By Peter P follow 2006 Jul 21, 3:29am 4 links 5,484 views 118 comments
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If "soft landing" is not appropriate, what term should we use?
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hmmm, very interesting, SP.
although there is a big Lebanese community in Australia, including quite a few politicians and other dignitaries, I suspect the Oz govt will quietly go along with the US-Israeli agenda while making reasonable efforts to get Lebanese-Australian nationals out as required. expect more rhetoric about 'terrorists' etc.
I just picked up a flyer about East Timor at random in the uni library, and it points out that othe Oz govt criticised the then-current govt in East Timor recently mainly because it is in Oz's power interests to do so. In particular, they have been after a rich vein of oil and gas in a trench in the East Timor Sea, which, under international border law, belongs to the East Timorese, but under an agreement with the invading Indonesians some time ago, went to Australia. In other words, Australia permitted Indonesia to invade in the first place in the understanding that they would get the resources cheaply for not objecting. The latest agreement is for Australia to retain rights for 2 generations, by which time the resources will be played out, an agreement the govt in Dili wasn't too happy about. The Oz govt didn't want to see a leftist Timorese-Chinese nexus opening up and a sea change occurring, so chose to support the 'rebel soldiers' as having legitimate grievances, rather than choosing to brand them as 'terrorists acting against a legitimate govt in a fledgling independent nation' etc. Choose the rhetoric to suit the situation...
It's a dictum of foreign policy that there are no permanent allies or alliances, only permanent interests...
With all due respect, comparing me to infamous Trolls doesn't do much to advance debate; it only lessens my desire to share my perspective on the debate.
Your comparisons to equity market bubbles is flawed. Equity markets are incomparably more liquid than real estate markets. I've never once denied that a correction is eminent. I'm only suggesting that it will happen a lot slower than many here are cheering for, and that it won't turn the US and global economies into some 1930s dustbowl.
If we're "staring anything in the face" it is price stickiness. The correction started in mid 2005. If we wait until 2008 or 2009 until we see cumulative 25% comparative real price drops will you still be sitting there claiming that the hard landing is just over the horizon?
EMH is very far from being "debunked". Its usefulness in predictivity has been challenged depending upon what time horizon you are attempting to predict. There is a great deal of academic work which counters the pure behavioral theorists as well. In fact, it may be that EMH holds in aggregate over longer time frames but market psychology factors control the shorter term.
I'm in the camp that believes the market behaves as an emergent system (ES) or a system of ES's, where short term behavioral factors, microeconomics and reactive quantitative arbitrage are the inputs into discovery of longer term efficiency in a continuous dynamic process. But it will never be truly efficient because it is always changing, thus always trending towards efficiency (or specialization if you will) only to be perturbed (extinction if you will) back into generalization. Nothing in this model requires abandonment of EMH, only proper parametrization and factor constraint of it. Remember that the "E" in EMH relies upon the rational maximization function, which need not be a simple mathematical max fn, but can itself include many fuzzy factors (like utility).
Hell, maybe I should send a resume to D.E. Shaw.
If I may make a rather blatant statement, I find it ironic that so many people in SF desperately want SF to be like a “mini-europe”, with the only difference being the inconvenience of being attached the the “other” chunk of the country.
Well.. at least economically, SF has suceeded in that respects, making sure that their economic situation has much disparity as you’d find in any number of those old word economies. Bravo! Bravo!
[splutter] i must protest! i don't think you'll find any european country which has wage multiples anything like the US! those 'old world economies' have a flatter wage structure. england is probably the most uneven, but american is a quantum leap ahead again. nobody has been gouged by the ultra-rich as in america since the days of the sun king prior to the french revolution...
World Map Gini coefficient with legend
what about IHM economic theory? invisible hand of the market.... :P
Leslie Appleton-Young is the Chief Economist...for the Califarnia Realtors Association. (S)he’s no longer calling CA RE a “soft landing” and frankly doesn’t know quite what to call it.
Well, I'm sure Surfer-X could come up with a more than a few interesting
descriptive terms for the housing crash.
The word "rape" comes to mind.
I was of course being tongue-in-cheek. You are certainly no troll, bullish or otherwise (thought the :-) was a hint). Even so, I do find your somewhat pessimistic turn a time when the tide is clearly turning in our favor somewhat mystifying.
Your comparisons to equity market bubbles is flawed. Equity markets are incomparably more liquid than real estate markets. I’ve never once denied that a correction is imminent. I’m only suggesting that it will happen a lot slower than many here are cheering for, and that it won’t turn the US and global economies into some 1930s dustbowl.
