Globalization and The Medellin Economic Miracle, It's Saving Lives, But the Democrats Want to Stop It

MEDELLIN, Colombia -- This labyrinthine metropolis transformed over the course of a decade from a battlefield of drug lords, paramilitaries and leftist guerrillas into one of the safest, most dynamic cities in Latin America. Visionary inner-city renewal projects and a push to take back the lawless hillside slums by force deserve credit, but many here hail an unsung hero in Medellin's urban miracle -- globalization.

Exports surged in the 1990s as the United States granted temporary trade preferences to Colombia, allowing many of its products to enter the world's largest market duty-free. They really took off after 2002, when Washington expanded that agreement to include Colombia's all-important textile sector (see chart above). Humming assembly lines making Ralph Lauren socks and Levi's jeans sprang up across this picturesque Andean valley, creating tens of thousands of jobs and turning Medellin into a model of the curative power of liberalized trade.

The guns have quieted in Medellin. In 1991, the annual murder rate was 381 per 100,000 people -- a virtual war zone. In 2001, it was 174 per 100,000. Last year, it fell to 26 per 100,000, or lower than the District of Columbia (see chart above).

Colombia is also up against a resurgent global backlash to free trade -- including in the United States, the country that had spent the past two decades cajoling Latin America to open its markets. An election-year debate has politicians in Washington blaming globalization for the loss of U.S. jobs, holding up a vote in Congress on a free trade agreement with Colombia. That bill would make the current trade preferences permanent while allowing most U.S. products to enter Colombia duty-free.

Although strongly backed by the Bush administration, a free-trade pact with Colombia -- as well as other pending agreements with South Korea and Panama -- have been blocked by Democrats. Some are calling for a review of all future free trade agreements to assess their impact on U.S. workers.

The World Needs MORE Speculators

I struggle to understand how speculation is supposed to be both profitable and destabilizing all at once. Profitable speculation requires buying low and selling high. Destabilizing speculation requires the opposite: short-selling shares in a trough, thus deepening the trough, and betting that frothy shares will become frothier. In other words, destabilizing speculation means selling low and buying high. If that is a recipe for profit, I am missing something.

Profitable speculators, in contrast, are veritable philanthropists. When they think oil is going to become more expensive, they buy and hoard oil, or they buy oil futures, encouraging others to buy and hoard. This raises oil prices when they are relatively cheap and lowers them when they are relatively expensive.

True, when speculators make mistakes, that is destabilizing. But in the case of oil prices, it's hard to see that speculators are playing much of a role. For one thing, inventories don't seem to be rising. If the inventory data are correct, consumers were burning all that $135 oil.

The world needs more speculators, especially of the short-selling variety. More short sellers in the dot-com bubble of the late 1990s, and the housing bubbles of the past few years, would have added a welcome dose of stability and sanity.

Tim Harford in today's Slate.com

Resets on ARMs Will Now Decline Through 2008

The chart above from the Dallas Fed shows scheduled mortage re-sets through the end of 2008, and indicates that mortgage resets peaked in June 2008 at about $55 billion, and will be down close to $30 billion by yearend. In other words, the worst of the subprime problems might now be behind us.

Restricting Speculators Will Not Reduce Oil Prices

For the most part, speculators do not demand physical oil the way thirsty Chinese refiners do. There is no evidence that speculators are accumulating large and rising inventories of physical oil. But to cause prices to be above their competitive level, speculators would have to take physical oil off the market -- the way that governments have done in the past with agricultural products, amassing mountains of grain and cheese to prop up their prices.

What some speculators do instead is trade futures contracts that entitle them to take delivery of physical oil at a future date (say next August) at a price negotiated in the marketplace. But they almost never exercise the right to take delivery when the contract matures.

A speculator who anticipates rising prices buys a futures contract at the prevailing market price. If he is right, and the futures price rises, he can sell the contract at the higher price before contract maturity and pocket a profit; if he is wrong, and prices fall, he sells the contract at a loss. Buyers and sellers of these futures contracts almost never take delivery of the oil to implement their trading strategies.

