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Investing and Economics Blog

Kiva: Microfinance Loans

Friday Entrepreneurs: Premal Shah, Kiva.org

Kiva.org is a new website that allows individuals to make small loans to low-income entrepreneurs in the developing world (microfinance). In this way, people like you can help provide affordable working capital for the world’s poor — money to buy a sewing machine, livestock, etc. — empowering them to start a business and earn their way out of poverty.

The usual loan terms are 12 months and over the course of your loan, you’ll receive periodic repayments which you can then re-invest in another entrepreneur or withdraw. In addition, you receive real business updates on the entrepreneur you’ve sponsored. So far, we’ve had a 100% repayment rate and we’re expecting at least a 96% repayment rate over time.

We think of Kiva as facilitating a kind of ‘grassroots capitalism’ — people here in the U.S. lending – not donating – a small amount to low income entrepreneurs in the developing world. For the low income entrepreneur, small amounts like $25 or $100 can provide the working capital needed to explode their small business growth, create a sustainable livelihood and enable them to repay you as an investment partner.

As I have said before, I really like helping people help themselves.

December 25th, 2006 by John Hunter | 3 Comments | Tags: Cool, Economics

Manufacturing Data – Accuracy Questions

re: Myths of Manufacturing Productivity

Output counted should only measure the value added – it should not count the entire value (not the same thing exactly but similar – when a HDTV is sold by the plant to a wholesaler and then the wholesaler sells it to a retailer and then the retailer sells it to a customer the economic data does not add those 3 purchases together to get the total value of HDTV sales). The measures are suppose to be the amount added at the point of measure. So the output of the local plant does not count the total value of say the car but the value added at the plant. Obviously, like with most economic measures, this data has plenty of room for error.

While they intend to measure the added value as far, this is not easy and there can be reasons to distort the data (taxes, bonuses…). The VAT, used in Europe, is helpful illustration (both of the concepts and some of the measurement difficulties).

I keep looking for better data (I am actually surprised how sparse the data is given the importance). I would not want to make economic policy with the very incomplete data I have been able to find. Still, my belief is real global manufacturing output is up. And global manufacturing jobs are down. If those statements are right, productivity increase is the only reason – by definition.

When trying to look at country specific measures it does get more difficult – to find data that is obviously clear. Still, based on the data I have been able to find it seems that the USA continues to increase manufacturing output and decrease jobs. This seems right to me though I do agree the data I have seen still leaves questions. Previous posts I have made on the topic include: Manufacturing Value Added Economic Data – Manufacturing Jobs Data USA, China and globally, even manufacturing jobs data can include data quality issues but it is probably cleaner than most of the rest of this data. The data from this Clemson study shows the USA has lost a lower percentage of jobs than most every other country – Global Manufacturing Data by Country

Global data sources certainly still has data quality issues but you can be reasonably certain huge double counting is not going on. If so you would see the global totals increasing hugely. If a GM car was manufactured with 50% Mexican parts and the GM counted 100% of the value and Mexico counted there value then you would have 150% of the total value counted. Which would then mean the global figures would be counted not just increased output but also going up as the countries “over-counted” their output. And remember, in this example Mexican output could include (40% of their 50%) from Brazil…

December 24th, 2006 by John Hunter | 8 Comments | Tags: Economics

Encourage Your Kids to Start Saving Early

How to make your kids millionaires by Walter Updegrave:

Many younger workers don’t sign up for their 401(k) because the process feels too overwhelming. The last thing you want to do is add to the confusion by launching into a long lecture on asset allocation. A better tack, says Brigitte Madrian, a Harvard economist who studies the behavior of 401(k) participants, “is to break up the process into smaller pieces.”

Your first goal: Encourage them to contribute enough to get the employer match, without worrying about sorting through all the investment options. Just have them stick the money in a target retirement fund (or if that’s not an option, a stock-index fund).

You can talk to them later about boosting their contribution and fine-tuning their strategy.

