For those jealous of American "success", the party's winding down.
Now that the "bulge" boomer generation can neither pay back its debts nor fund retirement, whither America?
Sunday, February 25, 2007
America, the beautiful
For those jealous of American "success", the party's winding down.
Now that the "bulge" boomer generation can neither pay back its debts nor fund retirement, whither America?
Wednesday, February 21, 2007
From the mouths of babes...
From the Pueblo Chieftain online, we have Dream repossessed.
Kevin McCarthy of U.S. Bank said mortgage payments can rise $100 to $500 a month when mortgage interest rates go up.
Many buyers who used adjustable-rate loans also didn't have to pay much of a down payment because they were borrowing the down payment too, McCarthy said. That means they were borrowing as much as 100 percent of the cost of the home, plus other expenses.
That gave the buyers a higher interest rate and required them to pay for mortgage insurance, he said.
The cumulative effect is that the buyer has little or no equity, McCarthy said, little incentive to save the home and a huge-and-growing amount of money to pay off.
"Anytime you borrow too much money it's harder to pay it back," he said.
No!!!! You don't say?!?
"You have a bit of a perfect storm," Sean McCarthy said.
The industry is learning its lesson now, he said, but it will be a painful one, both for buyers and the lenders who lose money on each foreclosure.
"The market is healing itself," Sean McCarthy said. "But it takes a year or two of bloodletting."
Last time I saw a bloodletting, it was ER time not "healing" time! Come to think of it, that's not a bad metaphor to what's going to happen to the US economy.
Kevin McCarthy of U.S. Bank said mortgage payments can rise $100 to $500 a month when mortgage interest rates go up.
Many buyers who used adjustable-rate loans also didn't have to pay much of a down payment because they were borrowing the down payment too, McCarthy said. That means they were borrowing as much as 100 percent of the cost of the home, plus other expenses.
That gave the buyers a higher interest rate and required them to pay for mortgage insurance, he said.
The cumulative effect is that the buyer has little or no equity, McCarthy said, little incentive to save the home and a huge-and-growing amount of money to pay off.
"Anytime you borrow too much money it's harder to pay it back," he said.
No!!!! You don't say?!?
"You have a bit of a perfect storm," Sean McCarthy said.
The industry is learning its lesson now, he said, but it will be a painful one, both for buyers and the lenders who lose money on each foreclosure.
"The market is healing itself," Sean McCarthy said. "But it takes a year or two of bloodletting."
Last time I saw a bloodletting, it was ER time not "healing" time! Come to think of it, that's not a bad metaphor to what's going to happen to the US economy.
Saturday, February 17, 2007
Dog is my co-pilot
Oh, wait, I must've reversed the letters in that first word.
From the paper that I use to wipe my butt with (oh, sorry! I meant "paper of record", I must be drunk,) we have: The Psychology of Pricing.
In a market where buyers and sellers circle one another warily — each certain that he or she is being taken advantage of, no matter what the conclusion of a deal — the asking price of a property is rarely a straightforward reflection of comparable values. While comparables may be a starting point, the price at which a seller offers a property is often also based on wishful thinking, propaganda and ploy.
I'll give you a simpler version of this, you fuckin' rug-chompers!
There's only one determinant of price: the bid.
Nobody "needs" to buy, but a lot of people may or may not need to sell. That's why the bid rules all markets. Everything from EBay to the most expensive Van Gogh on sale at Sotheby's!
So long, suckahs! Meet you in bankruptcy court!
From the paper that I use to wipe my butt with (oh, sorry! I meant "paper of record", I must be drunk,) we have: The Psychology of Pricing.
In a market where buyers and sellers circle one another warily — each certain that he or she is being taken advantage of, no matter what the conclusion of a deal — the asking price of a property is rarely a straightforward reflection of comparable values. While comparables may be a starting point, the price at which a seller offers a property is often also based on wishful thinking, propaganda and ploy.
I'll give you a simpler version of this, you fuckin' rug-chompers!
There's only one determinant of price: the bid.
Nobody "needs" to buy, but a lot of people may or may not need to sell. That's why the bid rules all markets. Everything from EBay to the most expensive Van Gogh on sale at Sotheby's!
So long, suckahs! Meet you in bankruptcy court!
Please don't poop in your pants!
From sunny San Diego which this blog had predicted was going to be the minor epicenter of the housing bubble (for the record, the epicenter is somewhere near the Dade and Broward counties in Florida.)
And a happy 2007 to you too!
And a happy 2007 to you too!
Leverage
I want to talk about debt and leverage, and since these are not complicated topics, I'm just going to explain them.
Suppose I allowed you to borrow $100 by putting down a deposit of $10. For argument's sake, I'm a generous guy, and I don't even charge you interest on the $90 that you borrowed. Now, you go and invest that money somewhere. For argument's sake, it's the stock market. At the end of the year, the market returns 5%.
What is your true return?
Well, you made $5, and you only put down $10 so that's 50% return. However, the market only returned 5% so where did the remaining 45% come from?
The answer is leverage.
You controlled $10 for every $1 you put down. That's 10:1 leverage. 10 times 5% = 50%.
Now if the market had declined 3%, you would have a loss of 30%. Same logic: 10 times leverage by -3% = -30%.
And what happens if the market declines 25%? You lose 10 times -25% = -250%, which is to say, you just lost $25.
Where does the extra $15 come from? You owe me $15, and if you don't pay up, I may just send Fat Tony (or its modern equivalent) around to collect it.
And what happens if you can't pay? Well, with Fat Tony, you lose your kneecap but in the modern world, you end up in bankruptcy court.
So leverage magnifies both losses and gains, and if I had charged you interest, the calculations will change (but you get the general picture.)
The key point is that leverage magnifies both losses and gains.
All debt involves leverage. This is an inescapable fact.
There are two key points here:
Firstly, leverage magnifies both gains and losses. Hence it magnifies risk as well.
Secondly, you want to try and use leverage when the odds are in favor of gains rather than losses, and not otherwise. This is a simple probability argument that should be utterly obvious. (A leveraged casino is as much of a "no-brainer" as it gets in the finance world, since the casino has the odds in its favor.)
A non-obvious use of leverage is when people borrow money for higher education. Most likely, it will pay off in the form of higher wages. (However, it may not. You're magnifying risk even though it's not obvious.)
However, it should be easy to deduce a simple corollary from the above two points:
If things are likely to decline in value, don't take on debt to buy it. In an extreme particular, taking on debt to buy depreciating assets is always a bad idea!
Makes sense, right?
Suppose I allowed you to borrow $100 by putting down a deposit of $10. For argument's sake, I'm a generous guy, and I don't even charge you interest on the $90 that you borrowed. Now, you go and invest that money somewhere. For argument's sake, it's the stock market. At the end of the year, the market returns 5%.
