The Wombat’s Blog

Understanding the Stock Market0

The Stock Market is currently going through some significant hickups. I don’t quite understand why … started with something in China, dropped a little here, then bounced back, until the government decided to go after some subprime lenders, and on and on it goes. It has little to do with performance of any one company, it’s like a whole ocean shifted. Every day there’s a full page article stating that it went up or down because of X or Y.

Of course we always get the results afterwards, how do you prepare for that.

Professional Investors will say “Fundamentals,” but that would apply reason to this market, and I don’t have any sign that this is reasonable. Reasons would be predictable laws, rules that everybody is playing by. But if people are playing with a different set of rules from your, your fundamentals won’t get you anywhere. Maybe the stockmarket is really more about sociology rather than economics, emotions rather than understanding, luck rather than prediction.
The attached article may serve as an illustration. I’m not quoting the whole thing, just a couple of statements. I like the:

“The fundamentals don’t matter. What ultimately does matter is what the Fed is likely to do,” he said.

“It’s an emotional, sentiment-driven market. Anxiety is driving the market. It’s hard to come to any conclusion that the fundamental value of the market is changed from three to four weeks ago.”

I read somewhere a long time ago that Steve Wozniak, the Apple Founder, long ago got out of the stockmarket and just invested in guaranteed rates of return. Don’t know if I believe that, but with the money he made, he should make plenty even at 2% a year. For the rest of us knowing that our retirement is swept along on a giant wave of mass hysteria, it’s a bumpy ride.
(Original found here.)

Stocks Slump as Hopes for Rate Cut Fall
By TIM PARADIS
AP Business Writer
Published March 16, 2007, 11:16 PM CDT

NEW YORK — Wall Street slumped Friday after another reading on inflation deflated hopes the Federal Reserve will start moving toward an interest rate cut when it meets next week. The major indexes suffered moderate losses for the week.

The inflation reading was the second in as many days that upended expectations that the Fed might consider lowering rates as the economy gives off signs of slowing. The sentiment overshadowed a stronger-than-expected increase in industrial production.

“The market is dealing with the softer economic data that we’re seeing and trying to reconcile that with the somewhat stiff inflation data,” said Marie Schofield, fixed income strategist and portfolio manager at Columbia Management Group.

…

Inflation concerns remained entrenched on Wall Street Friday. The Labor Department’s report that its Consumer Price Index rose by 0.4 percent in February renewed some of the concerns that dogged stocks on Thursday. Wall Street had expected an increase of 0.3 percent. The rise was double that of January and the largest rise since a similar increase in December. Rising costs for gasoline, food and citrus crops helped boost prices.

However, the important core figure, which excludes often volatile food and energy prices, didn’t surprise Wall Street. It rose 0.2 percent as expected.

The Federal Reserve reported industrial production increased 1 percent in February, well above the 0.3 percent increase analysts expected.

The consumer inflation figures came one day after a key measure of inflation at the wholesale level took Wall Street by surprise with a higher-than-expected reading. Wall Street overcame the unwelcome Producer Price Index reading Thursday to move moderately higher as it focused on further corporate takeover news.

The inflation readings draw Wall Street’s attention because investors are concerned that higher prices will make it harder for the Fed to justify a reduction in short-term interest rates, even if such a move could help stave off a further slowdown in the economy. The latest inflation readings carry particular significance as the Fed begins a two-day meeting on Tuesday. The central bank has left interest rates unchanged at its last five meetings, interrupting a string of 17 straight increases that began in 2004.

Joe Balestrino, a portfolio manager at Federated Investors Inc., contends investors are viewing economic data through the eyes of the Fed and not as much for what it says about the economy.

“The fundamentals don’t matter. What ultimately does matter is what the Fed is likely to do,” he said.

“It’s an emotional, sentiment-driven market. Anxiety is driving the market. It’s hard to come to any conclusion that the fundamental value of the market is changed from three to four weeks ago.”

Sentiment took a jarring nosedive on Feb. 27 when a worldwide selloff raced through the markets and sent the Dow industrials down 416 points that day. Since then Wall Street has been trying to regain its footing and ascertain whether stocks had found a new bottom.

…

Posted: social/culture, personal finance

Capitalism Is Like Socialism0

Let’s ignore the precise definitions of those terms, but with the recent Dow Jones stock dump on Tuesday, I had a curious thought. We’re always advised to invest in a balanced portfolio so that events like Tuesday’s don’t impact us. But investing in a balanced portfolio is kind of like a getting vaccinated for the Flu. The social part isn’t getting yourself protected, the social part is you preventing the transmission of the flu.

Now if I have a balanced portfolio that won’t drop much, then I don’t need to panic. If everybody else does the same, then nobody panics and this will quickly relevel.

So in fact the stockbrokers with their balanced approach are reengineering society as a whole to keep things running smooth.

This has nothing to do with survival of the fittest, because that would mean, act fast, get out of there while it’s still high, then get back in when it has dropped to its minimum. Let the others be the suckers.
In fact, there’s also the Kennedy quote, “A Rising Tide Lift All Boats.” Well, as long as you have a boat that’s true. But the assumption is, I do well, so everybody does well. That’s the stockmarket, though in the stockmarket some boats certainly float higher than others.

Posted: social/culture, personal finance

Not Becoming Self-Sufficient0

1 in 6 people rely on welfare. The government has been engineering the fix.

