projects as we look at reducing greenhouse gas emissions.”

Gasoline carbon content per gallon: 2.4 kg, 1 short ton = 1,000 kg or .0024 ton/gal gas.

Over six years, then, they have gained 65 million gallons gas, or $190 million of recovered gasoline. They have also used freight and bus priority congestion management.

“Traffic is a growing problem in almost every city in the world. The average American motorist spends 36 hours in traffic delays every year. The cost of traffic congestion just in the United States is $78 billion, representing the 4.5 billion hours of travel time and 6.8 billion gallons of fuel wasted sitting in traffic. Billions more dollars have been spent on electronics and systems to alleviate this logjam.” Brian Marshall, of the Canada Transportation Development Centre.
How much did Oregon spend to outfit 15% of their intersections? At 100k per intersection, and say 100 intersections, we have: $10-20 million likely, though the money spend is buried in a report I have not found. $190 million recovered over six years for $20 million invested. Roughly 30% ROI, not bad.

I will track down the suppliers of equipment for the investment index.

IRS Computer Viruses to work overtime

The latest attempt by Congress to fake a recovery includes capital controls on foreign accounts, pointed out by Zero Hedge. The capital control requires foreign banks to withhold 30% of gains until tax compliance is assured by the IRS. I went to the actual language in the new jobs bill and can verify, in Zero Hedge terms:
Provision requires that foreign banks not only withhold 30% of all outgoing capital flows (likely remitting the collection promptly back to the US Treasury) but also disclose the full details of non-exempt account-holders to the US and the IRS.
How does this work in practice when money is transferred with a key strokes? Banks and human managers generally send account information to the IRS.

This is the Chinese model, make it a law to report money changing. The Chinese government invests a lot in computer virus generation, the IRS will likely do the same to back up collection. Arnold Kling warned us about this.

I consider it the last grasp at salvation for an unsustainable funny money policy.

Can the Yield Curve invert rapidly?

In this post I deal with the optimism of Carpe Diem, one of my favorite blogs, which I rank up in my top ten blogs. Mish and Carpe Diem seem to have differing outlooks.

Probability of an inverted yield curve
An inverted yield curve is the opposite of a steep yield curve

Carpe Diem wants me to explain how and why we might have a double dip. The NY Fed posts the relationship between the banker's yield curve and recession, above. The steeper the curve the less likely it will invert. An inverted Yield Curve is a recession. What can cause the yield curve to suddenly invert?

It is the second moment, not the first moment that contrarians are concerned with. The first moment tells us how far we are from inversion, the second moment tells us how fast we can change from steep to inverted. Between 1992 and 2001, we spend eight years in growth, no recession. Between 2001 and 2008 we spent six years in growth before inversion. The rate of change between inversion and steepness is increasing. The economy is learning more about what ails it as time progresses. It has been one and a half years since the crash, the economy is likely much better at passing the constraints up to the next level in production and the question is whether that knowledge is much more efficiently passed up the chain then before.

Dot com tried to solve the constraint, and ran to its limits. Housing took up the baton and tried to solve the constraint, and reached its limits. Who is next up the production chain? Government, or specifically Treasury. If Treasury and Congress reaches its limits then we will quickly see a collapse of long term yields and a jump in short term interest rates, the start of another leverage cycle.

How fast can government drive up inflation?

Economists have been deceived by the relative stability of inflation over the past 15 years. They have been deceived because government budgets have not been sorely tested in the past 15 years, there has always been debt capacity to bail us out.

But, but...

How can I take Caplan's bet against Mish but take Mish's bet against Carpe Diem? Simple, I predict out to the third moment! First the double dip due to government equalization of budgets, then within five years the new technology provides a win for Caplan. Multi-modal betting.

A hero legislature in California

California and Congress will likely borrow an additional $5 billion, at 7% interest over 30 years just to prepare for a Bullet Train that is not likely to survive the funding shortfalls. The state currently suffers a budget deficit close to 50% of outlays. Assemblywoman Diane Harkey comes to the defense of California. Joshua Melvin talks about her bill to stop the fiasco:

The legislation [BATN: AB2121>] by Assemblywoman
Diane Harkey, R-San Juan Capistrano, would use a little-known portion of the
state constitution to stop the sale of Proposition 1A bonds to pay for a portion
of the $42.6 billion train that would zip passengers between Northern and
Southern California in 2.5 hours. Up to $400 million of the $9.95 billion in
Proposition 1A money is slated for Bay Area train agencies to make upgrades
necessary to accommodate the 125-mph bullet trains.

Harkey said the state is already over its head in debt and the Legislature needs
to take a second a look at the project, which she isn't convinced is even

A hero for the day, I wish her success.

