-The yield on the long bond has been moving up all week, meaning that I have not yet initiated my short position. Still, it is fast approaching the upper band of the trading range that started last summer, so a drop in yields could be coming. Especially if Bernanke and co. don't announce more easing measures next week. Equally telling, though, will be if there is no further measure announced, the market starts to slide, but bond yields don't drop.
-The yen keeps going down.
-The guy who I work with that has boatloads of experience (I think an appropriate nickname might be the "The Guru") estimates that the multifamily space has about 12 to 18 months before the jig is up, due to the perfect storm of new supply coming online, an actual bottom in the housing market and stagnating income levels that will prevent much more in the way of rent hikes. I don't disagree, but I also know that markets can be highly irrational for far longer than you might expect.
Friday, March 9, 2012
Wednesday, March 7, 2012
Africa's Resource Curse
I just finished up the Douglas Yates book about African oil that I mentioned a few weeks back. Fair to say that I enjoyed it. The driving objective is an examination of why a continent so rich in resources remains so mired in poverty and corruption. Using each chapter to cover a different angle, and a country-specific case study to extrapolate therein, he lays out a compelling case for why change must come from below and not above. The topics covered include neocolonialism in the aftermath of "independence", failed attempts to implement better governance by outside entities, evolution of rentier states that ultimately create a class of elites that have no interest in sharing oil revenues with their countrymen, and the simple reality that the countries of Africa are artificial constructs of colonial times. He makes a surprisingly strong case for why African states might try to follow the lead of Hugo Chavez in Venezuela, but also recognizes the inherent differences between Africa and Latin America that complicate such a possibility. In any event, I liked it and it provided the necessary relief from my previous read.
Tuesday, March 6, 2012
The Emperor
I came across an interesting post on Paul Krugman's blog presenting a recent speech that he gave in Europe. I have always found him very intelligent and thoughtful, yet able to raise my ire in the blink of any eye. And in this speech, he pulls off the feat again, in the span of two paragraphs. First, the good:
"It's also normal to think of economics as a morality play, a tale of sin and redemption, in which countries must suffer for their past excesses. Again, this normal reaction is wrong, or at least mostly wrong -- mass unemployment does nothing to help pay off debt. But absent clear guidance from the people who are supposed to explain that economics is not, in fact, a morality play, moralizing became the core of economic policy thinking in Germany, and hence played a huge role in European policy more generally."
I think he's right in his indictment of most economists and politicians who are johnny-come-latelys to austerity as policy. It is a political ploy and it's not based on sound arguments. I think for those who take an objective approach (or try to think like investors, to repeat a theme I've referenced before) it is not about morality so much as simple truth. And therefore disagreement exists over whether Krugman offers as alternative a solution that is really viable and sustainable.
Now, for the other stuff:
"Finally, government officials who hang out with businessman -- and almost all of them do -- naturally tend to be attracted to views that put business confidence at the heart of economic problems. Sure enough, belief that one should slash spending even in a depressed economy, and that this would actually promote growth because it would have positive effects on confidence, spread like wildfire in 2010. There were some economic studies used to justify the doctrine of expansionary austerity -- studies that quickly collapsed under scrutiny. But really, the studies became popular because they suited the prejudices of politicians, prejudices that would have been totally familiar to Herbert Hoover and Heinrich Bruning."
For those who are not from the ranks of the politicized, is that really the case for austerity? I think Krugman is arguing against a straw man, in order to avoid dealing genuinely with the line of reasoning which says that there is no easy and clear path out of this. That perhaps time (and unfortunately some pain) is the only cure. In other words, the argument is not that austerity is expansionary, but simply what we must face. That to try easy money and fiscal planning is likely to lead to more of the same problems eventually. (Yes, Minsky says capitalism is inherently unstable, but I have already raised my concerns about what his theory seems to take for granted and ignore.) And, to make matters worse, Krugman totally misrepresents Hoover. He may not have been hugely expansionary, but his policy response to the crash of 1929 and subsequent depressionary times was to increases federal deficits. Now, Krugman may not think the size of deficits was sufficient, but it is entirely misleading to present the narrative in the way that he does. So, good Krugman, bad Krugman. As usual.
"It's also normal to think of economics as a morality play, a tale of sin and redemption, in which countries must suffer for their past excesses. Again, this normal reaction is wrong, or at least mostly wrong -- mass unemployment does nothing to help pay off debt. But absent clear guidance from the people who are supposed to explain that economics is not, in fact, a morality play, moralizing became the core of economic policy thinking in Germany, and hence played a huge role in European policy more generally."
