Saturday, November 30, 2013

Nice graphic showing Top 10 States that are recipients of Farm Subsidies and SNAP (aka Food Stamps) benefits. Shows how one political party speaks out of both side sides its ideological mouth.

A terrific graphic from the WSJ showing the recipients of Farm Subsidies and SNAP (formerly known as Food Stamps) benefits by State and Presidential candidate from the 2012 election (this suggests the overall political leanings of the State).  Both programs are funded within the context of the Farm Bill passed by Congress every 5 years and it is administered by the US Dept of Agriculture.

Focus on the "Top 10" in each category.  Notice that States in RED, indicating Republican leaning States, are heavily represented in the Top 10 of BOTH programs.  There is nothing notable about the farm subsidies and the States they go to BUT what observation can you make about SNAP subsidies in the form of food assistance?  Interestingly enough, THOSE States lean Republican as well.

The article that accompanies this graphic points out that these States don't have large urban areas and really illustrates the level of rural poverty that exists in the US.

Source: Wall Street Journal

"We lose money on every sale, but make up for it in volume"---See chart here that shows profit margins of major retailers during the holiday season vs the rest of the year...

Are Black Friday "deals" just an illusion or is there something else going on?

Here is a chart I found at Bloomberg.  It shows various major retailers (horizontal axis) and 2012 "Operating Profit Margin (OPM)" for those retailers.  Here is link to a very short and very helpful video that explains Operating Profit Margin.  In a nutshell, it is what is left over from revenues to pay taxes, interest on debt and other fixed costs AFTER all variable costs (wages, cost of the goods sold, etc) are paid.
 For example, look at the Walmart.  For the first 9 months of the year (bar with cross hatches) its OPM was a little bit below 6%--lets call it 5.8%.  This means that Walmart paid 94.2% of its Net Revenues in operating costs and has 5.8% left over to pay taxes, interest on debt and other fixed costs it incurred.

In last quarter of 2012 is OPM was OVER 6%, lets call it 6.8% (the solid BLACK bar).  So, Walmart had a HIGHER OPM during the Christmas season than during the rest of the year! It is the law of averages, I guess.  

Throughout the year it is "Every Low Prices" but during the holiday they can obscure the pricing landscape with blowout prices on some things then higher average prices ("regular prices) on complementary or select other goods.

Use this analysis to view the other retailers pricing scheme during this selling season.

Home Depot and Lowes are the only ones who have a lower OPM during the last quarter compared to the rest of the year.

All the others seem to conform to the humorous observation often made regarding retail...

"We lose money on every sale, but make it up in volume".

At least that is what we are lead to believe.

Friday, November 29, 2013

What companies comprise "The Dow" and how they have changed over time. I see Creative Destruction, globalization and division of labor. What do you see?

On the nightly news (and throughout the day on cable new stations, i.e. CNN, Fox Business, CNBC) there are  updates as to how the stock market is faring.  The most quoted measure is the Dow Jones Industrial Average (DJIA). It is also referred to as "The Dow".

What most people don't know it that this oft quoted measure comes from the performance of 30 companies. Yes, that is right, just 30.  They are generally regarded as bellwether companies that represent a large/dominant presence in their particular market sector.

This graphic below (from HERE) illustrates how the composition of the DJIA has changed over time.  Because of the shifting nature of economic due to the forces of Creative Destruction the companies that make up the Dow change as well.

Note differences from the the first column to the third.  The list on the left is heavy on mineral extraction and manufacturing.  The list on the right still has some of that but there is clearly a shift to soft manufacturing (pharma, healthcare), technology and retail. Finance/Banking/Insurance is present today where there was none in the early days.

Another observation.  The companies on the left were much more vertically integrated. Meaning they owned more of the supply chain from beginning to end (inputs to outputs). They relied less on the cooperation of others to produce their product.  The companies on the right  depend more on a globalized supply chain of outsourced and/or off-shored inputs to produce their outputs.

Source: The Conversable Economist

Wednesday, November 27, 2013

The producers of Sriracha Hot Sauce are in some Hot Water. The sauce produces a foul odor. No, it is not what you think...