This I agree with 100% and if you go well back into the archives --even mid-2005 when I was most bearish-- you'll see that I did not expect the crash would happen short term, or would equal the Great Depression in economic impact. I was predicting a slow 'n sticky correction lasting ~5 years then, and I still am.
If we’re “staring anything in the face” it is price stickiness. The correction started in mid 2005. If we wait until 2008 or 2009 until we see cumulative 25% comparative real price drops will you still be sitting there claiming that the hard landing is just over the horizon?
No, I would not categorize a 25% realprice drop by 2009 as a "hard landing", as this would not constitute a true mean-reversion in terms of rents and incomes. However, a 25% nominal drop (plus another 15-25% or so of inflation erosion) would fit the bill nicely. This is very close to what happened in SoCal in the early 90s, and what I expect to happen more broadly in all the big bubble metro areas this time around.
I contend that the rational maximization function still holds. Behavioral economics simply challenges what the definition of "rational" is. The function need not be linear either. In fact, I believe the rationalization function to be a cognitive "fuzzy" function. Nonetheless, it is a maximization function. Given a set of inputs, and a bunch of fuzzy reasoning, the actors are endeavoring to maximize whatever it is they most value. Actually, more to the point, actors are seeking to minimize that which they most fear or suffer pain from; so it is a sort of inverse maximization function.
But none of this is inconsistent with EMH. It's all about getting the E right.
“owner’s equivalent rent” as the housing component, not home prices.
Doing it the other way, as in the UK, then overstates savings rates. There is no free lunch.
Rational Actor: "I bought a hybrid even knowing that the premium I paid is greater than the fuel savings I'll ever realize. I did this because I feel good about the purchase for [insert qualitative thinking] reasons".
Irrational Actor: "I like to steal hybrids and drive them off of Devil's Slide for kicks. I gave all my money away to the [insert fringe cause] anyway".
If it were a video I’d use footage of those people in Spain that climb on top of each other while the whole town cheers, and then inevitably come crashing down as everyone screams “ooh.”
What’s that called?
I'd call this, as well as the housing bubble, a cluster f*&k.
Nice, Bap33. Let's see if we can Haiku-out those prophetic words of wisdom, old school, PatNet-style.
fits, losing altitude to-
Hey, I sense a mood change.
Randy, are you all right?
How do you get so much inflation in 3 years? 2006 to 2009?
Cactus, if we simply follow the inflation trendline of the past few years, then 15-25% is *no problem*. As Conor pointed out, the current politically manipulated CPI has been grossly UNDERstating inflation since the mid-90s, for a varieyt of reasons. If we use the pre-Clinton era CPI formula, you get 6.5-7% right now:
Aside from allowing politicians to look "tough" on inflation (while really doing the exact opposite), most of the gargantuan federal entitelment programs (SS, Medicare, etc.) are indexed to the CPI. The governement, in short, has $Trillions of reasons to continue understating inflation.
The first two Founders’ Awards consisted of restricted stock that was worth $12 million when it was awarded in November to two teams of a dozen or so employees each.
Ahh the power of myth, ok, how about the Ca lottery?
The lottery has paid out over 600 million in the BA since '88. I'll do the math for you, that's on average 38 million a year into the Bay Area. Certainly this eclipses the "google effect"
Sorry burbed time for you to cuddle with HaHa. There is no google effect, stories regarding google millionares are no better than lotto millionares.
New topic, company _______ pays out big time, the award _______, ______ times a year. It's marvelous, clearly the ______ new ___aires are driving the local market, especially regarding over priced Nazi hotrods.
That’s a mil per person.
No our mathematically gifted posted, it's 500K per person, as bonuses are taxed at ~60%, it's really 200K per person. Again, google is a non-effect, except in myth land, same place that has generated all time favorites such as, "they don't make land anymore" and the perennial fav. "it only goes up".
Another myth busted,
Just seen a paid advert promoting seminars with Allen - buying homes, no money down etc, how much everyone is making - someone stop him pleeease!
Surely he can't think this is a good time to start!
Man, all those people who made millions off of black rocket, blue martini, webvan, pets.com, and razorfish are driving the BA RA costs. I'm sure of it. They made scads of cash. Not to be confused with scuds of death.
Well, thank you so much.
I'd sucessfully obliterated what must be the most inane advert EVER
MADE, from my mind as I went to do some shopping in 116 degree heat.
Now, I just can't stop humming it.
