Goldilocks Rocks on Black Friday, +8.3% Increase

NEW YORK (AP) -- The nation's retailers had a robust start to the holiday shopping season, according to results announced today by a national research group that tracks sales at retail outlets across the country. According to ShopperTrak RCT, which tracks sales at more than 50,000 retail outlets, total sales rose 8.3% to $10.3 billion on Friday, the day after Thanksgiving, compared with $9.5 billion on the same day a year ago. ShopperTrak had expected an increase of no more than 4-5%.

By the way, consider that gas prices last Thanksgiving were about $2.25 per gallon, and gas prices today are about $3.09. Even with gas prices 37% higher than a year ago, consumers spent a record amount this year on Black Friday. See the post below.

Why The Goldilocks Economy Can Handle $3 Gas

In a previous CD post "The Energy-Efficient Economy Can Handle $100 Oil," I suggested that today's economy is much better able to absorb higher energy prices than at any other time in the past, due to significant improvements in energy efficiency of the last 50 years. Compared to the early 1970s, the economy today is about twice as efficient, measured by energy consumption per dollar of real GDP. The graph in that post was featured on CNBC's "Kudlow and Company" a few weeks ago and also appeared in Larry's blog.

Here's another reason that the Goldilocks economy is able to handle $3 per gallon gas without sending consumer spending into a tailspin and without causing a recession: Even at $3 per gallon, gas is still relatively affordable for today's consumers, as a percent of disposable income, especially compared to the 1970s and 1980s.

The graph above (click to enlarge) shows the cost of 1,000 gallons of gas at the average retail price (using EIA data) as a percent of per-capita disposable income (from the BEA), from 1974-2007. Consider that since gas prices peaked in the early 1981 at about $1.40 per gallon, retail gas prices have increased by 2.21 times to $3.099 per gallon today. But per-capita disposable income has increased during that same period by more than 3.5 times, from $9591 in 1981 to $33,940 today.

In the early 1980s, it would have taken almost 15% of per-capita disposable income to buy 1,000 gallons of gas, and today it only takes only 8.5% (third quarter 2007). Even back in the "good old days" when gas sold for 50-60 cents per gallon in the mid-1970s, gas was more expensive as a share of income (10-11%) than today.

Bottom Line: Measured as a share of per-capita disposable income, gas prices would have to rise all the way to $5 per gallon today to be as expensive as gas in the early 1980s. Even if gas gets to $3.76 per gallon, it would be equivalent to 50 cent gas in the "good old days" of the mid-1970s, when measured as a share of disposable income. Goldilocks can handle $3 gas, no problem.

Libertarian Drew Carey on Medical Marijuana

One of the most outrageous consequences of the war on drugs is the federal crackdown on medical marijuana, which is used by patients to help treat the effects of cancer, glaucoma, HIV-AIDS, chronic pain and nausea, and other severe symptoms associated with serious illnesses. Medical marijuana prescribed by a physician is legal in 12 states, yet federal agents are raiding state-approved dispensaries and preventing patients from having safe access to this drug.

In Episode 2 of Reason.tv's Drew Carey Project, Drew takes a look at patients who need and use medical marijuana in California, and how the federal government is making their lives even worse.

Bank Stocks Rebound by 2.5%, Keepin' Hope Alive

In some "Black Friday bargain hunting," the broader stock market indexes rebounded today by about 1.4% (see chart above, SP=red line, DJ=black and NASDAQ=green), and bank stocks rebounded at almost twice that rate (about 2.5%) as measured by the NASDAQ Bank Index (blue line above).

Maybe there's hope.

(P.S. I'll probably retire from intraday prognasticatin', and wait until the market has closed to do my analyses.)

Weak Dollar = Strong Christmas Sales for Europeans

Returning to Iceland After Shopping Bender

at the Mall of America

MINNEAPOLIS -- Andrea Guðjónsdóttir arrived in Minnesota from Iceland last week with nothing but the clothes on her back. Oh, and two empty suitcases, which she promptly filled to near-bursting with clothes, toys and other gifts during a five-day shopping spree in the Twin Cities.

"Everything's so cheap," said Guðjónsdóttir, 35, who lives in Akranes, a seaport city on Iceland's west coast. "You can pay $30 for Levi's here; at home, it'd be $200."

