The 5 Most Alarming Statistics I Read This Week

I like to think of myself as a measured optimist, and as I review the financial and economic press, some numbers naturally capture my imagination and fuel that optimism. Here are five statistics that don't fall into that category.

1. Whale watching
On May 18, the Financial Times reported:

In November 2010, even the British Bankers' Association, a lobbying group, explicitly noted the scale of the CIO's activities in a warning on the fragility of the UK mortgage market. "[The JPMorgan chief investment office] has taken more than 13bn pounds (or 45 per cent) of the total amount of UK RMBS [residential-mortgage-backed securities] that has been placed with investors since the market reopened in October 2009," the BBA said.

For the past 10 days or so, JPMorgan Chase (NYSE: JPM  ) has been in hot water over multibillion-dollar losses on structured corporate credit products attributable to its chief investment office. These massive losses are the result of massive positions, but the preceding quote suggests the CIO was already a "whale" in other markets, too -- and has been for some time. The problem with being a whale is that once you're beached, there's never enough liquidity to save you -- as JPMorgan is now discovering at great cost.

2. Bad Education
On May 15 the Financial Times had this to say: "In 1990, [California] spent twice as much on its universities as its prisons. Now it spends almost twice as much on prisons."

Talk about a trend in the wrong direction! My guess is that this dramatic reversal can only be explained by two worrisome trends. First, prisons' "enrollment" rates are increasing faster than those of universities. Second, the cost per prisoner is increasing faster than the cost per student. Presumably, investing in education produces a positive return for society. As for money spent keeping citizens behind bars, given the rates of recidivism, it's much harder to make that argument.

3. SIFI horror
On May 17 Fitch Ratings estimated that, as of the end of 2011, the 29 global, systemically important financial institutions, or G-SIFIs -- which as a group represent $47 trillion in total assets -- might need to raise roughly $566 billion in common equity in order to satisfy new Basel III capital rules. This represents a 23% increase relative to these institutions' aggregate common equity of $2.5 trillion.

This is another one for U.S. bank stock investors. These numbers get to the heart of why five of the six U.S. G-SIFIs -- Bank of America (NYSE: BAC  ) , Citigroup (NYSE: C  ) , Goldman Sachs (NYSE: GS  ) , JPMorgan Chase, and Morgan Stanley -- have persistently traded below book value over the past twelve months. There is tremendous uncertainty regarding the ultimate impact of more stringent capital rules on long-term profitability. What is known is that the effect won't be positive: Lower leverage implies lower returns on equity (which, in turn, imply lower book value multiples).

On the bright side, as Warren Buffett recently noted at Berkshire Hathaway's Annual Meeting, U.S. banks are in much better shape than their European counterparts. As the latter institutions are forced to continue reducing the size of their balance sheets -- and thus their activity -- to meet higher capital requirements, this will put further pressure on a regional economy already struggling with the economics of austerity. While the full implementation of the new Basel III capital rules doesn't take effect until the end of 2018, the trend is clear.

4. How about the 99.9%?
According to the May 15 Financial Times, "In the last full business cycle, between 2002 and 2007, the top 1 per cent captured almost two-thirds of the rise in incomes, while the top 0.1 per cent captured more than a third."

Americans are generally prepared to tolerate higher levels of income inequality than Europeans or the Japanese. However, one needn't be a rabid collectivist to think that the distribution of income these numbers hint at might be problematic.

5. An acreage bubble?
Lastly, from a report in the May 16  Financial Times: "For the first time since the Kansas Fed started tracking the ups and downs of farmland prices in the Plains region in the late 1970s, the costs have grown by 20 per cent in two consecutive years. The Kansas Fed said prices for non-irrigated land rose 25 per cent in the first quarter compared with the same period of 2011, while irrigated cropland surged 32 per cent, the biggest year-on-year jump in history."

As we continue to deal with the consequences of the collapse of the housing bubble, these numbers certainly merit some arched eyebrows. The article from which I lifted that excerpt correctly notes that there are some explanations for the rise in farmland prices, including the inflation of food and crop prices. Furthermore, it appears debt is not fueling the rise in farmland prices, as credit demand from the farming sector is at its lowest level since 2004.

All the same, I did not find the following quote from a banker in northeast Kansas very reassuring: "There is more liquidity in the farm sector than I have seen in my 30 years as a banker." As far as I know, there is no ETF related to U.S. farmland, but I suppose if you're anticipating a collapse in farmland values, you could always short or buy puts on agricultural-equipment manufacturer Deere (NYSE: DE  ) . (Note: This isn't a recommendation!)