What is your true return?
Well, you made $5, and you only put down $10 so that's 50% return. However, the market only returned 5% so where did the remaining 45% come from?
The answer is leverage.
You controlled $10 for every $1 you put down. That's 10:1 leverage. 10 times 5% = 50%.
Now if the market had declined 3%, you would have a loss of 30%. Same logic: 10 times leverage by -3% = -30%.
And what happens if the market declines 25%? You lose 10 times -25% = -250%, which is to say, you just lost $25.
Where does the extra $15 come from? You owe me $15, and if you don't pay up, I may just send Fat Tony (or its modern equivalent) around to collect it.
And what happens if you can't pay? Well, with Fat Tony, you lose your kneecap but in the modern world, you end up in bankruptcy court.
So leverage magnifies both losses and gains, and if I had charged you interest, the calculations will change (but you get the general picture.)
The key point is that leverage magnifies both losses and gains.
All debt involves leverage. This is an inescapable fact.
There are two key points here:
Firstly, leverage magnifies both gains and losses. Hence it magnifies risk as well.
Secondly, you want to try and use leverage when the odds are in favor of gains rather than losses, and not otherwise. This is a simple probability argument that should be utterly obvious. (A leveraged casino is as much of a "no-brainer" as it gets in the finance world, since the casino has the odds in its favor.)
A non-obvious use of leverage is when people borrow money for higher education. Most likely, it will pay off in the form of higher wages. (However, it may not. You're magnifying risk even though it's not obvious.)
However, it should be easy to deduce a simple corollary from the above two points:
If things are likely to decline in value, don't take on debt to buy it. In an extreme particular, taking on debt to buy depreciating assets is always a bad idea!
Makes sense, right?
Broke is the new black : Part 3 (Job Prospects)
Continuing on my earlier entry "Broke is the new black", I want to talk about what the arc of job prospects over time has been, and more importantly, what it's likely to be.
(I'm borrowing some stuff from Robert Reich, the former US Secretary of Labor, so credit is due where it is richly deserved.)
What are the large forces that are pushing job prospects in the world?
One is obviously globalization (a much misused term, as I have noted here before.)
The second is technology. For the record, technology is not new. The first wheel was technology, as was the yoke, etc. Even the Industrial Revolution is almost two hundred years old at this point. The important point about technology (which we will talk about presently,) is that there have been some recent new wrinkles in it which change things dramatically.
There is also the intertwining of the two, and that's also the part that's both new and interesting.
All modern societies are based on division of labor. A baker can bake bread but he probably didn't grow the wheat. A car mechanic can fix your car, but she probably didn't manufacture the tools.
What matters then is the additional value you add to the product -- the "value add", if you will. (terrible term!) The baker's "value add" is the ability to transform flour, water, and yeast into bread. The car mechanic's "value add" is the ability to take a broken car, and turn it into a non-broken car.
There are two components to being highly successful in the "value add chain" : education (a.k.a. knowledge), and connectedness.
The first should be fairly obvious. The baker has the knowledge to turn flour and water into bread. The car mechanic has the knowledge of the internal mechanics of a car which allows her to fix the car. (Education is just a formal mechanism of gaining knowledge. Don't confuse the two!)
The second should become obvious with a little thought. A baker can only earn as much money as the number of people that know him. Same for the car mechanic.
Now, let's look at the global prospects of these two professions.
My local grocery has fresh bread flown in daily from Lionel Poilâne's bakery in Paris. He is famous, and hence obviously "well-connected". He was only able to do this because "technology" (in this case, the airplane) allowed him to sell the fruits of his labor in fancy grocery stores around the world.
The key important part about "technology" is that for people who are educated and/or well-connected, they can increasingly sell their "value add" in the global market. Also, for certain "value add"'s, technology allows a kind of scaling (a multiplier effect) that is not possible in other professions. Naturally then, these professions then earn many multiples of what they once could.
Note the distinction between the baker, and the car mechanic (the examples were chosen quite deliberately.) There is only a limited multiplier effect for the latter using technology.
Technology can also scale the "connectedness" part of the equation. You're all reading this but none of you is sitting in front of me while I'm "talking". Again, "multiplier effect".
It is this radical scaling via technology that is new in the last two decades, not technology or globalization.
(Next time, you're at a crowded party, and someone says "globalization" and/or "technology", please smack them in the face with the above. Knowledge packs a more powerful punch than a well-placed upper cut!)
Let's repeat the argument one more time: for people who are educated and well-connected, and in professions that allow scaling via technology, globalization increasingly allows them to sell their "value add" in the global market.
That's a mouthful of words but it's the heart of the matter. Everything flows from there. Of course, like any abstraction, any number of specifics can be derived from it. (My advisor used to say, "Any fool can abstract, but it's the intelligent that can turn them into specifics.")
Every one with me so far? Deep breath, and onward we go!
Let's look at a few examples of what happens when technology displaces existing jobs: telephone switching networks replaced telephone switch operators; ATM's replaced bank tellers; e-kiosk's replaced airline agents, etc. etc.
So what happens to all the displaced people? Well, their jobs transform. You will still need someone to program the switching networks, someone to maintain the ATM's and e-kiosk's, etc.
This is the point in time, you should be going, "Hey, hey, hey! Wait a danged minute. You're pulling a fast one. If technology has this multiplier effect, doesn't that actually mean that the jobs lost are going to be greater than the new jobs gained?"
Well, yes! (but in a complicated way.)
The reason it is complicated is that it's not like there's a fixed pile of jobs in the world (like, say, there's a fixed amount of gold on this planet.) New things are created, new needs are created.
Eco-tourism, anyone?
What is true in the short-term is the pain for the displaced workers. They are pretty much screwed in the short-term but if they adapt, and live to fight another day, they will be fine.
The important point here is that you may be able to legislate away globalization (bad idea but let's not argue about that,) but you can't legislate away technology, or the multiplier effect. You can try, but you will fail, and you will fail spectacularly!
And that, amigos, is the real problem!
The day a politician or an economist comes out and says that bluntly, I promise you I will genuflect in their direction in the name of all that are intellectually honest.
Now what happens in the interim is that most of these people get tossed into the local service economy. Retail, restaurants, hotels, transportation, etc. In most of these, the "value add" is minimal so they command low wages to start with. Add to that the problem that the market is crowded, the laws of demand and supply (in this case, over supply) depress wages further.
So the gist of my argument should be clear at this point. If technology can eliminate your job, it will, and you will be tossed out on your ass. If you have enough resources to last out the retraining period, you will be fine. If not, you're screwed, and there's no way to sugarcoat this one.
Next, I'm going to talk about debt, and its role in the US economy.