Guðjónsdóttir joins a growing number of shoppers across the world who are coming to the U.S. -- and Minnesota -- this holiday season to take advantage of good deals against the falling dollar. At a time when the U.S. economy is sagging, retailers say foreign tourists are providing a hedge against a Christmas season that's expected to be the slowest in five years.

The Only Way to Follow People Over Time is To Follow People, Not Income Brackets or Quintiles

There are wild cards that need to be kept in mind when you hear income statistics thrown around. One of these wild cards is that most Americans do not stay in the same income brackets throughout their lives. Millions of people move from one bracket to another in just a few years.

What that means statistically is that comparing the top income bracket with the bottom income bracket over a period of years tells you nothing about what is happening to the actual flesh-and-blood human beings who are moving between brackets during those years.

Following trends among income brackets over the years creates the illusion of following people over time. But the only way to follow people is to follow people.

That is why the IRS data, which are for people 25 years old and older, and which follow the same individuals over time, find those in the bottom 20 percent of income-tax filers almost doubling their income in a decade. That is why they are no longer in the same bracket.

That is also why the share of income going to the bottom 20 percent bracket can be going down, as the Census Bureau data show, while the income going to the people who began the decade in that bracket is going up by large amounts.

~Thomas Sowell in "Income Confusion"

More Government Control = More Corruption

World Corruption Map

From Transparency International: The 2007 Corruption Perceptions Index (CPI) looks at perceptions of public sector corruption in 180 countries and territories - the greatest country coverage of any CPI to date – and is a composite index that draws on 14 expert opinion surveys. It scores countries on a scale from zero to ten, with zero indicating high levels of perceived corruption and ten indicating low levels of perceived corruption (see world map above, click to enlarge).

A strong correlation between corruption and poverty continues to be evident. Forty percent of those scoring below three, indicating that corruption is perceived as rampant, are classified by the World Bank as low income countries. Somalia and Myanmar share the lowest score of 1.4, while Denmark has edged up to share the top score of 9.4 with perennial high-flyers Finland and New Zealand.

Notice a pattern? The greater the degree of free market capitalism, the greater the income levels and the less corruption (see the yellow and orange areas on the map). The greater the degree of government control over the economy, the lower the income levels and the greater the corruption (see the red and brown areas on the map). In other words, there appears to be a direct and positive relationship between the size of government and the amount corruption in a country.

(HT: Captain Capitalism)

Bogleheads: Stock-Picking is Evil; Boring is Good

If John Bogle is the high priest of the Bogleheads, stock-picking fanatic Jim Cramer would have to be Lucifer.

Meet the Bogleheads, devotees of Vanguard Group founder John Bogle, long-time advocate of the passive, low-cost, index approach to investing where you try to "meet, not beat the market."

Bogleheads adhere to the "boring is good" investment philosophy of index investing, and they are against stock picking, against high fees and against what they say is the mostly self-serving investment industry.

In defense of the Bogleheads, consider the two charts above that compare the Fidelity Magellan Fund, one of the largest and most popular actively managed mutual funds in history, vs. the S&P500 Index. Over the last 25 years (top chart, click to enlarge), the S&P500 Index rose by almost +1200% vs. only about +400% for the Fidelity Magellan fund. In other words, if you have invested in Fidelity Magellan from 1982 to 2007, you would have been paying large fees to professional investment advisors like Peter Lynch to "help" you lose lots of money, compared to a passive investment in Bogle's low-cost Vanguard S&P500 Index fund.

Lots and lots of money. $100,000 invested in Fidelity Magellan in 1982 would have grown to $500,000 by 2007, compared to $1,200,000 if you had selected the Vanguard S&P500 Index fund.

The bottom chart compares the Fidelity Magellan Fund to the S&P500 during the last 9 years of the period when legendary investment strategist Peter Lynch was managing the fund. Even a brilliant investor like Peter Lynch couldn't beat the market during the period from 1982-1990.

And consider that a previous CD post reported that the return in 2006 for a portfolio of mostly Vanguard Index funds was +20.6%, compared to a -0.20% loss for a portfolio of "Select Jim Cramer Featured Stocks."

Call me crazy, but I think the evidence is clear. Consider me a Boglehead.

(HT: Joyce Howe)

APROVECHA EL DIA!!

CD Penetrates Cuba's Digital Iron Curtain

Finally, the first visit to Carpe Diem from the heart of Cuba (see ClustrMap above), maybe from the city of Camaguey?!! As recently as Nov. 1, there hadn't been a single visit to CD, see my post here.

