Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojktVital Statistics:
| Last | Change | Percent | |
| S&P Futures | 1378.8 | 8.7 | 0.63% |
| Eurostoxx Index | 2319.8 | 35.8 | 1.57% |
| Oil (WTI) | 104.4 | 0.8 | 0.77% |
| LIBOR | 0.466 | 0.000 | 0.00% |
| US Dollar Index (DXY) | 79.16 | -0.068 | -0.09% |
| 10 Year Govt Bond Yield | 1.99% | 0.01% | |
| RPX Composite Real Estate Index | 173.5 | -0.3 |
Markets are higher this morning on Apple’s earnings. Hard to believe a half-a-trillion dollar company could move up 10% in a day, but there you go. Bonds and MBS are lower as we await the FOMC decision this afternoon. No one anticipates a change in policy, but the market will focus on clues about QEIII.
Speaking of the Fed, Krugman has some advice for Ben Bernake. Hint: He’s not doing enough.
Durable Goods orders fell 4.2% YOY in March, the biggest drop in 3 years. Ex transportation, they fell 1.1%. This was far below expectations. There was also a marked buildup in inventories in the last 6 months, which portends a manufacturing slowdown. There has been nothing in the economic data in the last couple of months that indicates the economy is accelerating – everything points to a deceleration. This is mainly due to overseas weakness. The UK is officially in recession, while Europe and China are slowing.
Mortgage applications fell last week after a huge jump the week before. The 10-year spent all of last week below 2%, so maybe the refi activity is starting to dry up – meaning everyone who can refi at 3.75% has already done so.
Lender Processing Services has released its first look for March foreclosures and delinquencies. The total US loan delinquency rate is just over 7%, which is down almost 9% YOY. The number of properties in foreclosure totaled 2.06MM, the number 90D+ was 1.6MM and 30D+ was 3.5MM, for a total of 5.6MM delinquent. The full report will be released on May 1.
FWIW, Mark Zandi thinks the bottom in real estate is in. Bob Schiller isn’t so sure.
Filed under: Morning Report |
All Things in Moderation 
Hm. UK is in the double dip, while Europe likely isn’t far behind. What can the US do to avoid that fate?
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Brian – this is Martin Wolf in the FT on UK vs. USA experience. If this is behind the paywall, let me know and I will copy-paste.
http://www.ft.com/intl/cms/s/0/8d71907c-88b5-11e1-a526-00144feab49a.html#axzz1t4XrR9WA
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Single best idea is to take the Jan 1 tax hikes off the table as soon as possible.
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Suspend Cap Gains tax for 5 years. Game changer!
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George, Brent, and Brian – I do not think any new governmental intervention will help the economy and I think the end of the GWB tax cuts are now penciled in by everyone with a pencil. Either the wave gets stronger or the tide begins to roll out again.
I do think new governmental intervention – like suspending CG taxes for five years – would hurt. I also think that once the GWB tax cuts expire, everyone in DC will have a once in two decades option to actually revise the tax code, and that might create optimism. Or not.
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mark;
We could continue our college discusiion if you like.
mark and I were talking about the tax exempt status of universities, and I was pointing out that many of them are essentially hedge funds and venture capitalists, without even paying the meager taxes those businesses pay.
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Hi – Sure.
I am familiar with the University of Texas at Austin. It is an enormous university and one with very high quality departments in a variety of areas. Its operating budget is a 2000 page document and it runs to $2.5B per year. That is roughly $50K per student, counting UG, GR, and professional. It serves an educational purpose. Its presence is what makes Austin a hitech, hibiotech, higrowth, hiarts, hiemployment place.
UT has a very large primary endowment – no other public comes close, but Harvard has surpassed us since 1990. The endowment is not enough to produce $2.5B per year, by any stretch. In any case, it is restricted, as I will point out below. Alums give big gifts, especially to O&G related departments, biz, and law.
Side note: Two years ago I wrote a will for a retired public health nurse – former USAF – who left her entire estate – a low middling six figure sum – to UT Nursing expressly for fellowships for nursing students committed in writing to public health nursing for some years after graduation. She died soon after. This year that resulted in 3 x $4K fellowships.
The big bucks come into the research grad programs from private industry and the federal government. The primary endowment is restricted to physical plant, and cannot be used for other costs. The primary endowment is called The Permanent Fund. Of all sources of funding, the Lege is the least, trailing tuition, self-funding [everything from Housing to athletics to patent royalties to earnings on the Permanent Fund – which are restricted -],gifts, grants from scitech industries, and NIH and NSF grants.
I am guessing that the private model is similar except that the 13% of the UT budget that is defrayed by the Lege comes from increased donations and/or tuition.
I lay this out first, because you were raising the spectre of Harvard as fund manager and I am not familiar with its budget.