(I'm borrowing some stuff from Robert Reich, the former US Secretary of Labor, so credit is due where it is richly deserved.)
What are the large forces that are pushing job prospects in the world?
One is obviously globalization (a much misused term, as I have noted here before.)
The second is technology. For the record, technology is not new. The first wheel was technology, as was the yoke, etc. Even the Industrial Revolution is almost two hundred years old at this point. The important point about technology (which we will talk about presently,) is that there have been some recent new wrinkles in it which change things dramatically.
There is also the intertwining of the two, and that's also the part that's both new and interesting.
All modern societies are based on division of labor. A baker can bake bread but he probably didn't grow the wheat. A car mechanic can fix your car, but she probably didn't manufacture the tools.
What matters then is the additional value you add to the product -- the "value add", if you will. (terrible term!) The baker's "value add" is the ability to transform flour, water, and yeast into bread. The car mechanic's "value add" is the ability to take a broken car, and turn it into a non-broken car.
There are two components to being highly successful in the "value add chain" : education (a.k.a. knowledge), and connectedness.
The first should be fairly obvious. The baker has the knowledge to turn flour and water into bread. The car mechanic has the knowledge of the internal mechanics of a car which allows her to fix the car. (Education is just a formal mechanism of gaining knowledge. Don't confuse the two!)
The second should become obvious with a little thought. A baker can only earn as much money as the number of people that know him. Same for the car mechanic.
Now, let's look at the global prospects of these two professions.
My local grocery has fresh bread flown in daily from Lionel Poilâne's bakery in Paris. He is famous, and hence obviously "well-connected". He was only able to do this because "technology" (in this case, the airplane) allowed him to sell the fruits of his labor in fancy grocery stores around the world.
The key important part about "technology" is that for people who are educated and/or well-connected, they can increasingly sell their "value add" in the global market. Also, for certain "value add"'s, technology allows a kind of scaling (a multiplier effect) that is not possible in other professions. Naturally then, these professions then earn many multiples of what they once could.
Note the distinction between the baker, and the car mechanic (the examples were chosen quite deliberately.) There is only a limited multiplier effect for the latter using technology.
Technology can also scale the "connectedness" part of the equation. You're all reading this but none of you is sitting in front of me while I'm "talking". Again, "multiplier effect".
It is this radical scaling via technology that is new in the last two decades, not technology or globalization.
(Next time, you're at a crowded party, and someone says "globalization" and/or "technology", please smack them in the face with the above. Knowledge packs a more powerful punch than a well-placed upper cut!)
Let's repeat the argument one more time: for people who are educated and well-connected, and in professions that allow scaling via technology, globalization increasingly allows them to sell their "value add" in the global market.
That's a mouthful of words but it's the heart of the matter. Everything flows from there. Of course, like any abstraction, any number of specifics can be derived from it. (My advisor used to say, "Any fool can abstract, but it's the intelligent that can turn them into specifics.")
Every one with me so far? Deep breath, and onward we go!
Let's look at a few examples of what happens when technology displaces existing jobs: telephone switching networks replaced telephone switch operators; ATM's replaced bank tellers; e-kiosk's replaced airline agents, etc. etc.
So what happens to all the displaced people? Well, their jobs transform. You will still need someone to program the switching networks, someone to maintain the ATM's and e-kiosk's, etc.
This is the point in time, you should be going, "Hey, hey, hey! Wait a danged minute. You're pulling a fast one. If technology has this multiplier effect, doesn't that actually mean that the jobs lost are going to be greater than the new jobs gained?"
Well, yes! (but in a complicated way.)
The reason it is complicated is that it's not like there's a fixed pile of jobs in the world (like, say, there's a fixed amount of gold on this planet.) New things are created, new needs are created.
Eco-tourism, anyone?
What is true in the short-term is the pain for the displaced workers. They are pretty much screwed in the short-term but if they adapt, and live to fight another day, they will be fine.
The important point here is that you may be able to legislate away globalization (bad idea but let's not argue about that,) but you can't legislate away technology, or the multiplier effect. You can try, but you will fail, and you will fail spectacularly!
And that, amigos, is the real problem!
The day a politician or an economist comes out and says that bluntly, I promise you I will genuflect in their direction in the name of all that are intellectually honest.
Now what happens in the interim is that most of these people get tossed into the local service economy. Retail, restaurants, hotels, transportation, etc. In most of these, the "value add" is minimal so they command low wages to start with. Add to that the problem that the market is crowded, the laws of demand and supply (in this case, over supply) depress wages further.
So the gist of my argument should be clear at this point. If technology can eliminate your job, it will, and you will be tossed out on your ass. If you have enough resources to last out the retraining period, you will be fine. If not, you're screwed, and there's no way to sugarcoat this one.
Next, I'm going to talk about debt, and its role in the US economy.
Friday, February 16, 2007
Hello, Deflation!
From Bloomberg, we have China Raises Lenders' Reserve Ratio to 10 Percent.
China ordered banks to set aside more money as reserves for the fifth time in eight months to cool inflation and investment in the world's fastest-growing major economy.
Lenders must put aside 10 percent of deposits from Feb. 25, up from 9.5 percent, the Beijing-based People's Bank of China said in a statement on its Web site, immediately before the start of a week-long Lunar New Year holiday.
Also from Bloomberg, we have India RBI Raises Banks' Cash Limit to Stem Inflation.
India's central bank increased the amount of cash lenders must set aside to cover deposits for the second time in as many months to curb inflation that accelerated to the fastest pace in more than two years.
Banks in Asia's fourth-largest economy have to keep cash equivalent to 6 percent of deposits starting March 3 from 5.5 percent now, the Reserve Bank of India said.
This is the crudest weapon in the hands of any Central Bank.
This is the equivalent of trying to do heart surgery by using a hand grenade. Not only does it kill the patient but it kills the perfectly healthy doctors and nurses, and destroys all the expensive equipment in the room, for good measure!
(Basically, it penalizes all banks equally. That means, the "good" ones get penalized as much as the "bad" ones, and that's assuming the "bad" ones don't go under.)
There's no way out for the net-debtors: Japan, the US, Britain. Raise rates, or watch your currency collapse. Most likely, Japan is going to be first on the chopping block.
If Japan raises rates, and the US keeps them constant, the carry trade slips a little which creates a bit of panic in the derivatives market, which destroys MBS'es, which destroys the housing market. So the US is forced to raise rates which destroys the housing market directly. And if the US drops rates, the carry trade collapses completely which sends the whole financial system into hell which also destroys the housing market.
Best case scenario: both Japan and the US keep rates constant (or rising in sync very very slowly) which lets the housing market destroy itself (through foreclosures.)
Did I miss anything? Or is it time to invoke the law of the excluded middle?