Apparently the production of Sriracha Hot Sauce is imposing a non-monetary cost on the residents of the nearby factory:

Sriracha hot sauce factory production partially halted (From BBC)

""A California judge has temporarily curbed production of the popular Sriracha Asian-style hot sauce after residents of a Los Angeles suburb complained of the factory's odour.
The fumes emitted from Huy Fong Foods' factory in Irwindale are "extremely annoying, irritating and offensive to the senses", Judge Robert O'Brien said.""
In the Social Welfare unit of Microeconomics we learn how some costs, whether they be monetary or non-monetary, are imposed on parties not directly involved in a transaction between sellers (producers) and buyers.  These costs are external to the actual production of the good and are not captured in the cost of producing the good. If the producer was absorbing, or "internalizing" the cost of the nuisance, then the cost of producing Sriracha sauce would be higher.  The producer would either have to pass on the cost to the consumer with a higher price or reduce the quantity supplied at the market price.

The producer could be forced to internalize the smelly cost imposed on nearby residents:
(1) by installing scrubbing or filtering equipment to clean the refuse before it leaves the factory
(1) with a lump sum fine by the government.
(2) with a per unit tax levied by the government on each unit of production of the sauce.
(3) by paying the residents of the neighborhood a fair market value for their willingness to put up with the bad smell.

The trick is to make sure the method of internalizing the cost is equal to the cost of the externality itself.  If not then there is some social welfare lost to society.

Tuesday, November 26, 2013

Nice Map showing the intensity of economic activity in the US. The Good, The Bad and The Ugly.

Business Insider has a terrific map giving a quick, albeit shallow, geographic overview of the US economy. Green means hot economic activity, yellow average and red, well, not so good.

economics map
Source: Business Insider

Monday, November 25, 2013

Who is going to pay for the ACA ("Obamacare")? Nice graph here showing the age group that the Act is depending on to finance it. Is that a middle finger I see from you 27 year olds?

This is courtesy of the US Census.  It shows the percentage (vertical axis) of uninsured by age group (horizontal axis).  A couple of observations.

(1) the middle blue bar that shoots up over the rest represents a portion of 27 year olds who likely lost their parental coverage.  In 2010 one of the first parts of the Affordable Care Act (ACA---"Obamacare") to kick in was the requirement that a dependent child could stay on the parents insurance until age 26.  Booted off after that.

(2) the whole age group represented by the blue bars represents what is termed "The Invincibles--- Young people who have relatively few health issues and forgo purchasing health insurance because they believe the costs outweigh the benefits.  THIS is the group that the financial success of the ACA is dependent upon and the individual mandate is primarily aimed at this demographic ( I don't THINK that is in dispute).  They are going to either purchase coverage OR pay the penalty (or Tax, if you will).  Their contribution will go towards subsidizing the health care of those on the right AND left of the distribution.

Note: I added the YELLOW highlighted area as "spillover" Invincibles up to the age of 40.  Notice the drop off after 40....Guess it is time to get real for those folks!! :)

How has the "Nominal" and "Real" price of a Thanksgiving Meal changed over time? I am glad you asked. See the answer here...

Here is a handy-dandy topic you can use on Thanksgiving Day when you run out things to say to your relatives.

The American Farm Bureau has released its annual update as to the cost of a Thanksgiving meal.

Here are the items in the market basket for the "average meal" on the Big Day (not inclusive of EVERYTHING we might have for dinner) and the price change from last year to this year.  This is an informal survey of prices nationally and they certainly will vary from region to region, urban to rural, etc.

Source: American Farm Bureau
Of course there HAS to be a deeper economic lesson and I am happy to provide that for you.

This graph shows, over time, the nominal price of the ingredients (just the prices in the particular year measured) in GOLD and the inflation adjusted prices in BLUE/GREEN.

The BLUE line is relatively flat, at least since post-1990, and hugs the $20.00 level.  This suggests that the "Real Cost" of a Thanksgiving meal has not change that much in 20+ years.  Only recently has it remained over $20 in real terms for consecutive years.  On an inflation adjusted basis we have enjoyed a relatively price stable Thanksgiving feast.
Source: American Farm Bureau
 Here is a chart with the nominal prices since 1986.

Source: American Farm Bureau
Here is a link specific to Texas. A nice graphic there as well...

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