Any thoughts on these numbers? Let me know in the comment section below.

Fool contributor Alex Dumortier holds no position in any company mentioned. Click here to see his holdings and a short bio; you can follow him on Twitter. The Motley Fool owns shares of Bank of America, Citigroup, and JPMorgan Chase. Motley Fool newsletter services have recommended buying shares of The Goldman Sachs Group. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On May 22, 2012, at 2:25 PM, devoish wrote:

    After the underestimation of the amount of global warming to expect, this is the scariest investment data point I have read;

    #9) On May 21, 2012 at 4:00 AM, rainmon (< 20) wrote:

    I have been devestated by Apple stock this month, I am still reeling, out Thursday at $537 with huge losses on 200 shares. I need to be invested in something but cannot take another 7% cut off my net worth every again like this. So now I guess will look at buying ETF's or something like Exxon, Verizon, Starbucks, YUM and maybe even NLY. I have no income or job so really need to make at least 1200 to 1500 a month. I have been doing covered calls for years and never seen anything like this before...

  • Report this Comment On May 22, 2012, at 2:50 PM, Jbay76 wrote:

    I think #2 is somewhat affected by the fact that prisons have become privatized. In doing so, these corporations are incentivized (sp?) to lobby for maximum penalties for offenses. A major percentage of prison mates are there for drug related charges, reference not readily available becuase I am too lazy to go back and look it up on the web. And of those, marijuana related crimes are high. If CA legalized marijuana, the # incarcerated would decrease, tax revenue would increase (assuming CA taxed marijuana purchases), and funds could be redistributed back to worthwhile causes like education.

    But what do I know?......

  • Report this Comment On May 22, 2012, at 5:43 PM, frogburger wrote:

    I'm tired of shallow pieces like this one. I could've written it myself

    If you're assuming not enough money is spent in CA for education, then you're a... fool. Top budget for education in the nation and ranked 47 in scores.

  • Report this Comment On May 22, 2012, at 5:52 PM, amassafortune wrote:

    Number 5 - acreage bubble. Americans spend less on food as a percentage of income than most of the world.

    This is a great segment for the next bubble and ag acreage along with fertilizer prices indicate this might be the case.

    Any segment that appreciates at a greater rate than college tuition or health care is a suspect bubble.

    Farmers rent land at about 3% of value. As for the liquidity question, I think some research would bear out that farmers are leasing more land and the trend is toward ag land ownership by the wealthy who have no intention to work the acres themselves.

    We all eat, so this is a perfect area to build a monopoly, especially with Americans consuming so many calories more than necessary.

  • Report this Comment On May 22, 2012, at 6:05 PM, xetn wrote:

    Were it not for subsidies for farmers growing corn for ethanol, I doubt the price of acreage would be so high.

    The subsidies are doing for farmland as the Fed did for housing. I fear there will be a similar result (a crash in farm prices when the subsidies end).

    The worst part of the subsidy is that much acreage is being diverted away from food production to ethanol, which is increasing the cost of food.

    As for prisons, we need to end the war on "everything" that ends in 25 percent of the world's prisoners being in the US prisons.

  • Report this Comment On May 22, 2012, at 7:10 PM, Wade32ru wrote:

    @xetn

    You are on point with EVERYTHING you said!

  • Report this Comment On May 22, 2012, at 9:39 PM, CommonScents wrote:

    Much of the 'acreage bubble' is being driven by higher commodity prices. But these prices are almost certainly not sustainable. Here is a chart of the price of corn, adjusted for inflation.

    http://inflationdata.com/inflation/inflation_articles/Corn_I...

  • Report this Comment On May 23, 2012, at 8:15 AM, JGDTexas wrote:

    A lot of what is highlighted as alarming statistics are actually symptoms of an underlying problem(s). For example, "income inequality" is a symptom of the stagnant economy, the gov't policies that drive jobs offshore or at leasr don't encourage them to stay, the socialistic welfare culture being institutionalized over decades (again by gov't policies), and likely more root causes. I suppose theere's limited space for articles but some recognition of symptoms versus root causes would sound more credible, especially in this world of hidden agendas. You can't read anything without wondering if there is an agenda.

  • Report this Comment On May 23, 2012, at 9:17 AM, TMFAleph1 wrote:

    <<If you're assuming not enough money is spent in CA for education, then you're a... fool.>>

    I don't assume anything because, as the saying goes, it makes an ass out of u and me.

  • Report this Comment On May 23, 2012, at 11:49 AM, valkery wrote:

    Jim Rogers says the next millionaires will be farmers because the average age of farmers is 58 and they are not making any more farmland.