The real question is: does Bernanke have his fingers and toes crossed?
We live in interesting times, the kinds that only come once a century!
China ordered banks to set aside more money as reserves for the fifth time in eight months to cool inflation and investment in the world's fastest-growing major economy.
Lenders must put aside 10 percent of deposits from Feb. 25, up from 9.5 percent, the Beijing-based People's Bank of China said in a statement on its Web site, immediately before the start of a week-long Lunar New Year holiday.
Also from Bloomberg, we have India RBI Raises Banks' Cash Limit to Stem Inflation.
India's central bank increased the amount of cash lenders must set aside to cover deposits for the second time in as many months to curb inflation that accelerated to the fastest pace in more than two years.
Banks in Asia's fourth-largest economy have to keep cash equivalent to 6 percent of deposits starting March 3 from 5.5 percent now, the Reserve Bank of India said.
This is the crudest weapon in the hands of any Central Bank.
This is the equivalent of trying to do heart surgery by using a hand grenade. Not only does it kill the patient but it kills the perfectly healthy doctors and nurses, and destroys all the expensive equipment in the room, for good measure!
(Basically, it penalizes all banks equally. That means, the "good" ones get penalized as much as the "bad" ones, and that's assuming the "bad" ones don't go under.)
There's no way out for the net-debtors: Japan, the US, Britain. Raise rates, or watch your currency collapse. Most likely, Japan is going to be first on the chopping block.
If Japan raises rates, and the US keeps them constant, the carry trade slips a little which creates a bit of panic in the derivatives market, which destroys MBS'es, which destroys the housing market. So the US is forced to raise rates which destroys the housing market directly. And if the US drops rates, the carry trade collapses completely which sends the whole financial system into hell which also destroys the housing market.
Best case scenario: both Japan and the US keep rates constant (or rising in sync very very slowly) which lets the housing market destroy itself (through foreclosures.)
Did I miss anything? Or is it time to invoke the law of the excluded middle?
The real question is: does Bernanke have his fingers and toes crossed?
We live in interesting times, the kinds that only come once a century!
The Entitlement Mentality
From CNN Finance, we have a "touching" story about Living in the anxiety economy.
Not so long ago Corey Sarti earned $75,000, plus bonus, as a logistics manager at a software maker. His wife, Holly's home business kicked in a little extra, affording them a comfortable lifestyle in Stewartstown, a small Pennsylvania town near the Maryland border where the couple grew up.
Raising three children and covering a mortgage and two car loans was well within their means.
Three kids, a mortgage, and two car loans on $75K.
How can this not end badly?
But when Corey, 30, was laid off last October, everything changed.
"I started looking for a job immediately," said Corey, who uses Web sites and the career coaching services negotiated as part of his exit package. "I've gone on 5 or 6 interviews. And gone through second interviews but the offers have been in the $45,000 to $50,000 range with no bonus. It's too far of a step backwards."
For now, "We have enough to pay the mortgage and electrical bills," said Corey. "That's about it." The only other cash coming in is $300 a week in state unemployment benefits.
You only have $300 coming in, and you turned down a $45K job?
Logistics manager is nothing more than a fancy title for inventory manager + shipping clerk. Probably a piece of fancy software, and a kid out of college could do it.
Holly, 29, had quit her job as a graphic designer for a local printing company after the birth of their youngest son, Jayden, now nearly 2. For a side gig, she bought her mother's business, a company that customizes sports clothing for local schools and Little League teams.
It has become full time, and Corey helps her with it. But because it's the first year running the business, he's not sure how much it will clear.
In addition to Jayden, the couple have two daughters: 13-year-old Brittany, who is in junior high, and 10-year-old Makayla.
Corey's savings are "depleted," he admitted. Yet, the expenses just keep rolling in.
You've popped out three kids before you were 30; no real savings to back it up.
What is this? The Brady Bunch?
Corey feels that the local market has few positions for someone with his professional background.
What professional background? You're a shipping clerk!
"The holidays were a trying time," with few toys for their three kids, he recalled. A year earlier at Christmas, there were XBoxes and iPods under the tree. "It's been a lifestyle change" is how he characterized unemployment. "An immediate drastic lifestyle change."
Yes, why save for the bad times? The good times will always be a rollin'.
This country is in for such an epic ass-pounding that it's not going to be funny. In fact, it's going to be downright tragic. I really really don't want to watch this but it's like a bad car accident. You can't keep your eyes off of it!
Not so long ago Corey Sarti earned $75,000, plus bonus, as a logistics manager at a software maker. His wife, Holly's home business kicked in a little extra, affording them a comfortable lifestyle in Stewartstown, a small Pennsylvania town near the Maryland border where the couple grew up.
Raising three children and covering a mortgage and two car loans was well within their means.
Three kids, a mortgage, and two car loans on $75K.
How can this not end badly?
But when Corey, 30, was laid off last October, everything changed.
"I started looking for a job immediately," said Corey, who uses Web sites and the career coaching services negotiated as part of his exit package. "I've gone on 5 or 6 interviews. And gone through second interviews but the offers have been in the $45,000 to $50,000 range with no bonus. It's too far of a step backwards."
For now, "We have enough to pay the mortgage and electrical bills," said Corey. "That's about it." The only other cash coming in is $300 a week in state unemployment benefits.
You only have $300 coming in, and you turned down a $45K job?
Logistics manager is nothing more than a fancy title for inventory manager + shipping clerk. Probably a piece of fancy software, and a kid out of college could do it.
Holly, 29, had quit her job as a graphic designer for a local printing company after the birth of their youngest son, Jayden, now nearly 2. For a side gig, she bought her mother's business, a company that customizes sports clothing for local schools and Little League teams.
It has become full time, and Corey helps her with it. But because it's the first year running the business, he's not sure how much it will clear.
In addition to Jayden, the couple have two daughters: 13-year-old Brittany, who is in junior high, and 10-year-old Makayla.
Corey's savings are "depleted," he admitted. Yet, the expenses just keep rolling in.
You've popped out three kids before you were 30; no real savings to back it up.
What is this? The Brady Bunch?
Corey feels that the local market has few positions for someone with his professional background.
What professional background? You're a shipping clerk!
"The holidays were a trying time," with few toys for their three kids, he recalled. A year earlier at Christmas, there were XBoxes and iPods under the tree. "It's been a lifestyle change" is how he characterized unemployment. "An immediate drastic lifestyle change."
Yes, why save for the bad times? The good times will always be a rollin'.
This country is in for such an epic ass-pounding that it's not going to be funny. In fact, it's going to be downright tragic. I really really don't want to watch this but it's like a bad car accident. You can't keep your eyes off of it!
Broke is the new black : Part 2 (Jobs)
I wanted to say more about some of the larger economic forces one of my earlier blog entries: Broke is the new black!