This Bullet Train will not be built, no one wants to slave for that enormous interest expense incurred. Interest costs are high as California is bankrupt now and the Bullet Train pushes us into federal receivership. This recession was not caused by the low supply of Bullet Trains. This link summarizes the UC Berkely transit professionals who pan the idea.

The Consensus Economic Forecast

From Bloomberg:
Payrolls probably rose by 190,000, the most in three years, after declining 36,000 in February, according to the median forecast of 62 economists surveyed by Bloomberg News before the Labor Department’s April 2 report. Other reports may show consumer spending and confidence increased, while factories expanded and home prices declined.
Am I allowed to reprint the Bloomberg survey? Yes, but go visit the article by Tim Homon.
                       Bloomberg Survey

Release Period Prior Median
Indicator Date Value Forecast
Pers Inc MOM% 3/29 Feb. 0.1% 0.1%
Pers Spend MOM% 3/29 Feb. 0.5% 0.3%
Core PCE Prices YOY% 3/29 Feb. 1.4% 1.3%
Case Shiller Monthly MO 3/30 Jan. 0.3% -0.2%
Case Shiller Monthly YO 3/30 Jan. -3.1% -0.6%
Consumer Conf Index 3/30 March 46.0 50.0
ADP Payroll ,000’s 3/31 March -20 40
Chicago PM Index 3/31 March 62.6 61.0
Factory Orders MOM% 3/31 Feb. 1.7% 0.5%
Initial Claims ,000’s 4/1 27-Mar 442 440
ISM Manu Index 4/1 March 56.5 57.0
Construct Spending MOM% 4/1 Feb. -0.6% -1.0%
Nonfarm Payrolls ,000’s 4/2 March -36 190
Unemploy Rate % 4/2 March 9.7% 9.7%
Manu Payrolls ,000’s 4/2 March 1 15

So what is to be contradicted here?

Much of the employment gains are from hiring temporary census workers, the unbalanced interest rates from the Fed can distort the forecast (Money Illusion), the uncertainty of cost effects in Obamacare, and impending bankruptcies in many counties and states. Remember, state and federal interest rates to keep California afloat are a whopping 7.5% over the 30 year California bond (Congress covers 30% of the local interest costs in Build America Bonds).

Consider this other Bloomberg report by Joe Mysak:

The interest rates states and municipalities had to pay to borrow money, as measured by the Bond Buyer 20-General Obligation Bond Index, declined from a high of 6.09 percent in January 2000 to 4.21 percent in June 2003. Issuers took advantage of the drop to call or redeem outstanding high-coupon debt.

That same interest rate environment didn’t repeat in 2007 and 2008. Tax-exempt yields rose from 4.08 percent in March 2007 to a high of 6.01 percent in October 2008, before ending the year at 5.24 percent.

What this means:

Municipalities cannot take advantage of the low interest rate environment as a result of the recession. Short term cash accounts are king right now, hence there is little clear indication of a growth opportunity in the USA. This is key because depressions are historically associated with major constraints in metropolitan areas, so when local government borrowing costs are high, that means they have not yet figured out solutions.

Beware the double dip.

Saturday, March 27, 2010

NXP going IPO

Their biggest growth area will be E Traffic:

Want to take the lead in the developing telematics market? Combining GNSS, mobile and advanced security technology, NXP's ATOP offers you a cost-effective route to implementing driver applications from road pricing to eCall and stolen vehicle tracking.
They have sold one billion near field communications chips.
I have NAVTEQ in my investment new feed for this story:
NAVTEQ, the leading global provider of digital map, traffic and location data for in-vehicle, portable, wireless and enterprise solutions is having its Map & Positioning Engine concept taken significantly closer to production by the development of a reference application in collaboration with NXP Semiconductors and the electronics and software specialist, Technolution.
With a billion cars, new and old, the chip market for automobile Black Boxes is huge, and starting last year the market should show 20% compound growth over the next five years.

Businesses get Obamacare socialism

From an AP story about the reaction of business interest regarding Obamacare:

American industrial companies that are struggling to compete globally against companies with much lower labor costs are particularly likely to eventually drop retiree coverage, said Gene Imhoff, an accounting professor at the University of Michigan.

"Anything that they can use to justify pushing something away from the employees, pushing it back on the employees or the government, they're going to do it," Imhoff said. "I'm not sure you can really blame them for trying to do this."

This is the problem of income tax not progressive, there is an incentive to have middle income taxpayers cover the labor costs that wealthy businesses normally expensed themselves. It is a gain to the large corporation because the effective tax rate for upper echelon is low enough compared to the labor expenses of lower echelon. Hence the Dead Zone effect with fewer numbers of wage settings.