Restricting these speculators won't reduce the price of oil -- but they are likely to make consumers and investors worse off. Futures and swap markets facilitate the efficient management of price risks, and speculators are an important part of that process. For instance, a producer of oil may want to lock in the price at which he sells his oil in the coming months in order to hedge against fluctuations in its price. He can do so by selling a futures contract at the prevailing market price. Similarly, an airline can protect itself against price increases next summer by buying today a futures contract that locks in a purchase price for next July.

The unprecedented run-up in oil prices is painful for consumers around the world. But the focus on speculation is misguided, and represents a convenient distraction from an understanding of the real, underlying causes of high oil prices -- most notably continuing demand growth in the face of stagnant production, supply disruptions and the weakening dollar.

More restrictions and regulations of energy markets, in the vain belief that such actions will bring price relief, are counterproductive. They will make the energy markets less efficient, rather than more so.

Univ. of Houston Finance Professor Craig Pirrong, in today's WSJ

FT Portfolios: Real GDP To Grow at 3% in QII

According to the BEA's report today, the U.S. trade deficit in goods and services declined to $59.8 billion in May from $60.5 billion in April. Highlights include:

• Exports increased $1.4 billion in May and are up 17.8% versus last year. The gain in exports in May was led by fuel oil, chemical fertilizers, and other petroleum products.

• Imports increased $0.6 billion in May, a small rise after a large upward spike in April. Imports are up 12.5% versus a year ago. Imports were held down in May by a decline in autos and energy (petroleum products and natural gas).

• Adjusted for inflation, the trade deficit in goods is $11.6 billion smaller than last May and the smallest since 2002. Without adjusting for inflation, the trade deficit is $0.4 billion larger than last year.

Implications: The export boom continued in May and is adding substantially to real GDP growth. We now estimate the trade sector will add about two percentage points to real GDP growth in Q2, which leads us to boost our estimate of the overall real GDP growth rate in Q2 to 3% (previously 2.5%).

Source: First Trust Portfolios

Putting $1T Subprime Mortgage Loss in Perspective

I'm in Las Vegas at Freedom Fest 2008 and heard Steve Forbes speak yesterday. In his talk, he put the subprime mortgage meltdown in perspective by comparing the global subprime losses of $1 trillion (Reuters story here) to the $56 trillion of U.S. household net worth. Sure, $1 trillion is a very significant loss, but it's relatively insignificant compared to the significant value of U.S. household wealth, less than 2%.

George Soros characterizing the subprime mortgage situation as "the most severe since the Great Depression." I'm not sure there is data on household net worth in the 1930s, but I'm pretty sure the stock market losses and the losses from 9,000 bank failures (about 1/3 of all banks) in the 1930s was a lot bigger than 2%.

Gov't. Health Care Reform = Fixing Prices

Government controlled health care is going to drive the best people out of business. Who wants to spend years of studying to be a doctor, just to become a government bureaucratic hack?

Some day you'll be wheeled in for a heart bypass operation, and a surgeon will be the person who is now behind the counter when you renew your car registration at the department of motor vehicles.

If we’re not careful, we’re going to wind up with a health care system like they’ve got in Canada, a nation that is broke from health care spending, even though Canada is a sparsely populated country with a shortage of gunshot wounds, crack addicts, and huge tort judgments.

What are we as Americans supposed to learn from a medical system devoted to hockey injuries, sinus infections, and from trying to pronounce French vowels?

Well, we’ll learn to fix prices. Because that’s all that health care reform really is. It’s just price-fixing. Price-fixing works great in Cuba and North Korea and in rent-controlled apartments in New York. Everybody knows how easy it is to find an inexpensive apartment in a nice neighborhood in New York City.

P.J. O'Rourke

Drill, Drill, Drill

The claim that the oil companies are sitting on leases and not drilling defies all logic. With oil at $135 per barrel and drilling rigs renting at $300,000 per day, there are no idle rigs anywhere.

The claim that any oil we drill for now will not come on line for five years or longer – and will thus have no effect on prices today – is incorrect. Unlike past oil crises, where the spot price of oil rose more than forward prices, the oil price for delivery in 2012 is trading at $138 per barrel. The market is sending a clear price signal that our problem is in the future – because we do not have the will to curb demand or increase supply.

How many houses would someone invest in if there were a future guarantee that the price would not decline? It is anticipation of ever-increasing prices that fuels the mania.

