Monday, March 21, 2016

Everyone in Oregon is Stoned

I just read in the NY Times, in January, $14,000,000 in marijuana was sold in Oregon (recreational - not counting medical).

That's $3.50 per person (about 4 Million people in Oregon).

Decent quality sells for $180/oz which makes about 60 normal sized joints.

So that's $3/joint

Which means every single person in Oregon could've smoked a joint and then some in January.
Including babies.

But not including dogs.

Friday, February 26, 2016

You Can't Leave out Prisoners! Distorted Unemployment Numbers

In determining the unemployment rate, excluding the institutional population is not a trivial choice.

Think about it: A large fraction of the institutional population consists of young black males. A segment of the population which, if not in prison, would have a relatively high proportion of unemployment. The same applies to the military. So that means that:
- An administration can decrease the reported unemployment rate simply by incarcerating more young black men.
- Same applies to recruiting that population into the military.

There is little doubt that if fewer people (and young black men in particular) were in prison, GDP would be higher and so would reported unemployment.

So, if you're evaluating either the state of the economy or the effectiveness of an administration, excluding the institutional population (and, in fact, giving them no consideration of any kind in determining the rate) gives an overly favorable picture.

Monday, October 12, 2015

Block Ads Inside Quickbooks 2014 and later

This is a nifty fix I just figured out myself.   Stop those annoying ads inside Quickbooks!

This will probably only work in Quickbooks Pro 2014 (and probably later, but I haven't tested it).

USE AT YOUR OWN RISK!!  This is NOT an Intuit/Quickbooks approved procedure, so if you do this, it's on you. 

If you right click on one of the ads (e.g. lower left under your shortcuts/balances window), you'll see an option for properties and will see that the ad is just a webpage:

(for example).   You can even see the ad by pasting that URL inside any web browser.  I always thought that the new (2014/later) Quickbooks interface looked like a poorly integrated web browser window and this shows that's all it is.

It's just an Internet Explorer window embedded in Quickbooks. 
Warning:  Typically you can block particular websites by blocking your windows HOSTS file.  This is a bad idea here because Quicken uses the same URL for downloading other product related marketing data (e.g. before an online banking connection).  So blocking the site in the HOSTS file will give an error.

Another method which isn't quite as complete, but does help is to use your Internet Explorer options.   This will vary depending on which version of explorer you're using.
Your object is to block the page:

So you can google about how to do that.  I found it in my IE 11 under Tools (Gear Icon, upper right), "Internet Options" - SECURITY tab, "RESTRICTED SITES" icon -> SITES button.
Then just add the above URL to restricted sites.

Then when you next open Quickbooks the ad may show that the content was unavailable.
This should not only hide the annoying Quickbooks promos but make Quickbooks open a bit faster.  It won't wait for internet pages to load.

I haven't had any problems so far, but if you do, just remove the URL from the restricted sites area.

Saturday, September 19, 2015

Not Enough Apartments in Portland? How to get more Apartments built:

We need more apartments (obviously).  So the question is, how do you get new apartments?
1. We already are.  Look around NW, Hillsboro and you see nothing but cranes.
2. But those apartments are for rich people!    If building is encouraged, there will be overbuilding.  Too many apartments.  That WILL happen as long as developers and banks think there's money in it.  And people will fix up older apartment buildings too.  So the quality of apartments in Portland will be higher overall.
3. We can fix it now with rent control!  Why wait?(!)   See #2.  There's no surer way of stopping the building of new buildings than enacting rent control.  Who is going to build if there are more profitable investments (like office space, which is not rent controlled)?

Also, do you know what happens in cities with strict rent control?  Landlords have zero interest in improving their properties:  insulation, new appliances, new windows, even paint!  They will barely maintain them because minimum money in is how you make money with rent control.  That's also how slumlords operate.  Not a coincidence, because this is how you make slums.

