Author of the popular book Freakonomics Daniel Hamermesh writes a regular column for The New York Times online featuring his witty log of counterintuitive economic observations.
In his book, for instance, he tells of a daycare center that, when faced with parents habitually late for picking up their kids, implemented a "punishment" fee policy to keep parents on time. Instead, however, parent pick-up tardiness actually increased, and the authors speculate that the "fee" actually served as an incentive for parents to be late because a) it ridded them of any guilt they felt for being late (since they were paying the fee), and b) the fee wasn't high enough, evidently.
Well this weekend Hamermesh recounted a recent trip to a nice hotel where he was stunned to find television screens in front of the urinals in the bathroom. I'm frankly stunned that he was stunned. Anyway, he mused in his column that perhaps as personal income goes up, so does a person's likelihood of installing media in their bathroom.
Color me unimpressed. I don't think it has to do with incomes rising so much as it has to do with technology prices falling. It's just not expensive anymore to put a television or any media anywhere one wants. The city of Shenendoah outside The Woodlands north of Houston has free Wi-Fi for all its residents. Soon they won't be exceptional for that at all.
Home builders now wire homes for surround sound -- basic homes -- because it costs them next to nothing. Production builders in recent years have been building niches for televisions in master bathrooms regularly, complete with cable hook-ups. A client recently told me of a friend in an older home who installed a television screen behind their master bathroom mirror (it shows through when the TV is on).
This isn't because people are getting rich. It's because technology is becoming ever more affordable. Cell phones used to be exotic, the idea of PC's on every desk used to be outrageous, and now we're entering an age where the desktop itself may go extinct and all software will be hosted and operated on the Internet. Check out live.com or google.com -- it's already started.
The idea is that technology is not an amenity like a swimming pool or wine cellar to be found in exclusive or more expensive homes. Instead, technology is like an amenity that starts out exclusive but then becomes a standard in short order. When my 2001 car was brand new, its navigation system was pioneering. I'm still grateful to have it, but nowadays it's far behind navigation systems that one can get inexpensively in a cell phone.
So rich or not, the day is fast coming when we'll all be watching television and surfing the Internet in our bathrooms -- and frankly anywhere else we can catch a signal. It's not a sign of wealth. It's a sign of the times.
Monday, December 08, 2008
Bonddad: Now is the Time to Spend
If you are not already familiar with famed online financial commentator Hale "Bonddad" Stewart, I'm glad to introduce you. Hale Stewart is a Houstonian and bond trader. He is also an attorney specializing in estate, international tax, M&A and business issues. He is a frequently recommended luminary for lay people at Daily Kos, which features his latest post in support of the Keynesian "spend now and spend big" arguments such as those featured on this blog.
The technical arguments against spending are obvious and reasonable under normal circumstances. However these are anything but normal times. Stewart takes a moment to address why threading this needle has a better chance of working at this point in time than other options (such as Hooverism).
The thrust of his arguments are this:
The technical arguments against spending are obvious and reasonable under normal circumstances. However these are anything but normal times. Stewart takes a moment to address why threading this needle has a better chance of working at this point in time than other options (such as Hooverism).
The thrust of his arguments are this:
- The US Dollar has, after a 20% run up in recent months, room to give up value in the wake of new spending;
- 10-Year Treasury interest rates are at multi-year lows, indicating a continued strong demand for US debt; and
- Nothing is certain and there are no sure-fire solutions
Another Bottom? Not In Housing & Not Without Housing.
Oh my. Just Friday night the financial media started schooling Wall St on its trading day lunacy. A few items the markets seemed to ignore or discard without reason:
File this under "YHGTBSM":
Late mortgage payments and foreclosures hit record
Okay. But there has to be a pony in there somewhere...
So who really thinks that Wall St knows something that the general public doesn't? No, we can be assured by now that it's truly the other way around. Now how's this to build certainty and confidence, from the same article:On Thursday, the U.S. Labor Department is likely to say first-time claims for unemployment benefits held above the 500,000 level for a fourth straight week. Then on Friday, the Commerce Department is expected to report that retail sales fell in November for the fifth month in a row, the longest streak of monthly declines since the government started tracking the data in 1992.