A significant portion of evidence has been provided on this blog before: we've seen graphs of Household Leverage, GDP and MEW, etc.
So what's the story that connects it all up?
Well, there are two: one is the role of jobs in the US economy, and the other is the nature of debt in the typical US household. We shall talk about them separately, and I will try and provide evidence for most of these arguments. Some of the "evidence", unfortunately, will have to be without any statistics to back it up.
Economists, in my opinion, far too often ignore what can't be measured. It can pretty much be summed up in the pithy saying, "The absence of evidence is not the evidence of absence."
First up, we're going to talk briefly about "globalization".
Contrary to popular belief, the "global market" has been global for a couple of thousand years. There is truly nothing new under the sun since the Greeks and Romans wandered to India for its spices. Even in the 19th century, an Englishman could invest in companies around the world without ever leaving the comfort of his drawing room parlor. All this talk about "forces of globalization" is a bunch of twaddle!
The only interesting thing is about the mix in the distribution of labor. That is a dynamic process, and hence, very interesting.
Labor is subject to the same laws of demand and supply as everything else.
Nuclear engineers are paid more than taxi drivers because there are fewer of them. Scientists who design the next generation of nuclear reactors are paid more than the engineers maintaining and running a power plant because there are fewer of them. (Of course, the reason there are fewer of them is because the skill-set is correspondingly "harder".)
Back to America.
After World War II, America was pretty much the only industrialized country left standing. This gave it a huge push in the global market.
America also had the "intangibles" going in favor of it -- a liberal democracy, a strong legal system (with corresponding strong property rights,) and a work-ethic.
It is hardly surprising that when you have virtually no external competition, and a very strong capitalist system in place, that country is going to absurdly well.
Now, let's look at a graph of household income distribution at various percentile levels since 1967. (The graph has been adjusted for inflation, and is being presented in 2003 dollars so it's a fair comparison.)
The key word here is "household" even though it may not be completely obvious.
Back in the 60's very few women worked, and as more and more women started working, household income went from being a 1-person income to becoming a 2-person income. This is not an insignificant fact. Basically, if you look at the bottom half, it took two jobs to replace the income of one. (The top 20th percentile is a lot more complex, and I'm not going to go into that.)
Why would this happen?
Well, for one, the rest of the world started catching up. There's more and more competition, and in a open system, if you don't have specialized skills to sell, you can and should find yourself basically shit out of luck.
Here's the correct way to look at it:
Those who were born post WW II, and found themselves in the labor force in the US in the 60's basically hit the lottery jackpot in being born in the right place at the right time. The average American worker had no more skills than the average worker in Britain, Spain, China, or India, but basically managed to carve out an exceptional lifestyle (comparatively speaking) by being lucky in the birthing sweepstakes.
Let's be blunt about the economic reality: if you have no more skills than a Chinese or Indian worker, you shouldn't expect to have a lifestyle more than a Chinese or Indian worker. Also, since there's a disparity in lifestyle, you should expect the two lifestyles to basically converge.
Brutal? Definitely, but economically realistic.
Please note carefully that this does not imply that your lifestyle must necessarily fall. It is perfectly possible that it will stagnate, and all the adjustment will be in the rising lifestyle of the Chinese or Indian worker. (This is a subtle point.)
In practice, I expect the lifestyle of the American worker to fall, not because the above is not possible but it typically takes more than a generation for the adjustment. (This is just a historical guess not a hard economic law.)
We've seen two waves of this already. Since the 70's, more and more manufacturing jobs moved to cheaper locations, and continue to do so, and the labor market mix in the US turned to the services sector. Since the late 90's, more and more services jobs have moved to cheaper locations, and the labor mix is set to change one more time.
Next up, we're going to examine the role of debt in the US economy.
A significant portion of evidence has been provided on this blog before: we've seen graphs of Household Leverage, GDP and MEW, etc.
So what's the story that connects it all up?
Well, there are two: one is the role of jobs in the US economy, and the other is the nature of debt in the typical US household. We shall talk about them separately, and I will try and provide evidence for most of these arguments. Some of the "evidence", unfortunately, will have to be without any statistics to back it up.
Economists, in my opinion, far too often ignore what can't be measured. It can pretty much be summed up in the pithy saying, "The absence of evidence is not the evidence of absence."
First up, we're going to talk briefly about "globalization".
Contrary to popular belief, the "global market" has been global for a couple of thousand years. There is truly nothing new under the sun since the Greeks and Romans wandered to India for its spices. Even in the 19th century, an Englishman could invest in companies around the world without ever leaving the comfort of his drawing room parlor. All this talk about "forces of globalization" is a bunch of twaddle!
The only interesting thing is about the mix in the distribution of labor. That is a dynamic process, and hence, very interesting.
Labor is subject to the same laws of demand and supply as everything else.
Nuclear engineers are paid more than taxi drivers because there are fewer of them. Scientists who design the next generation of nuclear reactors are paid more than the engineers maintaining and running a power plant because there are fewer of them. (Of course, the reason there are fewer of them is because the skill-set is correspondingly "harder".)
Back to America.
After World War II, America was pretty much the only industrialized country left standing. This gave it a huge push in the global market.
America also had the "intangibles" going in favor of it -- a liberal democracy, a strong legal system (with corresponding strong property rights,) and a work-ethic.
It is hardly surprising that when you have virtually no external competition, and a very strong capitalist system in place, that country is going to absurdly well.
Now, let's look at a graph of household income distribution at various percentile levels since 1967. (The graph has been adjusted for inflation, and is being presented in 2003 dollars so it's a fair comparison.)
The key word here is "household" even though it may not be completely obvious.
Back in the 60's very few women worked, and as more and more women started working, household income went from being a 1-person income to becoming a 2-person income. This is not an insignificant fact. Basically, if you look at the bottom half, it took two jobs to replace the income of one. (The top 20th percentile is a lot more complex, and I'm not going to go into that.)
Why would this happen?
Well, for one, the rest of the world started catching up. There's more and more competition, and in a open system, if you don't have specialized skills to sell, you can and should find yourself basically shit out of luck.
Here's the correct way to look at it:
Those who were born post WW II, and found themselves in the labor force in the US in the 60's basically hit the lottery jackpot in being born in the right place at the right time. The average American worker had no more skills than the average worker in Britain, Spain, China, or India, but basically managed to carve out an exceptional lifestyle (comparatively speaking) by being lucky in the birthing sweepstakes.
Let's be blunt about the economic reality: if you have no more skills than a Chinese or Indian worker, you shouldn't expect to have a lifestyle more than a Chinese or Indian worker. Also, since there's a disparity in lifestyle, you should expect the two lifestyles to basically converge.