  • Report this Comment On May 23, 2012, at 1:51 PM, jamesso wrote:

    99.9% Is this a world stat or American. It makes a big difference as I recently read that America is the dreaded 1% on a worldwide basis. In other words that is good news, unless it is USA based then it points to a broadening class division.

  • Report this Comment On May 23, 2012, at 3:58 PM, TMFAleph1 wrote:

    @jamesso

    That statistic concerns the U.S. economy.

  • Report this Comment On May 23, 2012, at 5:29 PM, ershler wrote:

    xetn,

    The subsidy was for oil companies to blend ethanol into gasoline, not for anyone to grow anything; and it has expired.

  • Report this Comment On May 24, 2012, at 12:45 AM, TomBooker wrote:

    "Americans are generally prepared to tolerate higher levels of income inequality than Europeans or the Japanese. However, one needn't be a rabid collectivist to think that the distribution of income these numbers hint at might be problematic."

    I know they don't teach Civics any more in High School, but I didn't know they dropped Western Civ, too.

    First, it was either the most widespread US propaganda ever, or there was some truth to it...

    Our Democracy and Capitalism created the Middle Class, which differentiated us from every Monarchy, Socialist, Fascist, and Totalitarian country in History. The reason is that the country rides on the back of a Middle Class in high quality organic growth.

    Historically, the surest sign your nation is screwed, is that there is no Middle Class.

    Which stats do you want to discuss which clearly indicate the Middle Class has already been decimated.

    And the stats which further indicate nobody is going to be moving up, to replace the folks who have fallen out, at any significant numbers, for a long, long, long time..

    Remember, the Unemployment banner print number isn't real. Or if it is real, 80% of the improvement in the number has to do with 4 out 5 people caught in the stats, "leaving" the job force.

    And although there are 90,000,000 more people in the US as of 2010, than 1981, we only employ (and part-time under-employ) the same % of the population as we did in 1981. Except a much higher percentage of the people in 1981 had full-time jobs, and jobs for which they had prepared. Just this week we found out that we employ a higher % of people without college degrees, than with college degrees.

    Next...

    In wealth and income distribution, and rate of improvement of the same, Monarchies didn't ever have it this good.

    As everybody waits for CNBC to never announce the official end to the Middle Class, I don't think the best and honest word is "problematic". It's non-specific and a kinda' wimpy word.

    I think "Feudal" captures both the essence, and likely reality of the situation.

    The only difference with Adam Smith's era, is that we have MoneyRenters, instead of LandRenters.

  • Report this Comment On May 24, 2012, at 8:51 AM, Morgana wrote:

    How education affects economy: I remember reading an article a few years ago that companies were not moving to Arizona because it did not have sufficiently educated populace to work in the companies. It is not about how much money you have in education but what policies you support. Case in point: Florida lowered the passing score on statewide writing tests after finding out that students were not passing. When the test increased standards--i.e. took grammar into account on the writing tests (DUH!!!), there was a drop on average of 50 points in 4th - 10th grade scores. As a writing specialist with 40 years, teaching across the US from CA to NY, I have seen writing literacy drop dramatically. Before anyone mumbles under their breath about hating grammar in school, I would like to point out that English and writing is the tool by which we communicate. Grammar is the vehicle; thinking is the driver; humanities is the passenger. We teach critical thinking skills, problem solving (critical thinking is redundant, however, in my book). Next time you are on the phone, frustrated by the stupidity, denseness, and robotic demeanor of the person(s) to whom you are trying to communicate, consider what higher requirements in English --not merely grammar--might have done to impact the life of that representative and the quality of his/her life. You want a better workforce, teach students to think through whatever subject they are taking. Bring back the arts and humanities. Was it Churchill who got funding for the arts DURING THE WAR by telling Parliament, "You better remind the people what they are fighting for"?

  • Report this Comment On May 24, 2012, at 5:16 PM, TomBooker wrote:

    "Was it Churchill who got funding for the arts DURING THE WAR by telling Parliament, "You better remind the people what they are fighting for"?"

    No, I think it was.... "You had better remind the people for what they are fighting."

    (kidding)

  • Report this Comment On May 24, 2012, at 8:52 PM, Sunny7039 wrote:

    Someone thinks that the entire US is at or near the top 1% globally? That would be a neat trick, since we are roughly 5% of the world's population. Or are you looking at raw-numbers income, rather than purchase-parity-power? Good. I'm glad logic is still on the program. (sarcasm alert -- I guess I have to say that)

    On a related topic, I had a conversation the other day with a retired middle-school mathematics teacher, who has a Master's in teaching math. She didn't know what calculus is.