"I keep hearing conference call after conference call -- we can't provide any more forecasts," Kuby said. "You're going to hear more of them say it's worse than we thought or we can't stick by our guidance anymore."Fun. But that doesn't stop the die-hard bulls from declaring yet another "bottom" in sight. Why? Because the news is so so very bad. By their logic, when the news gets unbelievably bad, then there must be a turnaround near. After all, things always turn around after things go as low as they're going to go, right? It's like a good friend recently told me, "Funny how you always find your keys in the last place you look."
File this under "YHGTBSM":
No. Just no. There will be no bottom if there is no bottom in housing, and there is no bottom in housing. The following article was posted about an hour before the market closed in a froth on Friday:Few expect the results to be heartening, although after Wall Street shrugged off Friday's dismal employment report, some are starting to sense that the market is beginning to etch out a bottom.
"The market has this horrible news this morning, it didn't collapse," Kuby said.
Late mortgage payments and foreclosures hit record
Moreover, the number of foreclosures would have been higher if several states and others had not implemented moratoriums on foreclosures... which will expire in coming months. Does this sound like a bottom? Not likely.Late mortgage payments and the rate of home loans in foreclosure rose to record highs in the third quarter, threatening to escalate as the recession erases jobs and further strains homeowners, the Mortgage Bankers Association said on Friday.
The number of loans entering the foreclosure process would have been even higher without various programs halting them in favor of loan modifications.And of course at the heart of all this? As we've discussed before: J-O-B-S. So please keep shoveling and tell me if you can find the pony, er... bottom, in here:
A spiking unemployment rate in the midst of what many economists fear to be a deep recession, however, points to rising mortgage delinquency and foreclosure rates next year, the trade group said.
"We haven't gone into past recessions with a housing market in as bad of a shape," Jay Brinkmann, chief economist and senior vice president for research and economics, told Reuters in an interview.
Okay. But there has to be a pony in there somewhere...
"The bigger issue is going to be the underlying economy," Brinkmann said. "As much as any of the overbuilding issues, poor lending or speculative issues, as these job losses spread to some of the rest of the economy ... That certainly doesn't speak to a foreclosure rate coming down."Um. Okay, maybe not. I think we're back to living in a world where up is up again, and unfortunately, down is down.
Saturday, December 06, 2008
Oh, About That Deficit...
Some people think I've become too cavalier about the nation's budget deficits and overall debt in recent posts. Anyone who knows me knows that I'm one of the most fervent deficit hawks that exist. However in recent months it has become clear to me that we have no choice as a nation but to spend whatever is necessary to restart the economy, or we risk losing a whole lot more than we stand to spend and invest.
Warren Buffett and other luminaries are in clear agreement. Only the US government has the strength to spend what is needed to jump start the economy back to sustainable growth. I look at it this way: when you're in a deflationary spiral, you have to react by applying inflationary pressures.
Inflationary pressures mean: lower interest rates, higher spending. Period. Some on the right have taken to calling Ben Bernanke "Helicopter Ben." That's a fair nickname, I think, because right now it does appear that Bernanke and Treasury are dropping tonnes of cash from helicopters over the American landscape. Actually, it's not a terrible idea. Instead, though, it's more like they're building pipelines to pump that cash directly into banks, and frankly to little effect. (Spending for spending sake also makes no sense. Investment is the only best spending strategy.)
But the bottom line, no matter what we do, is that as long as government spending is backed by loans, then the government is not "printing money." This is how the U.S. is avoiding the inflationary effects of massively higher spending -- by adding that spending to the national debt instead of just "printing the money," which would dilute the dollar and could lead to inflation. However ironically, inflation is exactly what we need, which is why this approach is so wrong-headed and to date so ineffective.
So right now, the untold story is that the U.S. government is betting, along with our international investors who buy our U.S. debt in the form of government bonds, that all of today's massive spending will be repaid with interest at some point in the future when the economy turns around. Do you have faith in that? As long as the world does, we're okay. But if the world starts to doubt our ability to pay off probably $15-18 trillion in national debt, then nobody will want to buy the government bonds anymore, which means the government will have to raise the interest rates offered to its bond investors, which will drive up interest rates to our economic peril. Or, conversely, the government can throw up its hands and just print whatever money it needs to pay off its debts, but that will have equal peril in the form of massive over-inflation. But that's not the concern today.