Related: Saving for Retirement – Start Young with 401k and Roth IRA – what is a 401k? – articles on investing for retirement

December 17th, 2006 by John Hunter | Leave a Comment | Tags: Investing, Retirement, Saving

Income Inequality in the USA

The Great Wealth Transfer by Paul Krugman

The widening gulf between workers and executives is part of a stunning increase in inequality throughout the U.S. economy during the past thirty years.
…
The share of income received by the top 0.1 percent of Americans is twice the share received by the corresponding group in Britain, and three times the share in France. These days, to find societies as unequal as the United States you have to look beyond the advanced world, to Latin America.

This article obviously is strongly against the rising inequality. The article can go perhaps too far in some claims but overall is a worthwhile read on an important topic. My opinion is that too much income inequality is a danger sign for an economy. I also strongly appose huge inherited wealth and obscene CEO pay. But people doing well for themselves is not necessarily bad. The USA is better off for having Warren Buffett, Larry Page, Micheal Dell, Sergey Brin, Jeff Bezos… and I see nothing wrong with them amassing large sums. See more articles on the topic:
Read more

December 14th, 2006 by John Hunter | 1 Comment | Tags: Economics

View Rental Prices in Your Area

Rentometer is a cool interactive web site that maps rental prices near your rental (either as a renter or an investor). The site is new and expanding so the features are a bit limited now but still it is worthwhile and the new features will really make it great (active rental listings…).

Related: Real Estate Investing Articles

December 13th, 2006 by John Hunter | Leave a Comment | Tags: Cool, Real Estate

Google to Let Workers Sell Options Online

Google to Let Workers Sell Options Online:

It would mark the first time a U.S. company has created a private Internet auction for stock options. Investment experts called the idea creative and said other firms might follow suit if Google’s plan succeeds. The private online auction is to be managed by Morgan Stanley and accessible only by Google employees and the participating investment banks.

A good idea that reduces friction in the marketplace. Options are transferable, the problem with employee granted options is there is no reasonable marketplace to exchange the options for cash (the friction is very high). Google’s engineers focus on reducing friction in many processes. Many others just accept that the level of friction is inevitable. Google realizes it is not. More on Google Management.

December 13th, 2006 by John Hunter | 2 Comments | Tags: Investing, Stocks

Manufacturing in Florida

Nurturing an industry:

About 20 years ago, the Tallahassee area was home to only a few manufacturers, said Nancy Stephens, executive director of the Tallahassee-based Manufacturers Association of Florida. “In the last five years, it has been growing. We’re now attracting manufacturers here,” she said. “You get synergies between manufacturers that require the same type of vendors. Once you get a core group here, you start to see a snowball effect.”
…
The universities are good resources, producing numerous engineering graduates, and there are people here with advanced research skills suitable for research and development, Stephens said. Syn-Tech needs electrical engineers, software engineers and engineering technicians, he said, adding “we have had very good luck attracting (engineering technicians) locally.”
…
Florida manufacturers employ more than 399,000 Floridians. The state Agency for Workforce Innovation reported that manufacturing employment was up to 394,700 in June 2005, a gain of 3,200 jobs over the previous year.

Related: Manufacturing Jobs Data: USA and China – Engineering the Future Economy – The Future is Engineering

December 11th, 2006 by John Hunter | Leave a Comment | Tags: Economics

More Government Waste

Dairy Industry Crushed Innovator Who Bested Price-Control System by Dan Morgan, Sarah Cohen and Gilbert M. Gaul:

That was when a coalition of giant milk companies and dairies, along with their congressional allies, decided to crush Hettinga’s initiative. For three years, the milk lobby spent millions of dollars on lobbying and campaign contributions and made deals with lawmakers, including incoming Senate Majority Leader Harry M. Reid (D-Nev.).

