Charter schools study shows better outcomes with less public funds

Charter schools receive less funding than equivalent public schools, but in many cases are achieving improved outcomes for disadvantaged kids. Ray Fisman writes:

Minnesota’s charter school law allowed educators and other concerned individuals to apply to the state for permission to operate a government-funded school outside of the public education system. In order to obtain and keep their licenses, these new schools needed to show they were serving their students effectively, based on goals laid out in the school’s “charter.” City Academy, America’s first charter school, opened in St. Paul the following year. Its mission was to get high-school dropouts on track to vocational careers, and it is still operating today.

Principals are able to operate outside the constraints of the public education system and are assessed on results.

…..While they’re funded with public money, they generally operate outside of collective bargaining agreements (only about one-tenth of charter schools are unionized) and other constraints that often prevent principals in public schools from innovating for the good of their students (so the argument goes). In exchange for this freedom, they generally get less funding than public schools (though they’re free to look for private donations, and many do) and have to prove that they are making good on the promises set out in their charters, which often means showing that they improve their students’ performance on statewide standardized tests.

The program has been so successful that there are now almost 6000 charter schools nationwide. Fisman reports on a study of enrolments at six Boston charter schools between 2002 and 2008:

“….Getting into a charter school doubled the likelihood of enrolling in Advanced Placement classes (the effects are much bigger for math and science than for English) and also doubled the chances that a student will score high enough on standardized tests to be eligible for state-financed college scholarships. While charter school students aren’t more likely to take the SAT, the ones who do perform better, mainly due to higher math scores. The upshot of this improvement in college readiness is that, upon graduation, while charter and public school students are just as likely to go on to post-secondary education, charter students enroll at four-year colleges at much higher rates. A four-year college degree has historically meant a better job with a higher salary……. a ticket to a better life for many students.”

He warns that “Not every charter school is right for every kid” but they do highlight the benefits of a decentralized education system where schools are assessed on outcomes rather than conformity to a program. Other studies have shown that increased public funding does not improve education outcomes. Ever wondered why bureaucrats continue to promote this as a solution?

Read more at Do charter schools work? Slate | Ray Fisman

China hints at bottom while S&P 500 reverses

10-Year Treasury yields are testing resistance at 2.05/2.10%. Breakout above 2.10% would signal a primary up-trend and possible test of 4.00% in the next few years. Only breakout above 4.00%, however, would end the 31-year secular bear-trend.

10-Year Treasury Yields

The S&P 500 completed a key reversal (or outside reversal), indicating selling pressure. Expect a test of the lower trend channel at 1600.

S&P 500 Index
There is no great movement in the VIX and this so far looks like a normal retracement. A June quarter-end below 1500 looks unlikely, but would present a long-term bear signal.

S&P 500 Index

The UK’s FTSE 100 Index is headed for a test of its year 2000 high at 7000. Expect a correction or consolidation below this level. Breakout remains doubtful but would signal a long-term primary advance.
FTSE 100 Index

Penetration of its descending trendline indicates correction on the Shanghai Composite Index has ended and we can expect another test of resistance at 2500. Breakout above 2500 would complete an inverted head and shoulders reversal (as indicated by orange + green arrows), signaling a primary up-trend. That would be good news for Australia’s beleaguered resources stocks.

Shanghai Composite Index

As traders we follow the trend, but in times like this it is important to remain vigilant.

Market Insight: Central bankers turn deaf ear on balance sheets – FT.com

John Plender at FT observes:

The sheer size of the move in US Treasuries is striking. From the beginning of May to the end of last week, yields on the 30-year Treasury bond rose by nearly 40 basis points while the 10-year yield rose around 30bp. That is a measure of the market’s sensitivity to assumptions about an exit from the era of central bank balance sheet expansion. It is also an indication of how far we are from a return to normality.

Read more at Market Insight: Central bankers turn deaf ear on balance sheets – FT.com.

VIX low S&P 500 high

The VIX CBOE Volatility Index is below 15%, indicating investor confidence.
VIX
But the risk premium on Baa-grade bonds (Moody’s lowest investment grade, compared to the 10-year Treasury yield) remains elevated. Corporate bond investors are still wary.
Baa Risk Premium
10-Year Treasury yields are headed for a test of resistance at 2.00%/2.10%. There is no sign of inflationary pressure, so outflow from Treasuries is more likely indicative of their extremely overbought position — with yields near record lows — and suggestions from FOMC minutes that quantitative easing may be scaled back later in the year. Breakout above 2.10% would signal a primary up-trend with an initial target of 2.40%.
10-Year Treasury Yields
The S&P 500 is advancing strongly. 6-Monthly Twiggs Money Flow rising strongly indicates a healthy primary up-trend. The index is overdue for a correction, but this is likely to be mild.

S&P 500 Index

* Target calculation: 1475 + ( 1475 – 1350 ) = 1600

Nasdaq 100 also signals a healthy up-trend, advancing towards a target of 3400*.
Nasdaq 100 Index

* Target calculation: 2900 + ( 2900 – 2500 ) = 3400

Bellwether transport stock Fedex respected support at $90. Recovery above $100 would confirm the primary up-trend is intact. A bullish sign for the economy.
Fedex

Follow the trend but keep an eye on risk measures like the VIX and Baa risk premium. These are uncertain times.

Can two senators end ‘too big to fail’? | The Big Picture

Barry Ritholz writes:

The idea that two senators from opposite sides of the ideological spectrum can find common ground to attack a problem with a simple solution is novel in the Senate these days. If Brown and Vitter manage to end the subsidies to banks deemed “too big to fail,” they will have accomplished more than “merely” preventing the next financial crisis. They will have helped to create a blueprint for how to get things done in an era of partisan strife.