So is the economy doing better or worse? Are people doing better or worse?

(Original found here.)

Welfare State Growing Despite Overhauls
(1 in 6 People Rely on Welfare)
BY STEPHEN OHLEMACHER
ASSOCIATED PRESS WRITER
Feb 26, 2007

The welfare state is bigger than ever despite a decade of policies designed to wean poor people from public aid. The number of families receiving cash benefits from welfare has plummeted since the government imposed time limits on the payments a decade ago. But other programs for the poor, including Medicaid, food stamps and disability benefits, are bursting with new enrollees.

The result, according to an Associated Press analysis: Nearly one in six people rely on some form of public assistance, a larger share than at any time since the government started measuring two decades ago.

Critics of the welfare overhaul say the numbers offer fresh evidence that few former recipients have become self-sufficient, even though millions have moved from welfare to work. They say the vast majority have been forced into low-paying jobs without benefits and few opportunities to advance.

“If the goal of welfare reform was to get people off the welfare rolls, bravo,” said Vivyan Adair, a former welfare recipient who is now an assistant professor of women’s studies at Hamilton College in upstate New York. “If the goal was to reduce poverty and give people economic and job stability, it was not a success.”

Proponents of the changes in welfare say programs that once discouraged work now offer support to people in low-paying jobs. They point to expanded eligibility rules for food stamps and Medicaid, the health insurance program for the poor, that enable people to keep getting benefits even after they start working.

“I don’t have any problems with those programs growing, and indeed, they were intended to grow,” said Ron Haskins, a former adviser to President Bush on welfare policy.

“We’ve taken the step of getting way more people into the labor force and they have taken a huge step toward self-sufficiency. What is the other choice?” he asked.

In the early 1990s, critics contended the welfare system encouraged unemployment and promoted single-parent families. Welfare recipients, mostly single mothers, could lose benefits if they earned too much money or if they lived with the father of their children.

Major changes in welfare were enacted in 1996, requiring most recipients to work but allowing them to continue some benefits after they started jobs. The law imposed a five-year limit on cash payments for most people in the Temporary Assistance for Needy Families program, or TANF. Some states have shorter time limits.

Nia Foster fits the pattern of dependence on government programs. She stopped getting cash welfare payments in the late 1990s and has moved from one clerical job to another. None provided medical benefits.

The 32-year-old mother of two from Cincinnati said she supports her family with help from food stamps and Medicaid.

Foster said she did not get any job training when she left welfare. She earned her high-school equivalency last year at a community college.

“If you want to get educated or want to succeed, the welfare office don’t care,” Foster said. “I don’t think they really care what you do once the benefits are gone.”

Foster now works in a tax office, a seasonal job that will end after April 15. She hopes to enroll at the University of Cincinnati this spring and would like to study accounting. She is waiting to find out if she qualifies for enough financial aid to cover tuition.

“I like data processing, something where it’s a bunch of invoices and you have to key them in,” Foster said. “I want to be an accountant so bad.”

Shannon Stanfield took a different, less-traveled path from welfare, thanks to a generous program that offered her a chance to get a college education.

Stanfield, 36, was cleaning houses to support her two young children four years ago when she learned about a program for welfare recipients at nearby Hamilton College, a private liberal arts school in Clinton, N.Y.

“At the time I was living in a pretty run-down apartment,” said Stanfield, who was getting welfare payments, Medicaid and food stamps. “It wasn’t healthy.”

The program, called the Access Project, accepts about 25 welfare-eligible parents a year. Hamilton waives tuition for first-year students and the program supplements financial aid in later years. Students get a host of social and career services, including help finding internships and jobs and financial assistance in times of crisis.

About 140 former welfare recipients have completed the program and none still relies on government programs for the poor, said Adair, the Hamilton professor who started the Access Project in 2001.

Stanfield, who still gets Medicaid and food stamps, plans to graduate in May with a bachelor’s degree in theater. She wants to be a teacher.

“I slowly built up my confidence through education,” Stanfield said. “I can’t honestly tell you how much it has changed my life.”

Programs such as the Access Project are not cheap, which is one reason they are rare. Tuition and fees run about $35,000 a year at Hamilton, and the program’s annual budget is between $250,000 and $500,000, Adair said.

In 2005, about 5.1 million people received monthly welfare payments from TANF and similar state programs, a 60 percent drop from a decade before.

But other government programs grew, offsetting the declines.

About 44 million people - nearly one in six in the country - relied on government services for the poor in 2003, according to the most recent statistics compiled by the Census Bureau. That compares with about 39 million in 1996.

Also, the number of people getting government aid continues to increase, according to more recent enrollment figures from individual programs.

Medicaid rolls alone topped 45 million people in 2005, pushed up in part by rising health care costs and fewer employers offering benefits. Nearly 26 million people a month received food stamps that year.

Cash welfare recipients, by comparison, peaked at 14.2 million people in 1994.

There is much debate over whether those leaving welfare for work should be offered more opportunities for training and education, so they do not have to settle for low-paying jobs that keep them dependent on government programs.

“We said get a job, any job,” said Rep. Jim McDermott, chairman of the House subcommittee that oversees welfare issues. “And now we expect them to be making it on these minimum-wage jobs.”

McDermott, D-Wash., said stricter work requirements enacted last year, when Congress renewed the welfare overhaul law, will make it even more difficult for welfare recipients to get sufficient training to land good-paying jobs.

