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REMINDER: All investment, economics, and finance related material now appears at the new IaconoResearch.com. For the time being at least, this has become a personal blog covering a variety of mostly unrelated topics.

CFTC to Rein in Currency Traders

On March 6, 2010, in Currencies, Our Culture, by Tim

The CFTC (Commodities Futures Trading Commission) is apparently intent on reining in the amount of leverage available to those who trade in the FOREX markets and, according to this story($) in today’s Wall Street Journal, someone in Michigan is none-too-pleased.

An attempt by regulators to protect investors from volatile global currency markets has triggered an uproar among lawmakers, currency dealers and thousands of small traders.

The Commodity Futures Trading Commission has proposed rules that would reduce the amount of borrowed funds that retail investors can use when investing in the U.S. foreign-exchange market to as much as 10-to-1, from the existing 100-to-1 for major currencies.
…
Todd Lambrix, a currency day trader in Flint, Mich., is one of the many small investors opposing the CFTC plan. Mr. Lambrix has $5,000 in his currency account and often uses 100-to-1 leverage to trade currencies. Three years into trading foreign exchange, he said, he has learned how to control risk by setting enough technical limits that automatically close out trades. Last year, he broke even. “What right do you have to tell me that I can’t spend my money on things I choose?” he said.

Indeed! In fact, why have any government limits on leverage at all?

If some FOREX trading company wants to allow Mr. Lambrix to have 1,000-to-1 leverage or, for that matter, 1,000,000,000-to-1, aside from the possibility that a million Mr. Lambrixes might destabilize international currency markets, why should the government stop him?

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Mind the Private/Public Sector Pay Gap

On March 5, 2010, in Economy, Our Culture, by Tim

This data is more than a year old and has undoubtedly gotten worse in the interim, all the more reason why it may be a rude awakening for many elected officials this November as more and more voters come to learn about the widening gap between public and private sector compensation and benefits as detailed in this report in USA Today.

Federal pay ahead of private industry

Federal employees earn higher average salaries than private-sector workers in more than eight out of 10 occupations, a USA TODAY analysis of federal data finds.Accountants, nurses, chemists, surveyors, cooks, clerks and janitors are among the wide range of jobs that get paid more on average in the federal government than in the private sector.

Overall, federal workers earned an average salary of $67,691 in 2008 for occupations that exist both in government and the private sector, according to Bureau of Labor Statistics data. The average pay for the same mix of jobs in the private sector was $60,046 in 2008, the most recent data available.

These salary figures do not include the value of health, pension and other benefits, which averaged $40,785 per federal employee in 2008 vs. $9,882 per private worker, according to the Bureau of Economic Analysis.

Someone will have to refresh my memory about how this isn’t really as it appears. If memory serves, this subject was broached here some time ago and there were a few gubment workers who disagreed with the numbers for some reason.

During my working career, I always thought of private versus public sector work as being a trade-off between higher pay and better job security with slightly better benefits.

Now it looks as though you get all three.

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Bonds and Protests, from Greece to California

On March 4, 2010, in Debt, Our Culture, by Tim

Like Greece, the state of California postponed bond sales last week. Some $7 billion in Greek debt is being sold today while about $2 billion in California bonds are now rescheduled for an auction sometime next week.

Also like Greece, protests in the Golden State are on the rise, the understandable response to budget cuts by a population whose government has spent far too much for far too long. According to this AP report, the situation is now getting dangerous enough that University of California officials are telling people to stay away from campus.

Officials at the University of California, Santa Cruz are telling employees and others to stay away from the campus because of safety concerns involving protesters.

An advisory was posted Thursday on the school’s Web site urging people to avoid campus as protesters upset about funding cuts block main entrances.

It says a windshield was reported smashed. Police began turning cars away from the campus’ main entrance around 6 a.m.

The protest is part of nationwide demonstrations against cuts to education funding on what’s being called the “March 4th National Day of Action for Public Education.”

It’s hard to believe that, many years ago, higher education in California was virtually free. If memory serves, college costs there have been rising rapidly in recent years but are still less expensive than most of the states in the U.S.

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Home Prices and Revolving Credit

On March 3, 2010, in Consumerism, Debt, Housing, Our Culture, by Tim

This could be the most interesting chart in the updated series of charts where the Case-Shiller Home Price Index is laid up against all kinds of other economic data. Two days ago it was home prices and gasoline prices in The Hummer “sweet spot” revisited and yesterday it was the mostly unexciting home values and consumer sentiment.

Today, the relationship between the nation’s housing bubble and the country’s outstanding revolving credit (i.e., mostly credit cards) is examined with some surprising results.
IMAGE First, you can see how consumers turned to credit cards as both the 2001 and 2008 recessions began, however, due at least in part to real estate related financial resources such as home equity lines of credit, the surge was not nearly as great in 2008 than in 2001.

Notice that as home prices started to take off in 2004, revolving credit dropped sharply, presumably because money started gushing out of the housing ATM. After turning to credit cards a few years later following the bursting of the housing bubble, it looks as though consumers have sworn off plastic for good as revolving credit continues to decline even though home prices have been staging a bit of a rebound.

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It (the IRS) Pays to be a Snitch

On March 3, 2010, in Our Culture, by Tim

It’s tax time again and, during a recession (or whatever it is we are still in at the moment) the temptation to leave out a little income or inflate a few deductions on your tax return is as strong as ever. But, those thinking of doing so should heed the warning in this CNN/Money report about how the IRS encourages snitches.

If you knew coworkers, former bosses or exes who cheated on their taxes, would you turn them in? The Internal Revenue Service can make it worth your while.

As tax season nears, we all want to get as much money back from the IRS as possible. And while taking advantage of this year’s new tax breaks will put some extra money in your pocket, snitching on a tax cheat could make you rich.

In a recent poll from the IRS Oversight Board, 13% of those surveyed think cheating is acceptable, up from 9% in 2008. As the recession puts the squeeze on household finances, the lure of fudging on a tax return is even greater.

“In a down economy, the temptation to cheat on taxes is much stronger because people are in more desperate situations more often,” said Bill Raabe, a tax expert at Ohio State University’s business school.

More people may be just as desperate to turn in a business, rat out an ex–spouse or report a colleague to collect a reward.

For those who have fudged their taxes, it’s probably not a good idea to talk about it.

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Home Prices and Consumer Sentiment

On March 2, 2010, in Consumerism, Economy, Housing, Our Culture, by Tim

Here’s another chart from the long dormant series of charts that put the S&P Case-Shiller Home Price Index up against a variety of other economic indicators. In this version, home prices are shown on the same chart as consumer sentiment with an unsurprising result.
IMAGE With the exception of the early-2007 period, the two track pretty well.

In fact, if you smooth the consumer sentiment curve as shown below, the two are nearly identical, save for a delayed reaction in the outlook of Americans in 2007 leading up to the fateful events of 2008.

(more…)

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