T-Shirt of the day

It says "Alcohol Tobacco and Firearms: should be a convenience store, not a government agency"

Available at Those Shirts I have the "celebrate diversity" one from them.

Quote Tag

I've been tagged by CharLeBois over at the Highway 401 Blog to pick my favourite quotes, so here we go:

"If it flys, floats, or f**ks, rent it" - P.J. O'Rourke

"Life, liberty, and property do not exist because men have made laws. On the contrary, it was the fact that life, liberty, and property existed beforehand that caused men to make laws in the first place" - Frederic Bastiat


Now I'm going to tag Eli, Lebowski, Russ, and Jessica Lovejoy.

PS (8/25/05) - I can't believe I forgot these classics:

"F**k that s**t man, Pabst Blue Ribbon!" - Frank (Dennis Hopper), from Blue Velvet

"F**king Chrysler plant, here I come!" - Slapshot

The prudent bear

For those who want more information on the credit markets, The Prudent Bear has some good information

James Grant - More on bonds an current accounts.

I've linked up an article on the U.S. bond market by James Grant of Grant's Interest Rate Observer - an invaluable resource. It ties in with the article below.

Another great one is an explanation of the current accounts system titled "The current account for stock jockeys"

Both are great resoucres, and will offer a lot of insight into the world of interest rates, money and international banking.

Looming banking crisis in China

Tip of the hat to the esteemed Kate at small dead animals.

This is part of my larger point about the American economy being susecptible to recession. James Grant, of Grant's Interest Rate Observer pointed out on several occasions what is happening with China and U.S. current accounts deficit. Grant has noted that the U.S. buys billions in Chinese made goods, tangible property, in return for U.S. paper in the form of dollars and Treasuries. This only works for as long as the Chinese accept U.S. paper. Prior to 1971, the Chinese could theoretically ask for payment in gold to the tune of $35/oz. Now it's a fiat currency, and the U.S. economy will only continue to chug along as long as the Asian central banks accept U.S. dollars in trade.

What would happend if this was not the case would be a monumental spike in interest rates and a sudden spike in inflation, as well as disruption to the money supply. What this indicates is that the Federal Resevse only has de jure control over U.S. monetary policy. It is there colleagues in China, Taiwan, Korea, and Japan that have de facto control.

At least with a gold standard, I think it wouldn't have gotten to this.

Bush's immigration nonsense

Generally I'm a supporter of President Bush, but when he talks about creating a 'guest worker' program and an amesty for illegals - I start fuming. Such a program is patently unfair, threatens national security, and encourages more illegal immigration.

I'm an immigrant to this great country, albeit not a permanent resident. I had to go through all the hoops and red tape, and what not just to get here. If I wanted to get permanent residency, I'd have even more hassles, which would take years going through the byzantine maze of INS regulations.

So, know what Bush is telling us is that if you're here illegally, you jump to the front of the line and get a green card, no questions asked. Gee, that makes me feel good. I should change my name to Miguel Sanchez, stay after my visa expires to become an illegal, and get in under the amnesty.

The worst part about this is that I think that this will have a negligible impact on the GOP's Hispanic vote. I would bet that a large number of Hispanic voters who came here though the proper channels would be ticked to find out that they're letting in the people who cheated first.

Finally, the GOP will suffer immeasurably as a result of this. Many conservatives and mainstream Americans have immigration and the need to control the borders near the top of their concerns, and the party ignores them at their peril.

What needs to be done before any of this guest worker nonsense is fourfold:

1. Beef up border security to prevent illegals from entering the country.
2. Bring in laws that severely punish companies for using illegal aliens as labour.
3. Have local law enforcement check the immigration status of all suspects arrested, if they are here illegally - the INS must deport them within 72 hours
4. Refom the process of immigration into the country. Clarify the criteria of who qualifies, and have an answer for them promptly - like 90 days. There is no reason for the confusion that is presently the INS where it can take years to determine whether one can immigrate into the U.S. or not.