There are more wage setting that are disadvantaged by the complex tax structure of Obamacare so the labor markets simplify, meaning fewer job choices.

LaHood throws a challenge to the E Traffic industry

He wants pedestrian and bike safety:

“Today I want to announce a sea change,” he wrote on his blog last week. “This is the end of favoring motorized transportation at the expense of nonmotorized.”

The new policy, which was introduced a few days after Mr. LaHood gave a well-received speech from atop a table at the National Bike Summit, is said to reflect the Transportation Department’s support for the development of fully integrated transportation networks.

It calls on state and local governments to go beyond minimum planning and maintenance requirements to provide convenient and safe amenities for bikers and walkers. “Walking and biking should not be an afterthought in roadway design,” the policy states.

Transportation agencies are urged to take action on a number of fronts, including the creation of pathways for bike riders and pedestrians on bridges, and providing children with safe biking and walking routes to schools.

They are also encouraged to find ways to make such improvements in concert with road maintenance projects and to protect sidewalks and bike lanes in the same manner as roads (by clearing them of snow, for example).

Safety mechanisms in autos can detect pedestrians with ease at low cost, ultimately paid for with insurance savings. Small, low cost digital beepers on bikes will alert autos with Black Boxes about nearby bikers.

These solutions kill two birds, they move us toward much more energy efficient transportation and solve the LaHood problem without concrete and steel.

Another Dead Zone for Obamacare

I previously noted the employment Dead Zone effect for Obamacare, it will cause fewer wage settings, a broadening of the Dead Zone of unemployment and when the wage grows to positive income tax a large marginal tax increase for the low wage worker.

Now Barrons interviews WILLIAM DUNKELBERG, the chief economist with the National Federation of Independent Business. He sees the Dead Zone effect for small businesses that grow beyond the minimum number of employees for Obamacare exemptions.

Mish quotes from Barron's:
Just when a small business gets large enough to no longer be called "small" is arbitrary. The legislation sets the exemption bar at fewer than 50 employees. And it turns out that, based on Bureau of Labor Statistics figures, there were nearly 4.7 million such firms in the U.S. last year, 95% of all private-sector firms. This 95% employed just 31.2 million workers in 2009 (down from 33 million in '07), accounting for 29.4% of all private-sector employment. Not surprisingly, Congressional Budget Office figures show that a disproportionate share of these workers lack health insurance.

The legislation waits until 2014 before imposing stiff fines on firms with 50 or more employees that do not install a government-approved health insurance plan. If Dunkelberg is right, however, then rising costs and shortfalls in revenue could lower the cutoff to 20 employees, or even 10. At a cutoff of 10, for example, one million firms (out of the 4.7 million total), would no longer be exempt. But wherever the cutoff is set, consider how the rule could affect firm behavior.

Obamacare will be a nightmare as small firms try to navigate the cut off for exemptions.

Why do we listen to someone who missed the Health Care bubble?

Which is what we will be saying about Dean Baker in a year or two. How did Dean Baker miss the debt bubble (Steve Keen), how did Dean Baker miss the government too small bubble ( Galbraith) How did Dean Baker miss the energy shortages (Jim Hamilton). the unregulation bubble (Krugman), the technology revolution (me), the Reagan/Bush Bubble (Obama).

Dean misses the health care bubble because he is hired to pretend some favorite programs are efficient, while the favorite programs of other groups are inefficient, he talks with a political point of view.

Bad news on Obamacare Costs

Division of Labor reports on this study, with abstract below:

Substantial uncertainty exists regarding the causal effect of health insurance on the utilization of care. Most studies cannot determine whether the large differences in healthcare utilization between the insured and the uninsured are due to insurance status or to other unobserved differences between the two groups. In this paper, we exploit a sharp change in insurance coverage rates that results from young adults “aging out” of their parents’ insurance plans to estimate the effect of insurance coverage on the utilization of emergency department (ED) and inpatient services. Using the National Health Interview Survey (NHIS) and a census of emergency department records and hospital discharge records from seven states, we find that aging out results in an abrupt 5 to 8 percentage point reduction in the probability of having health insurance. We find that not having insurance leads to a 40 percent reduction in ED visits and a 61 percent reduction in inpatient hospital admissions. The drop in ED visits and inpatient admissions is due entirely to reductions in the care provided by privately owned hospitals, with particularly large reductions at for profit hospitals. The results imply that expanding health insurance coverage would result in a substantial increase in care provided to currently uninsured individuals.
This implies that Obamacare will put ER rooms at severe stress with a 60% rise in emergency room visits, suddenly. Hospitals will be swamped, and federal deficit will rise way beyond the CBO fiction.