Brutal? Definitely, but economically realistic.
Please note carefully that this does not imply that your lifestyle must necessarily fall. It is perfectly possible that it will stagnate, and all the adjustment will be in the rising lifestyle of the Chinese or Indian worker. (This is a subtle point.)
In practice, I expect the lifestyle of the American worker to fall, not because the above is not possible but it typically takes more than a generation for the adjustment. (This is just a historical guess not a hard economic law.)
We've seen two waves of this already. Since the 70's, more and more manufacturing jobs moved to cheaper locations, and continue to do so, and the labor market mix in the US turned to the services sector. Since the late 90's, more and more services jobs have moved to cheaper locations, and the labor mix is set to change one more time.
Next up, we're going to examine the role of debt in the US economy.
Thursday, February 15, 2007
Economics in Pictures
In order to give my readers a break from the "complicated" task of actually analyzing facts and figures, I have decided to distill down the essence to a single picture.
"Cheese" = "credit".
"Cheese" = "credit".
Wednesday, February 14, 2007
The Money Quote
From the LA Times, we have It's the Default Position.
During the four-year boom that ended last summer, Home Center expanded from 15 agents to 80 in three offices. The roster of agents has since sunk to 52, only about half of whom are active.
"The rest are looking for side jobs at McDonald's," said Home Center President Jason Bosch. "It happened overnight."
Yeah, baby! That's the money shot right there.
During the four-year boom that ended last summer, Home Center expanded from 15 agents to 80 in three offices. The roster of agents has since sunk to 52, only about half of whom are active.
"The rest are looking for side jobs at McDonald's," said Home Center President Jason Bosch. "It happened overnight."
Yeah, baby! That's the money shot right there.
Tuesday, February 13, 2007
They will learn to live!
From the BBC News, we have M&S denies Kilroy mirrors claim.
I generally avoid commenting on the nexus of economics and politics but this one was so ridiculous that I simply could not help myself.
Marks and Spencer has said it is mystified by a claim by MEP Robert Kilroy-Silk that it uses "distorting" mirrors in its changing rooms.
Mr Kilroy-Silk has accused the store of misleading women with mirrors that make them look slimmer in its clothes.
In his question, Mr Kilroy-Silk asked if it was "conceivable that within the millions of EU regulations covering virtually every aspect of life in the EU" there was not one that made it illegal for M&S to have mirrors that "deliberately distort women's shapes".
I don't think the EU requires any more stupid regulations.
The women will learn to deal, and assuming that M&S is doing this, the women have the liberty to not shop there. After all, it's hardly the case that any country in the world is suffering from a dearth of womens' clothing stores!
What next? Banning peeing in your own pants?!?
I generally avoid commenting on the nexus of economics and politics but this one was so ridiculous that I simply could not help myself.
Marks and Spencer has said it is mystified by a claim by MEP Robert Kilroy-Silk that it uses "distorting" mirrors in its changing rooms.
Mr Kilroy-Silk has accused the store of misleading women with mirrors that make them look slimmer in its clothes.
In his question, Mr Kilroy-Silk asked if it was "conceivable that within the millions of EU regulations covering virtually every aspect of life in the EU" there was not one that made it illegal for M&S to have mirrors that "deliberately distort women's shapes".
I don't think the EU requires any more stupid regulations.
The women will learn to deal, and assuming that M&S is doing this, the women have the liberty to not shop there. After all, it's hardly the case that any country in the world is suffering from a dearth of womens' clothing stores!
What next? Banning peeing in your own pants?!?
Sunday, February 11, 2007
I wish I were kidding
I just received a "coupon" in the mail.
It's a New Year's Special.
Buy a condo in New York, and get $25,000 off.
I'm not fuckin' making this up. I'm gonna get the goddamn thing framed!
Hoo boy! Manhattan's gonna go down like a cheap whore on crack!
It's a New Year's Special.
Buy a condo in New York, and get $25,000 off.
I'm not fuckin' making this up. I'm gonna get the goddamn thing framed!
Hoo boy! Manhattan's gonna go down like a cheap whore on crack!
Saturday, February 10, 2007
Extreme Reductionism
From the New York Times, we have an article on gift-giving: Figuring Out Gift Giving in the Age of $2,000-a-Pound Chocolate.
If you are still seeking the perfect gift for Valentine’s Day, have you considered a box of Noka chocolates?
Both you and the recipient may be in for a surprise. A 12-piece box costs $39 before tax and shipping. And for that you will get 0.9 ounce of chocolate. Not 0.9 ounce a piece, but 0.9 ounce in the entire black and silver box.
Do the math and that comes to $693 a pound. Buy just four pieces in the Signature stainless steel box and you are paying more than $2,000 a pound, making the Noka chocolate more expensive than delicacies like caviar, saffron or black truffles.
How can anyone justify paying that much for a gift? Economists have struggled over that question for years, suggesting that anything other than a cash gift is inefficient.
Most economists would say that giving gifts, other than cash, makes no economic sense. The recipient would be better off spending the money on something he or she values.
Well, these economists are fucking stoopid if they indulge in such extreme reductionism.
Plus, they lack imagination.
Going from the fact that a cash gift is frequently a better idea to the fact that giving a cash gift is always the right idea is something only an economist would come up with. (They're all going on "rational behavior"-style nonsense.)
Here's the conventional reason that people give expensive gifts:
Most frequently, it's because the other party would never spend that money on that stuff so you buy it for them. Alternately, they may love something but can't afford it so you buy it for them. Hell! there are any number of explanations.
I'll even go for the, "It's my money to waste if I want to" explanation.
Rational? Certainly not, but a hell of a lot of fun.
Fun? You know, good times?!?
(To be fair, the article does mention one of the above reasons.)
There's even a dark side to this -- "flaunting your wealth" (a.k.a. Veblen's "conspicuous consumption"), etc.
However, I think I'll give an example of a "rational" explanation for giving gifts over money.
I enjoy receiving surprises as gifts. Authors I've never heard of, artists or photographers I don't as yet know about, composers and musicians I don't know, or even genres of music I don't listen to. Intellectual surprises, something new.
Some are hits, and some are busts but who cares? Many of them end up becoming things that I end up loving passionately.
Even an economist should realize that it is rationally impossible to surprise oneself!
Imagination! It's not a necessary part of an economist's job description.
If you are still seeking the perfect gift for Valentine’s Day, have you considered a box of Noka chocolates?
Both you and the recipient may be in for a surprise. A 12-piece box costs $39 before tax and shipping. And for that you will get 0.9 ounce of chocolate. Not 0.9 ounce a piece, but 0.9 ounce in the entire black and silver box.
Do the math and that comes to $693 a pound. Buy just four pieces in the Signature stainless steel box and you are paying more than $2,000 a pound, making the Noka chocolate more expensive than delicacies like caviar, saffron or black truffles.
