Renewed strength in goods exports

After a year or so of relatively stagnant loaded outbound container shipments, the Ports of Los Angeles and Long Beach in October reported increases. (Together, the two ports account for about 40% of U.S. goods exports.) Long Beach, in particular, saw loaded outbound containers jump by 21% from September, and 26% from October '09. Moreover, this was the biggest October export figure ever for Long Beach, which suggests that exports are on track to eclipse their 2008 highs before too long. Since data on outbound container shipments tends to lead official U.S. export figures, this is a good indication that we will see stronger numbers on U.S. goods exports in coming months. And that, of course, feeds directly into stronger GDP.

Bye-bye QE2?

This chart of the yield on 10-yr Treasuries shows the rather dramatic rise in rates that has occurred in the past week. As I mentioned a few days ago ("Return of the bond market vigilantes") the market is not only protesting the Fed's decision to move ahead with QE2, but now appears to be thinking that it might be cancelled or significantly cut back. This coincides with mounting opposition from all quarters to the idea of QE2, culiminating in today's release of an open letter to Bernanke from a group of notable economists and investors.

As I've said before, QE2 is not only unnecessary but foolish. The sooner it is put out of its misery the better. And to the extent that calling off further QE2 disappoints the market, that is a great buying opportunity for investors who understand that too much money is not a good thing.

UPDATE: Here is a chart that compares the 10-30 Treasury spread with the market's forward-looking inflation expectations. The action in both is fully consistent with the market changing its expectations about QE2. Less QE2 means the 10-30 spread needs to return to more normal levels, and inflation expectations have to decline.

The problem with healthcare (cont.)

This post adds to yesterday's post on the fatal flaws of ObamaCare, and is an update of a post from a year ago. It's valuable information which deserves dissemination.

If you could only use one chart to illustrate the fundamental problem with healthcare in the U.S. today, this would be it.

As of the most recent data (2008), consumers paid for only 12% of their healthcare expenses out of their own pocket. Back in the days before WW II, consumers paid for the vast majority of their healthcare expenses out of pocket. That began to change in the early 1940s, when the government agreed to allow companies to circumvent war-time wage controls by giving their workers tax-free health insurance; companies could deduct the cost of the insurance, and it wasn't considered income to the workers. This significant feature of the tax code has finally taken us to its logical conclusion: consumers now get almost all of their healthcare paid for by an employer, since this is highly tax-efficient. The 12% that is still paid out of pocket likely consists mostly of payments by individuals not covered by employer policies, and co-pays by individuals that are covered.

Since the vast majority of healthcare expenditures are not paid for by those receiving healthcare services, but rather by a third party insurer or the government, there exists little or no incentive in aggregate for consumers to shop around. That explains the notorious lack of price transparency in the healthcare market, and helps explain why costs have risen at a rate much higher than inflation.

To fix most of what is wrong with healthcare, we simply need to fix the tax code. Either allow everyone to deduct the cost of healthcare, or no one. Without the distortion of tax incentives, companies would eventually turn the healthcare purchase decision over to employees. That in turn would restore the proper incentives to consumers, allowing market forces and competition to make healthcare more efficient and more affordable.