Right now, to head off falling prices and falling credit as the values of American assets fall, the government is spending, spending, spending by borrowing, borrowing, borrowing -- and I think they are making a fundamental mistake by using all loans to get around inflation. The whole idea right now should be to put inflation into the market. Once the market regains traction and the pendulum swings, then the Fed and Treasury can tighten up policy and reign in the inflation. This is just as clear as night is to day.
Unless you're an economics PhD egg-head or Wall St banker.
If you know nothing else about the condition of the economy and its impact on increasing demand for housing, know this: nothing will happen until the masses of Americans are confident in their jobs. J-O-B-S. As long as Americans are insecure about their jobs, be they manufacturing, service, or civil, Americans will not feel comfortable making major purchases and will not have confidence in their long term ability to sustain major purchases -- such as homes.
So watch the unemployment numbers, both nationally and especially locally. Regardless of what's going on on Wall Street, without confidence in our jobs as Americans, we cannot and will not have the confidence required to do business with one another -- and that includes buying and selling each other's homes.
Warren Buffett and other luminaries are in clear agreement. Only the US government has the strength to spend what is needed to jump start the economy back to sustainable growth. I look at it this way: when you're in a deflationary spiral, you have to react by applying inflationary pressures.
Inflationary pressures mean: lower interest rates, higher spending. Period. Some on the right have taken to calling Ben Bernanke "Helicopter Ben." That's a fair nickname, I think, because right now it does appear that Bernanke and Treasury are dropping tonnes of cash from helicopters over the American landscape. Actually, it's not a terrible idea. Instead, though, it's more like they're building pipelines to pump that cash directly into banks, and frankly to little effect. (Spending for spending sake also makes no sense. Investment is the only best spending strategy.)
But the bottom line, no matter what we do, is that as long as government spending is backed by loans, then the government is not "printing money." This is how the U.S. is avoiding the inflationary effects of massively higher spending -- by adding that spending to the national debt instead of just "printing the money," which would dilute the dollar and could lead to inflation. However ironically, inflation is exactly what we need, which is why this approach is so wrong-headed and to date so ineffective.
So right now, the untold story is that the U.S. government is betting, along with our international investors who buy our U.S. debt in the form of government bonds, that all of today's massive spending will be repaid with interest at some point in the future when the economy turns around. Do you have faith in that? As long as the world does, we're okay. But if the world starts to doubt our ability to pay off probably $15-18 trillion in national debt, then nobody will want to buy the government bonds anymore, which means the government will have to raise the interest rates offered to its bond investors, which will drive up interest rates to our economic peril. Or, conversely, the government can throw up its hands and just print whatever money it needs to pay off its debts, but that will have equal peril in the form of massive over-inflation. But that's not the concern today.
Right now, to head off falling prices and falling credit as the values of American assets fall, the government is spending, spending, spending by borrowing, borrowing, borrowing -- and I think they are making a fundamental mistake by using all loans to get around inflation. The whole idea right now should be to put inflation into the market. Once the market regains traction and the pendulum swings, then the Fed and Treasury can tighten up policy and reign in the inflation. This is just as clear as night is to day.
Unless you're an economics PhD egg-head or Wall St banker.
If you know nothing else about the condition of the economy and its impact on increasing demand for housing, know this: nothing will happen until the masses of Americans are confident in their jobs. J-O-B-S. As long as Americans are insecure about their jobs, be they manufacturing, service, or civil, Americans will not feel comfortable making major purchases and will not have confidence in their long term ability to sustain major purchases -- such as homes.
So watch the unemployment numbers, both nationally and especially locally. Regardless of what's going on on Wall Street, without confidence in our jobs as Americans, we cannot and will not have the confidence required to do business with one another -- and that includes buying and selling each other's homes.
Friday, December 05, 2008
The Dumbest Day in the Dow...
Ever?
Has there ever been a more important story than today's news about September job losses being more than previously reported, October job losses being more than previously reported, and now November job losses at 533,000, the worst month since this month in 1974? At least in modern times?
Wall St could care less. In fact, it added +259 points to the Dow today, over 3% in a day, today, the day we learned that America lost over 1.25 MILLION JOBS in the last 3 months.
Unbefreakinlievable.
