Scott Burns, formerly with the Dallas Morning News, has an insightful take on an "old" problem. He shows how Medicare will negatively impact not just young children, but 30 year old adults:
http://assetbuilder.com/blogs/scott_burns/archive/2008/09/12/medicare-the-biggest-threat-to-our-retirement-standard-of-living.aspx
Scott Burns, Peter Peterson, David Walker, and Richard Fisher have warned us about the Medicare ticking time-bomb. With apologies to Aldai Stevenson, we need more than just the thinking men to agree that change is necessary. Seniors tend to vote in higher numbers, and it will take a strong, bipartisan effort to fix the broken entitlement system. Someone needs to figure out how to counteract advertisements of grandma not being able to afford her medication, or stories about seniors skipping lunch so they can afford medicine. Such tactics are bound to be used to support the status quo, which is hurting America's younger generations. What can we do when so many Americans spend their working life not saving enough and then end up relying on the government to survive?
This isn't an old-vs.-young issue. The negative savings rate destroys the feasibility of universal healthcare for all Americans, young, middle-aged, and old. Universal healthcare requires more taxation, a surplus, or a weakening of the American dollar, and since we don't have a surplus, I'll give you two guesses as to what the other options are in the absence of a higher savings rate. Meanwhile, here's what the Federal Reserve of San Francisco says about China's savings rate (http://www.frbsf.org/publications/economics/letter/2008/el2008-03.html#5):
China's overall saving rate is now nearly 50%, by far the highest in the world. China's domestic investment rate has also been high, but not as high as saving, resulting in net current account surpluses which rose from 4% of GDP in 2004 to 7% in 2007.
Sadly, America's economy is based on other countries lending us money to spend while America prints more money to sell to the creditor countries, whose citizens save their money. But without Americans spending money, fewer people get to move up the economic ladder, because a nation of savers is terrible for growth and jobs. So the key is for central banks to work together to create timely incentives to spend and to save. Forget about presidents working together--I'd rather see central banks getting chummy first.
"And if an epitaph be my story, I'd have a short one ready for my own: I had a lover's quarrel with the world." -- Robert Frost
Monday, September 15, 2008
Capitulation?
Headline: "Dow Plunges 500 Points on Lehman Bankruptcy, Merrill Sale, AIG Woes"
If I had to venture a guess, I'd say today was the capitulation we've been waiting for. Perennial pessimist Nouriel Roubini said he expected another 20% drop, but to me, his prediction is a good contrarian indicator.
[Note: I also called capitulation on 9/17/08. The next two days, the market went up around 10%.]
If I had to venture a guess, I'd say today was the capitulation we've been waiting for. Perennial pessimist Nouriel Roubini said he expected another 20% drop, but to me, his prediction is a good contrarian indicator.
[Note: I also called capitulation on 9/17/08. The next two days, the market went up around 10%.]
Sunday, September 14, 2008
Libertarians and Responsibilities
From the WQ (Summer 2008, page 28):
When government takes over the responsibility from citizens, the citizens can't develop their own values anymore. So when you want people to develop their own values in how to cope with social interactions between people, you have to give them freedom.
-- Hans Monderman, Netherlands traffic engineer
This concept is so simple, even a European government worker can understand it. At least the Europeans offer benefits to all citizens, not just government workers, which creates less resistance to increased taxation. These generous benefits, however, create opposition to immigration, because more people entering a country sap the benefits from existing persons, assuming a stable and finite tax base. America, thus far, has been more open to immigrants, which is responsible for much of its success.
When government takes over the responsibility from citizens, the citizens can't develop their own values anymore. So when you want people to develop their own values in how to cope with social interactions between people, you have to give them freedom.
-- Hans Monderman, Netherlands traffic engineer
This concept is so simple, even a European government worker can understand it. At least the Europeans offer benefits to all citizens, not just government workers, which creates less resistance to increased taxation. These generous benefits, however, create opposition to immigration, because more people entering a country sap the benefits from existing persons, assuming a stable and finite tax base. America, thus far, has been more open to immigrants, which is responsible for much of its success.
