More on the California Budget FAIL

Armed with a Bud Light, I found two papers which suggest that from a tax burden standpoint, California is on the high side but not insanely so. The Public Policy Institute of California notes the following per-capita combined 2005-2006 state and local tax burdens for several large states:

• New York: $6413
• California: $4517
  
• Illinois: $4081
• National Average: $4001
  
• Florida: $3693
• Texas: $3235

From both a tax burden and overall revenue burden standpoint, California was 10th highest in the nation. If adjusted for incomes (which are higher in California), the ranking drops to 18th. That doesn't sound that bad, although the LA times quoted a more recent study saying our overall burden was now 6th, behind New Jersey, New York, Connecticut, Maryland and Hawaii. (That LA times blog is a bit misleading as it focuses on top marginal tax rates and only mentions overall tax burden at the end of the article).

The Center for Continuing Study of the California Economy has an interesting 2007 paper about California state taxation that echoes some of the above sentiments plus provides detail about the highly progressive (and thus volatile!) nature of California taxation. It also has this cool graph showing that prior to the passage of proposition 13 California was a "high tax" state, but proposition 13 brought us in line with other states.
This suggests to me that our budget shortfall is the result of excess spending, not insufficient taxation. There is perhaps some room to increase the tax burden but real progress will only come from spending cuts. The progressive nature of our taxation does increase the sensitivity to economic downturn but one could argue this is an automatic stabilizer and should be retained.

It's always scary to agree with an organization with an Orwellian name like the Reason Foundation, but they come to the same conclusion:

"A good rule of thumb in government budgeting is that the rate of spending increases should not exceed the rate of population growth, plus inflation ... Over the entire 18-year period, state spending grew at an average annual rate of 5.91 percent, while population plus inflation grew only 4.38 percent a year, on average ... Gov. Schwarzenegger and state lawmakers won't fix the underlying budget problems until they admit the state has a spending addiction."

But addicted to spending on what, exactly? An investigation for another day.

A Brief Look at California's Budget FAIL

In a small effort to be a good citizen and understand wtf is going on with my state, I decided to make a picture of recent California expenditures and revenues. I took raw revenue and expenditure data and adjusted it for inflation and population. The result is per-capita expenditure (red) and revenue (green) in constant 2000 dollars.It looks like the budget was out of control in the pre-Schwarzeneggerian era (he assumed office Nov 2003), improved somewhat in 2004 and 2005, and then drunken sailor-esque spending kicked in while revenues trailed off.

A much more ambitious task would be to figure out on what the money is being spent ... hmmm ... I think I'll have a Bud Light instead.

Profiting from Insanity

What goes up, might come down if you wait long enough.
And I actually traded this one, starting Wednesday when the tide appeared to be turning. (I'm out now).

I have my eye on the Gap which is a similar story, namely up on a earnings report which was less than stellar. However it's still defying gravity and I don't see signs of lack of support yet.
This is just a gut feeling from watching the real-time quotes stream across my desktop while I work, but I suspect some big money is accumulating this stock.

Size Matters

My startup is focused on internet advertising, and one thing we've commented on around the office is how computer monitors used to be much smaller. So what? Well, that means internet advertising used to be a much larger portion of the screen, because of IAB standard sizes were developed in the mid 1990s.

So I decided to investigate this hypothesis by cobbling together what I could find on screen resolution and banner advertising clickthrough rates. I fit the data to a 2 parameter model where one parameter was the clickthrough rate for screen resolutions higher than 1024x768 ("high resolution"), and the other parameter was the clickthrough rate for screen resolutions at or below 800x600 ("low resolution"). Note the resolution 1024x768 does not have it's own parameter, on purpose: there are only 5 data points, so I wanted to limit the model.The parameters end up being 0.2% for high resolution screens and 0.8% for low resolution screens.

Could a factor of 4 in clickthrough rate be recovered by switching to much larger ad units?

Natural Gas Vehicles FTW

I guessed recently that speculation in natural gas prices was unfounded since we are literally swimming in the stuff, partially due to improvements in fracing. I was right, but it doesn't count, because I didn't believe it enough to buy puts.
The more important point is that this is good for America, because oil prices have been steadily increasing even though we are still in the midst of a deep recession. Natural gas is an important part of how America avoids a future Kurt Vonnegut style dystopia. So I was pleasantly surprised to discover the Civic GX is now being produced in North America. I was doubly surprised to discover just how many natural gas filling stations there are in my area, including one just 3 miles from my house:
Considering there are only circa 150 natural gas stations nationwide, this is pretty good; hopefully with the recent budget problems these will stay open.

You can also fill up at home using a device called Phill.

The Credit Crunch is Over, Sort of

The TED spread is a key barometer of credit market risk aversion, and it has fallen to levels last seen before the credit crunch began. In other news, treasury yields are approaching levels last seen before the credit crunch (despite or because of quantitative easing?), and the dollar has lost it's "safe haven" credit crunch aura. These developments are positive as they indicate a dissipation of the massive fear in world markets over the last 2 quarters. However, as that fear dissipates, investors will start to view the US without their rose-colored "flight to safety" goggles on. There are still plenty of reasons to be pessimistic about the US, including tremendous loss of US household wealth (including my own!), resulting consumer deleveraging, and increasing federal budget deficits. (International markets have better prospects over the short term: for example, compare the US unemployment outlook with the Brazilian unemployment outlook.)

In the face of both good and bad news, the US market is doing some very interesting things. My favorite story this week is Saks Fifth Avenue, which experienced a huge bump in stock prices after losing less money than analysts expected (seriously?), only to give most of it back by the end of the week.
Another example of temporary insanity is Deere & Co., which announced falling revenues and slashed forward guidance before the open on Wednesday, skyrocketed, and then fell back to Earth.
One analyst said it "defies logic that this company is trading higher on the news of further lowered guidance". Indeed.

Yet there is no shortage of craziness, especially in the retail sector. Barnes and Noble on Thursday had a horrible earnings report, but less horrible than what analysts expected. This is a company that even without the credit crunch is destined to be crushed under Amazon's boots, yet here is the market response:
I like to stay out of the market's way until I see signs that craziness is abating: I made modest but not maximal amounts of money on Saks and Deere this week because I waited until the euphoria had faded to buy puts. So I shall be watching Barnes and Noble for signs of buyer's fatigue.

Gold-silver ratio developments

There has been chatter in the blogosphere about how the gold-silver ratio is historically anolomous. A picture is worth a thousand words, so here are GLD and SLV relative movements over the past 2 years:Pre credit-crunch, gold and silver were moving in tandem, but they have disconnected since then. What's going on? Everybody is asking that question, and probably those who actually know aren't talking. Although silver has industrial uses (unlike gold, which is primarily a value store), silver is mainly produced as a by-product of other mining activities like zinc, so falling economic activity leads to lower silver production: silver production dropped 5% in 2008 and another 6% decline is forecast for 2009.

A geopolitical point of interest is that China is accumulating gold; this is not a recent phenomenon (accumulation has been over the past 6 years), but people are sensitive to the dollar losing its status as a reserve currency. But apparently they've been buying all sorts of industrial metals and actually as a percentage foreign-exchange holdings their gold position has declined since 2003.

I'm noodling whether to invest in the gold-silver ratio declining; this would mean going short on gold and long on silver. However I need to get more information before committing actual money.