It’s clear that the debate over gay marriage is very hot in the US right now.  However, it’s been mostly confined to moral grounds.  Why don’t we look at it from an economic perspective?

This argument does not discuss calling the union of two homosexual individuals a “marriage” versus a “civil union.”  I will save that argument for another time.

[Note: much of sections 2-3 are drawn from:
Dnes, Antony W. The Economics of Law. Mason, OH: Thomson Corporation, 2005. 189-204.
and inspired by lectures from classes I have taken at William & Mary. ]

I. Comparative Advantage and Specialization

First I would like to introduce the concept of gains from trade.  Assume there are two countries and only two goods in the world.  Country A can produce either ten footballs in an hour or five cars in that hour.  Country B can produce seven footballs in an hour or six cars in an hour.  If these countries decide to fill their needs without trade, they will need to divide their labor between footballs and cars.  However, if they decide to trade, then each country can specialize in what it does best, and there will be more total footballs and cars in the world than if the countries did not trade.

Where are we in the economic cycle right now?

Economic growth slowed to 2.6% annual real rate in the second quarter as measured by gross domestic product. Clearly, the Fed’s 17 rate increases are starting to cut into economic growth. Plus the higher oil prices cut into consumer spending over that quarter.

The job report numbers for September was a very anemic 51,000 new jobs. But one month of data isn’t very accurate. If you look at a couple months and average them, you get a better picture. Job growth was 123,000 in July and 188,000 in August. An average for the last three months is about 121,000. Most economists believe we need create about 135,000 to 150, 000 new jobs a month for new people entering the market to find jobs and we aren’t doing that right now. Employment Situation Summary

The housing market has slowed too. Will it be a crash as some predicted? Some of these stats are quite alarming and would lead the reader to believe we are doomed to a hard landing, which will likely lead to a recession. However, others believe since fixed mortgage rates have continued to decline, people will be able to refinance at a low fixed rate and that will cushion the housing slowdown. In addition, the easing of oil and gas prices can offset the some of the impact of the housing slowdown.

More than 107 million has been raised for and against this proposition, a state ballot initiative record.

The initiative would impose oil companies with a severance tax in CA. Depending on the price of a barrel of oil, the tax will range between 1.5% to 6.0% per barrel. This would be a new tax on extracting the oil form the ground. California is one of the only states that doesn’t impose a severance tax and CA is the third biggest producer of oil in the US behind Alaska and Texas. Alaskans don’t pay state income tax because they generate so much revenue from their severance tax.

4 billion dollars generated from this tax will be used for research for alternative energy. The state will spend about 400 million a year for ten years on research.

Clinton went to UCLA last week to endorse the measure. Gore already endorsed it. Surprisingly, Gov. Arnold Schwarzenegger has come out against it but is not campaigning against it.

Well you can read his entire biography over at the website Jockbio.com.  For all of the crap that T.O. puts his teams through, and the awful sportsmanship he displays, he really had a rough life growing up.  Also, his middle name is Eldorado.

Terrell often stayed with his grandmother Alice. She was as hard on him as she was on Marilyn. Alice gave him a bike but he could only ride it in the yard. Terrell was permitted no spare time with his friends and couldn’t watch TV. He was also whipped regularly. For all the abuse, however, Terrell loved Alice, viewing her as a second mother…

… When Terrell turned 12, he befriended a girl across the street. Her father noticed and confronted him, warning Terrell that the girl was actually his half-sister. Thus the youngster learned who his father was.

This is definitely a good read… check it out!

- George

Amaranth Advisors is a hedge fund that lost 65% of their portfolio assets in September.  How did this happen?  
People often focus on the rate of return.  However, management of risk is just as important - if not more important in sound investing policy.
 
First off, let me give you what risk means in investment terms.  Risk is the chance that actual return on an investment will be different from the expected rate.  .  Basically, it is the variance each year based upon its past performance.    (Maybe I’d post another topic how to calculate risk.  It is very easy to do if you have had basic statistics, but, for now, I will just describe it.)
 
There are three major types of risk when dealing with equities. 
 
1. Specific risk – risk attributable to factors unique to the specific security.  It also called individual stock risk.

2. Extra market risk – risk attributable to factors to the sector or group of securities that are highly correlated.  For example, technology stocks moved for the most part together.  Or interest sensitive stocks move together.
3. Systematic risk (or market risk) - the variability in a security’s returns resulting from fluctuations in the aggregate market.  The risk attributable to broad macro factors affecting all securities.
 
Specific risk + extra market risk = nonsystematic risk.
 
So
 
Total risk = systematic risk + nonsystematic risk