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No note of the recent disappointing economic data in the FOMC statement…
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“I was pointing out that many of them are essentially hedge funds”
When I was a market maker on the arb desk at Bear, Harvard was one of our biggest customers – up there with Citadel, Soros, Pauson, etc.
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mark:
If this were an IPO road show they couldn’t spell things out more plainly.
http://web.mit.edu/tlo/www/about/faq.html
And on top of this, they pay no taxes of course, AND the government underwrites the cost of the consumer purchases of their product if you will. how sweet a deal can you get?
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I think the Lege makes UT kick back to the State 1/2 of its licensing income. Other than that, this MIT brochure looks familiar. So what is the problem with being an innovator and an incubator? At every big research U., the return on the “investment” from either industry or government is enormous, largely because grad and postdoc students of high caliber are working for a fellowship and a stipend, under profs who are the best in their fields. It seems to be a great public good to me.
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Regarding Harvard, even some of them are embarassed. (you probably saw this already, but for the benefit of those who didn’t)
“Harvard University is a nonprofit, not a business. This is one of the central arguments that we hear professors, politicians, and students make when they advocate for Harvard to be more socially and morally responsible. But does this claim mean anything? Should Harvard act any different as a nonprofit than as a business? The answer is yes—Harvard gains huge financial benefits as a nonprofit, and with these benefits come additional responsibilities toward the community that businesses do not always have.
The key difference concerns taxes. As a nonprofit, Harvard receives tax exemptions, deductions, and privileges that for-profit institutions must forgo. For example, besides innovative investing techniques, Harvard was able to build its endowment from $4.7 billion in 1990 to $37 billion in 2008 because it did not pay taxes on those gains. Relative to businesses, the federal government is subsidizing Harvard’s investment fund.
In addition, Harvard does not pay real-estate taxes. Instead, it makes voluntary payments in lieu of taxes. Last year, for all of Harvard’s property, it paid $1.9 million in lieu of taxes to the City of Boston. Boston officials estimate these payments would be 10 times as large if Harvard paid real-estate taxes. Partly due to these reduced expenses, Harvard currently owns over 923,000 square feet of property in Allston that are neither developed for Harvard’s purposes nor leased to Allston businesses. Harvard would be less likely to hold these land lots for long-term construction projects if it had to pay real-estate taxes on them.
As a nonprofit, Harvard also benefits from tax-deductible donations and a significant amount of federal grant money. Last year, Harvard received $651 million in donations. If donations to Harvard were not tax-deductible, this number would be a small fraction of this total. According to Harvard’s Office of Government, Community, and Public Affairs, Harvard received $535 million in federal grants in fiscal year 2008 that accounted for 82 percent of Harvard’s research revenue. Under the federal stimulus package, federal grants to Harvard are expected to increase considerably. Non-federally funded research is made possible through tax deductions on donations made by corporations and foundations.”
http://www.thecrimson.com/article/2009/5/21/harvards-role-as-a-nonprofit-harvard/
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mark:
You get me wrong. I don’t oppose the universities per se, I oppose the approach that subsidizes student loans, in which the government essentially plays the role of a used car salesman.
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In wondering at the size of UMN’s endowment, I found this:
http://en.m.wikipedia.org/wiki/List_of_colleges_and_universities_in_the_United_States_by_endowment#section_1
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Great list. Very few schools have fully recovered to 2007-08 highs.
As for single year fundraising: Philanthropic gifts to the 15 University of Texas System institutions reached an all-time high of $1.12 billion in cash and pledge commitments during fiscal year 2011, officials announced Thursday.
Leading the way was UT-Austin with its own record-breaking year of $354 million in cash received.
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” they pay no taxes of course, AND the government underwrites the cost of the consumer purchases of their product if you will. how sweet a deal can you get?”
How would you fix the problem / change the system?
A school like Harvard is playing in a different league than even the largest state schools, much less the myriad small colleges & universities.
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bsimon:
First you have understand the economic problem is the cost, not the cost of the borrowing.
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Ben says we’re prepared to ease further if necessary and it’s off to the races we go again
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Irony alert
About 10,000 people are murdered in Mexico each year over the drug war alone, primarily fueled by US consumption.
Walmart is in big trouble though, because they paid bribes to get things to run on time like construction work, thereby insuring actual jobs to Mexicans not yet murdered.
BTW the Mexicans themselves, think we’re crazy:
http://www.google.com/hostednews/ap/article/ALeqM5iK4sB0brAjxaRXoctAFVxLiqlEgQ?docId=70dc148ef9294134a89c6e69d9740e52
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” First you have understand the economic problem is the cost, not the cost of the borrowing.”
I don’t dispute that. I would add that the dearth of jobs for graduates exacerbates the problem.
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You can’t do anything in Mexico w/out the mordida. Hell, I bet the Obama admin has or will pay bribes on his next visit. The controversy is too funny.