From this Miami Herald article, "A meager 9 out of every 1,000 Cubans are estimated to be Internet users, most of them linked to the government. Reporters Without Borders last year denounced Cuba as one of a dozen nations with the most controlled and least accessible Internet, grouping the country with Iran and Vietnam."

From this Reuters news report, "At a downtown Havana post office, Cubans line up for hours for their turn in the "surfing room."

When users get to one of the four computers, they can send and receive e-mail and surf an Intranet of Cuban Web sites, but access to the global Internet is barred.

Getting online is not easy in communist-run Cuba, where the state strictly controls all Web servers and recently announced plans to crack down on illegal Internet access."

Aprovecha el dia!

Price Controls=Long Lines in Venezuela; Surprised?

Not a lot to be thankful for in Chavez's Venezuela....

CARACAS, Venezuela -- The lines formed at dawn and remained long throughout the day — hundreds upon hundreds of Venezuelans waiting to buy scarce milk, chicken and sugar at state-run outdoor markets staffed by soldiers in fatigues (see photo above).

President Chavez's government is trying to cope with shortages of some foods, and the lines at state-run "Megamercal" street markets show many Venezuelans are willing to wait for hours to snap up a handful of products they seldom find in supermarkets.

The lines for basic foods at subsidized prices are paradoxical for an oil-rich nation that in many ways is a land of plenty. Shopping malls are bustling, new car sales are booming and privately owned supermarkets are stocked with American potato chips, French wines and Swiss Gruyere cheese.

Yet other foods covered by price controls — eggs, chicken — periodically are hard to find in supermarkets. Fresh milk has become a luxury, and even baby formula is scarcer nowadays.

Exhibit A: Goods not covered by price controls are plentiful.

Exhibit B: Goods covered by price controls are hard to find.

Conclusion: Kinda obvious, no?

(HT: Ben Cunningham)

Good Old Days Are Now; It Keeps Getting Better

George Mason's Russ Roberts at Cafe Hayek had this post yesterday about data from the Census Bureau's annual American Housing Survey that shows significant progress in living standards for Amercian households below the poverty level.

As Russ points out "Supposedly, over the last 20 years, all of the income gains have gone to the rich. Yet, somehow, the poorest households increased their access to appliances that make life more pleasant."

The chart above is based on data taken from in the 1985 survey and the 2005 survey, and expands on the data provided in Russ' post.

Bottom Line: Compared to 1985, today's (2005) poorest households have bigger homes and apartments by 15-20%, they are almost 3 times as likely to have central air conditioning, about two times as likely to have a dishwasher, clothes dryer and garbage disposal, more likely to have a washing machine, and more likely to be in a household with a car, or even 2 or more vehicles.

If those significant improvements happened overnight, it would be considered miraculous and would make headline news; but when they happen gradually over several decades, nobody notices, and the significant progress and advances in everybody's standard of living (including households below the poverty level) go largely unrecognized and unappreciated.

More evidence that "the good old days are now," and they keep getting better, see related previous CD posts here, here, here, here, here and here. There is a lot to be thankful for.

Happy Thanksgiving.

Taj Mahal Refuses to Accept Dollars for Admission

BOMBAY -- The Taj Mahal and other top tourist sites in India are refusing to accept dollars to pay for admission, dealing another blow to the prestige of the weakened American currency. Entry tickets to the world famous Mughal tomb in Agra and about 120 sites run by the Archaeological Survey of India will be available only at a fixed rupee rate after the dollar lost more than 12% of its value against the local currency this year.

The Government had fixed a $5 entrance fee for World Heritage sites such as the Taj Mahal and $2 for other monuments of interest at a time when the dollar was worth about 50 rupees. Buoyed by capital inflows into the surging Bombay stock market, the rupee rose yesterday to 39.28 rupees against the dollar.

The new fixed entry fee of 250 rupees and 100 rupees means that a foreign tourist will pay the equivalent of about $6.40 and $2.50 respectively.

(HT: Sanil Kori)

Milton Friedman, Revolutionary

Check out the revolutionary "Milton Friedman Choir."

Goldilocks Rocks in NM, TX, LA, AL, AZ and ID

6 reasons the U.S. economy is not going into a recession:

1. New Mexico's jobless rate fell to an historical record low of 3.1% in October (see chart above, click to enlarge), according to state labor market data released today by the BLS. October's rate of 3.1% was almost 3.8% below New Mexico's average unemployment rate of 6.9% from 1976-2007.