Encourage Builders!  They will go bust when too many apartments are built.  Rents will go down!  The People will have cheaper, better apartments!  This happens again and again.  It's not a guess.  Boom-Bust is the nature of the biz!  The cycle is a little over 10 years.  See those cranes? Boom.  We've got a few more years on the clock.  Then it'll be all happy.

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Tuesday, September 09, 2014

Shadow Incentives: How new Multi-family builders fake pro-forma Rents

Builders of multi-family apartment properties want to get as much money as they can, of course, for their new projects.  They don't want to buy and hold.  They want to move to the next project.

The price of a new building is fundamentally based on gross rents.  The buyers think they are sophisticated enough to gauge ongoing expenses better than a builder - who is only operating the building till they can sell.   So the top line gross is everything and the net is kind of ignored except for immutable expenses like property taxes and utilities.

So how do they pump rents in advance of a sale?

The conventional wisdom is that new construction will offer incentives to get butts in the seats - and that's true.  Full buildings make money.   But with the general build & sell (fast) pattern followed by multifamily developers now, things are tweaked a little.   The object now is NOT to maximize near term cash flow

It is to boost the pro-forma top line of the building.

So, yes, there are cash incentives like "free rent," which is traditional for new buildings.  But there are also "shadow" incentives that won't be as obvious to a buyer.   Extra services - like free concierge or dog walking or cleaning or free etc. that may not be obviously an incentive on the books jack up the rent on the apartment.  You might think a savvy investor would recognize these higher expenses and lower net, but, especially with a new building, an investor is more likely to assume the operating expenses would be more similar to their own experience in running that type of building (and write off the higher apparent costs as "start up" or just the inefficiencies of a builder vs property management company running the building.)

These shadow incentives are yet another way of gaming the system.   If you talk with tenants at these new buildings (instead of the sellers/buyers/builders), you get a clearer picture of why they are paying these higher rents and which of those amenities are likely to appear as incentives to a prospective buyer of the building.   These extra services will disappear when an operator with the bottom line in mind is running things - and rents can be expected to drop.

Saturday, August 30, 2014

Raw is a Rip Off!! Why Do DSLRs have Low Dynamic Range Raw? Log Gamma, CR2

It makes ZERO sense to me that the raw data from the sensor would not be stored as the log of the actual value.   That way the full spectrum from brightest to darkest would be recorded with an even number of bits instead of half the bits being used just for the brightest "stop" on a 10 or 11 stop range.

Well... guess what?   Arri and Red, Sony and even Canon use log encoding for their Cinema Raw formats.
"UPDATE: Correction/Clarification. OK, there is room for more confusion as I have been reminded that ArriRaw uses Log encoding as does RedCode. It is also likely that Sony’s raw uses data reduction for the higher stops (as Sony’s raw is ACES compliant it possibly uses data rounding for the higher stops). ArriRaw uses log encoding for the raw data to minimise data wastage, but the data is still unencoded data, it has not been encoded into RGB or YCbCr and it does not have a white balance or have gain applied, all of this is added in post. Sony’s S-Log, S-Log2, Arri’s LogC,  Canon’s C-Log as well as Cineon are all encoded and processed RGB or YCbCr video with a set white balance and with a Log gamma curve applied."

How about Canon?  Their current still EOS raw format is CR2.

 I found one old paper on digital photography - back before it was common.   It was discussing this whole brightness scale problem and basically said it was impractical to record the data linearly because you would need 12 -14 bits to adequately describe a decent grayscale pixel.
At that time, a 1 MB image was pushing things.  So you need to use a log gamma curve.
(gamma is a function - or curve - or transform - depending on your jargon preference, that takes the raw info on pixel brightness as stored in the image file and converts it to the brightness that ought to be visible in the output - like a monitor.   Best to Google or look on Wikipedia for a fuller definition). 

Well, now Canon uses 14 bits in their new cameras! (formerly 12).   So we have fulfilled the destiny of dumb encoding that even an ancient digital imaging paper saw as impractical.   Just another example of huge tech advances allowing implementations to be inefficient and inferior.