I used to think that the professionals on Wall St, who do this stuff every day and have billions of dollars under management, probably knew more than I do about markets, stocks, and macro outlooks. Then the subprime crisis hit last year, and the truth started coming out. I don't know why I made such a bad assumption, but now... I... know... better. And so should we all.
This article from Reuters says that investors cited a decline in gas prices for such optimism on a day like today, because consumers will find so much more money in their pockets and so will boost spending. I hope I'm proven wrong, but for now I am stunned, when I thought Wall St could never stun me again. Unbelievable. Let's dissect this "logic": a) gas prices move lower, because b) consumer demand has been eviscerated by a deteriorating job market and lower spending, therefore c) consumers will start spending more and the economy will benefit. What?
If there are no jobs, there is nothing to spend. If there is no credit, it's worse. If all the American economy produced were enough jobs to keep up with the growth of our population, we would need 11 million more jobs today than we have, just to keep pace.
These people on Wall St think there is a Santa Claus, a Tooth Fairy, and an Easter Bunny all on a select committee to save the economy with their magical powers. They're like junkies in withdrawal, needing one more fix of irrational exuberance. They think Obama (Santa?) is suddenly going to come to their rescue, as if the damage done isn't really as bad as it is, as if the whole solution to our problem only requires a simple plan, but every person in the world just hasn't seen it yet -- except Obama's inner circle? I have tremendous respect for the capabilities of the President-Elect and his new team, and I even have guarded optimism about it, but today's market action is sad and frightening for what it reveals about the big Wall St players, even today. They still do not get it. And that is frankly breathtaking.
That doesn't mean that you and I have to fall into the same trap. Look folks, the economy is in the tank. Yes, it will turn around, but not next month, and probably not next year.
This kind of infantile fantasy on display today on Wall St is shameful, pathetic, and frightening. We are Americans. And if we have learned nothing else in this crisis, it's that we need now to grow up and sober up, and stop living on the empty fantasies and promises peddled by Wall St.
Has there ever been a more important story than today's news about September job losses being more than previously reported, October job losses being more than previously reported, and now November job losses at 533,000, the worst month since this month in 1974? At least in modern times?
Wall St could care less. In fact, it added +259 points to the Dow today, over 3% in a day, today, the day we learned that America lost over 1.25 MILLION JOBS in the last 3 months.
Unbefreakinlievable.
I used to think that the professionals on Wall St, who do this stuff every day and have billions of dollars under management, probably knew more than I do about markets, stocks, and macro outlooks. Then the subprime crisis hit last year, and the truth started coming out. I don't know why I made such a bad assumption, but now... I... know... better. And so should we all.
This article from Reuters says that investors cited a decline in gas prices for such optimism on a day like today, because consumers will find so much more money in their pockets and so will boost spending. I hope I'm proven wrong, but for now I am stunned, when I thought Wall St could never stun me again. Unbelievable. Let's dissect this "logic": a) gas prices move lower, because b) consumer demand has been eviscerated by a deteriorating job market and lower spending, therefore c) consumers will start spending more and the economy will benefit. What?
If there are no jobs, there is nothing to spend. If there is no credit, it's worse. If all the American economy produced were enough jobs to keep up with the growth of our population, we would need 11 million more jobs today than we have, just to keep pace.
These people on Wall St think there is a Santa Claus, a Tooth Fairy, and an Easter Bunny all on a select committee to save the economy with their magical powers. They're like junkies in withdrawal, needing one more fix of irrational exuberance. They think Obama (Santa?) is suddenly going to come to their rescue, as if the damage done isn't really as bad as it is, as if the whole solution to our problem only requires a simple plan, but every person in the world just hasn't seen it yet -- except Obama's inner circle? I have tremendous respect for the capabilities of the President-Elect and his new team, and I even have guarded optimism about it, but today's market action is sad and frightening for what it reveals about the big Wall St players, even today. They still do not get it. And that is frankly breathtaking.
That doesn't mean that you and I have to fall into the same trap. Look folks, the economy is in the tank. Yes, it will turn around, but not next month, and probably not next year.
This kind of infantile fantasy on display today on Wall St is shameful, pathetic, and frightening. We are Americans. And if we have learned nothing else in this crisis, it's that we need now to grow up and sober up, and stop living on the empty fantasies and promises peddled by Wall St.
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