Read more about the progress of the Brown-Vitter (TBTF) bill at Can two senators end ‘too big to fail’? | The Big Picture.

Gold and commodities fall while Dollar and bond yields rise

Gold broke the rising trendline and support at $1440/$1450, indicating another test of primary support at $1320. Target of $1200* for the decline would be confirmed by a breach of primary support.

Spot Gold

* Target calculation: 1350 – ( 1500 – 1350 ) = 1200

Treasury Yields

Ten-year treasury yields broke resistance at 1.80% and are headed for a test of 2.00/2.05%. Breach of that level would signal a primary up-trend, but the thirty-year secular bear trend (in yields) remains downward and would only be reversed by a rise above 4.00%. Respect of resistance at 2.05% remains likely and would indicate another down-swing to test primary support at 1.60%. A weak inflation outlook, as indicated by falling gold prices, would decrease demand for stocks (as an inflation hedge) and increase demand for bonds.

Dollar Index

Dollar Index

The Dollar is strengthening, with the Dollar Index testing resistance at 84. Breakout would signal a test of long-term resistance at 89/90*.
Dollar Index

* Target calculation: 84 + ( 84 – 79 ) = 89

Crude Oil

Brent Crude respected resistance at $106/barrel, indicating a down-swing to $92*. Nymex WTI respected resistance at $98 and is likely to re-test resistance at $85/barrel. A classic pair trade, the spread between the two is likely to narrow as the European economy under-performs.

Brent Crude and Nymex Crude

Commodities

Commodity prices continue to fall, with the Dow Jones/UBS Commodity Index headed for primary support at 125/126. The major driver of commodity prices is China and reversal of the current down-trend, on both indices, appears some way off despite a US recovery.

Dow Jones UBS Commodities Index

Canada: TSX Composite recovery

The TSX Composite followed through above 12500, indicating another test of resistance at 12800/13000. Expect retracement to test the new medium-term support level at 12500, but respect is likely. Recovery of 13-week Twiggs Momentum above zero suggests continuation of the primary up-trend. Breakout above 13000 still appears some way off, but would offer a target of the 2011 high at 14300.
TSX Composite Index

Forex: Aussie breaks support while Yen soars

The Aussie Dollar broke primary support at $1.015 and is testing parity against the greenback. Parity is not expected to hold and we are likely to see a test of the next major support level at $0.95/$0.96. Narrow fluctuation of 63-day Twiggs Momentum around zero continues to suggest a ranging market.

Aussie Dollar/USD

The euro is retreating, headed for another test of $1.2750. Respect would signal another attempt at $1.37, while failure would indicate a primary down-trend — testing long-term support at $1.20. The failed advance to $1.50 would be bearish; and breach of $1.20 would offer a target of $1.05*.

Euro/USD

* Target calculation: 1.20 – ( 1.35 – 1.20 ) = 1.05

Rapid expansion of the monetary base by the Bank of Japan is fueling inflation fears and weakening the yen. Lars Christensen points out that, with competitive devaluation from all quarters, exports are not likely to play a major part in a Japanese recovery. What is more likely is a consumption and investment boom as households invest in real assets as a hedge against inflation.

The greenback broke resistance at ¥100 against the Japanese Yen — a one-third appreciation from the lows of 2011/2012. Expect retracement to test the new support level, but breach of the long-term declining trendline indicates the 30-year secular bear trend is over. Long-term target for the advance is the 2007 high at ¥125*.

USD/JPY

* Target calculation: 100 – ( 100 – 75 ) = 125

The monetary policy revolution

James Alexander, head of Equity Research at UK-based M&G Equities, sums up the evolution of central bank thinking. He describes the traditional problem of inadequate response by central banks to market shocks like the collapse of Lehman Brothers:

Although wages hold steady when nominal income falls, unemployment tends to rise as companies scramble to cut costs. In the wake of the crash, rising joblessness created a vicious circle of declining consumption and investment that proved very difficult to reverse, particularly as central banks remained preoccupied with inflation.

Failure of both austerity and quantitative easing has left central bankers looking for new alternatives:

…..Economist Michael Woodford presented a paper [at Jackson Hole last August] suggesting that the US Federal Reserve (Fed) should give markets and businesses a bigger steer about where the economy was headed by adopting a nominal economic growth target. In September, the Fed announced its third round of QE, which it has indicated will continue until unemployment falls below 6.5% – the first time US monetary policy has been explicitly tied to an unemployment rate. US stocks have since soared, shrugging off continued inaction surrounding the country’s ongoing debt crisis.

While targeting unemployment is preferable to targeting inflation, it is still a subjective measure that can be influenced by rises or falls in labor participation rates and exclusion of casual workers seeking full-time employment. Market Monetarists such as Scott Sumner and Lars Christensen advocate targeting nominal GDP growth instead — a hard, objective number that can be forecast with greater accuracy. Mark Carney, due to take over as governor of the BOE in July, seems to be on a similar path:

Echoing Michael Woodford’s comments at Jackson Hole, he advocated dropping inflation targets if economies were struggling to grow. He has since proposed easing UK monetary policy, adopting a nominal growth target and boosting recovery by convincing households and businesses that rates will remain low until growth resumes.

While NGDP targeting has been criticized as a “recipe for runaway inflation”, experiences so far have not borne this out. In fact NGDP targeting would have the opposite effect when growth has resumed, curbing inflation and credit growth and preventing a repeat of recent housing and stock bubbles.

Read more at Outlook-for-UK-equities-2013-05_tcm1434-73579.pdf.