The oil market, however, has more than anticipation; it has a well-defined forward price signal. This is a key component of the added $25-$40 per barrel in current oil prices. Congressional hearings and "make it go away" legislation will not stop that. Demonstrate the national will to address the supply and demand issues now and it will.

As forward prices decline, watch how quickly the spot price comes down.

Joseph Petrowski, president of Gulf Oil writing in today's WSJ

Forbes: Most Lucrative College Majors

Business Majors

All Majors

Graphs above (courtesy of Antony Davies, click to enlarge) show the Forbes list of the most lucrative college majors based on 0-5 years, 5-10 years, and 10-20 years of experience, full story here.

Note in the top graph that economics, finance and accounting majors start out about the same, but after 10 years or more, economics majors make almost $12,000 more than finance majors, and finance majors make almost $13,000 more than accounting majors.

Welcome to Nanny State Nation

Whether you love it, hate it, or have never thought about it, chances are some politician wants to ban it. "Welcome to the Nanny State Nation," says reason.tv host Drew Carey. "Where the government minds your own business."

Saggy pants, fire places, plastic bags, light bulbs, poker—it's all been banned somewhere. Same with owning swine or fowl, feeding pigeons, owning pit bulls, and chomping on trans fats, a naughty little substance that makes food taste better.

Carey wonders when so many of us turned into "ban-happy busybodies," and compliments the British on their more civilized approach to bans.

Watch the video on Reason.tv.

"Rainforest Math" Meltdown: Seniors Can't Multiply

Summertime means school for an increasing number of high school students who have struggled in their math courses. But the system could be contributing to the kids’ poor performances.

In March, the National Mathematics Advisory Panel reported that U.S. students lack a deep understanding of basic skills, including a grasp of whole numbers and fractions.

One reason for teacher frustration is that the state's math gurus have de-emphasized memorization in favor of "conceptual thinking." The same philosophy has crept into English classes, where "creativity" has been elevated over knowledge of grammar, and into history classes, where knowing historical trends — "the big picture" — has replaced knowing dates of important events. The result is seniors who are not just incapable of multiplication, but also unable to identify the verb in a sentence or come within 100 years of placing the Civil War.

USAToday

HT: NCPA

2007 Household Spending on Fuel, Food and Drink

THE ECONOMIST -- The soaring cost of food and fuel is a concern for the governments of rich and poor countries alike. Many households in Africa and Asia shell-out more on food and fuel as a share of total spending and so are disproportionately hit by rising prices.

MP: Despite rising food and fuel costs in the U.S., it could be a LOT worse. In fact, it IS a LOT worse everywhere in the world, except Western Europe, Australia and New Zealand, in terms of the percent of household income spent on the basics: fuel, food and drink (see map above, click to enlarge).

Flashback to the 1970s: Pessimism and Doom Watching Have Become Our National Pastimes

Doom watching has of late become too much of a national pastime. It has afflicted far too many aspects of national policy: international relations, defense, natural resources, the economy, the environment, energy, etc. There has been pessimism, talk of inevitable decline, and of the twilight of democracy.

It is heady stuff. Entrapped by extrapolations and by rhetorical flourishes, it has too much affected the national mood. Yet, it too will be superseded. It is reminiscent of other periods of disenchantment. Yet, successfully to grapple with our problems, we shall have to diagnose them. Like Edmund Burke, two centuries ago, we are obliged to seek the sources of our present discontents. Yet we must avoid being swept up by the delights of diagnosis. We must assiduously avoid the seductive pleasures of making too much of our present discontents.

Our failures have indeed shaken self-confidence and prior assumptions. It has led not only to a well-advertised self-flagellation but also to a new style of moral imperialism, which combines a high degree of self.righteousness with a convenient way of evading responsibility.

The media did not originate but certainly reflect these national predilections. The media, reflecting the market and the free enterprise system, are quite ingenious in serving up just what the public wants to hear. In another period, this may have been cold war truculence, but recently it has been a steady diet of faults and flaws, real or imagined. I am a great believer in muckraking, when there is authentic muck to be raked. But one regrets seeing muck artilfcially created or embellished simply to satisfy current tastes.