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I thought the Walmart article was funny; it reminded me of an email forwarded to me a few weeks ago about how the geniuses at Walmart should be running the US gov’t.
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” in which the government essentially plays the role of a used car salesman.”
Q: what will it take to put you in this overpriced as-is, no warranty, degree today?
Or:
Homer: Is this car $15,000?
Salesman: [rubs off the $12,000 price tag] It is now. And because of your loss, folks, I’ll throw in the undercoating for two hund- No, four hundred and ninety bucks!
Homer: What a deal! I’d be a sucker not to get it!
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don’t think of it as $40,000 per year all around for four years.
Think of it as only paying $400 a month for the rest of your life to FINALLY have a group to which you BELONG, and the sweatshirt to prove it!
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Question: I’m a sucker for paying into a 529 plan for my 2-year-old? why save at all?
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Typically a 529 guarantees to cover state u. tuition if as and when, or let you withdraw at some base interest rate if you don’t go to state u.
If that is your deal, it is OK, b/c the tuition at state u. will probably rise faster than the best investment you can make with so few bucks.
Or, so I think.
AND A COLLEGE DEGREE IS STILL WORTH WAY MORE IN $$ AND JOB POSSIBILITIES THAN A HS DIPLOMA.
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” Think of it as only paying $400 a month for the rest of your life to FINALLY have a group to which you BELONG, and the sweatshirt to prove it!”
Seems to me part of the equation is missing.
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“I’ m a sucker for paying into a 529 plan for my 2-year-old? why save at all?”
It’s hard to know. Will you / your kids be better off if you’re wrong about the need to save, or if you’re wrong about not needing to save?
I’m betting on the former.
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nova:
What would you do with the money if you weren’t?
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Just read that the median amount of student debt is around $12.5K and the average is $22K. Both of those are eminently manageable for virtually any degree. The unemployment rate for college grads is less than 5%
My thinking is if you’re racking up student debt of more than $20K for anything other than some sort of Engineering or Science degree seems crazy to me. Who are the people seeking loans for tens of thousands of dollars for BA degrees?
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FWIW, I’ve got him enrolled in one of those age-based plans
http://www.virginia529.com/vest/index.php
It’s not restricted to VA schools, public or otherwise, and I get a little bit of a tax deduction on my state return. they offer a different plan that pre-pays state school, but I didn’t want to make that choice for him.
I would either invest elsewhere in a non tax-advantaged account, pay down mortgage, or increase consumer spending.
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the children of those who have them!
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Be patriotic, increase consumer spending
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“Who are the people seeking loans for tens of thousands of dollars for BA degrees?”
George Washington U students.
Cost of Attendance $58,148
Tuition and Fees $44,148
Room and Board $10,325
Books and Supplies $1,275
Other Expenses $2,400
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” The unemployment rate for college grads is less than 5%”
I believe that is for all college grads & that recent college grads are unemployed/underemployed in large numbers.
I do agree with your other points. Borrowing $60k or more for a liberal arts degree is a recipe for starting life in a deep hole
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Two years in a CC can get you eligible to take the RN exam and instantly enter the middle class, if you are into helping sick folks. Around here 2 years of CC in appropriate Computer Sci and networking courses is also an instant ticket to the middle class. In any event, it is a low cost way to finish two years of college, that your kids will rebel against because they think it is for poor people.
All my daughters took dual HS and college credit courses at ACC in HS and summers after their Jr and Sr years in HS. That gave them a cheap running start. In fact, dual HS-CC in Austin is virtually free. Between AP and ACC Dara went off to UCLA with 43 semester hours, or 56 quarter hours. It meant she could be a Chem E major and do NROTC without taking the English and History and AmGov courses and skipping Freshman chem, calculus, and biology. She could take a lighter than typical engineering load and still be ahead of the “track”. On the other hand, it also meant she started the Fall with some sophomore level classes, like Organic Chem, rather than intro, and the much harder third quarter of calculus [multivariate, for those of you who don’t recall, is the first time those of us who were always good at math began to wonder…].
Still, it was a great net plus. I highly recommend looking into what your CC offers, and how early it is offered. Your smart HS kid will do just fine at CC in the summer.
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nova:
percentage of native born at GWU, maybe 25%-50 or so? The only thing less American than AU is GWU!
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mark:
being serious, I agree with you that the 529 seems a pretty good deal.
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Too true. my sister-in-law went there. one of the first questions we’d ask is whether or not the her boyfriends were citizens or not.
regarding CC — that’s where I got my EMT. if I put in the time I could get my paramedic status in a year or two at minimal cost. nice back up plan for when the mob turns on the lobbyists.
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“The 529 seems a pretty good deal.”
It tends to be, but rules vary by state. The MN plan has the ‘lock in your tuition rate’ that mark mentioned, but limited investment options. I went with the plan administered by vanguard, which I believe is the Nevada 529.
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