The sad part is that neither political party has any stomach for this. As Pat Buchanan once said, "The Democats see illegals as potential Democratic voters. The Republicans see illegals as a source of cheap labor."

Mortgage interest deductibility

Garth Turner has made a case for Canada introducing a mortgage interest deduction into the Canadian Income Tax Act. I have voiced my skepticism on this matter based on my experiences doing individual tax returns here in the U.S., where one can deduct mortgage interest and property taxes, and based on the history of unintended consequences of targeted tax programs on the economy.

Here are my obsverations:

• The vast majority of income tax filers in the U.S. do not have sufficient mortgage interest to itemize their deductions rather than use the standard deduction. The majority of 1040 filers can not take advantage of this.
• The deductibility of mortgage interest lowers the cost of capital, and inflates housing prices by increasing the amount of financing buyers can obtain given a certain costs.
• Tax measures like this have unintended consequences. When president Reagan brought in tax reform in 1982, one of the stimulus packages was to lower the depreciable lives of property from 40 to 19 years. This created a boom in commercial and residential rental construction - and is one of the prime causes of the 1990's real estate bubble.
• Finally, once you bring in targeted tax cuts, you open up the Pandora's box and every little thing the electorate wants becomes a deduction or what not. This is why the 1040's in the U.S have become increasingly complex.

My solution for Canada - slash personal rates across the board (heck - if it starves the government, so much the better!) and have large personal exemptions. If I was doing it here, I would get rid of almost all the itemized deductions and up the standard deduction for a married couple from $9,750 to $30,000 (that would take off a large portion of taxpayers of the tax rolls, and the rich folks would be paying at a higher effective rate because they lose all sorts of deductions and not get dinged with AMT). Something like that would do more to help ease the cost of home ownership and spur the economy than a targeted deduction.

Detroit - Taxed and regulated to ruin. A cautionary tale.

The fine people of the Mackinac Center for Public Policy referred me to these two articles on how taxes and onerous regulation has helped turn Detroit into the utopia that it is today.

The first one is a study on the regulatory regime of Detroit and how it affects small and home based businesses, by Dana Berliner of the Institute of Justice.

The second one is a Mackinac research paper on the affects of taxes on economic prosperity of Michigan local governments.

If one wants to see how to drive a city into the dump - raise taxes and put up tons of red tape! That's a good start - you'll see David Miller in Toronto getting the idea!

The silver lining in high gas prices

Considering how the price of gas is close to $2.50/gallon here in Michigan, and I have a good commute every day, I feel the 'ouch' from this as much as everyone. I'm almost at the point that I wish this war was about oil, and that the U.S. would just get done with it and invade Iran and Saudi Arabia, hand it over to ExxonMobil, and open the spigots for $1/gallon gas.

But here is the silver lining, albeit long-term, in the short run spike in gasoline prices:

1. This is dampening consumer spending. Not enough to cause a recession, mind you, but enough to temper inflationary pressures.
2. The spike in prices, coupled with interest rates, is cooling off the housing market. This lessens the possibility of a major correction in the housing market, and it is slowly forcing all those folks who took second, third, and forth mortgages on the house for consumer spending to start seriously thinking about deleveraging. The deleveraging the reduction of speculation in the housing market will lower consumption, reduce inflationary pressures, and strengthen the U.S. dollar.

Well, at least I deluded myself into that.

Divergence in U.S. and Canadian Fertility Rates

Barbara Boyle Torrey and Nicholas Eberstadt write an article in Policy Review on the relative decline in Canadian fertility rates vis-a-vis American rates. This is another nail in the coffin for the Canadian welfare state if this trend continues. Interesting article.