MP: Although that could easily have been written today, it was actually written more than 30 years ago by James R. Schlesinger, in his 1976 Foreign Affairs article "On Making Too Much Of Our Present Discontents," available here.

As Larry Kudlow reminds us often, the media today is trying to make pessimism our national pastime, reminiscent of the period in the 1970s discussed above. But before we buy into all of the media's "gloom and doom," consider the chart above, showing the U.S. unemployment rate over the last 50 years.

Put into a broad historical perspective, our current 5.5% jobless rate is: a) below the 50-year average unemployment rate of 5.85%, and b) way below the 7% average jobless rate during the 20-year period from 1975 to 1995 that included 4 official recessions. Sure, it would be great if unemployment got down to 4% again, but it could also be a lot worse - we could have Canada's 6.1% jobless rate or Europe's 6.6% rate.

OPEC's Strongest Ally: U.S. Congress

Congressional attacks on speculation do not alter the oil market's fundamental demand and supply conditions. What would lower the long-term price of oil is for Congress to permit exploration for the estimated billions upon billions of barrels of oil domestically available, not to mention the estimated trillion-plus barrels of shale oil in Wyoming, Colorado and Utah.

Some politicians pooh-pooh calls for drilling, saying it would take five or 10 years to recover the oil. I guarantee you we would begin to see a reduction in today's prices even if it took five to 10 years for us to get the first barrel.

Put yourself in the place of an OPEC member knowing there would be a greater supply of U.S. oil five or 10 years, hence maybe driving oil prices lower to say $40 a barrel. What will you want to do now while oil is $130 a barrel? You would want to sell as much oil now and OPEC's collective efforts to do so would put downward pressures on current oil prices.

Right now the U.S. Congress is OPEC's staunchest ally.

From "Scapegoating Speculators," Walter E. Williams' latest column

Locations of Starbucks Scheduled To Close

SEATTLE --As many as 12,000 Starbucks workers will lose their jobs when the company begins closing 600 U.S. stores this summer. Starbucks has not identified which 600 stores it plans to close between now and March, but the news is trickling out through baristas, the media and others. The map marks the locations of where they say the closings will happen (the website map is interactive, you can click on a location to find details).

Read full story here.

Support for Energy Exploration At Highest Level This Decade; More Favor Drilling in ANWR

Pew Research Center -- Amid record gas prices, public support for greater energy exploration is spiking. Compared with just a few months ago, many more Americans are giving higher priority to more energy exploration, rather than more conservation. An increasing proportion also says that developing new sources of energy - rather than protecting the environment - is the more important national priority.

The public's changing energy priorities are most evident in the growing percentage that views increased energy exploration - including mining and drilling, as well as the construction of new power plants - as a more important priority for energy policy than increased conservation and regulation. Nearly half (47%) now rates energy exploration as the more important priority, up from 35% in February (see chart above). The proportion saying it is more important to increase energy conservation and regulation has declined by 10 points (from 55% to 45%).

In surveys dating to 2001, majorities or pluralities had consistently said that greater energy conservation and regulation on energy use and prices was more important than increased energy exploration.

The latest nationwide survey by the Pew Research Center for the People & the Press, conducted June 18-29 among 2,004 adults, also finds that half of Americans now support drilling in Alaska's Arctic National Wildlife Refuge, up from 42% in February.

Related AP story here.

MP: Pretty amazing what a $1 per gallon increase in gas prices (from $3 in February to $4 in June) does to public opinion: a 12% increase in support in just 4 months (from 35% to 47%) for energy exploration, drilling and building new power plants!

Quotes of the Day: P.J. O'Rourke

1. Government subsidies can be critically analyzed according to a simple principle: You are smarter than the government, so when the government pays you to do something you wouldn't do on your own, it is almost always paying you to do something stupid.

2. Freedom is not empowerment. Empowerment is what the Serbs have in Bosnia. Anybody can grab a gun and be empowered. It's not entitlement. An entitlement is what people on welfare get, and how free are they? It's not an endlessly expanding list of rights— the "right" to education, the "right" to food and housing. That's not freedom, that's dependency. Those aren't rights, those are the rations of slavery— hay and a barn for human cattle. There is only one basic human right, the right to do as you damn well please. And with it comes the only basic human duty, the duty to take the consequences.