Three days a week is sufficient

Mish talking about the four day school week in Illinois:
Not one person mentioned the real [budget] problem: bloated administration costs, union salaries and union benefits for teachers, bus drivers, and janitors. Instead they are looking at saving heat and electricity one day a week. Good grief.
My take:

With technology and personal study, students are better off with a three day week, on an irregular schedule to meet in a seminar for each class once a week. We have a budget problem because advancing technology has discounted the babysitting function that teachers perform.

Using trained teachers to perform babysitting for the parentless kids is a waste.

Friday, March 26, 2010

Digital Parking Meters

Public CEO reports:
Two of California’s great cities are driving experiments in “smart parking spaces.”

They will steer the latest interactive technologies to inform motorists where to park their jalopies — and at what price.

“I think many cities are watching San Francisco and Los Angeles to see how this experiment works,” said Dan Mitchell, senior engineer for the Los Angeles Department of Transportation.

Both cities are beginning two-year pilot projects that will infuse supply-and-demand principles in parking pricing with an assist from wireless technologies.

In selected busy areas, both cities are installing sensors in parking spaces. The sensors will give real-time digital information about whether a space is occupied and for how long.

The system is designed to recommend a parking price increase if a given block at a given time is jammed with parked cars. The idea is set the pricing at a level that will keep 10 to 30 percent of spaces in a given area vacant.

Are taxes progressive?

Or flat?

The chart was abstracted from a paper by Piketty and Saez.
The Y axis is tax rate, the X is percentile income. I added the 20th percintile, fake point, to represent income from the Dead Zone below positive tax. This tax chart includes all federal taxes and no state taxes. The 40th percentile is an income of 15k and represents the Dead Zone jump when an individual escapes serfdom. The 80th percentile is 52k in salary, they pay the average cost of the federal government. This chart does not include negative taxes (subsidies) except for the fake point I inserted.

If ObamaCare is inefficient, then the DeadZone increase to something like the 50th percentile, so if we keep the 80th percentile as the mean taxpayer, we only have a 30% middle class. That won't work and a government Recalculation results. Local governments need a broad middle class to exist.

Changes to taxes as a result of Obamacare found here. $210 billion increase in rates for those above the 90th percentile, and $400 billion in cuts to Medicare.

Notice that the mean taxpayer pays 20% of the $52,000 in income at the 80th percenttile. Bruce Barlett is wrong, the Tea Partyers are right.

What happened here?

Why do we have such a long recovery time?

Starting with Reagan we have been using the federal debt to bail out losers. We have had a wider collection of losers as technology transforms, but Reagan and lil Bush have been bailing them out.

Variable rate monitors on the city garbage truck

Get them, now. It's a problem, flat rate garbage service. The E Traffic industry needs to respond with small Black Boxes measuring position and time for garbage per customer. Make it a retro fit, and a mob of consumers will force the purchase of the product here in Fresno. We hate flat rate.

Some plug and play Robocar technology

From Vision Security. Further investigation needed, company founded by maniacal Chinese entrepreneur.

This technology creates a huge multiplier for installed concrete and asphalt, and America has that in spades. We have seen two great new companies developing the tracking link layer, I call it. So that black box will evolve this generation to include tracking engines.
Still looking for plug and play short range communications.

Ford gets a boost from the networked car

Traffic Technology Today:

Ford has announced that it has installed the 2-millionth vehicle with its SYNC voice-controlled communications and infotainment system and has reached the total less than a year after hitting the 1 million unit milestone. The company’s data also shows that the system boosts resale value of SYNC-equipped vehicles by more than US$200 over vehicles without the option. Surveys show that after receiving SYNC demonstrations, 80% of potential customers report it improves their opinion of Ford and 70% are more likely to consider purchase.

Thursday, March 25, 2010

Thumbing through Traffic Technology

A good site for traffic planners. Already we start to see the development of plug and play for stationary computer vision at the intersection and toll booth. We have the development of real time tracking. Even without legislature consent, planners need to buy some of the technology and run in place trials with the technology, reality based simulations.

Within two years I can see widescale E Traffic deployment across America as local municipals began experimenting and developing skills today. Starting with transportation fleets today, the small cost of trials can be covered by them. Contracts to sell lane space can be made pending legislature approval. In the money strapped environment today, traffic managers have great bargaining power with state assemblies. Safety and lower insurance prices are another draw, planners need to get insurance partners on board.