Bruce Bartlett on Sarbanes Oxley

The above is a link to an article on the auditing changes called the Sarbanes-Oxley Act, which covers publicly traded companies since Worldcom, Enron, etc. This piece of legislation is putting a large costs on the economy for tangible benefits. While it is a boon to my profession, by employing thousands more accountants doing mundane work of little value added, it does not help private companies who also face the burden of increased auditing costs. Mid sized firms like the one I work for have benefited from it, as private big four firms, facing double digit increases in their fees due to increased liability costs, gravitate to us in order to seek some relief. Roberto Romano does a more detailed study on the Yale Law Journal on the matter, and we find out that this is costing business billions of dollars while adding little value to users of financial statement.

Gun violence in Toronto - Hang Them All!

I have a simple solution, one that would get wide support. Start hanging those people who are committing murders (whether it be with handguns or not). Bring back the deterrence value of the justice system. This is a political winner - get to rail against a soft on crime federal government and their patsy judges.

ExxonMobil versus Philip Morris - a tale of two stocks

At the site Dog n Pony Show, I enegaged in a debate with a person by name of Postraider on the 'excessive' profits of Oil companies. For the sake of berevity, our friend Postraider had issues on the profit margins of the oil companies and that they were excessive. I pointed out that they were not excessive considering the long-term performance of the stock vis-a-vis other stocks of comparable size in different sectors.

If integrated oil companies like Shell, BP, Chevron, or ExxonMobil truly had higher profits over the long run than other companies, then assuming that the equity markets are more or less efficient:

1. The profit margins for Exxon (XON/NYSE) should be significantly higher than other S&P 500 stocks.
2. The P/E ratio should be significantly higher on the stock, reflecting the above average profit potential of the company.
3. The share performance, over the long run, be superior to all other stocks on the S&P 500.

Let's see how they line up. For comparison, let's use Johnson & Johnson (JNJ/NYSE), WalMart (WMT/NYSE), Microsoft (MSFT/NASDAQ), and Philip Morris (MO/NYSE) as a sample of comparable sized companies in different sectors.

First, let's take a look at the long term charts for these stocks (see above). XOM is not even the top performer over the long-term vis other sectors of the economy. Second, the profit margin for XOM as of today is 9.94%. WMT is 3.63%, JNJ is 18.36%, MO is 14.55%, and GE is 11.29%. These numbers suggest, along with the chart above, the XOM's profitability is within the expectations of the largest S&P 500 companies.

In summary, the profitability of integrated oil companies are in line with the market as a whole, and is reflected in the relative performance of oil companies versus other sectors.

When I have the time, I'll make a more detailed analysis of the sector and the claim of 'obscene' profits.

Oil Prices, Interst Rates, Inflation and What Not

Many of you probably have seen this chart, showing the differences in prices on an absolute and real basis on a few items from 1980 versus today. The other key statistic that is missing is that in 1980, long term interest rates (i.e. 30-year Treasury) were in the 15% range, while today long term rates are 4.5%. That is a key thing to consider as well. A family with a mortgage generally had a rougher go of it in 1980 than 2004 in terms of prices and costs of housing. Another factor is the general improvement of fuel economy of cars during this period, which also is a mitagating factor.

The reason for the high oil prices today, are of course political instability, but an examination of what the 'fair value' of what oil should be is about 20% lower. There is a supply imbalance at this moment of time. One of the main reasons behind this was large oil companies scaling back exploration efforts five years ago when oil was $10/barrel, which in hindsight, was a foolish thing to do. More supplies will be coming online in the next couple of years, which will put downward pressure on supplies. As for the increasing demand from China & India - yes it is true that their demands for oil have increased, but as a percentage of world consumption, they are only a small percentage at this moment in time; thus their incremental consumption should not have as much of an impact on prices as what some think they will be.

Hat tip to Kate for the chart.

Damian Brooks on Public Transit

My esteemed colleague Damian Brooks of Babbling Brooks has a post discussing the York Region rapid transit system to be implemented. Damian, a Richmond Hill resident, is optimistic that it will be a great idea. Being a former Newmarket resident and somewhat familiar with the area, I am a bit more pessimistic on the matter.