3. I don't understand why the same newspaper commentators who bemoan the terrible education given to poor people are always so eager to have those poor people get out and vote.

In Defense of Oil Speculators

From Greg Mankiw:

The New Yorker.
The Economist.
Newsweek.
Washington Post.

And one more from Greg Mankiw:

Foreign Students Flock to the US: Surge in Overseas Applicants Driven by Weak Dollar

More Evidence: Speculators Don't Cause Volatility

Prices were outrageously volatile. While traders attributed the sharp market movements to supply and demand, most politicians in Washington were sure that speculation was the culprit. The U.S. public became incensed.

The year was 1958, the commodity in question onions. Congress held long and sometimes tumultuous hearings in which Everette Harris, then president of the Chicago Mercantile Exchange, tried to convince lawmakers that the futures market for onions was not the cause of the volatility.

“We merely furnish the hall for trading . . . we are like a thermometer, which registers temperatures,” Mr. Harris told a hearing. “You would not want to pass a law against thermometers just because we had a short spell of zero weather.” But such arguments were ignored and in August of that year the Onion Futures Act was passed, banning futures trading in the commodity.

Exhibit A: Notice in the top chart above that the price volatility for onions looks greater AFTER futures trading was banned than it was before.

Exhibit B: The same patterns exists for the second chart of wheat futures - there was greater price volatility WITHOUT futures trading than with futures.

Exhibit C: Research by Lehman Brothers shows that prices for metals that are not traded in exchanges, such as chromium, molybdenum or steel, have risen faster than prices for metals traded in exchanges, such as copper or aluminium (see bottom chart above). In addition, some of the commodities markets in which pension funds hold the largest share of outstanding contracts, such as hogs, have seen price drops.

Source: Financial Times

What Do the Repo Business and Adult Web Site Business Have in Common? They're Both Booming

DETROIT NEWS --Fueled by an overvalued housing market and a spigot of easy credit, people overextended themselves on luxury items like automobiles, boats, Jet Skis and the like. If Jones got a Hummer, you got a Hummer. If Smith got a Corvette, you got a Cadillac. Now the punch bowl has gone empty and the bill for the good times has come due.

There are now more than 250 repossession companies across Michigan and scores of fly-by-night freelancers with pickups and crowbars prowling the streets from sundown to sunup looking for that Escalade in arrears.

Look at the numbers: Nationwide, auto loan defaults are up 22 percent since 2000 and auto repossessions are up 33 percent, topping 1.65 million in 2007. Some analysts believe we may be driving toward a foreclosure meltdown on rims.

Another industry doing well recently? Adult web sites, stimulated by the stimulus checks. Thanks to Division of Labour for the pointer.

McCain's Chances: From 42% to 31% in 38 Days

McCain's chances to become president are sinking on Intrade.com (last 38 days shown above).

Johan Norberg Exposes Klein's "Shlock Doctrine"

From "The Klein Doctrine: The Rise of Disaster Polemics," by Johan Norberg, Senior Fellow at the Cato Institute

Executive Summary: Naomi Klein’s The Shock Doctrine purports to be an exposé of the ruthless nature of free-market capitalism and its chief recent exponent, Milton Friedman (click arrow above to watch video). Klein argues that capitalism goes hand in hand with dictatorship and brutality and that dictators and other unscrupulous political figures take advantage of “shocks”—catastrophes real or manufactured—to consolidate their power and implement unpopular market reforms. Klein cites Chile under General Augusto Pinochet, Britain under Margaret Thatcher, China during the Tiananmen Square crisis, and the ongoing war in Iraq as examples of this process.

Klein’s analysis is hopelessly flawed at virtually every level. Friedman’s own words reveal him to be an advocate of peace, democracy, and individual rights. He argued that gradual economic reforms were often preferable to swift ones and that the public should be fully informed about them, the better to prepare themselves in advance. Further, Friedman condemned the Pinochet regime and opposed the war in Iraq.

Klein’s historical examples also fall apart under scrutiny. For example, Klein alleges that the Tiananmen Square crackdown was intended to crush opposition to pro-market reforms, when in fact it caused liberalization to stall for years. She also argues that Thatcher used the Falklands War as cover for her unpopular economic policies, when actually those economic policies and their results enjoyed strong public support.

