Online MBA has a great infographic about The Big Mac Index. It’s interesting how such a popular menu item can tell so much about the world economy.
Click on the image to get a full one mirrored here, the original can be found here.
John Gruber questions the point of HP’s decision to do a final run of TouchPad manufacturing. I’ll propose a likely theory:
iSuppli says the Bill of Materials for an iPad 2 (32 GB GSM) is 336.60 when you add in manufacturing. That same iPad retails for $729.00. This is common sense. There’s R&D, marketing, shipping, and of course profit. Keep this in mind. The retail price is not the break even. It’s a profit. HP is selling their Touchpad’s at $99 and $149 I believe, for 16 GB and 32 GB respectively. A loss, but not quite as substantial as comparing to retail pricing would lead you to believe.
Secondly, it’s important to keep in mind that costs aren’t incurred as products are produced. Supply chains often require commitments. HP likely spent considerable funds securing the parts for the Touchpad. They also spent money tooling the factory. This money is already spent. Contracts were signed (they might be able to get out if they pay a penalty + accept some bad will with vendors they may need in the future). Costs that exist regardless of their decision. This is like selling tickets to a sports event you can’t attend at a loss, because it’s better than being stuck with tickets you can’t use and being out 100% of the cost.
I suspect the primary purposes of this last production batch are as follows:
Overall, it seems surprisingly logical to produce another batch. It costs HP a lot of money to cancel the product so quickly. They are taking the loss regardless. Might as well try and reap some rewards and recoup some cash from it.
It’s the 4th of July weekend here in the US. Today’s BBQ1 got me thinking about that conspiracy theory from Father of the Bride regarding the mismatch of hot dogs quantities and hot dog bun quantities. Steve Martin’s character goes nuts over the discrepancy.
This is really an exercise in Least Common Multiples that no teacher seems to exploit (at least none that I ever had).
Research tells me that the reality of this joke is a little more complicated than 8 hot dogs and 12 buns. It may even vary based on location. From what I can tell the most common hot dog packages are 8 and 10, while the most common bun packages are 10 and 12. That means a 10/10 purchase is a win in terms of efficiency. I suspect there are more combinations, but 8/10 and 10/12 seem to be the most common. Here’s a table of the possibilities:
| Hot Dog Qty. | Hot Dog Bun Qty. | Least Common Multiple | Least Hot Dog Packages | Least Hot Dog Bun Packages |
|---|---|---|---|---|
| 8 | 10 | 40 | 5 | 4 |
| 8 | 12 | 24 | 4 | 2 |
| 10 | 10 | 10 | 1 | 1 |
| 10 | 12 | 60 | 6 | 5 |
This leaves me to question: who profits more from this? To figure this out, we’d need to know buying habits of people and costs involved in producing, packaging, shipping these goods. I don’t have that on hand, but I can draw a pretty graph of how many packages of each you’d need to not waste food:
So it looks like we’ll be eating hot dogs in sandwich bread and making tiny sandwiches out of left over hot dog buns for years to come.
1. Technically you grill hot dogs (hot and fast), not BBQ (low and slow) but American etymology is funny.
Gary Shilling of A. Gary Shilling & Co believes that the housing market has another 20% to go before it will bottom out. BusinessInsider has a pretty extensive slide show explaining how he came to that conclusion.
I noted a few weeks ago that I don’t think the housing market has bottomed out. Despite what various talking heads may suggest, the numbers and historical trends suggest it still has more to drop. It still seems to expensive for there to be enough of a market to warrant the price. This is a cyclical problem. Unless housing becomes more affordable, or potential buyers become more affluent (unlikely) housing prices can’t be stable much less climb in any meaningful way. Eventually prices must drop.
I’m glad to see validation that my head scratching isn’t totally unwarranted. This has bugged me for several months. People claim it’s bottomed out, but there doesn’t seem to be any rational reason to think that other than wishful thinking, which I’d argue is optimistic, rather than rational.
The national median existing-home price in July 2010 was $182,600 [source]. The median household income in 2008 was $52,029 [source]. To account for some rising income and play it conservative we’ll call it $55,000 for 2010. I haven’t found any official number later than 2008. We should also note that this estimation ignores the current recession and its impacts like reduced hours, layoffs, and pay cuts.
The old rule of thumb is the maximum house you can afford is 3X your gross income minus obligations (debts). More than that and you’re odds of running into trouble making payments and affording upkeep/taxes becomes too high. That means the median affordable house is $165,000 if the household had no obligations. We of course live in a world of car loans/leases, $100+ cell phone bills, expensive broadband internet, and rising food prices. According to MSN Money the average household owes $8,000 in credit card debt alone [source].
For a more specific example, New Jersey’s median household income in 2008 was $70,347. Per Capita New Jersey is one of the most affluent states in the country. The median value of homes in 2000 was $170,800 [source]. The median price in the Northeast in July 2010 was $263,800. Assuming the median income rose to $75,000 the maximum affordable house is $226,041, again assuming no other obligations.
I should also note this rule of thumb was before the bubble and before banks became borderline paranoid about lending money.
The home ownership rate in the US is 67.8% [source (xls)] which means it’s a pretty representative part of the US population, hardly a niche group which we could suggest lives outside these numbers.
Using this back of the envelope calculation I propose that the housing bubble for existing homes doesn’t end until either the median existing-home price falls to meet the maximum affordable house index, or the incomes rise and debts fall to meet the existing-home price index. Only then will the supply and demand curve finally meet and the market volume will increase. Personal income and wealth are too tight for either the supply or demand side to cave right now. I further propose that housing prices will fall faster than incomes will rise.
Translation: the housing market hasn’t finished correcting.
Jeff Walden linked to a great paper:The Deadweight Loss of Christmas by Joel Waldfogel. Given the economy this several year old paper is extremely relevant and interesting. Something to keep in mind when merchants report their holiday sales statistics.
I remember a discussion on this in college (likely an economics class). It’s a slight misnomer that Christmas is an economic stimulus in the way people think it is.
Here’s an amusing video from 1947 titled “What is Money?” Considering the economy right now, not a bad one to watch.
[Hat tip: The Consumerist]
Many think that tax rebates they will soon receive thanks to the economic stimulus package recently passed is “free money”. Reality is that unless you made less than $3,000 or suddenly have a change in income between now and next year, that’s likely not the case. As this MSN Money article puts it:
Remember, this is your money you’re getting back, and the rebate checks are basically an advance on your 2009 refund.
I wonder if this misconception of free cash causes more reckless spending.
That said it is possible to make a few dollars if it’s invested well as you’ll collect a nearly a full year’s interest on money the government would have otherwise been collecting interest on. So in reality, the free money is only the interest you “make” on it if you invested it well.