Last March, Congress passed a law reshaping the Western milk market and essentially ending Hettinga’s experiment — all without a single congressional hearing.
…
Most U.S. dairy farmers work within a government system set up in the 1930s to give thousands of small dairies a guaranteed market for their milk and to even out prices for consumers. Farmers who participate in regional pools operated by the federal government or the states deliver raw milk to cooperatives or food processors. They get a guaranteed price, whether the milk ends up in a gallon jug, cheese, butter or ice cream. In Arizona and other federally regulated regions, the Agriculture Department uses a formula to set the price processors pay for raw milk, issuing “milk marketing orders.”

Developed for a bygone era of small dairies and decentralized milk plants, the system lives on when 3,000-cow dairies are not uncommon and huge cooperatives and food companies dominate the business. Business groups, fiscal conservatives and some dairy organizations have called for Congress to overhaul the complex system of protections and subsidies, which they say is costly to taxpayers and consumers. A recent USDA study acknowledged that “dairy programs raise the retail price” of milk. The watchdog group Citizens Against Government Waste estimates that the programs cost U.S. consumers at least $1.5 billion a year.

These programs are effectively taxing everyone to pay special benefits to a few. Now perhaps you believe in this case milk production and purchase should not be part of the capitalist market system. That is a possible opinion. Somehow I doubt the politicians that take huge payments from huge dairy cartels to stop competitors from selling milk are doing so because they believe the market is incapable of delivering milk just as it delivers soda, water, hamburgers, cereal, pizzas, soup… Regulation is needed in various ways in the market. The problem is every special interest tries to claim the market needs to be regulated in a way that gives them benefits and the correlation to market needs and action seems to be very clouded by money received by politicians.

It just seems more likely they are willing to do what they are paid to do. But others can see it differently. Certainly the whole political system seems very beholden to special interests to pay rather than to making decisions that are best for the country. That could change if political leaders choice to lead but a majority doing that is unlikely. More likely it will continue until the voters don’t allow special interests to reap huge rewards on the backs of the general public through congressional action. Remember last year when Congress forbid the Medicare system (with a law) from negotiating for lower drug prices?

Related: Estate Tax Repeal – China and the Sugar Industry Tax Consumers – DC Paying Out Money it Doesn’t Have – Pork Sugar

December 10th, 2006 by John Hunter | 1 Comment | Tags: Economics

Start Young with 401k and Roth IRA

Putting away some money is vital, even if you are young and in debt by John Waggoner:

Your company may also match your 401(k) contributions. Say you earned $50,000 a year and contributed 5% of pay to a 401(k). If your company matches 50 cents on the dollar and your money earns 5%, you’d have $3,847 after a year. In 10 years, you’d have about $56,000, if you got 3% raises yearly and earned 5% on your savings.

Starting small – If you don’t have a 401(k) available, at least open a Roth IRA. You contribute after-tax money to a Roth, but you pay no taxes on your withdrawals at retirement.

More on Roth IRA’s.

December 9th, 2006 by John Hunter | 2 Comments | Tags: Investing, quote, Retirement, Saving, Taxes

Cracks in US Economy?

Learning about the economy is not required to learn about investing but it helps to get the basics. One of those basics is that it is not easy to know what is actually going on today, or to predict what will happen in the future (other than the fairly accurate “close to what it was last year”). So when reading about the economy you have to accept that there often is plenty of room in the data to allow for differing opinions. Here is one opinion: Cracks widen in U.S. economy:

“Industry is clearly going through a rough patch” that few anticipated, said Daniel Jester, analyst at Moody’s Economy.com. Outside housing and autos, the Federal Reserve had expected business to pick up rather than decline this fall, supporting a so-called “soft landing” in the economy.
The weakness in manufacturing started with autos, was compounded by housing, and recently has spread to big-ticket capital goods such as technology and telecommunications equipment, Mr. Jester said. In addition, a broad array of manufacturers are cutting back because of an unexpected buildup of inventories this fall that has to be worked off, he said.
December 4th, 2006 by John Hunter | 1 Comment | Tags: Economics

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