Klein’s broader empirical claims fare no better. Surveys of political and economic freedom reveal that the less politically free regimes tend to resist market liberalization, while those states with greater political freedom tend to pursue economic freedom as well.

Watch another video segment here.

Sure, Gas Prices Are High Now, But You Might Get It All Back When You Retire, Or Maybe Not?

1-Year Return: DJ Commodity Index vs. DJIA

WASHINGTON POST -- Soaring fuel prices that are burning a hole in the wallets of consumers are not only benefiting oil companies and Middle Eastern producers. They are also lighting up the investment returns of pensions funds, which millions of ordinary Americans are counting on for their retirement (see chart above that compares the +40% return over the last year for the Dow Jones Commodity Index to the -20% annual return for the Dow Jones stocks).

California's public employees' pension fund, the world's largest, made its first investment of $1.1 billion into oil and other commodities early last year, and since then, Calpers has seen it soar 68%. Fairfax County pension managers have enjoyed a 61% return from a similar move over the past 12 months, far outpacing any other segment of the fund's portfolio.

Other pension funds are rushing to get in on the action as the prices of oil, precious metals, corn, uranium and other vital goods continue to reach record highs. Montgomery County officials are in the process of shifting 5% of their $2.7 billion pension fund away from stocks and into commodities.

These funds are part of a tidal wave of investment dollars that has flooded commodity markets in recent years and, critics say, contributed to the run-up in prices.

Investors, including pension funds and Wall Street speculators, have sharply increased their commodity allocations since 2003, from $13 billion to $260 billion, making financial actors an even larger force on these markets than farmers, airlines, trucking firms and companies that buy and sell the physical goods to run their businesses.

For decades, trading commodity contracts was considered taboo by most pension funds because the market is so volatile and risky. Most fund managers relied on their stock and bond investments to enlarge their pools of retirement money.

That changed after the stock market crashed in 2001. Fund managers realized they needed more diversified portfolios that would perform well regardless of whether stocks did. At the same time, new financial products simplified trading by allowing big funds to buy into commodity indexes, which work like mutual funds, that were run by Wall Street firms.

MP: Sure, you're paying higher prices at the pump today, but you might get it all back when you retire, since record-high commodity prices might significantly boost the return on your retirement portfolio?

Well maybe not, see this Boston Globe story "Investors' Anxiety Builds as Retirement Nest Eggs Show Cracks."

HT: Ben Cunningham

Texas Economy Booms: +238,700 Jobs in Last Year

Fort Worth (TX) Star Telegram -- From Main Street to Wall Street, the economic news gets more depressing every day, but things could be worse: You could be living outside of Texas.

Last week, the government reported that the U.S. economy lost 62,000 jobs in June, the sixth consecutive monthly decline. Texas, meanwhile, keeps purring along (see chart above). The economy is slowing, to be sure, and corporate layoffs are rising, but the state remains in positive territory by most measures. Even construction employment, down 5.2% nationwide in the past year, was up 3.6% here.

MP: Texas employment has increased in 56 out of the last 60 months, and has increased by +238,700 jobs over the last 12 months, compared to only a +77,000 net increase in jobs nationwide since May 2007. The chart above shows that overall U.S. employment is up by about 5% since 2000, while Texas employment has increased by 13.5% during the same period (1.26 million new jobs).

Credit three factors for Texas’ (relatively) good fortune:

1. The housing market has held up better than in much of the country, and as a result, consumer confidence hasn’t crashed to the same depths. That’s one explanation for why retail sales rose 5.6% in Texas in the past year, at least three times higher than nationwide.

2. The energy industry is booming, riding the wave of sky-high oil and gas prices. That’s producing scores of new jobs in Texas and abroad, and bonus checks for landowners. The Texas rig count reached 931 in June, the highest level since 1984.

3. Texas exports are on a tear, helped by the falling dollar and strong demand for chemicals. The currency drop has helped boost exports nationwide, but Texas exports grew 7.2% in April, compared with a 3.3% increase for the nation.

