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.