The New York Times just published a story about Wal-Mart’s push to sell 100 million compact fluorescent light bulbs by 2008.  It’s an ambitious goal - not only from a profit standpoint, but from an environmental one.  If Wal-Mart succeeds, it will result in “saving Americans $3 billion in electricity costs and avoiding the need to build additional power plants for the equivalent of 450,000 new homes.”

For those of you who aren’t familiar with compact fluorescent lightbulbs (CFLs), the benefits of usage are immense.  Compared to a standard incandescent lightbulb, they produce the same amount of light with 75% less energy.  They also last about five times as long as a standard incandescent.  The downsides?  One is they’re slightly more expensive to purchase.  But over the life of the bulb, the energy savings and longevity of the bulb make up for the initial expense by far.  The second is that there is a tiny amount of mercury in each bulb, so if they break there is mercury pollution.  Yet the amount of mercury released into the environment from a power plant running a standard bulb is much greater.  Overall, these bulbs are the biggest win-win solution out there.

Some argue that CPI is a poor measure of inflation.  They point out it is flawed measure for a variety of reason.  The fact that rent of primary residence is used instead of home prices is the commonly used example.  This may be an important point to be aware of as home prices decrease or stay flat while rents increase in the near future. A higher CPI might result when really this portion of the index actually decreased for many people. 

We can agree the numbers are not perfect. But I do think CPI can be reasonably used as to monitor changes in purchasing power over time even it isn’t perfect.
Niall Ferguson has a take on the changing nature of inflation in today’s the LA Times.

The lastest figure for the annual growth in core consumer prices is just 2.3% in the United States, down from 3.8% in May.

Yet simply because consumer price inflation has remained low does not mean that money is irrelevant

In our time, unlike in the 1970s, oil-price pressures have been countered by the entry of low-cost Asian labor into the global workforce. Not only are the things Asians make cheap and getting cheaper, competition from Asia also means that Western labor has lost the bargaining power it had 30 years ago. Stuff is cheap. Wages are pretty flat.

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.

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