    How do you expect all this to work out? I'm not sure what you're thinking.

    I liked this article a lot, but . . . well, if the average person doesn't have a fairly clear idea of what these statistics -- or statistics in general -- mean, then I guess we have a problem.

    Speaking of statistics, I thought this was a great contribution to the discussion:

    "And although there are 90,000,000 more people in the US as of 2010 than 1981, we only employ (and part-time under-employ) the same % of the population as we did in 1981. Except a much higher percentage of the people in 1981 had full-time jobs, and jobs for which they had prepared. Just this week we found out that we employ a higher % of people without college degrees, than with college degrees."

    Thanks, TomBooker. Information like this is truly valuable. This merits further research and thought. Not a pretty picture at all . . . so, what should we do about it?

    I'm always looking for things to do, collectively and personally. No defeatism here, just growing concern.

  • Report this Comment On May 25, 2012, at 4:34 PM, xetn wrote:

    ershler:

    Does this sound like they are over?

    http://www.zimbio.com/Renewable+Energy/articles/yU2mfgp_2Pl/...

  • Report this Comment On May 25, 2012, at 5:09 PM, TMFMTHead wrote:

    I see the rising prices on ag land being driven directly by the increasing prices for food. However, the question I ask is What is driving the cost of food up?

    I think much of it is due to the use of corn as a biofuel. The price of corn increased do rapidly that many farmers switched to it from wheat, soy beans and other crops on a more limited basis. Currently, in the area known locally as the 'Golden Triangle' for how much wheat is grown their, Montana farmers are hauling money to the bank by the truck loads.

    If I am correct in corn as biofuel being a significant cause of the rise in prices, then it is definitely a bubble that will burst at some point.

    You won't find me buying any land in the mid-west, but that is due more to a fear of tornados than anything else.

  • Report this Comment On May 25, 2012, at 10:24 PM, TENOFWANDS wrote:

    GLOBALIZATION is the surest path to PLUTOCRACY and SERFDOM for the elite and the masses, respectively.

  • Report this Comment On May 26, 2012, at 1:26 PM, IWU1970 wrote:

    The increase in non-farm land values in Kansas is likely being driven by, believe it or not, oil and gas exploration and production. I saw a statistic this past week that said Kansas is now in the top five states in the U.S. for oil and gas production. I haven't had a chance to check that fact, so don't quote it, but the southern part of the state, bordering Oklahoma, is alive with drilling. Horizontal drilling and Kansas' drilling friendly legislature are surely important drivers of the increase in land values.

  • Report this Comment On May 26, 2012, at 1:30 PM, IWU1970 wrote:

    Oh, and a thought about Deere-- The Kansas farm and rural families suddenly enjoying oil and gas royalties, may be inclined to buy more and better machinery-- not less. Deere might be a beneficiary of the new money. Who knows?

  • Report this Comment On May 27, 2012, at 6:41 PM, BigErn01 wrote:

    Are you a Plebeian or a Patrician - or where's the middle class?

    Look to ancient Rome: After the Kings were defeated - jointly by these 2 groups - the (rich) Patricians pretty much lived in cities and ruled the city-states of Rome; they also had all the votes.

    The Plebes were mostly workers & farmers, and had little wealth & power, but felt they had a stake in their country. Since the Plebes were more numerous, they were often employed by the Pats as soldiers to defend Rome. Meanwhile the Plebes became poorer as noone worked their land during battles. They had to borrow $$ (from Pats) to re-build/re-plant their farm. Soon many of them were in debtors prison or worse due to inability to fully repay their debts. Pats repossessed the untended farms.

    Got to a point that the Pats owned the land as well as the banks. What happened next? Plebes refused to defend the country, Rome was overtaken by their many enemies.

    If we want to keep a middle class (& save our country) we need to act like we want it. (Fortunately we still have a vote.) Or we'll mostly end up owing everything to our Patricians -- the 1% with the $$$. Education and effort makes the difference - & the middle class.

  • Report this Comment On June 03, 2012, at 1:34 PM, levelplayinfield wrote:

    If we want to keep our democracy, we need toact more responsibily. The idea to spend and charge it to someone else or just build up the debt is assinine.

    In 1887 Alexander Tyler, a Scottish history professor at the University of

    Edinborough, had this to say about the fall of the Athenian Republic some

    2,000 years prior:

    "A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse over loose fiscal policy, (which is) always followed by a dictatorship."

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