But people who support the welfare changes say former recipients often fare better economically if they start working, even in low-paying jobs, before entering education programs.

“What many people on TANF need first is the confidence that they can succeed in the workplace and to develop the habits of work,” said Wade Horn, the Bush administration’s point man on welfare overhaul.

“Also, many TANF recipients didn’t have a lot of success in the classroom,” Horn said. “If you want to improve the confidence of a TANF recipient, putting them in the classroom, where they failed in the past, that is not likely to increase their confidence.”

Horn noted that employment among poor single mothers is up and child poverty rates are down since the welfare changes in 1996, though the numbers have worsened since the start of the decade.

Horn, however, said he would like to see local welfare agencies provide more education and training to people who have already moved from welfare to work.

“I think more attention has to be paid to helping those families move up the income scale, increasing their independence of other government welfare programs,” Horn said.

“The true goal of welfare to work programs should be self-sufficiency.”

Posted: social/culture, politics, personal finance

Macro vs Microeconomic Views0

So is the economy doing well, or not? The stock market seems to be doing ok, but the people seem to be doing less ok. Republicans say things are good, Democrats say things are not so good. Who wins this war of perception? And what’s important for an economy to be successful?
(Original found here.)

Bush, Democrats paint contrasting views of economy in lead-up to 2008 races
By Tom Raum
ASSOCIATED PRESS

11:45 a.m. February 1, 2007

WASHINGTON – The booming economy that President Bush paints is a far cry from the worrisome one increasingly portrayed by Democratic presidential candidates and party leaders.

To them, there are worker insecurities, stagnant wage growth and soaring costs for health care and college.

The vision of rival economies already is a main issue for the 2008 presidential and congressional races. Economists say both sides are right – and wrong. It just depends on what numbers you summon.

Bush is trying to nudge the national focus away from Iraq and is offering a rosy picture of the economy ahead of his presentation Monday of a financial blueprint he says will lead to a balanced budget by 2012.

Congressional Democrats have embraced the same timetable. The course the rival camps chart to get there is bound to be the domestic-policy battle royal of the current congressional session.

“Workers are making more money. Their paychecks are going further. Consumers are confident. Investors are optimistic,” Bush said in a speech Wednesday at Federal Hall on Wall Street. It was his second on the economy in as many days.

“I’m not surprised that some of the good economic news is overshadowed by the difficult news out of Iraq,” Bush told Fox News later Wednesday.

The president credits his first-term tax cuts for much of the upbeat news, ignoring the $10 billion-a-month drain on the government’s balance sheets from the unpopular war in Iraq and military actions in Afghanistan and elsewhere to fight terrorism.

Bolstering Bush’s outlook was a new Commerce Department report showing that the economy gained speed in the final three months of 2006. The economy grew at an annual rate of 3.6 percent, much faster than the 2 percent increase of the previous three months.

Stocks soared after that report and after the Federal Reserve’s decision to leave interest rates steady.

But hold on.

Here comes this from Sen. John Edwards of North Carolina, reprising the “two Americas” rich-poor divide he depicted in 2004 as a presidential and vice presidential candidate: “We cannot stand by and watch 37 million people wake up and not know how to feed and clothe their children.”

Other Democratic presidential hopefuls are echoing the theme.

Also, freshman Sen. James Webb, D-Va., built on it when he gave his party’s response to Bush’s State of the Union address last month. “It’s almost as if we are living in two different countries,” Webb said.

To William Galston, a domestic policy adviser in the Clinton administration who now is the Brookings Institution, “We have the president’s story of the economic aggregates and we have Jim Webb’s story of economic anxiety and inequality.

“That tale of two economies will be argued out, not only between the parties but within the parties,” he said.

The Democratic contenders are not shy about weighing in.

“There’s something wrong when you have more bankruptcies in America last year than college graduates,” Sen. Hillary Clinton of New York said in Iowa.

A 2008 rival, Sen. Barack Obama of Illinois, said, “Our economy is changing rapidly, and that means profound changes for working people.” He cited “skyrocketing health care bills,” lost pensions and struggles to pay for college.

The cutback in building has led to thousands of layoffs in the construction industry, Democrats note.

Such observations conflict with the glowing picture Bush and his aides present of a vibrant economy humming along at near-full employment.

“They’ve both got a point, and they’re both trying to make their case” said Mark Zandi, chief economist at Moody’s Economy.com.

“The president is right. The economy in aggregate is performing very well. So he’s right to claim that the economy, looking from above, looks very good,” Zandi said. “Democrats are also right. The fruits of this strong economy have largely accrued to higher income wealthier households.”

The multifaceted state of the economy was reflected in a mixed bag of government economic reports issued Thursday.

The Commerce Department reported that people spent more than they made last year, resulting in a negative 1 percent personal savings rate – the lowest since the Great Depression. Meanwhile, the Labor Department reported a 20,000 drop in claims by newly laid off workers for unemployment benefits, a sign of a healthy labor market.

David Wyss, chief economist at Standard & Poor’s in New York, said that “any rational way you look at this, the economy is doing pretty decently. You’ve got a 4.5 percent unemployment rate, productivity growth is solid. And inflation is by historical standards pretty reasonable.”

Still, Wyss said, “We’ve got a couple of big problems out there, and some long-term imbalances. The top 20 percent is doing fairly well and the bottom 20 percent is doing better. If there’s a hole, it’s in the middle, which frankly are those old blue-collar jobs that the Democrats say are leaving the country. And they’re right.”