Foreign-Owned Assets in U.S. Top $20 Trillion

According to data just released by the BEA on the "U.S. Net International Investment Position at Yearend 2007," foreign-owned assets in the United States increased $3,474 billion in 2007 to $20,081 billion (see top chart above), representing the largest-ever annual dollar increase, and the largest percentage increase in 20 years (see bottom chart above) for foreign investment in the U.S.

From the highlights:

Foreign private holdings of U.S. securities (other than U.S. Treasury securities) increased $760 billion to $6.1 trillion. Foreign holdings of U.S. bonds increased to $3.3 trillion mostly as a result of net foreign purchases, and foreign holdings of U.S. stocks increased to $2.8 trillion as a result of both net foreign purchases and price appreciation.

The stock of foreign direct investment in the United States increased $271 billion to $2.42 trillion.

Bottom Line: Despite subprime mortgage and credit problems, a weak economy and real estate market, foreign investors expressed their continued confidence in the U.S. economy, by buying our stocks and bonds, and investing billions of dollars in American companies.

How Are We Doing? Pretty Good Actually!

The American economy is in a rough patch. But the long-term trends are good—and there is a price to economic pessimism.

When a presidential election year collides with iffy economic times, the public’s view of the U.S. economy turns gloomy. Perspective shrinks in favor of short-term assessments that focus on such unpleasant realities as falling job counts, sluggish GDP growth, uncertain incomes, rising oil and food prices, subprime mortgage woes, and wobbly financial markets.

Taken together, it’s enough to shake our faith in American progress. The best path to reviving that faith lies in gaining some perspective— getting out of the short-term rut, casting off the blinders that focus us on what will turn out to be mere footnotes in a longer-term march of progress. Once we do that, we see the U.S. economy, a $14 trillion behemoth, is doing quite well, thank you very much.

So many data points add up to steady, continuing progress for average Americans—and there’s no reason not to expect the future will bring further progress (see examples in the charts above). Bad news will pop up from time to time, just as it has in every decade of American history. Some people will take the negatives—the hiccups on the long road to progress—for harbingers of worse times to come.

W. Michael Cox and Richard Alm of the Federal Reserve Bank of Dallas answer the question "How Are We Doing?" The answer is "pretty good."

Wal-Mart Gets 6 Applications for Every Job

TAMPA, FL -- The temporary Wal-Mart Hiring Center had more than 2,000 jobseekers hoping to fill its 350 open positions in time for the new Supercenter's opening in August, according to one of the new Supercenter's co-managers.

MP: When it gets 6 applicants for every job, doesn't that mean Wal-Mart's wages are too high, or at least competitive? That is, Wal-Mart could obviously lower wages and still have thousands, or at least hundreds of applications, and fill its positions. WakeUp Wal-Mart has a lot of complaints about Wal-Mart's wages and compensation, but the 2,000 Florida residents applying to work at Wal-Mart seem to welcome the job opportunities available there.

In a previous CD post, I suggested that Wal-Mart was more selective than Harvard University.

Africa: The Last Big Investment Frontier?

Washington Post -- Psssst. Have I got a great stock tip for you: Now's the time to buy shares on the Nigerian Stock Exchange. No, really.

I know that may sound like an e-mail from the spam box, but it's actually good investment advice. While U.S. markets have been struggling with the effects of the subprime mortgage debacle and threats of a looming recession, the total value of the stocks traded on the Nigerian Stock Exchange has doubled over the past year (see chart above of Nigeria's stock market index vs. the US).

Investment gurus at Goldman Sachs named Nigeria as one of the top emerging markets to watch, and in recent years, Africa has offered the world's highest rate of return, according to United Nations trade figures. And yet the continent would be far down most people's list of investment destinations, with China and India probably at the top. But while we look to invest in China, the Chinese are looking to Africa, where new roads, ports, bridges -- the infrastructure the continent so desperately needs -- are springing up everywhere, thanks to Chinese investment.

What the Chinese want in Africa is what we all want -- the continent's abundance of natural resources, including oil and nearly every strategic mineral that we need for our daily life. Africa recently overtook the Middle East in exporting oil to the United States. Who knows how long Africa's current bull run will last? But one thing is certain: Africa's the last big investment frontier. If you missed China and India, don't miss this one.