The consumer product groups are now educating the driver about the benefits of E Traffic as they sell him navigation devices. Bus manufacturers will all have options for the new short range communications, push them for retro fits of existing buses for trial runs using transit vehicles. Local truckers association members should be aware of the potential time and fuel savings, and fewer arrival time errors.

More Internet effects

James Surowiecki in the New Yorker:
The boom in information for consumers has also severely weakened middle-market firms. In the past, these companies were able to charge a premium price because their brands were taken as signals of reasonable quality and reliability. Today, consumers don’t need to rely on shorthand: they have Consumer Reports and J. D. Power, CNET and Amazon’s user ratings, and so on, which have made it easier to gauge differences in quality accurately. The result is that brands matter less: a recent Nielsen survey found that more than sixty per cent of consumers think that stores’ generic products are equal in quality to brand-name ones. In effect, the more information people have, the tighter the relationship between quality and price: if you can deliver a product or service that is qualitatively better, you can charge top dollar. But if you can’t deliver the quality you can’t get the price.

HT Peter Gordon

I think:

Consumer self selection on the Internet. Next year consumers will begin directing transportation with key strokes on their home computers. Cars will form convoys automatically. Idle time between consumer and inventory narrows and no vendor can risk managing it, consumers self manage transportation. We have to treat the technology as if it has a mind of its own.

The Chinese Traffic Scene

From a NYT MiniBlog:

I’m in Guangzhou, China’s third largest city, for an “International Symposium on Analysis and Countermeasures of Traffic Congestion in Urban Centers.” Although the talks run the transportation gamut from infrastructure to travel-demand management, the purpose of the meeting is to explore congestion pricing as a possible antidote to traffic that is snarling China’s booming cities.

Guangzhou’s new Bus Rapid Transit system is barely a month old, yet its high-speed service, with pre-paid boarding and exclusive lanes, is already attracting 800,000 passengers a day — half as many people as ride New York City transit buses. Five subway lines have been built since 1999, and four more are slated to open in the next several years. I toured these facilities this week and also saw real-time traffic information systems that dispatch buses and taxis and help police clear traffic crashes.

Yet this dizzying growth in smart transit infrastructure is unlikely to stem the deterioration in Guangzhou’s traffic conditions. The share of streets rated with severe congestion was measured at 38 percent last year, up from 33 percent in 2008 and 28 percent in 2007. Drivers, truckers and riders on conventional buses are paying a steep price in lost time.

With double-digit rises in car ownership and the city’s relentless expansion outpacing even the rapid provision of transit, the idea of charging a toll to drive into Guangzhou’s city center is gaining traction. The rationale is clear: drivers who pay only for their own lost time but not for the time their trips take from other drivers have little incentive to prioritize trips by car.

Traffic congestion is a sign of impending deflation. We need a metropolitan traffic congestion index.

I am a human search engine! This site monitors traffic congestion with a news feed. Leading to this article:

Data from GPS users show that of all host cities in this year's basketball tournament, Houston tops the field with the longest persistent traffic jam, averaging 8.5 miles every day on Texas 6

Then leading to this:
The results were calculated using data from Speed Profiles(TM), the historical speed database from TomTom's licensing business unit Tele Atlas that helps personal and professional fleet drivers find the best routes. Speed Profiles aggregates, anonymously, the actual speeds that millions of GPS-enabled drivers have traveled over the last two years to provide the most accurate view of average speeds on both primary and secondary roads. It is incorporated on TomTom GPS devices as IQ Routes(TM) to guide drivers away from congestion, not only on major highways but on all routes in the road network.

Speed Profiles website.

Speed Profiles is derived from aggregating and processing hundreds of billions of anonymous GPS measurements from millions of devices that reflect actual consumer driving patterns. This consumer data helps determine realistic average roadway speeds for different times of the day and different days of the week. Tele Atlas has Speed Profiles coverage for 5 minute intervals in 26 countries, spanning 35 million kilometers in Europe and North America.

California Bond Update

LA Times:

The state sold 30-year taxable bonds at an annualized yield of 7.48%, or 2.7 percentage points above the 4.78% yield on 30-year U.S. Treaury bonds earlier Thursday.
On the 30-year bond that paid 7.48%, the Treasury subsidy means the net interest cost to the state is 4.86%. That is well below the 5.65% yield the state paid on conventional tax-exempt 30-year bonds it sold March 11.

These are Buy America bonds and get a Federal subsidy on interest rate. The Federales cover 2.6% in the interest cost. But overall the bet is that both governments will gain 7% efficiency to cover. State and Federal will do no better than 3% gains, and inflation at 2.5%, I still see an increasing shortfall. If State and Federal get hung up in the sorting out of Obamacare, then efficiency drops and relative debt burden becomes volatile.