Log gamma:
Using Log gamma means that if the darkest black is 1 and your whitest white is 10 stops higher - so 1024 - you could record the black as 0 (2 to the power zero is 1) and 1024 could be recorded simply as 10 (2 to the power 10).   So now your ten stop scale is written as 1 - 10 instead of 1-1024.  But more importantly, instead of the brightest of brights - the 10th stop - taking up a full half of that range (513-1024), the different tones are evenly allocated.   The brightest get 9-10 and the darkest 0-1      If you use the same number of bits, you're going to record a lot more detailed tone info at the dark shadowy end. 

Side Note: NOT Really Raw.
One thing for sure, the Canon CR2 format is not "raw" in the sense of just being able to read a sensor value off the file.  It's compressed in "lossless JPEG" format (whatever that is).
I think it's  kind of TIFF like format.   Not really relevant to my point, but interesting....

Canon Knows Log Gamma!
The "Cinema" C300 (pictured above - kind of a DSLR in a video camera body) has a Log gamma compressed format - where the data was on a log scale and then compressed.    That claims a 12 stop range - vs the max of 11 typically claimed for full frame I think (10 on aps-c like mine.  Canon 7d dynamic range). 

Apparently, pro VIDEO cameras have had a log compressed format for a few years (Sony, Arri, Red, and Canon too).   The claim was that you got the same processing flexibility in post (or better?) than you get with Raw with much smaller files.  "Raw" is a linear encoding of the brightness striking a pixel.  Way more bits used to describe the bright part of the spectrum than darks.   One of the things that actually distinguished RED 1 in 2006 was its 12 bit log raw format (that required acceleration to edit directly).

The Video guys seem way more on top of this stuff and more sophisticated about it than the photo guys.

Canon (and other) still cameras (except maybe Red Cameras used for still work?) use linear gamma curves - so they record far less dark data.

I think this article from Canon Cinema itself makes it about as clear as I'm going to find:

It explains that Raw still images are very big - 25MB+ (and 125MB once opened in Photoshop), and just aren't very practical for Cinema.

Red's first codec was the big innovator.
Now all the majors have "compressed" raw video formats or close to it using log gamma curves.

Postscript:   I looked up this stuff because I read about a technique for DSLR Raw shooting called "expose to the right" or ETTR in the blogs.   It advocates increasing exposure just to the point where you start to clip whites.  That's often higher exposure than the typical 12-18% gray that is the standard for exposure meter proper exposure.   The idea is that it reduces the portion of the available Raw encoding range dedicated to the brights by pushing it as high as possible.  That leaves more of the range for midtones and darks.    You would then bring the exposure down to something that looks good when processing the raw image.   This seems crazy to me, but if raw still formats are using linear gamma, then maybe it does make sense.

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Friday, August 29, 2014

DSLR Exposure: ETTR - "Expose to the Right"

I read an article yesterday advocating what the author called "Expose to the Right" exposure settings for digital cameras.
(By the way, almost everyone who tries to justify this technique points to that article or basically quotes it.   At least from my Googling).

Normally and exposure meter recommends settings that average the scene to about 12-18% reflective gray.
That's supposed to be based on typical scenes or whatever.  It's ancient lore.   There are corrections for bright backgrounds and whatnot and cameras are pretty good about it these days.

For shooting on Film the conventional wisdom was that it's best to use the lowest exposure you can get away with and still get adequate shadow detail (expose to the left - if you think of dark on the left and bright on the right).  That makes some sense because the more you expose a negative, the more material is washed away in the developer - till it's totally transparent.   You can compensate for a dark negative by printing it lighter.  If you overexpose, and there's nothing left on the film, you can't print it darker.

For digital cameras things are different:  The argument for "expose to the right" (optimal exposure is just at the threshold where you lose too much detail in the bright areas) is interesting.
Human light perception is logarithmic.    Twice as bright seems just like a linear increment.  Every time you double the light, it appears to be just a little brighter by the same perceived amount.      Camera lenses are calibrated that way (one F-stop - opening the iris - doubles the light).  And shutter speed dials are the same.  1/125, 1/250, 1/500.
Doubling is the natural increment.