The president’s approval on handling the economy was at 43 percent in early January’s AP-Ipsos poll, up from December and higher than his overall job approval of 36 percent. The economy, along with Iraq, terrorism and health care are all seen as important issues by the public.

The White House and Democrats battled with dueling economic “fact sheets.”

The Democratic headlines: worst job recovery on record; manufacturing jobs continue to disappear at historical levels; share of national income going to wages and salaries see record lows; household income declined by nearly $1,300 under Bush.

On the White House list: The economy has created more than 7.2 million jobs since August 2003; the unemployment rate was 4.5 percent in December; real wages rose 1.7 percent during 2006; real after-tax personal income per person has increased over $2,800 – or 9.6 percent – during this administration.

The president did concede a point to Democratic rhetoric on Wednesday.

After Webb emphasized the growing and yawning gulf between salaries of chief executive officers and rank-and-file workers in his Jan. 23 Democratic response, Bush took aim at lavish salaries and bonuses for corporate executives. Corporate boards should “step up to their responsibilities” and tie compensation packages to performance, he said in his Wall Street speech.

EDITOR’S NOTE - Tom Raum has covered Washington for The Associated Press since 1973, including five presidencies. 

Posted: politics, personal finance

We’re Saving Negative 1 Percent0

Not good news, but not a surprise. Savings really isn’t officially encouraged, because it’s counter capitalism. Whatever you don’t spend does not raise profits for somebody else, etc. Yes, what will happen when 78 million baby boomers will retire without adequate savings?

Kind of strange that even a negative number is still considered a savings number, a -1% savings rate. Instead of saying that everybody on average is taking out more than they’re putting in, meaning that on average every single person will be in trouble … So by the law of averages, if one guy saves $1, another loses $1.01. But it’s more likely that if a rich guy saves $1000, 1000 people must lose $1.01 each. If he saves $1 mio, 1000 people must lose $1010 each. If he saves a billion … So what is the correct cash flow distribution here?

This is much more serious. We’re not just concerned about 1% of your income …
(Original found here.)

U.S. savings level lowest since Depression
February 2, 2007
BY MARTIN CRUTSINGER

People are saving at the lowest level since the Great Depression, and that could be a problem for the millions of baby boomers getting ready to retire.

In fact, the Commerce Department reported Thursday that the nation’s personal savings rate for all of 2006 was a negative 1 percent, the worst showing in 73 years.

The savings rate is computed by taking the amount of income left after taxes are paid and subtracting the amount people spend. The fact the rate is negative means people are spending all of the money they have left after paying taxes — and then some. They are dipping into savings or increasing their borrowing to finance current spending.

The 1 percent negative savings rate in 2006 followed a 0.4 percent negative rate in 2005. There have been only four years in history that the savings rate has fallen into negative territory. The other two were 1932 and 1933 during the Great Depression.

During the Depression, when as many as one in four people were out of work, households were exhausting savings in order to pay the rent and buy food.

Last year’s negative rate was attributed not to a lack of jobs but to good economic developments — including low interest rates that made it attractive to borrow money to make purchases and also to refinance home loans.

“We have to have things,” said Nancy Harvin, 44, of Washington, who said she struggles with saving.

Scott Cooke, 48, said he was starting an interior design business in the Washington area and didn’t have the resources to save. ‘’I'm living from check to check,'’ he said.

Surveys indicate the nation’s spendthrift ways are not likely to change any time soon. More than a third of 2,000 adults questioned recently by the Pew Research Center said they often or sometimes spend more than they can afford.

The young and the poor have the most trouble saving. Some 42 percent of people 18 to 49 said they are likely to spend more than they can afford. Among those with household incomes below $30,000, some 45 percent said the same.

The near-record low savings rate is occurring at a time when 78 million baby boomers are preparing to retire. The oldest of the boomers will turn 62 next year, the first year they will be eligible to collect Social Security.

As the nation’s largest generation retires, that will further depress savings because typically retirees are drawing down their accumulated savings in an effort to make up the difference between the salaries they earned on the job and their smaller Social Security and other pension payments.

Posted: social/culture, personal finance

60 Miles of Money Wasted0

A short side article on the auditors reporting on their findings on Iraq.

Not a total surprise that not all of the money used in the war in Iraq can be accounted for. But perhaps a bit surprising that $10 billion out of $57 billion has been squandered. If I would treat my money the way the government does, I’m sure I would be responsible to someone, not the least the IRS.

Now they didn’t review the whole $350 billion, just a portion of it.  So if you extrapolate, expect $60 billion of have been wasted. I guess that’s not too bad, that’s just $200 for every single citizen in this country.

But how much money is $60 billion. That’s 600 mio $100 bills.  A $100 bill weighs about 1 gram. So $60 billion weight 600 tons, so about 300+ cars. Yeah, but paper has a lower density that steel, so takes up more space than a car. So alternatively, 2000 $100 bills are about 1 ft thick, so this is a stack of money 300,000 ft thick, which is about 57 miles.

So we’ve wasted a 60 mile thick stack of $100 bills and have no idea where that money went. Where did it even come from?
(Original found here.)

Auditors: Billions squandered in Iraq
By HOPE YEN
Associated Press Writer
Thu Feb 15, 6:24 PM ET

About $10 billion has been squandered by the U.S. government on Iraq reconstruction aid because of contractor overcharges and unsupported expenses, and federal investigators warned Thursday that significantly more taxpayer money is at risk.