One day a week is just fine

On this WJS article about the post office. It is taking the first step toward cutting back to five day a week delivery. Residual paperwork, we need it once a week for budgeting, maybe, but not everyday. Better for the Post Office to branch out into wider, on demand, delivery. Reuse the same resources but arrange themselves to better fit.

The Post Office should contract with Congress to subsidize one day a week mail, then go ahead and find more business.

The Index has become a news feed

The blog page I keep of interesting companies in the E Traffic business. As the human search engine, I pick up tidbits that point to investor potential in the sector.

The current technology roadblock still seems to be modular object detect sensors, plug and play. Things like standard vision processors that manufacturers can mount, variously, on vehicles. I know the market, and getting close is enough, it will deliver.

Dick Army, personally responsible for trillions in deficits

Why would Tea Party supporters want him around? This guy believes in big government, you know he does, though he constantly lies about it.

Dick Army supports federal flat taxes and each time the Republican Communist Party tries the trick, wealthy people grow government with deficits. Even since Abe Lincoln, the American people have been fighting big government Republicans, and we will continue to do so. Reagan and Bush are famous for expanding government and selling it on the cheap, Dick Army is one of the communist bunch; no small government type, none whatsoever. Including him in the Tea Party is a big mistake.

I may lead a revolt of the South Park Libertarian Wing of the Tea party.

Bill Gross of PIMCO says


Yields on two-year U.S. Treasury notes are likely to rise to 1.25 percent to 1.5 percent from 1.08 percent in the next year as the economy strengthens and the Federal Reserve begins to increase interest rates, Gross said.

What did I say on Feb 5?
I would say to the Fed, target two year rates to be 1.5%, do this by trading in one year notes.
I conclude either I am smart, or I say enough things that some actually become true.

Connecticut moves toward congestion pricing.

The TriState transportation blog is reporting that Connecticut is moving forward with electronic tolling for congestion shaping.

In a much tighter vote, the Transportation Committee also reported out an amended bill to direct ConnDOT to develop a plan for implementing electronic tolls on Connecticut’s roads. Tri-State testified against the original bill, which called for electronic tolls only at Connecticut’s borders and would have faced constitutional challenges. The new language also means that ConnDOT now has the flexibility to make reducing congestion a priority in its toll study.
The avalanche will occur as municipalities share the income with the transportation industry.

California bond yields

The yield premium relative to comparable-maturity U.S. Treasuries, known as the spread, has fallen since November, when the state sold 30-year taxable securities offering 7.26 percent, or 3 percentage points above government debt. U.S. 30-year Treasuries are yielding about 4.7 percent in trading today.

I still await today's results. What assures investors when the government's main industry is creating unfunded pension liabilities? Dunno, except CALPERs has a great opportunity investing in its own mafia practices.

Menzie reads 200 pages so we don't have to

Stimulus multipliers according to probability based equilibrium models and the like

Multipliers compare overall GDP increases and legislature spending increase, with varying amounts of low interest rates from the Central Banker. These stimulus multipliers look very similar to what I get using empirical results comparing stimulus to GDP via the Ceridian. Read Menzies take.

My take:

When legislatures suddenly spend large amounts at the bottom of a downturn they are likely to use up constrained resources, just as Keynes said.

Once the economy figures out the game, then it compensates and the multiplier drops from 1.0 down as agents manage to stop or modify the sudden spending splurge.

Why do legislatures do this in a downturn? Dunno, I would have preferred we use less of the constrained resources or else wait to see what government can do to remove constraints.

Kevin Drum seems disconnected from reality

He discusses our lack of involvement in alternative energy sources. Then says:
Everyone else does, and we ought to be competing for our share of the pie.

Well, according to the Kevin Drum investment portfolio, we should and are investing in Obamacare, to the tune of a trillion. So, according to the Kevin Drum portfolio, if we want alternative energy, then is has to come from the medical industry, they have most of the limited investment resources.

Kevin, be something other than a contradictory mess of whatever is the latest Federal fad, otherwise you begin sounding like Yglesias.

Asian and Chinese Bond markets

I am the human search engine!

Chinese Bond are available

The Treasury bond market weakness is tied in part to a poor US Treasury auction of $42 billion in five-year notes at Wednesday’s auction with a high rate of 2.605% on a bid-to-cover ratio of 2.55. Primary dealers were awarded $20.75 billion, and indirect bidders including foreign central banks were awarded $16.6 billion. But this took a toll on US Treasury prices. Interestingly enough, China has a bond offering of its own after the Chinese Ministry of Finance said it would issue a batch of 10-Year book-entry Treasury Bonds with a Par value of 26 billion yuan or about $3.8 billion U.S. dollars.