Tell Mrs Newsfreak that we can start a hate campaign together.
Randy H Says:
Rational Actor: “I bought a hybrid even knowing that the premium I paid is greater than the fuel savings I’ll ever realize. I did this because I feel good about the purchase for [insert qualitative thinking] reasons”.
Irrational Actor: “I like to steal hybrids and drive them off of Devil’s Slide for kicks. I gave all my money away to the [insert fringe cause] anyway”.
hmmm, somewhat contradicts the earlier 'fuzzy logic' take. and it's important not to confuse 'rational' with 'rationalisation', the egodefence mechanism. otherwise you'll end up going in a logical circle, and eventually be forced to admit that in the end the world is simply being manipulated by greedy people. you'll find that there's usually an emotional payoff at the id level for whatever people do, except in the case of wildly chaotic schizophrenia. there's always some gratification payoff for everything, no matter how seemingly silly...
in other words, behaviour is hardly ever 'irrational' -- including the freebasing cookie dough addict in the next thread...
Just seen a paid advert promoting seminars with Allen - buying homes, no money down etc, how much everyone is making - someone stop him pleeease! Surely he can’t think this is a good time to start!
of course he doesn't think it's a good time to start -- he thinks it 's a good way for him to continue to make loads of easy money out of a bunch of idiots... he's not in the advice business, he's in show business... it's up to consumer affairs to stop him... this is the joy of living in a free market, free wheeling society...
Your comments are well received. I agree that there is a "rational" payoff for every behavior. But I fear that you're coming over to the rational objectivist dark side. Been reading any Rand lately?
The cost of fine Ikura, flow in fresh daily, in 2006 is $7.99 per 2.
That's $1.39 in 1956 dollars.
Where is this mysterious disappearing inflation?
$1.25 soda would be $0.21 in 1956. My grandfather paid a quarter for a smaller soda portion in 1930.
I saw someone complaining about paying $3.99 to ride senior-discounted public transit. They may well have been a rider in 1956, when they would have paid $0.69, or 83% less nominally. But wait, this particular form of water travel cost $1.25 in 1956 (actually 1950 as best I could find). So it is _cheaper_ for them today, for a much faster, more comfortable, and safer service doing the same thing. This person is probably on some form of fixed income indexed by CPI.
I'm sure they'd be first to buy your argument that CPI understates inflation, terribly so in fact. That way they could accelerate the transfer of wealth from your pocket to theirs as you pay their way into cheaper better goods and services.
Randy H, why do you hate Amerika? Good points. Perhaps when you reach a certain age, especially on a fixed income, you think X should always cost Y. That is when you are out of the game, what you pay for things should be forever fixed upon your exit.
I say screw em, what good are children, dogs and old folks anyways? Wheres the money in that? If the BA and realtwhores have taught us anything it's that the only thing that matters is profit and perferably as easily as possible.
Fuck everyone, wheres my money.
Randy H Says:
Your comments are well received. I agree that there is a “rational” payoff for every behavior. But I fear that you’re coming over to the rational objectivist dark side.
8O – no, still a lot of marx and freud and whoever else left in me yet...
Been reading any Rand lately?
only with a curled lip... :?
what happened to my 8O ? needs some leading text?
I guess I just don’t know what to make of the inflation numbers. I hear people complain about being poor while the yack away on their cell phones. If you’re really “poor,” you don’t have a cell phone, or a car, or a TV or DVD player. I guess it’s the concept of “poor” that eludes me. I think it doesn’t mean to me what people are saying. To me, “poor” is a more Steinbeck sort of thing. I guess the Depression sets the standard for that.
MA, are you some blog alter ego of Mr Vincent? I argue the real inflation numbers are being gamed by the government's hedonically adjusted CPI, and you argue Americans aren't really poor as long as they have cell phones. What the hell do cell phones and poverty have to do with the CPI?
Cochran: Why would a Wookiee, an eight-foot tall Wookiee, want to live on Endor, with a bunch of two-foot tall Ewoks? That does not make sense! But more important, you have to ask yourself: What does this have to do with this case? Nothing. Ladies and gentlemen, it has nothing to do with this case! It does not make sense! Look at me. I'm a lawyer defending a major record company, and I'm talkin' about Chewbacca! Does that make sense? Ladies and gentlemen, I am not making any sense! None of this makes sense! And so you have to remember, when you're in that jury room deliberatin' and conjugatin' the Emancipation Proclamation, [approaches and softens] does it make sense? No! Ladies and gentlemen of this supposed jury, it does not make sense! If Chewbacca lives on Endor, you must acquit! The defense rests.