The three top auditors overseeing work in Iraq told a House committee their review of $57 billion in Iraq contracts found that Defense and State department officials condoned or allowed repeated work delays, bloated expenses and payments for shoddy work or work never done.

More than one in six dollars charged by U.S. contractors were questionable or unsupported, nearly triple the amount of waste the Government Accountability Office estimated last fall.

“There is no accountability,” said David M. Walker, who heads the auditing arm of Congress. “Organizations charged with overseeing contracts are not held accountable. Contractors are not held accountable. The individuals responsible are not held accountable.”

“People should be rewarded when they do a good job. But when things don’t go right, there have to be consequences,” he said.

Also testifying Thursday were Stuart Bowen, the special inspector general for Iraq reconstruction, and William H. Reed, director of the Defense Contract Audit Agency.

The appearance before the House Oversight and Government Reform Committee came as Congress prepares for a showdown with President Bush next month over his budget request of nearly $100 billion for the wars in Iraq and Afghanistan.

So far, the Bush administration has spent more than $350 billion on the Iraq war and reconstruction effort.

The Army, which handles most of the Iraq contracting, said Thursday it had not reviewed the latest contract figures.

“The U.S. Army, along with the Departments of Defense and State, continue to help thousands of Iraqis daily with reconstruction projects to provide them with better lives,” said spokeswoman Mary Ann Hodges. “We look forward to examining its findings and applying some of its recommendations in the future.”

Senate Democrats said recently cited cases of waste were “outrageous rip-offs of the American taxpayer” and introduced legislation Thursday to stiffen punishment for war profiteers and cut down on cronyism in contracting.

According to their testimony, the investigators:

_Found overpricing and waste in Iraq contracts amounting to $4.9 billion since the Defense Contract Audit Agency began its work in 2003. Some of that money has been recovered. An additional $5.1 billion in expenses were charged without proper documentation.

_Pointed to growing Iraqi sectarian violence as a significant factor behind bloated U.S. contracting bills. Iraqi officials, they said, must begin to take primary responsibility for reconstruction efforts. That is an uncertain goal, given the widespread corruption in Iraq and the local government’s inability to fund projects.

_Urged the Pentagon to reconsider its growing reliance on outside contractors in wars and reconstruction efforts. Layers of subcontractors, poor documentation and lack of strong contract management are rampant and promote waste even after the GAO first warned of problems 15 years ago.

Walker complained that GAO investigators have difficulty getting basic detail about reconstruction contracts such as expenses and subcontractors involved because many Pentagon divisions fail to consistently track or fully report them.

“It’s absolutely essential if Congress wants to make an informed decision on authorizations and appropriations that we get this information,” he said. “We’re talking about billions of dollars and thousands of American lives at stake.”

Rep. Henry Waxman (news, bio, voting record), D-Calif., the committee chairman, has pledged scores of investigations of fraud, waste and abuse — with subpoenas if necessary — on the administration’s watch.

Of the $10 billion in overpriced contracts or undocumented costs, more than $2.7 billion were charged by Halliburton Co., the oil-field services company once headed by Vice President Dick Cheney.

Noting that auditors still have $300 billion of Iraq spending to review, Waxman said the total amount of waste, fraud and abuse “could be astronomical.”

“It’s no wonder that taxpayers all across our country are fed up and demanding that we bring real oversight to the ‘anything goes’ world of Iraq reconstruction,” he said.

Rep. Tom Davis, R-Va., the top Republican on the panel, pointed to ongoing, “systemic” problems in Iraq contracting. “This much is clear: Poor security, an arcane, ill-suited management structure, and frequent management changes have produced a succession of troubled acquisitions,” Davis said.

On the Net:
House Oversight and Government Reform Committee:
http://oversight.house.gov
House committee memorandum analyzing Iraq contracting costs:
http://oversight.house.gov/Documents/20070215105317-73621.pdf 

Posted: politics, personal finance

The Business of Sports0

This article seems to focus on scalpers selling superbowl tickets online. My reaction is “who spends $5000+ to spend two hours watching guys carrying a ball and forth.” But sure, the geeks are winning, taking profit away from the people that used to sell tickets outside the stadium. Good for them. But “it’s a once-in-a-lifetime event.” Yes it is. So is today’s weather.
(Original found here.)

Scalpers put Super Bowl Tickets Online
By MATT SEDENSKY Associated Press Writer

MIAMI - Jeff Block is pensive about cashing in his life insurance policy, wistful about putting off his wedding engagement, fearful about making the big purchase.

One thing the 31-year-old financial analyst is sure of: If he comes up with the cash to follow his beloved Chicago Bears to the Super Bowl, he won’t be buying tickets from a traditional scalper. His attention is focused on one of the many online ticket resellers.

The secondhand ticket market has grown up a lot in the last decade, shifting from a business largely conducted by salesmen lurking outside stadiums to one chiefly online, both in simple Craigslist postings and more sophisticated Internet databases.

“The street business has really died,” said Don Vaccaro, who has been selling tickets since 1979 and is the founder and chief executive of Vernon, Conn.-based TicketLiquidator.com. “The old-time brokers are saying, ‘Look, you got a bunch of geeks selling tickets now.’ It’s really a lot more brains going in now.”