Book-entry bonds are very similar to Treasury bonds issued here in the U.S with semi-annual accrued interest payments. The rate on these will be market-dependent after issuance, but the initial yield is 3.36%… The yield on the US 10-Year Treasury is now 3.83% because prices have fallen more than 1 point in bonds today and the yield is 14 basis-points higher in the US since this morning.

Abd so is Chinese capital, Bank of Chine new share offering:

BEIJING — Bank of China said Thursday it wants to issue more shares in Hong Kong soon, an offering that could strengthen its balance sheet by some $7.7 billion.

Many of China’s big banks are tapping debt and equity markets for funds after a lending spree last year in support of Beijing’s economic stimulus efforts. The surge in lending left their capital ratios under pressure and fanned worries about bad loans.

Bank of China, which is also listed in Shanghai, said the follow-on offer of Hong Kong-listed shares would be 20 percent of its Hong Kong share capital.

Emerging market Bond offering on the rise:
London. Companies and governments in the developing world are on track to sell bonds in excess of $60 billion in the first quarter of 2010 as the global economy recovers from its deepest recession since World War II.

Figures compiled by investment bank ING show both companies and governments in the developing world have already sold nearly $55 billion in bonds this year.

Nearly double last year’s depressed levels, this remains some way off 2007’s record first quarter when corporate and sovereign borrowers in emerging markets issued more than $63 billion.

“Although there have admittedly been a few intermittent weeks of pause during the recent uncertainties over Greece, the primary markets for emerging-market bonds have improved dramatically over the first quarters of 2009 and 2008,” said David Spegel, head of emerging markets strategy at ING.

“Investors’ tolerance for liquidity and credit risk has improved markedly,” ING’s Spegel said, noting that 37 percent of the first quarter’s corporate issues were rated below investment grade.

If issuance volumes included resurgent local-currency bond sales, emerging-market borrowers would have raised $102 billion in the year-to-date.

“The return on emerging sovereign dollar debt is not fantastic but in terms of risk-return it’s one of the best,” said Pierre Yves-Bareau, head of emerging debt at JPMorgan Asset Management.
Asian firms take advantage of dollar based bond sales.:

March 10 (Bloomberg) -- The lowest relative borrowing costs in more than two years and demand from international investors is driving Asian companies to sell record amounts of dollar- denominated bonds.

BOC Hong Kong (Holdings) Ltd., the Hong Kong unit of Bank of China Ltd., and Chinese developer Evergrande Real Estate Group Ltd. led Asia-Pacific borrowers selling $38.4 billion of dollar debt this year, the fastest start on record, according to data compiled by Bloomberg. Sales climbed 35 percent from $28.4 billion in the same period last year, when they slumped 22 percent in the aftermath of the seizure in credit markets.

“It’s one of the cheapest times to borrow in U.S. dollars, and at the same time, there’s a lot of cash floating around,” said Rajeev de Mello, head of Asian investment for Western Asset Management Co., which oversees $506 billion. U.S. and European pension funds “want a slice of the action,” De Mello, who is based in Singapore, said in a phone interview.

The extra yield demanded for dollar debt from investment- grade companies in Asia instead of Treasuries has fallen to 2.44 percentage points from 7.62 percentage points in December 2008, according to JPMorgan Chase & Co. Spreads fell close to a two- year low because growth in the region is helping lead the world out of the worst financial crisis since the Great Depression.

A little work on the investment index

I keep a list of E Traffic vendors, and where one can buy there stock. Not an organized list, but folks are making money by sorting through it themselves. Usually when I spot a new product, a new partnership or acquisition I grab the info and put it in the index page.

Why do we have long term unemployment?

As discussed in Financial Times:
But the surge in long-term unemployment is by no means unique to minorities. The median duration of joblessness in the US labour force as a whole has risen at an even faster rate – from 8.8 weeks in February 2007 to 19.6 weeks last month.
Mainly the inability of government benefits to become efficient in a wage sense, the Dead Zone has been increasing as we provide more permanent bail outs to individuals in the Dead Zone.

Liberal economists who do not understand entropy and economic precision, will look the package of benefits provided to the Dead Zone, and call that income. But they fail to understand the lack of precision that results from government payouts; the number of wage slots decrease as the economy simplifies to accommodate government activities.

Each time a worker passes from the Dead Zone to positive income, the quantization jump is very large and the marginal tax hard to overcome. We become Europeanized.