2. Texas' October jobless rate of 4.1% was also an historical record low that matched the May and June 2007 rates of 4.1%.

3. The October unemployment rate in Louisiana dropped to match a record low of 3.3% that was first achieved in July 2006.

4. As I reported earlier, Alabama's unemployment rate of 3.1% established a new historical record low in October 2007.

5 and 6. Arizona and Idaho both set record low unemployment rates in September 2007 (3.3% and 2.3% repsectively).

Higher Paying Jobs Outnumber Lower Paying Jobs

Let's put the "hamburger-flipping jobs" myth to rest.

Lou Dobbs: Washington is beginning to make the connection between a record trade deficit and the loss of millions of American manufacturing jobs. Since July 2000, 2.7 million manufacturing jobs have been lost as the result of layoffs and outsourcing of work to cheap foreign labor markets.

WSJ: Many of today's most prominent politicians and pundits claim that the decline in the number of manufacturing jobs has led to the replacement of good middle-class jobs by low-skill, low-pay "hamburger-flipping" service jobs.

Cato Institute: The common story is that globalization has caused the loss of well-paying, mostly unionized, middle-class manufacturing jobs while the service economy creates mostly lower-paying jobs in food service or retail.

The chart above (click to enlarge) is from the Cato Institutes's study "Trading Up: How Expanding Trade Has Delivered Better Jobs and Higher Living Standards for American Workers," and shows a pattern of job growth much different than the standard Lou Dobbs, political pundit's hamburger-flipping mythology. For example:

1. Although there was a decline of 3,332,000 manufacturing jobs from 1997-2007, there was an increase of 17,398,000 jobs in non-manufacturing industries, resulting in a net job increase of more than 14 million U.S. jobs during a period of increasing globalization, international trade liberalization, and outsourcing.

2. And what about the hamburger-flipping story? It's a myth. The 3.3 million manufacturing jobs that were lost paid an average of $17.12 per hour, but more than 11 million jobs were added to the U.S. economy in sectors that paid an average of $20.79 per hour, or 21.4% MORE than manufacturing.

3. Employment growth from 1997-2007 in just two separate sectors (4 million education and health services jobs, and 3.5 million professional and business services jobs) more than replaced all of the manufacturing jobs lost, and both sectors pay more than manufacturing.

4. Although it is true that 5.8 million new jobs were created in industries that pay less than manufacturing, the number of jobs in higher-paying sectors (11.59 million) outnumbers jobs in lower-paying sectors (5.8 million) by a factor of 2 to 1.

If Fed Can't Fine-Tune, It Should Focus on Inflation

Notice in the chart above that over the last 7 years the Federal Reserve has moved the target Fed Funds rate (blue line) from 6% in early 2001 to 1% for about 12 months from mid-2003 to mid-2004, and then back up 5.25% from mid-2006 to mid-2007, and now it's back down to 4.5%.

And yet despite the 5 percent range (1% to 6%) in the target Fed Funds rate, the 10-year T-note yield has mostly stayed within a half percentage point of its 4.52% average yield during this period. In about 80% of the months from 2001-2007 the 10-year T-note yield stayed within a narrow 1 percentage point range between 4-5%, and varied just slightly above 5% and slightly below 4% with equal frequency the rest of the time.

Bottom Line: The Fed can move its target short-term Fed Funds target rate up and down by a huge 5 percentage point range from a low of 1% to a high of 6%, with no significant effect on long-term rates. If the Fed can't make long-term interest rates change when it makes dramatic changes in monetary policy, doesn't that mean the Fed is largely ineffective at discretionary, activist, countercyclical fine-tuning and instead should just focus exclusively on an inflation target?

Government Failure: "Evidence Of Injustice"

FBI's Bullet Lead Analysis Used Flawed Science To Convict Hundreds Of Defendants

(CBS) -- Aside from eyewitness testimony, some of the most believable evidence presented in criminal cases in the United States comes from the FBI crime laboratory in Quantico, Va. Part of its job is to test and analyze everything from ballistics to DNA for state and local prosecutors around the country, introducing scientific credibility to often murky cases.