Conceptually, things like this are a great idea for the GTA to improve transportation and commute times. However, my pessimism is based on the fact that:

1. The government is running it, so it will be bloated, inefficient, and unreliable.
2. It is financially questionable to throw a lot of government money into an endeavour that cannot recoup all its costs from fares. If it is like VIA Rail, the TTC and GO, then the question that arises from this is: (a) is this the optimal use of public funds, and (b) can't the private sector do a better job?

I guess my main concern is preserving value for the taxpayers, with my secondary concern being limiting the activities of government. As it stands, I'd rather see the money invested in improving the road system and providing tax breaks (in terms of lower property taxes especially) on railroads as an incentive for them to get into the commuter business.

Finally - who would have ever thought of a bunch of right-wing shills discussing public transit!?

Where do you you stand

I'm not all that suprised by the quiz results I got here. That seems to be a rather Hayekean/Burkean result. If you're interested, take the test here. Hat tip to Warwick.

Tories, Tax Breaks, and Public Transit

I just finished reading the post story on the Conservatives plan for providing help for public transit - the gist of it being making bus passes tax deductible.

This whole policy is a sham. The best piece I can think of which summarizes the folly of public transit is from P.J. O'Rourke, who wrote:

There are just two problems with mass transit. Nobody uses it, and it costs like hell. Only 4% of Americans take public transportation to work. Even in cities they don't do it. Less than 25% of commuters in the New York metropolitan area use public transportation. Elsewhere it's far less--9.5% in San Francisco-Oakland-San Jose, 1.8% in Dallas-Fort Worth. As for total travel in urban parts of America--all the comings and goings for work, school, shopping, etc.--1.7 % of those trips are made on mass transit.

Then there is the cost, which is--obviously--$52 billion. Less obviously, there's all the money spent locally keeping local mass transit systems operating. The Heritage Foundation says, "There isn't a single light rail transit system in America in
which fares paid by the passengers cover the cost of their own rides." Heritage cites the Minneapolis "Hiawatha" light rail line, soon to be completed with $107 million from the transportation bill. Heritage estimates that the total expense for each ride on the Hiawatha will be $19. Commuting to work will cost $8,550 a year. If the commuter is earning minimum wage, this leaves about $1,000 a year for food, shelter and clothing. Or, if the city picks up the tab, it could have leased a BMW X-5 SUV for the commuter at about the same price.

It is the same scam here. Shovelling funds - whether it be direct or indirect into mass tranist doesn't solve the problem of congestion - only more roads and more liberal land use laws will fix. Nobody likes taking public transit to work, and throwing money at the TTC and GO train, notwithstanding the folly of doing so, won't change that. Canada has crumbling and congested roads, which have a real economic cost (and don't get me started on how Comrade Bill Davis has ruined Toronto's economic future with cancelling the Spadina expressway back in the 70's).

Harper should know better than to make stupid promises like this. Potential conservative voters do not consider public transit a priority - roads though, that's another story. Cut their income taxes and build roads, lots of nice 8 lane expressways all over the GTA - now you got a recipie for success, considering how everyone complains about how congested the 401 is (which these days is 24-7).

Now I remember why I love Tiger Stadium

From the Ruins of Detroit Tour, the dank of Tiger Stadium I miss oh so much. You can't replicate this stuff. This is what symbolizes Detroit in all its glory.

The ruins of Detroit

I had this wonderful site referred to me by Andrew from nearby Tecumseh Ontario (where I onced worked a summer at the beautiful LCBO there. This is a pictural essay on the 'ruins' of Detroit - a economic history illustrating the rise, decline, and somewhat the rebirth of Detroit. It is a fascinating tour to take by car if one wants to see Detroit warts and all. I have been to many of these places on the tour, and I might take a Sunday and drive the rest of them. Most of these automotive sites are in Highland Park or around th I-75/I-94 interchange FYI.