This problem relates to the yield curve jump in my last post. To perform all the tasks set out by Congress, the market is expecting a jump in precision of government goods. It never happens, and we get a double dip as the economy adapts to another imprecise program from Congress.

Wednesday, March 24, 2010

What happend to the Treasury Curve?

Everyone seems to be wondering. Look at the Universal Economic Calculator, on Mar 24, the yield from the five to 30 years terms took a significant jump. Zero Hedge has an explanation; there is no longer enough traction in the short end for the Fed to manipulate the long end.

My shortened version:

In order to deliver all the interest payments due, Congress needs to expand operations, increase the stages of production to deliver goods. There is simply too much debt to place along a deflated Treasury yield curve with too few term points to absorb the debt. With help from the central bank, Congress has more plans then they have structure to deliver.

Look at it from a strict inventory point of view. If Congress expands it level of offering while in a deflated state, then transactions are fewer and larger along the supply chain. Hence, inventory prices are lower than can support the interest payments. Hence, for Congress to get everything done, the product must be subdivided into smaller lots and faster transaction rates with more value added. That requirement shows up in the low entropy spot, the five year spot. Congress needs to present something realistic for the next five years, five years out is the current constraint.

I am very interested in the California bond sales tomorrow, but fear to make a prediction. My sense is there will be a jump in yields.

Robocar update

Instapundit points us to this result of the multi-year partnership with Segway.

The article says:
The ride inside one of the three EN-V concept vehicles, destined for display at the Shanghai World Expo opening in May, is silky-smooth motion. You'd never guess that the entire two-person cabin was sliding forward and back, maintaining a delicate balance over its two wheels as the vehicle accelerates, turns, brakes and rotates beneath. And you certainly wouldn't imagine that the device was communicating continuously with others of its ilk, even as it used optical and sonic sensing devices to "perceive" its surroundings and avoid collisions.
The Segway vehicle had found a strong market in SitComs, but finally may be breaking into real transportation. But forget the two wheels, who cares. The vehicle otherwise has all the components of the new Robocars.

California debt yields.

California Government yield curve

Tom Peturno quotes some bond traders:

Traders said the state may be paying an annualized yield close to 8% on 30-year bonds in the offering, a return that would look appealing to many big investors compared with rates on Treasuries or corporate bonds.
Close to 8%? The last offering by California yielded 5.65%. The former is taxable the later is not, the the new offering is said to have more Build America Bonds which offer federal interest rate subsidies.

8% is a lot to pay for California, greater than any 30 year growth rate in the economy here. We will see what happens tomorrow in the market. The yield curve posted were from quoted in the last offering.

Why we have big banks

The New York Fed tells us:
  • Primary dealers are banks and securities brokerages that trade in U.S. Government securities with the Federal Reserve System.

  • As of September 2008, there were 19 primary dealers.
  • Primary dealers' daily average trading volume in U.S. Government securities approximately $570 billion during 2007.
Unless we find another global reserve currency, Congress itself will require Too Big to Fail banks, they are a necessity.

Obamacare crowding out state budgets

Bloomberg reports:

States faced with unprecedented declines in tax collections are cutting benefits and payments to hospitals and doctors in Medicaid, the health program for the poor paid jointly by state and U.S. governments. The costs to hire staff and plan for the average 25 percent increase in Medicaid rolls may swamp budgets, said Toby Douglas, who manages the Medicaid program for California, which hasn’t joined the lawsuits.

“The states are coming through the worst fiscal period in the history of record keeping,” said Vernon Smith, a former Medicaid director for Michigan and now a principal at the research and consulting firm Health Management Associates in Lansing, Michigan. “Medicaid is the most significant, most visible and most costly part of this expansion and states fully expect to see increases in their spending.”

California’s Deficit

For California, with a $20 billion budget deficit, the extra load will cost at least an additional $2 billion to $3 billion annually, said Douglas, chief deputy director for California’s health care programs. He said the overhaul is currently projected to add 1.6 million people to the 7 million enrolled in his state’s program.

No one will parent the minority chldren.

Will talks about Anne Duncan, the secretay of education in her efforts to make education policy educute minority children. George points out this is Sixties Nostalgia Syndrome romp, common in the Obama administration for this executive many of whom came of age with LBJ.

It is actually much worse. Anne Duncan wants to get minority kids into better supervised classrooms, but the smart kids with good parents have already moved on to more advanced forms of education melded with technology. Here in my home town they are abandoning the traditional classroom and going to personal study, mainly because the main function of today's classroom is not education, but parenting en masse.

Public Education has become a jobs program and a babysitting enterprise for parentless children. Motivated parents are looking for a way out of the system.