But a six-month investigation by 60 Minutes and The Washington Post shows that there are hundreds of defendants imprisoned around the country who were convicted with the help of a now discredited forensic tool, and that the FBI never notified them, their lawyers, or the courts, that the their cases may have been affected by faulty testimony.

The science, called bullet lead analysis, was used by the FBI for 40 years in thousands of cases, and some of the people it helped put in jail may be innocent.

As correspondent Steve Kroft reported on tonight's "60 Minutes," one of them is Lee Wayne Hunt, who is now serving a life sentence for murder in North Carolina (pictured above).

Do a Google Search for "market failure" and you'll get 1.33 million hits. Do a search for "government failure" and you'll find 615,00 links. One might think that market failure happens twice as frequently as government failure.

After serving 22 years and 6 months in jail based on the testimony of two questionable witnesses and what turned out to be erroneous ballistics testimony from the FBI lab, I think Lee Wayne Hunt and the hundreds of other falsely convicted felons are a little more concerned about government failure that any failure the market might pose for them.

See a related Washington Post article "FBI's Forensic Test Full of Holes."

Interesting Fact of the Day: Chinese Restaurants

According to Chinese Restaurant News, there are nearly 41,000 Chinese restaurants in the United States, three times the number of McDonalds franchise units, and more than the number of McDonald's, Wendy's and Burger King franchises combined!

Quote of the Day: It's Not the Market Rising, Falling

It is not the market that is rising or falling at any moment, even if we commonly speak as though it were. In truth, prices move in response to the buying and selling decisions of countless investors, who are constantly considering the likely decisions of countless others.

~Peter Bernstein in today's NY Times

Food Fight: Partisanship Kills Senate Farm Bill

Of all of the major news reports on the failed Senate farm bill (and there were dozens, see the Washington Post article here), I found that this front page San Francisco Chronicle article offered the best public choice insights about the political realities of farm subsidies:

Money troubles could be unraveling the age-old coalition of Democrats and Republicans that has preserved Depression-era farm subsidies for most of the past century, as pressure from nontraditional farm interests continues to be felt.

The Senate's failure Friday to move forward on a $288 billion, five-year farm bill delays the effort to preserve subsidies to farmers of cotton, corn, rice and a handful of other crops. At the same time, it blocks an increase in spending on a vast array of popular programs to improve the American diet, make farming practices more environmentally sustainable, and provide California fruit and vegetable growers a place in federal policy.

The formula of preserving crop subsidies while expanding programs that appeal to urban lawmakers has worked to keep the crop subsidy system alive for 70 years, even as the number of farmers receiving subsidies has shriveled and the payments have increasingly tilted to the largest and wealthiest farms. But with heavy lobbying by environmental groups, efforts to forge a compromise bill this year faced serious funding hurdles.

And here's the best sentence:

Farm state politicians in both parties face a big problem: the formula of buying off urban interests with food stamps and environmental money in return for keeping crop subsidies is forcing painful budget trade-offs.

In other words, the 70-year tradition of bipartisan consensus to fleece taxpayers, bestow generous benefits on well-organized, wealthy special-interest farm groups, in return for political support (votes, campaign contributions, etc.) fortunately broke down this time. Thank God for occassional partisanship and legislative gridlock.

As P.J. O'Rourke said, "I love legislative gridlock. What I hate is bipartisan consensus. Bipartisan consensus is like when my doctor and my lawyer agree with my wife that I need help."

Talk About Cutthroat Competition and Price Wars!!

DETROIT, MI -- The two gas stations stand across an intersection from each other in Detroit, where even a penny's difference was enough to lure customers. And so came the price war: One station dropped a cent or two, and the other grudgingly followed.

But the seemingly petty back-and-forth escalated Friday, ending with a fatal bullet in BP station owner Jawad Bazzi's head over what police say was a 3-cent difference in the cost of regular gas.

The Marathon station dropped its price to $2.93. That angered Jawad Bazzi, whose regular gas was priced at $2.96. Bazzi walked across the street with a couple of employees to confront the Marathon owner and his posse. The groups argued, then began throwing punches. One of Bazzi's employees hit a Marathon employee with a baseball bat, injuring him. That's when the Marathon owner grabbed a handgun and fired three or four times. Bazzi, 45, was shot in the head.

And here's the amazing conclusion to the story:

After the shooting, with the competing station closed, BP's price per gallon increased to $3.09 for regular.

(HT: Holeydonut)