$1.25 soda would be $0.21 in 1956. My grandfather paid a quarter for a smaller soda portion in 1930.
Uh, wrong. Try a nickel:
Respectfully, try reading links you intend to support your opinion. That article refutes your position, clearly showing a dramatic decline in the real-price of coke over the years studied. In fact, the only real-price increases were during the 30s (therefore mein grossvater wasn't lying, by the way).
Even on a log scale, the real price of coke has dropped by a factor of 5.
Again I ask, where is this disappearing inflation?
Chewbaccaout: The invocation of "The Chewbacca Defense" itself as an obsufcatory defense. A more stylized version of the "I knew you were going to say that" defense.
I don't particularly care whether the inflation adjusted price of Coke dropped from 1889-1959 because of the price rigidity factors explored in the article. You said your grandfather paid a quarter for it in 1930, when he clearly, and I rebutted it with evidence to the contrary.
Gee, I dunno. My father was able to pay 4X his shop steward's salary to buy a house pretty much anywhere in L.A. County in the early 1960s, while now it averages 10-12X median income. Housing expenses in CA are the single largest expense most families have, often consuming 50% or more of gross income. But you're right, I guess I'm just imagining it all.
Are you pulling my leg here? Have you become so tired of making pro-bubble arguments that you're now switching sides just to mix thing up a bit --Bull$hitter style?
Randy & MA,
I guess we'll just have to agree to disagree on the CPI/hedonics issue.
I do see your point on the 'Americans being addicted to spending money (they don't really have) on crap' thing --I've went off on quite a few rants on this subject myself. You nailed the whole thing when for me when you described inflation as "how wage inflation compares to the stuff you “need” to buy". This is how I'd define it too and why I'm convinced the CPI is significantly understating inflation for most shit you really NEED: housing, gas, food, etc.
One thing I'd take issue with, though is the claim (often made by current Administration & incumbents for obvious reasons), that "more people own houses now than before". This just is isn't true. More people today have a mortgage, while actually owning LESS of their home than since the government started keeping records:
And this is at TODAY's insanely high valuations. Imagine what will happen when prices begin to post large drops?
Do tell. Name a bigger bubble in terms of percent of GDP.
I already named three; I found at least 10 if you extend to the Mercantile/Colonial era. Include Europe and there are many dozens. The gold-economies were rampant with speculative, inflationary bubbles that often exceeded the true value of the entire home country.
i think rand is secular anti-humanist drivel...
in terms of actual % inflation, the housing bubble isn't the biggest. in fact, some commentators say it isn't a bubble at all compared with previous speculative bubbles -- i don't know what sort of % increase is the 'cut-off'. however, the human effect is arguably more severe, because purchasing housing is held to be important, whereas purchasing gold, south sea shares, tulip bulbs, etc is a discretionary item. however, we all need somewhere to shelter, and the dream of home ownership was widely achievable in the mid-20th century. it disturbs me that it's going back to some medieval feudal arrangement without any concern on the part of govt... nearly went to a lecture on the failure of present day 'representative' govts and 'democracy' as it is manifested by these govts last night...
Thanks for sharing your observation. The rational me agrees that Lebanon is a limited situation and unlikely to expand much further. The irrational recall the plot summary of Left Behind books and cringe.
Does it matter where we are starting from or trying to get to? The truth is it's tough for those who have thier homes and investments (not me) or are trying to establish foothold in the economy. There has definatlely been a shift in wealth and it takes more and more money to just be middle class. At times it's scares me that I might work all my life and not really scratch the surface. I left the west coast regretably because it was getting harder and harder to just keep up. I saved and saved had low dept load and it still wasn't enough. Things went up double digits the last five years how an you fight that? Now everyone waits with baited breath to se the coming crash of calamity. It's not going to help us who have not when those who have F up the economy for years. THis could be a bad fall and an even longer wait for us on the sidelines.
Is it true that the economy and growth in China is causing this run up of gas prices? Are the people prospering or just the rich few who own businesses? Does the chinese goverment really trust america long term or are those few who are only interested in short term gain doing most of the business? Seems the job picture in the US has become bleaker once it became apparent that chinese and indians will work for wages that are concidered poverty level here. American business has become greedy and bottom line thinking to the point where they'll go overseas for workers. There they will not be regulated to pay fair wages, health insurance, and retirement benefits. It has all but help destroy the middle class here.