Fri, 24 Mar 2006
Max Clark points out that American, both the ones who run the government and
the ones that run the PTA,
are prone to short-term thinking.
If you have paid any attention to the news lately you should be aware that the
Republican controlled Senate is discussing changing Senate rules to eliminate
the filibuster.
...
What are they planning to do when the Democrats are back in power?
And here is where short sidedness takes over. The answer is nobody cares. Why?
Because by the time it happens it won?t be their problem.
He points out that a similar short-sightedness is plaguing those buying homes
with ARMs and interest-only loans at a time when long-term interest rates are
at historical lows.
Maybe they think the end of the world is near, so what the hell.
culture | Permanent Link
Sun, 12 Mar 2006
Patrick wants to short
the housing market. This is something I've thought about over the past
year or so.
I could short builders, mortgage banks, or Fannie Mae, but that's not exactly
the same, and I'm not as confident they will fall.
I'm not sure why he doesn't want to take a short position in equities that are
likely to track housing prices. If prices start to fall it'll likely be
because people are defaulting on their mortgages. This will negatively impact
those holding mortages, i.e. banks, Fannie Mae and Freddie Mac. As Greenspan pointed out,
the GSEs are holding onto lots of mortgages.
I read How
to Profit from the Coming Real Estate Bust yesterday, and the author, John
Rubino, suggests a number of ways to make money when the euphoria ends. He, of
course, suggests shorting the GSEs, banks, and builders. But the housing
market doesn't exist in a bubble (pun intended). The fall in housing prices
is likely to correspond to a fall in the dollar. It is foreign investment in
dollar debt that is helping to keep interest rates low. When foreigners get
tired of financing American consumers, and not making much money doing so,
they'll take their money elsewhere causing the dollar to fall. (Yes, I realize
it's not that simple. Foreign governments also want to keep their exports
affordable.) To get them back, we have to offer higher returns, i.e. higher
interest rates, on their investments. Higher interest rates make for grumpy
homeowners with ARMs, over half
of recent home buyers. For a thorough discussion of the problems ahead for
the dollar, check out The
Dollar Crisis: Causes, Consequences, Cures. Rubino thinks Swiss Francs are
the way to go. I'm not sure of that. I have money in Yen and Canadian Dollars
right now. Subscribe to Chuck Butler's Daily Pfennig for daily commentary on
foreign currencies.
Gold and other precious metals are another way to make money from a falling
dollar.
Some more directly housing related stocks to short are those of title insurers,
appliance and furniture manufacturers, property development companies and
REITs. He also suggests going long apartment REITs and health care REITs.
Apartments should do well, but I'd be more wary of the latter. REITs that own
nursing homes should do OK, but I'd be hesitant to invest in hospitals which
seem to be closing with increasing frequency as doctors are required to provide
services to people who don't pay their bills.
business | Permanent Link
Brad Delong (via Calculated
Risk) has posted part of Paul Krugman's introduction
to Keynes's
General Theory of Employment, Interest and Money. Having not ready General
Theory yet, I'll have to comment on Krugman's interpretation of it.
Stripped down, the conclusions of The General Theory might be expressed as
four bullet points:
-
Economies can and often do suffer from an overall lack of demand, which
leads to involuntary unemployment
-
The economy's automatic tendency to correct shortfalls in demand, if it
exists at all, operates slowly and painfully
-
Government policies to increase demand, by contrast, can reduce
unemployment quickly
-
Sometimes increasing the money supply won't be enough to persuade the
private sector to spend more, and government spending must step into the
breach
Sorry if my comments are naive; I am but a budding student of economics.
1. How can an economy suffer from an overall lack of demand? The overall
demand in an economy is made of up of individuals' demand. Who is Keynes
to say that my demand is too high or low? The most I could demand today is
limited by my productivity since birth plus any wealth gifted to me. If I
decide for forgo consumation today for tomorrow, no one has the right to demand
that I trade with them today.
2. If there isn't enough demand for what I can supply, I must find something else
to supply. For example, if I decide that the demand for my services as a
computer consultant are not sufficient to generate the income I desire, I might
go back to school to study economics. (Yes, I know I'm probably deluding
myself to think that my services as an economist will be more valuable to
society, but at least it's fun.)
3. How can government increase demand and reduce unemployment quickly? Let's see.
They can print out some money. Of course, they have to do this sneakily. If
they were to announce, "Tommorrow, we are going to increase the money supply by
1%," everyone would increase their prices right away (except for those lenders
and employees with dollar-denominated contracts; they're screwed). Instead,
people must be caught by surprise that they now have come into more money,
thinking that it must be due to their prowess and innate brilliance, so they go
out and spend their new dollars of spinning hubcaps and macaws.
4. Or, rather than just injecting money into the economy, the government itself
can go shopping. Of course, since the government doesn't actually produce
anything, it can only spend the wealth that it confiscates from its citizens.
Now, they might not take that money from you today, but they'll get you for it
later. And to make matters worse, when the government goes out to Walmart to
spend some money, they're competing with you, and thus forcing prices up.
economics | Permanent Link
Thu, 09 Mar 2006
Turnitin.com is a service schools can use
to detect plagiarism. Students submit their papers to turnitin.com, in MS Word
format, I guess, and it analyses the text for plagiarism. Here's how the
company describes
it:
The industry's most advanced search technology that checks papers against our
in-house copies of both current and archived internet content and our
proprietary database of millions of previously submitted student papers.
My Economics
professor told us an amusing story this morning about turnitin.com. She is
on a committee that was evaluating using the service. Going through a demo of
the service while on the phone with a rep from the company, she asked what
happens if the student hides nonsensical characters within the text by
replacing whitespace with characters in a white font. She went ahead and tried
it with the sample plagiarized poem the company provided. Lo and behold, the
poem was reported as not being plagiarized. Despite one professor's continued
desire to use this $5,000 service, the committee opted not to.
school | Permanent Link
