Should we expect the Puerto Rico labor force participation rate to fall further?

Puerto Ricans are having a rough time, but it has been a month since Hurricane Maria hit and, in between the tears, maybe we can think unsentimentally about the future.

As noted in Can Puerto Rico be a laboratory for the future of the rest of the U.S.? (2015), Puerto Rico already had the lowest labor force participation rate in the U.S.:

The federal minimum wage of $ 7.25 per hour is 77% of the median wage (comparable to a $ 13 per hour minimum wage in May 2014 (BLS data showing median hourly wage of $ 17.09 nationwide)). In other words, it is illegal for companies to hire a large percentage of Puerto Ricans at what would be a market-clearing wage for their particular skills. The result is that labor force participation in Puerto Rico is 43 percent [compare to a national average of about 63 percent at the time] …

In the short run maybe there is some extra demand for labor created by government and non-profit organizations pouring into the territory. But in the long run, now that employers are reminded of the hurricane risk, should we expect less capital investment in the island and therefore less demand for labor at the Federal minimum wage or higher?

Presumably a reduction in the Federal minimum wage is politically impossible. What politician is going to tell voters “Due to your mediocre skills and education, a lot of you aren’t worth too much to employers“?

So should part of the hurricane clean-up and rebuilding effort include planning neighborhoods and cities for a future in which few people work? (The standard American development pattern is horrible for this. Suburbia was designed for people who are going to commute into and gather quasi-socially at a workplace. They’ll be mostly alone at home when they’re home, but they’ll be home and not asleep for only a few hours per day.)

Philip Greenspun’s Weblog

Aussie Dollar Hinting at Further Weakness for China & Australia

For many years, the charts have shown that, as China’s Shanghai Index (SSEC) goes, so goes Australia’s Composite Index (AORD), as shown on the multi-year comparison graph below. However, a closer look at the following year-to-date comparison graph reveals that SSEC’s attempts to continue to advance fizzled in mid-April and is now flat for the […]
Slope of Hope

Vote to legalize marijuana is a vote to further reduce labor force participation rate?

During America’s period of highest per capita GDP growth, recreational drugs were entirely legal. On the other hand the government wouldn’t give you a free house, free health care, free food, and a free smartphone. My entire lifetime has been marked by a War on Drugs, however, though there are some ballot questions in various states this year proposing to end at least the state-run war on marijuana. There haven’t been any explicit arguments against marijuana legalization in the New York Times, but I’m wondering if “Millions of Men Are Missing From the Job Market” is an implicit argument against ending the war. The Times editorial says, essentially, that Americans are too busy taking prescription opioids to be bothered with a job. If this is indeed the source of the U.S.’s shrinking labor force participation rate compared to, e.g., Singapore, then wouldn’t legal and readily available marijuana further shrink the number of Americans who want to work?

Milton Friedman said that we couldn’t have a welfare state and open borders at the same time. I’m wondering if he were alive whether he would say that we couldn’t have, simultaneously, (1) a welfare state, (2) legal recreational drugs, and (3) a high rate of labor force participation.

[Note that, other than paying taxes to support prosecutors, public defenders, judges, and the prison industry, I don’t have a personal dog in this fight. See my 2011 post regarding random drug testing for pilots.]

Philip Greenspun’s Weblog

The German DAX Cannot Fall Further

Written By: DragonFly Capital

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merkel

This is what Angela Merkel is saying in the picture above. Unfortunately the German DAX ($ EWG) has a lot of short term badness piling up against it. The chart below shows the daily price action since the major low in September 2011. The run up to 10050 and subsequent consolidation above 9000 now seems at risk as it sits at a critical level. This is happening just above the 23.6% retracement of that move higher at 8850 and the tails of the prior lows have nearly touch that level. As I write it is cracking the barrier. The third time here, it is now making a bearish Head and Shoulders Top. If it breaks down below the neckline it would target a move to at least 7750. The RSI, a momentum indicator, is also right at an important level at 40. A move below that turns it bearish. 7750 is not that far from the break out range that drove it higher. Perhaps a retest? Not if Angela can help it.

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Look Further Left

Written By: DragonFly Capital

There were a lot of small cap pharmaceutical companies that showed up on my watchlist this weekend. Most were too small to trade so I made no mention. These often get into my universe of stocks when a subscriber or follower asks about them. They may not be good to trade, but sometimes they are useful to learn from. One of these is Transcept Pharmaceuticals, $ TSPT. The short term chart below shows that last Friday it closed at 3.02, and more importantly over the 50 day Simple Moving Average (SMA) for the first time since August 6th and only the 3rd time since March 4th. The Relative Strength Index (RSI) was breaking the mid line and the Moving Average Convergence Divergence indicator (MACD) has just crossed positive. The bottom looked to be in and the gap fill above looked like a good target. Fast forward

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to Thursday and the gap is filled. Is the trade over, it time to lighten up? The RSI has moved to technically overbought so maybe. But you might get a different answer and level of confidence if you were to broaden you view and look at the full 2 year life of the stock. That price level at 2.59 holding as support just got a whole lot more significant. It now looks like instead of looking to just fill the gap and maybe a little more upside to 4 from that 6 months of price action, that a target of 6 is very reasonable. That is the lower end of the yellow box where the vast majority of trading in this name has occurred. I am not advocating that you buy this stock but rather making a point on your perspective. If you always look at 6 months, 1 year, 2 years or whatever, of price action, you may be missing a nuance on a shorter or longer timeframe. Shake up your timeframe when you run through your analysis. You may uncover a gem.

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