Tag Archives: econ70.com

Corny Ag Prices

Farmland prices have doubled since ’06. The cost per acre in IA is now almost $7,000/acre up 32% since ’10. Inflation adjusted prices are higher now than in the late ‘70s which precipitated the farm bust of the 80s. Prices are high because corn and soybeans have doubled in price since ‘06 due to demand from China and corn-to-ethanol which takes more than 33% of all corn. Even TIAA-CREF has a $2.5 billion farmland portfolio.

Gimmie Growth

June’s trade deficit swelled 18.8% to $49.9 billion, the highest since 10/08 and much worse than economists (what do they know) predicted. If annualized, the June deficit would be almost $600 billion. That data along with recent inventory data suggest Q2 growth will very sluggish; 1.5%-1.7%. While certainly not recession territory, we have an economy that is vulnerable to shocks and is weaker than we want to believe.

How Much Government

Children Bicker, the small minded squabble. When these verbs are used to describe what Boehner, Reid or Obama do it’s implied that they’re arguing about trivia. NOT! They are adults with very different ideas trying to shape public policy as best they can. They argue about vast flows of $ and policies with huge consequences. Obama grew the size of gov’t dramatically. The Rs want to reverse it. It’s democracy not quarrelling.

Airline Deregulation Hits Airlines

30 years after deregulation most airlines lose money. While high fuel prices don’t help they have only played a role recently. The key factors are plummeting demand following 9/11 that left demand weaker in ’09 than it was in ’00 and large cost difference between legacy carriers (LC) and low-cost carriers (LCC). LC costs have remained 30% to 60% higher than LCCs since deregulation, and 40% higher in the last decade.

Airline Bag Fees

US airlines collected $3.4 billion in bag fees in ’10, up 24% from ’09 according to a DOT report. Absent fees, airlines would probably be losing money. Las Vegas based Allegiant generated 29.2% of all their revenue from extra fees, more than any airline in the world. Among US carriers Delta generated the most revenue from bag fees; $952 million. United/Continental was next at $655 million, American $580 and US Airways $513.

Pro Sport, Small Impact

Despite its popularity, when compared to other industries, pro sports is very small. The $400 million recently paid for the Detroit Pistons is equal to the 468th ranked firm in the S&P 600 Small-Cap index (Stein-Mart). And Stein-Mart makes 10 times the revenue. When sports franchises try to shake down local governments for free stadiums, politicians should recall this.

Political Problems Pemeate

A lack of progress over the U.S. debt ceiling and intensifying contagion concerns in Europe (Portugal, Spain and Italy may go the way of Greece and Ireland) have triggered a further flight-to-safety; equity markets are generally in retreat and quality government bonds are rallying. The weak job numbers make the possibility of QE3 more likely; only 18K jobs were created last month as opposed to the usual 180K at this point in the cycle.

High-Tech Trips!

Elevators in Israel are high-tech. Rather than pushing an up or down button, you type in the desired floor and are assigned an elevator. Once inside, there are no buttons to push. This is an example of “fuzzy logic”. It is a faster and more economical way to allocate resources and has many applications including hot water heaters, air conditioners, medical devices, traffic lights, artificial intelligence and much more.

Payroll Problems Persist

Nonfarm payrolls rose by a profoundly dismal 18K in June, way below the 125K gain expected by economists! Making things worse, job gains in May were revised down to 25K from 54K. The unemployment rate inched up by 0.1% to 9.2%. Government employment fell by 39K. If you include discouraged workers and those forced to work part-time, the unemployment rate rose to 16.2% from 15.8%! This is about as bad as anyone could imagine.

Implanted Explosives

The Law of Unintended Consequences: First our bodies and carry-on luggage were scanned before getting on a flight. Then, it was our shoes; still later it was gels and liquids. But to be successful terrorists must stay one step ahead of law enforcement. To that end, expect airport security to tighten up now that terrorists are considering surgically implanting explosive devices in their bodies.