There are about 70,000 seats at the Feb. 4 game, but ticket distribution is tightly controlled by the NFL: 25.2 percent to the league itself, largely for sponsors, licensees and the like; 17.5 percent each to the two competing teams, the Chicago Bears and Indianapolis Colts, with some raffled off to season ticket holders; 5 percent to the host Miami Dolphins; and 1.2 percent to each of the remaining 29 NFL teams.

Many of those lucky enough to get tickets when they’re first sold won’t part with them. Princeton University economist Alan Krueger studied the ticket market during the 2001 Super Bowl in Tampa and found only about 20 percent of seats were resold.

“People were very reluctant to sell their ticket,” he said. “If they won their ticket in the lottery they acted as if they were chosen by God to go to the game.”

That leaves desperate fans with a choice: Pay up or park yourself on your couch.

If they choose the former, and turn to a broker, they will be buying tickets that have been marked up at least twice — by the original holder or holders and then again by the resale company, which typically tries to secure a price 20 percent to 30 percent higher than it paid. The result is upper-level seats from around $3,000 to luxury sideline suites for over a half-million dollars, though the average regular Super Bowl ticket sold online is about $5,115, according to an analysis by SeatSmart.com, an online ticket search site.

The face value of all Super Bowl tickets is $600 or $700.

The National Association of Ticket Brokers says there are about 600 brokers nationwide; those in the industry say their online presence has increased competition and pricing transparency. They say — believe it or not — tickets used to be marked up even more.

“It used to be, buy a ticket, triple your profit,” Vaccaro said. “Now it’s buy a ticket and you’re lucky if you get 20 percent.”

If that isn’t pulling at your heartstrings, consider the rate at which some companies are growing. Mike Domek started his company in 1992, generating $100,000 in sales its first year. Last year, Crystal Lake, Ill.-based TicketsNow.com hit $200 million in revenue.

And it’s not just big sporting events like the Super Bowl, the World Cup or the Masters adding to their bottom lines. While Domek made more on the Super Bowl last year than any other single event, tickets to the musical “Wicked” collectively generated more revenue than anything else.

Mike Janes, a senior vice president at online ticket broker StubHub.com, said people will spend the money because such tickets are seen as admittance to a once-in-a-lifetime experience. StubHub was recently purchased by eBay Inc. for $310 million.

“People spend a lot of money, thousands of dollars quite often, for experiences like going to Hawaii, going on a cruise, going to Las Vegas, going to Disney World,” Janes said. “Fans, especially passionate fans, think nothing of spending that amount of money on an event like this.”

Gene Kudron, a 49-year-old who lives in Winfield, Ill., and owns a small manufacturing company, is among those who decided it’s worth the cost. He bought four Super Bowl packages on RazorGator.com for a total of $24,800.

“I had it up on the screen and I didn’t hit that button for probably 10 minutes,” he said. “I tried to justify it 15 different ways but it’s an opportunity I probably won’t have again.”

Though much of the initial allotment of Super Bowl tickets is going to corporate buyers, many of the resold ones are, too. Companies buy them up to reward clients and employees and brokers say they account for most of the business up until the two weeks before the Super bowl.

“They’re the only ones who will allocate funds no matter what team is involved,” said Michael Lipman, president of Miami-based TicketsOfAmerica.com.

Lipman will sell about 20 to 40 game tickets to Richard Bennetti, chief executive of Ocean Drive Limousine in Miami, who gives them to clients. Bennetti says it keeps customers interested in his business by giving them an unmatchable experience.

“It’s like giving a small baby its first taste of ice cream,” he said.

The majority of states have no price cap on ticket resales by brokers; Florida eased its rules last year and some other remaining ones appear poised to follow. Still, companies can often get around any restrictions by offering travel packages, with tickets, airfare, a hotel room and other perks bundled together. Scalpers who work right outside events typically face tougher constraints, but overall the legal environment has become friendlier.

“The clear trend,” said Gary Adler, a lobbyist and attorney for the National Association of Ticket Brokers, “is toward opening up markets.”

Krueger said his survey showed most fans support a legal ticket resale market but don’t want to see the NFL charge more. Many argue the league could improve the Super Bowl situation by giving more tickets directly to fans, but Brian McCarthy, an NFL spokesman, said there will never be enough.

“If we could build a stadium for 400,000 fans we still wouldn’t have enough tickets,” he said.

As for Block, he was still struggling with his decision as game day neared. He was worried more about the cost than upsetting his girlfriend.

“She puts up with a lot,” he said.

Posted: social/culture, personal finance

Opportunity Costs of Waging a War0

A different viewpoint into the current war, this one looking at the Economics of waging war. We’re looking at original estimates of $50 billion that may be ballooning into $2 trillion. How much money is $2 trillion wasted? Does this matter?

The opportunity cost of a decision is based on what must be given up (the next best alternative) as a result of the decision.

Indeed. Sometimes we don’t think things through, but accept the opportunity costs as a casualty of making the decision in the first place.

(Original found here.)

HOW MUCH DOES THE WAR COST?
Richard Reeves

LOS ANGELES — “Opportunity cost” is one of those eye-glazing economic terms that normal folk generally avoid at all opportunity cost. But sometimes it can’t be avoided, and the war in Iraq is one of those cases.

Here is one definition, this from the Business Knowledge Center: “The opportunity cost of a decision is based on what must be given up (the next best alternative) as a result of the decision. … Example: If a shipwrecked sailor on a desert island is capable of catching 10 fish or harvesting five coconuts, then the opportunity cost of producing one coconut is two fish.”