Housing's Real Issue: Bigger Ain't Always Better
The Wilson Quarterly (WQ, Summer 2008, Vol. 32, No. 3) published an article by Witold Rybczynski about affordable homes.
What's driving the high cost of houses today is not increased construction costs or higher profits...but the cost of serviced land.
The author refers to "serviced land" in two ways: one, the passing of costs from the government to developers for infrastructure; and two, NIMBY (Not In My BackYard).
Prior to Prop 13, the government would increase taxes on local communities for services that followed increased population growth, such as new roads, new parks, sewers, and general maintenance. Now, many local governments cannot increase property taxes to make up for the increased need for services, so they force developers to pay these costs if they want to build. The developers take the financial infrastructure hit up front and pass those costs onto the homebuyer at the end in the form of higher home prices.
NIMBY is easy to understand in this case. There is "widespread resistance to growth," so locals pass zoning laws and restrict building permits to prevent more houses from being built. These legally mandated slow growth policies lead to pent-up demand and not enough supply of houses, causing artificially inflated values. Anyone who's lived in Northern California and New York knows there isn't a problem with overpopulation and population density in California to justify California's slow growth policies--at least not yet. Rybczynski says,
According to the research of economists Edward Glaeser of Harvard and Joseph Gyourko of the Wharton School, since 1970 the difficulty of getting regulatory approval to build new homes is the chief cause of increases in new house prices. In other words, while demand for houses has been growing, the number of new houses that can actually be built has been shrinking.
One tactic cities use to stall new homes is zoning for large lots, like one acre. This forces larger houses and higher prices. In the past, many individual homes would be only 1/6 of an acre. Rybczynski states,
Smaller houses on smaller lots are the logical solution to the problem of affordability, yet density--and less affluent neighbors--are precisely what most communities fear most.
I would love to see a return to smaller houses. One advantage of not having a lot of space is people will consume less if they know there isn't so much space to hold their new purchases.
Follow-up from Mankiw's blog: Assar Lindbeck once called rent control "the best way to destroy a city, other than bombing." Rent control is another regulation that discourages new real estate development by providing an incentive for renters not to move. At the same time, it discourages new developers from investing in new buildings because the owners will be unable to charge higher market prices. I am conflicted about rent control, because there must be some cap on rent increases that will satisfy both renters and developers. Leaving renters to the pure whims of landlords doesn't seem ideal. Of course, in trying to establish an ideal cap on rent increases, we could end up with the problem of the cap actually inflating rents. For instance, if we enact a 5% annual cap, all landlords will probably raise the rent 5% a year when they might have kept the rent unchanged without the law.
What's driving the high cost of houses today is not increased construction costs or higher profits...but the cost of serviced land.
The author refers to "serviced land" in two ways: one, the passing of costs from the government to developers for infrastructure; and two, NIMBY (Not In My BackYard).
Prior to Prop 13, the government would increase taxes on local communities for services that followed increased population growth, such as new roads, new parks, sewers, and general maintenance. Now, many local governments cannot increase property taxes to make up for the increased need for services, so they force developers to pay these costs if they want to build. The developers take the financial infrastructure hit up front and pass those costs onto the homebuyer at the end in the form of higher home prices.
NIMBY is easy to understand in this case. There is "widespread resistance to growth," so locals pass zoning laws and restrict building permits to prevent more houses from being built. These legally mandated slow growth policies lead to pent-up demand and not enough supply of houses, causing artificially inflated values. Anyone who's lived in Northern California and New York knows there isn't a problem with overpopulation and population density in California to justify California's slow growth policies--at least not yet. Rybczynski says,
According to the research of economists Edward Glaeser of Harvard and Joseph Gyourko of the Wharton School, since 1970 the difficulty of getting regulatory approval to build new homes is the chief cause of increases in new house prices. In other words, while demand for houses has been growing, the number of new houses that can actually be built has been shrinking.
One tactic cities use to stall new homes is zoning for large lots, like one acre. This forces larger houses and higher prices. In the past, many individual homes would be only 1/6 of an acre. Rybczynski states,
Smaller houses on smaller lots are the logical solution to the problem of affordability, yet density--and less affluent neighbors--are precisely what most communities fear most.