I think he's right in his indictment of most economists and politicians who are johnny-come-latelys to austerity as policy. It is a political ploy and it's not based on sound arguments. I think for those who take an objective approach (or try to think like investors, to repeat a theme I've referenced before) it is not about morality so much as simple truth. And therefore disagreement exists over whether Krugman offers as alternative a solution that is really viable and sustainable.
Now, for the other stuff:
"Finally, government officials who hang out with businessman -- and almost all of them do -- naturally tend to be attracted to views that put business confidence at the heart of economic problems. Sure enough, belief that one should slash spending even in a depressed economy, and that this would actually promote growth because it would have positive effects on confidence, spread like wildfire in 2010. There were some economic studies used to justify the doctrine of expansionary austerity -- studies that quickly collapsed under scrutiny. But really, the studies became popular because they suited the prejudices of politicians, prejudices that would have been totally familiar to Herbert Hoover and Heinrich Bruning."
For those who are not from the ranks of the politicized, is that really the case for austerity? I think Krugman is arguing against a straw man, in order to avoid dealing genuinely with the line of reasoning which says that there is no easy and clear path out of this. That perhaps time (and unfortunately some pain) is the only cure. In other words, the argument is not that austerity is expansionary, but simply what we must face. That to try easy money and fiscal planning is likely to lead to more of the same problems eventually. (Yes, Minsky says capitalism is inherently unstable, but I have already raised my concerns about what his theory seems to take for granted and ignore.) And, to make matters worse, Krugman totally misrepresents Hoover. He may not have been hugely expansionary, but his policy response to the crash of 1929 and subsequent depressionary times was to increases federal deficits. Now, Krugman may not think the size of deficits was sufficient, but it is entirely misleading to present the narrative in the way that he does. So, good Krugman, bad Krugman. As usual.
Monday, March 5, 2012
Friday, March 2, 2012
More on Real Estate
I think it should be clear, but with respect to my post yesterday about the sequence of real estate cycles, the precursor to step one could be the existence of lots of resources in the ground. Sound familiar?
Odd and Ends
-I have not yet initiated the previously discussed treasury short. I think that will change next week. My target is the 30-year and I am looking for yields to move down to about 3%. At that point, game on.
-The chart for FXY (Japanese Yen proxy) looks heinous. It has now fallen below the long term trend line that I pointed out a little while back. Which begs the question of whether a bounce is due. Regardless, that short trade has the appearance of picking up steam.
-I am always amused when I see economists try to explain the daily noise in the markets. It's noise. Trying to explain it is a fool's errand. Which brings me to a great quote in the most recent quarterly missive from Jeremy Grantham of GMO:
"Ignore especially short-term news: the ebb and flow of economic and political news is irrelevant. Stock values are based on their entire future value of dividends and earnings going out many decades into the future. Shorter-term economic dips have no appreciable long-term effect on individual companies, let alone the broad asset classes that you should concentrate on. Leave those complexities to the professionals, who will on average lose money trying to decipher them."
-The chart for FXY (Japanese Yen proxy) looks heinous. It has now fallen below the long term trend line that I pointed out a little while back. Which begs the question of whether a bounce is due. Regardless, that short trade has the appearance of picking up steam.
-I am always amused when I see economists try to explain the daily noise in the markets. It's noise. Trying to explain it is a fool's errand. Which brings me to a great quote in the most recent quarterly missive from Jeremy Grantham of GMO:
"Ignore especially short-term news: the ebb and flow of economic and political news is irrelevant. Stock values are based on their entire future value of dividends and earnings going out many decades into the future. Shorter-term economic dips have no appreciable long-term effect on individual companies, let alone the broad asset classes that you should concentrate on. Leave those complexities to the professionals, who will on average lose money trying to decipher them."
Thursday, March 1, 2012
Quick and Dirty
My quick little progression chart for real estate investing:
Population growth --> Job creation --> Higher Incomes and demand --> Higher rents
I see an argument for why the first two inputs are perhaps circular and more simultaneous then sequential. Nevertheless, the takeaway is really that if you can identify this cycle and catch it early on, you stand to profit.
Population growth --> Job creation --> Higher Incomes and demand --> Higher rents
I see an argument for why the first two inputs are perhaps circular and more simultaneous then sequential. Nevertheless, the takeaway is really that if you can identify this cycle and catch it early on, you stand to profit.
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