For those still reading, economists, commentators and even a few government officials are now calculating the opportunity cost of our national shipwreck in the desert. The National Priorities Project (nationalpriorities.org) posts one of those running totals of what the war is costing us. The total when I looked last Thursday morning was heading north of $359 billion.

The project then calculates that with that money you could provide total health care and insurance for more than 215 million children a year. Or, you could hire 6,224,739 schoolteachers for a year. Or, you could provide more than 17 million full four-year college scholarships.

There are many more non-economic ways to calculate the opportunity costs of the war, including lost self-respect, national power and credibility, the lost lives of young American men and women and of Iraqis of all ages, and the lives that will be lost in the future wars this fiasco will inevitably generate. It is, to use another economic term, a bad piece of business.

In The Washington Post a couple of weeks ago, Richard Clarke, the former national coordinator of counterterrorism, took his cut at opportunity cost by listing the problems that are being ignored now by the White House because of the time and mental energy being devoted solely to trying to persuade people that victory is possible in Iraq. His list: “Global warming … Russian revanchism … Latin America’s leftist lurch … Africa at war … Arms control freeze … Transnational crime … the Pakistani-Afghan border.”

In The New York Times last Wednesday, the paper’s economics columnist, David Leonhardt, reports on and analyzes a dense 36-page report, “The Economic Costs of the Iraq War,” written by Linda Bilmes of Harvard’s Kennedy School and Joseph Stiglitz, the Columbia economist. Bilmes and Stiglitz estimate the cost of the war at $2 trillion, the highest figure I have seen cited. They get to that number by estimating the economic stimulus that would have been provided at home if all those billions weren’t being drained into the sands of Araby.

Leonhardt’s estimate is a more conservative $1.2 trillion. He calculates direct military spending of something like a billion dollars a week for all those tanks and helicopters and their fuel and maintenance, the combat pay of soldiers, and direct costs of reconstruction of the country we leveled. (How much of that reconstruction money is being stolen is another story.) He then adds the $20-a-barrel increase in the cost of oil that is generally attributed to war and chaos in the Middle East.

Whatever. It is a lot of money, much of it wasted, most of it needed at home. Also, most of it is not included in the federal budget, but it still has to be paid, and paid back, by the American people — or, really, the children and grandchildren of all of us. And then we will pay the ongoing medical bills of combatants for two or three more generations.

That is the way it is, a sad commentary. I take some of it personally. The most vicious correspondence (e-mail and regular mail) I have received during the run-up to the war was about my own estimates of what it would cost. I said before the invasion that it would cost at least $200 billion. For using that same figure a couple of weeks later, President Bush’s chief economic adviser, Lawrence Lindsay, was fired. Remember, at that time the White House estimate of costs of both Iraq and Afghanistan was $50 billion or less. Paul Wolfowitz, the deputy secretary of defense, went so far as to say the war would cost Americans nothing, that Iraqi oil revenues would pay for everything.

So they made Wolfowitz president of the World Bank, while they were calling critics like me fools. You get used to that. You don’t get used to being called a traitor, a word thrown around by many readers. I wish I had been wrong in those estimates. I also wish I had kept the correspondence, so that I could write back now and ask those fools what they were thinking and what they think now.

Posted: politics, personal finance

Putting a Price on Gift Giving0

How appropriate. An article looking at the economic impacts of Christmas gift giving and how it doesn’t make any sense, because there is an instant loss of value of $20 billion.

I just had a little rant on the whole season myself (see here).

There are more economic impacts you could consider (if you want to use economics as your yardstick). Saw that society was a machine that - to perform best - needed to run continuously at a set performance, because, you know, usually startups and shutdowns are a bad thing that will cause excessive wear on a machine.

So the fact that right now about 2/3rds of all people are on vacation, that people have been taking off for holidays (or say shopping), and the fact that since mid-November productivity drastically decreased across the board and does so every year, does not even get factored in. You just know that come Thanksgiving, forget about starting anything new till the holidays are over.

And it’s only getting more so. This may not be a bad thing, it just is. And it’s only going to get worse as global society becomes less diverse.
You have to like the conclusion though

But all of us - even economists - can enjoy the immeasurable happiness of the season.

Immeasurable? Hmmm, wouldn’t a social scientist be able to measure this with a survey? Wouldn’t the health care providers dealing with seasonally depressed people be able to measure this (or with the people getting beaten up looking for that one present)? Wouldn’t the amount of “sick days” in December be a measure of our happiness?

Ah bah humbug.

(Original here)

Really, you shouldn’t have
St. Louis Post Dispatch
12/29/2006

“Out upon merry Christmas. What’s Christmas time to you but a time for paying bills without money; a time for finding yourself a year older, but not an hour richer. . . . If I could work my will, every idiot who goes about with ‘Merry Christmas’ on his lips, should be boiled with his own pudding, and buried with a stake of holly through his heart.” - Ebenezer Scrooge

Mr. Scrooge was a “squeezing, wrenching, grasping, scraping, clutching, covetous old sinner” who ran a counting house in Charles Dickens’ tale. Had he lived in the 21st century, Mr. Scrooge might have been an economist.

Viewed by the coldest of numbers crunchers, all the holiday frivolity - the tree decorating, the eggnog swilling and especially the gift giving - is mostly a waste of money or, to put it in econospeak, “a resource allocation disaster.”