I would love to see a return to smaller houses. One advantage of not having a lot of space is people will consume less if they know there isn't so much space to hold their new purchases.
Follow-up from Mankiw's blog: Assar Lindbeck once called rent control "the best way to destroy a city, other than bombing." Rent control is another regulation that discourages new real estate development by providing an incentive for renters not to move. At the same time, it discourages new developers from investing in new buildings because the owners will be unable to charge higher market prices. I am conflicted about rent control, because there must be some cap on rent increases that will satisfy both renters and developers. Leaving renters to the pure whims of landlords doesn't seem ideal. Of course, in trying to establish an ideal cap on rent increases, we could end up with the problem of the cap actually inflating rents. For instance, if we enact a 5% annual cap, all landlords will probably raise the rent 5% a year when they might have kept the rent unchanged without the law.
Debt, debt, and more debt
The SJ Mercury News published a chart about America's addiction to debt. As Barry Ritholtz would say, this is lovely chartporn.
If you're into credit cards, the chart also lists the market share of each major credit card company:
Visa 46%
Mastercard 36%
American Express 12%
Discover 6%
Take Two and EA Call It Off
The NY Times is reporting the EA/Take-Two courtship is no more:
http://www.nytimes.com/2008/09/15/technology/15deal.html?ref=technology
On top of the credit turmoil this weekend, this is really bad news for Take Two (TTWO). It's going to be interesting to see how far TTWO drops on Monday, and how much ERTS increases. I told the Board at this year's ERTS shareholder meeting the EA/TTWO merger was a fine idea prior to TTWO's numbers being released. Everyone knew the latest release of Grand Theft Auto would do well, which would cause Take Two to demand a far higher premium than its intrinsic value warranted. The simple fact is Take Two's pipeline is weak. Like Pfizer (PFE), Take Two has a great balance sheet, but not much in the way of forward growth. That being said, I expect EA to come back to Take Two when its numbers show a gradual decline in sales, forcing Take Two to be more reasonable. Someone will buy Take Two at some point--as I said before, it's just a matter of who and when.
I sold my Take Two shares on Friday, netting a 2.2% percentage gain in three days. As a trader, sometimes it's better to be lucky than good.
Disclosure: although I do not currently own TTWO shares, I may buy shares in the future.
http://www.nytimes.com/2008/09/15/technology/15deal.html?ref=technology
On top of the credit turmoil this weekend, this is really bad news for Take Two (TTWO). It's going to be interesting to see how far TTWO drops on Monday, and how much ERTS increases. I told the Board at this year's ERTS shareholder meeting the EA/TTWO merger was a fine idea prior to TTWO's numbers being released. Everyone knew the latest release of Grand Theft Auto would do well, which would cause Take Two to demand a far higher premium than its intrinsic value warranted. The simple fact is Take Two's pipeline is weak. Like Pfizer (PFE), Take Two has a great balance sheet, but not much in the way of forward growth. That being said, I expect EA to come back to Take Two when its numbers show a gradual decline in sales, forcing Take Two to be more reasonable. Someone will buy Take Two at some point--as I said before, it's just a matter of who and when.
I sold my Take Two shares on Friday, netting a 2.2% percentage gain in three days. As a trader, sometimes it's better to be lucky than good.
Disclosure: although I do not currently own TTWO shares, I may buy shares in the future.
Friday, September 12, 2008
The NAACP's New Man
Another blogger wrote a post about race in America and the new head of the NAACP. It's such a well-written post, I had to share:
http://politicalcolors.blogspot.com/2008/09/new-face-of-naacp.html
The writer makes a great point when she asks the rhetorical question, "What happens to high school dropouts? They become the chronically unemployed."
http://politicalcolors.blogspot.com/2008/09/new-face-of-naacp.html
The writer makes a great point when she asks the rhetorical question, "What happens to high school dropouts? They become the chronically unemployed."
Subscribe to:
Posts (Atom)