How can anyone justify paying that much for a gift? Economists have struggled over that question for years, suggesting that anything other than a cash gift is inefficient.
Most economists would say that giving gifts, other than cash, makes no economic sense. The recipient would be better off spending the money on something he or she values.
Well, these economists are fucking stoopid if they indulge in such extreme reductionism.
Plus, they lack imagination.
Going from the fact that a cash gift is frequently a better idea to the fact that giving a cash gift is always the right idea is something only an economist would come up with. (They're all going on "rational behavior"-style nonsense.)
Here's the conventional reason that people give expensive gifts:
Most frequently, it's because the other party would never spend that money on that stuff so you buy it for them. Alternately, they may love something but can't afford it so you buy it for them. Hell! there are any number of explanations.
I'll even go for the, "It's my money to waste if I want to" explanation.
Rational? Certainly not, but a hell of a lot of fun.
Fun? You know, good times?!?
(To be fair, the article does mention one of the above reasons.)
There's even a dark side to this -- "flaunting your wealth" (a.k.a. Veblen's "conspicuous consumption"), etc.
However, I think I'll give an example of a "rational" explanation for giving gifts over money.
I enjoy receiving surprises as gifts. Authors I've never heard of, artists or photographers I don't as yet know about, composers and musicians I don't know, or even genres of music I don't listen to. Intellectual surprises, something new.
Some are hits, and some are busts but who cares? Many of them end up becoming things that I end up loving passionately.
Even an economist should realize that it is rationally impossible to surprise oneself!
Imagination! It's not a necessary part of an economist's job description.
Friday, February 09, 2007
The Smoking Gun of Deflation
I almost missed this small piece of news among the masses of "news" that's pumped out by the MSM.
From the OC Register, we have Lennar seeks cuts from subcontractors.
Lennar Corp. is asking subcontractors to reduce charges for work they've already done or face a minimum six-month ban on bidding for work, a company executive said late Tuesday.
"As our customers continue to pay us a lower price for our homes, we must in turn pay you a lower price for your services," said a letter sent to subcontractors in Lennar's Orange Coast, Corona, Temecula and Palm Springs divisions.
The letter tells subcontractors to either reduce their unpaid invoices by a set percentage or "be excluded from bidding future work for a minimum of six months."
Subcontractors getting the letters said Lennar had asked for cuts from 5 percent to 20 percent, depending on their trade and location.
Roos said similar requests are being made of Lennar subcontractors nationally. The firm has projects in at least a dozen states.
"Every builder is doing the same thing," added Roos, who works in the company's Western region office in Aliso Viejo. "Everybody understands that the market has softened. … I think everybody realizes in times like this … they need to manage their business accordingly."
"Their ability to absorb and pass along (savings) can be limited somewhat," Simonson said. "I think it would cause a lot of concern and resistance among contractors and subcontractors."
This is it!
And for those confused about what "it" is, this is the tip-over point. The builders are cramming the cuts down the subcontractors because they expect to sell the new houses they have yet to build for less. Nobody cares about what the previous owners paid because the new houses set the "comps" (comparable prices.)
For the subcontractors, it's basically go under now, or go under later. Human nature compels the go under later scenario.
For the fucked buyers, it's also a go under now, or go under later scenario. They will realize that there's no point in paying a carrying costs for 30 years. Far better, to declare bankruptcy and get it over with!
Bankruptcies destroy credit which is the definition of deflation!
Here's the part the inflationists never figure out. Bernanke can print till the cows come home but there's no way to channel the money into the exact channels that are blowing up. Nobody but nobody has that kind of omniscient knowledge of a global economy. Even if you lived in a town of 10,000, you can't have that kind of information!
From the OC Register, we have Lennar seeks cuts from subcontractors.
Lennar Corp. is asking subcontractors to reduce charges for work they've already done or face a minimum six-month ban on bidding for work, a company executive said late Tuesday.
"As our customers continue to pay us a lower price for our homes, we must in turn pay you a lower price for your services," said a letter sent to subcontractors in Lennar's Orange Coast, Corona, Temecula and Palm Springs divisions.
The letter tells subcontractors to either reduce their unpaid invoices by a set percentage or "be excluded from bidding future work for a minimum of six months."
Subcontractors getting the letters said Lennar had asked for cuts from 5 percent to 20 percent, depending on their trade and location.
Roos said similar requests are being made of Lennar subcontractors nationally. The firm has projects in at least a dozen states.
"Every builder is doing the same thing," added Roos, who works in the company's Western region office in Aliso Viejo. "Everybody understands that the market has softened. … I think everybody realizes in times like this … they need to manage their business accordingly."
"Their ability to absorb and pass along (savings) can be limited somewhat," Simonson said. "I think it would cause a lot of concern and resistance among contractors and subcontractors."
This is it!
And for those confused about what "it" is, this is the tip-over point. The builders are cramming the cuts down the subcontractors because they expect to sell the new houses they have yet to build for less. Nobody cares about what the previous owners paid because the new houses set the "comps" (comparable prices.)
For the subcontractors, it's basically go under now, or go under later. Human nature compels the go under later scenario.
For the fucked buyers, it's also a go under now, or go under later scenario. They will realize that there's no point in paying a carrying costs for 30 years. Far better, to declare bankruptcy and get it over with!
Bankruptcies destroy credit which is the definition of deflation!
Here's the part the inflationists never figure out. Bernanke can print till the cows come home but there's no way to channel the money into the exact channels that are blowing up. Nobody but nobody has that kind of omniscient knowledge of a global economy. Even if you lived in a town of 10,000, you can't have that kind of information!
L-ackademia
From the New York Times, we have a report on A Contrarian View: Save Less and Still Retire With Enough.
Could it be possible that you are saving too much for your retirement?
Nevertheless, a small band of economists from universities, research institutions and the government are clearly expressing the blasphemy that many Americans could be saving less than they are being told to by the financial services industry — and spending more — while they are younger. The negative savings rate, they say, is wildly distorted.
Nevertheless, the loose confederation of well-regarded economists, who have not been working in concert, say their research points to the startling conclusion that many Americans are saving too much, not too little. Indeed, their studies of the savings and spending habits of the generation born between 1931 and 1941 revealed that at least 80 percent had accumulated more than enough wealth for retirement.
These "economists" are so fucking stoopid that it's hard to know where to begin.
Yes, the generation born between 1931 and 1941 probably saved too much because they were traumatized by the Great Depression.
But what does that have to do with today?
Every indicator shows that Americans are not just living beyond their means, but they're living way beyond their means! They're going into debt to fund an unsustainable lifestyle.
I'm working on a longer article, and have plenty more to say about this subject.