Rather than buying each other home espresso makers and thermal underwear, we supposedly would do better, resource allocation-wise, by handing out envelopes stuffed with money.

Joel Waldfogel of the University of Pennsylvania became chief economic Grinch with a 1993 article for the American Economic Review cheerily titled “The Deadweight Loss of Christmas.” He surveyed students on how much they willingly would have paid for the gifts they received. It turned out to be a lot less than gift givers actually paid.

“On average, a dollar that people spend for themselves creates nearly 20 percent more satisfaction than a dollar that someone else spends on them,” Mr. Waldfogel wrote recently in Slate. “Put another - depressing - way, gift-giving effectively discards 20 percent of the gift’s price. So, of the nearly $100 billion spent on holiday gifts each year, one-fifth is effectively flushed down the toilet.”

There’s logic to that, as many a husband has learned the hard way after presenting his wife with a new vacuum cleaner. Gift buyers have to guess at someone else’s desires and often guess wrong.

The Waldfogel hypothesis seems to be winning converts. Sales of gift cards are up $6 billion to a total of $25 billion this year. A card is slightly more personal and slightly less crass than cash, and it gives the recipient a whole store full of stuff to choose from.

Professor Waldfogel is not the final word on holiday gift giving, of course. Other economists have challenged him, and, in any case, numbers can’t measure joy. The funny-looking tie becomes Dad’s favorite because his daughter bought it with her baby-sitting money. A wife values the ugly purple dress all the more because her fashion-challenged husband spent hours trying to pick it out. To parents, the delight of children on Christmas morning is worth more than the presents under the tree - as are the memories.

We’ll leave it to the economists to make dollars and sense out of our transactions. But all of us - even economists - can enjoy the immeasureable happiness of the season.

Posted: social/culture, personal finance

Show Them the Money to Change Them0

(Original found here).

This may be filed under obvious, but it’s interesting to see how pervasive money becmes to a person’s fundamental operating conditions. It’s just supposed to be a neutral exchange mechanism to facilitate trading of goods. Oh no.

Seeing money can change behavior
By RANDOLPH E. SCHMID, AP Science Writer
Thu Nov 16, 6:30 PM ET

“Show me the money,” demanded Cuba Gooding Jr., in the movie “Jerry McGuire.” He meant pay me the money, of course, but it turns out that merely showing it to people can change their behavior.

Kathleen Vohs, assistant professor of marketing at the University of Minnesota, and colleagues, conducted a series of nine experiments in which people were asked to do puzzles or other tasks and the behavior of people exposed to money was compared to others who were not prompted to think about it.

The two groups acted differently, the researchers report in Friday’s issue of the journal Science.

“The mere presence of money changes people,” Vohs said. “The effect can be negative, it can be positive. Exposure to money, or the concept of money, elevates a sense of self-sufficiency,” and can make people less social.

For example, she said, a student with little money who wants to move to a new apartment gets a bunch of friends together and they have a few laughs along the way.

But once they get a good job they hire a mover. That may be more efficient, but they lose out on some personal moments, she explained in a telephone interview.

“The underlying idea is that at some point early on in human evolution everyone probably needed someone else to help them achieve their goals,” whether building a home or catching food. Eventually systems of exchange came along, and then money, which could be exchanged for things, allowing people to pursue their own aims without the aid of others. So, over time, people with money didn’t need other people so much.

In one of the experiments, 52 University of Minnesota students were divided into groups and asked to make sentences out of a scrambled group of words. For one group the sentence turned out to be “a high-paying salary” while others got “it is cold outside.”

Then they were asked to arrange a set of discs into a square and told they could ask for help if they needed it. Some of those who had made sentences not mentioning money were placed so they could see a stack of Monopoly money.

The students who had unscrambled the sentence about money worked on the puzzle an average of 5.2 minutes before asking for help. Those who had made the neutral sentence but could see the play money worked on it an average of 5.1 minutes.

But students who had no money-related prompt turned to others for help sooner, they worked just over 3 minutes before asking for help.

In another experiment 44 students at Florida State University were each given $2 in quarters — which they were told was leftover from a previous experiment — and asked to unscramble sentences that divided them into two groups, one that was reminded of money by the sentence and others that were not.

When they left, the researcher noted that there was a box by the door for donations for needy students if they wanted to chip in, but they didn’t have to.

On average, students who had read neutral sentences donated $1.34 while those whose sentences reminded them of money kept more for themselves, giving an average of just 77 cents.

In another test, 61 students at the University of British Columbia sat at desks to fill out questionnaires. Some desks faced a poster showing money, some saw a poster of flowers and others saw a seascape.

They were then asked to choose between group or individual recreational activities, such as a dinner for four or individual cooking lessons. Those who had seen the money poster were more likely to pick individual activities than those looking at the other posters.

The experiments indicate that even quite trivial exposure to money changes peoples’ goals and behavior, Carole B. Burgoyne and Stephen E. G. Lee of the University of Exeter in England said in a commentary on the paper.

“Subjects exposed to the idea of money subsequently show more self-reliant but also a more self-centered approach to problem solving that subjects exposed to neutral concepts,” said Lee and Burgoyne, who were not part of Vohs research team.

Vohs research was funded by the Social Sciences and Humanities Research Council of Canada and the Canada Research Chair Council.

Posted: social/culture, personal finance