Could it be possible that you are saving too much for your retirement?
Nevertheless, a small band of economists from universities, research institutions and the government are clearly expressing the blasphemy that many Americans could be saving less than they are being told to by the financial services industry — and spending more — while they are younger. The negative savings rate, they say, is wildly distorted.
Nevertheless, the loose confederation of well-regarded economists, who have not been working in concert, say their research points to the startling conclusion that many Americans are saving too much, not too little. Indeed, their studies of the savings and spending habits of the generation born between 1931 and 1941 revealed that at least 80 percent had accumulated more than enough wealth for retirement.
These "economists" are so fucking stoopid that it's hard to know where to begin.
Yes, the generation born between 1931 and 1941 probably saved too much because they were traumatized by the Great Depression.
But what does that have to do with today?
Every indicator shows that Americans are not just living beyond their means, but they're living way beyond their means! They're going into debt to fund an unsustainable lifestyle.
I'm working on a longer article, and have plenty more to say about this subject.
Thursday, February 08, 2007
Finally, they speak!
From CBS Marketwatch, we have Steve Kerch reporting on: Housing still on down slope.
"I don't think we've seen the bottom," said David Berson, chief economist for Fannie Mae. "We're going to see a much bigger drop in investor demand this year. But by the second half of the year the market will stabilize, if investors pull out quickly."
"Real home-price gains, adjusted for inflation, will be negative this year, next year and possibly the year after that."
This is such a bunch of bollocky-talk from the chief economist of Fannie Mae.
What is so magical about the second half of the year that will cause prices to stabilize?
I'll give you a better prediction:
Real home prices will fall in nominal terms this year, next year, and possibly the year after that.
In fact, I'll give you a stronger prediction:
Since home prices have traditionally been 3-4x income, and now in places like California, they are skirting 11-12x income, I'll go out on a limb and say that real home prices will never in my lifetime reach the same amount in inflation-adjusted terms.
Put that in your pipe, and smoke it!
"I don't think we've seen the bottom," said David Berson, chief economist for Fannie Mae. "We're going to see a much bigger drop in investor demand this year. But by the second half of the year the market will stabilize, if investors pull out quickly."
"Real home-price gains, adjusted for inflation, will be negative this year, next year and possibly the year after that."
This is such a bunch of bollocky-talk from the chief economist of Fannie Mae.
What is so magical about the second half of the year that will cause prices to stabilize?
I'll give you a better prediction:
Real home prices will fall in nominal terms this year, next year, and possibly the year after that.
In fact, I'll give you a stronger prediction:
Since home prices have traditionally been 3-4x income, and now in places like California, they are skirting 11-12x income, I'll go out on a limb and say that real home prices will never in my lifetime reach the same amount in inflation-adjusted terms.
Put that in your pipe, and smoke it!
Wednesday, February 07, 2007
Genius is what genius says
From the OC Register, we have Jeff Collins writing about Watts forecasts 7% gain in O.C. house prices.
Gary Watts, the Realtor-economist who forecast the downturn of the 1990s, then foresaw the housing boom just ended, believes prices will rise slightly in 2007.
Although his 2006 forecast was overly optimistic, Watts remains confident that local house prices this year will increase 7 percent and that condo prices will go up about 4 percent.
"This will be, I think, a pivotal year," Watts said in a telephone interview. "If the housing correction is behind us, we'll be in pretty good shape. We've weathered the worst."
I love this shit!
If a plane doesn't crash into my building, we'll be in pretty good shape.
If my car doesn't explode on the highway, we'll be in pretty good shape.
If an earthquake doesn't destroy California, we'll be in pretty good shape.
Anyone can make economic predictions! Amazing, isn't it?
Gary Watts, the Realtor-economist who forecast the downturn of the 1990s, then foresaw the housing boom just ended, believes prices will rise slightly in 2007.
Although his 2006 forecast was overly optimistic, Watts remains confident that local house prices this year will increase 7 percent and that condo prices will go up about 4 percent.
"This will be, I think, a pivotal year," Watts said in a telephone interview. "If the housing correction is behind us, we'll be in pretty good shape. We've weathered the worst."
I love this shit!
If a plane doesn't crash into my building, we'll be in pretty good shape.
If my car doesn't explode on the highway, we'll be in pretty good shape.
If an earthquake doesn't destroy California, we'll be in pretty good shape.
Anyone can make economic predictions! Amazing, isn't it?
Tuesday, February 06, 2007
The Great Unraveling
From the St. Petersburg Times, we have Kris Hundley writing about When a home alone won't do.
Prospective new home buyers are learning they don't have to settle for low-dough incentives like granite countertops.
Now available in the Tampa Bay area: college tuition with a new home purchase and a condo-cum-yacht deal.
"I've never seen incentives like this," said Carlos A. Fuentes, president of the Greater Tampa Association of Realtors, who has been in the business for 20 years.
No, you haven't because they're fuckin' stoopid!
College tuition? Condo-cum-yacht?
This is totally crazy!
Firstly, this tells you that the stuff is overpriced.
Secondly, this raises the "double coincidence of wants" problem which lowers the number of potential buyers because you have to find a greater fool who wants both a condo and a yacht.
Lastly, this is telling you that the developers are desperate so that means prices will be dropping a lot.
I hope we haven't all forgotten the pearls of wisdom from Motoko Rich of the New York Times, "South Florida is working off of a totally new economic model than any of us have ever experienced in the past."
Florida is totally and utterly fucked! Remember, you heard it here first.
Prospective new home buyers are learning they don't have to settle for low-dough incentives like granite countertops.
Now available in the Tampa Bay area: college tuition with a new home purchase and a condo-cum-yacht deal.
"I've never seen incentives like this," said Carlos A. Fuentes, president of the Greater Tampa Association of Realtors, who has been in the business for 20 years.
No, you haven't because they're fuckin' stoopid!
College tuition? Condo-cum-yacht?
This is totally crazy!
Firstly, this tells you that the stuff is overpriced.
Secondly, this raises the "double coincidence of wants" problem which lowers the number of potential buyers because you have to find a greater fool who wants both a condo and a yacht.
Lastly, this is telling you that the developers are desperate so that means prices will be dropping a lot.
I hope we haven't all forgotten the pearls of wisdom from Motoko Rich of the New York Times, "South Florida is working off of a totally new economic model than any of us have ever experienced in the past."
Florida is totally and utterly fucked! Remember, you heard it here first.
Friday, February 02, 2007
The MBS Market has spoken!
This is a graph of the BBB tranche of mortgage-backed securities.
Stuff is trading 92 cents to the dollar. Yep, that means that the market thinks that the riskiest tranche of the mortgage pool is worth 8% less than face value.
Where's my popcorn? I want front-row seats to this one!
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