But camera sensors don't work that way.   Pretty sensibly , doubling the light produces double the electrical response.     The "raw" format image encodes those electrical responses just as they come.     A typical digital camera sensor can record a 10 "stop" range ( darkest x 2 x 2 x2.... 2   brightest- ten doublings from darkest to brightest).

But (the argument says), it records that range linearly - so the final brightest area takes half the scale available!      Most sensors record each of the R G & B pixels with 12 bits.
That's 4096 levels of brightness.    2048 of them are used for just the brightest - final doubling - area of the image.
1024 for the one before that.     So you only have 1024 shades for the whole rest of the image brightness range - which usually includes more important stuff.

SO:  The idea is that by pushing all of the brights farther to the right (overexposing till you start to lose detail), you will have more bits on the scale for encoding the rest of the image.    You just lower the exposure back down in Photoshop.   The brights will still have more than their share of bits so you will be able to recover what looks washed out in the unprocessed overexposed image.

(There's a lot of debate about this idea.   I don't understand why cameras wouldn't just apply a log transform to the signal before encoding the data.  I wouldn't have thought that was a big deal)  I tried ETTR yesterday.  Hard to tell for sure, but I think I got more noise in the mid tones.   But I can't say for sure.  And I don't know why I'd get that result.

One writer who seemed technically knowledgeable (here's his PDF) argued that Expose to the Right (ETTR in the blogs) does make sense, but not because of the argument above.
It works because more is gained by reducing noise in shadow areas - where there isn't enough light for a clear signal than is lost by brightening the highest highlights.

It's not about the encoding, but about the sensor itself and how well it gives a clean image at low light levels.   It does better the more light it gets.  Clearly true for small sensors.  My iPhone is AWESOME if there's bright even light.   It's a POS in low light.  So this argument makes more sense to me.  You can't fix a sensor that just needs more photons to get a good signal, but you could easily fix simple numerical encoding of a scale.

Monday, July 14, 2014

Snowpiercer vs The Big Bus

Snowpiercer inspired by the 1976 semi-classic proto-"Airplane"-like disaster parody "The Big Bus"?

Both have:
A realized dream of opulent futuristic cross continental transport.
Many opulent theme rooms (both have an oriental style lounge)
Nuclear powered engines
Exploding bombs
Leads that are traumatized by their history cannibalism (this had to be a tribute in Snowpiercer?)
Speeding out of control


 Thank You to guest poster Mike Rochlin

Monday, June 16, 2014

Multi-family SEO - What Google Says

I'm rebuilding my site now for responsive (mobile) usability, and to that end, I read the latest version of Google's Search Engine Optimization Starter Guide.   There are a few areas that I find are poorly addressed even by most of the major multi-family companies and listing services:

Microdata:  Google is very big (naturally) on the idea that your site can be parsed in a way the search engine robots will actually understand.  Embedding microdata in a (Google, Bing, Yahoo collaboration) format is what Google suggests.  They don't promise higher ranking (they don't promise that for anything), but they do recommend it.    This is an area where Multi-Family companies could seriously use some advice.   Few sites have microdata, and when they do, the choice of schema is inconsistent and sometimes not useful.   Some kind of advice on the best schema choices would be great.  This ApartmentComplex schema is one of the best I found, but it's not complete.  It isn't really for listing a single unit vacant.
Combing that with this Offer schema, recommended by a guy who said his company helped design the ecommerce subset, would let you add dates and $ for units.  You can also borrow elements from other basic schema like "Thing."  How much of that Google will use or understand, I'm not certain.  

Formatting:  This is one of those moving targets.  H1, H2, H3...   What do they mean to Google now?  In the past there were guidelines like "one H1 tag per page," (or, more recently, "one per section.")   But some research actually shows the presence of keywords in an H1 can sometimes even hurt your ranking (because it's a keyword stuffing technique maybe?).    Having some authoritative word on the state of the Google on this would be interesting.   Google basically just recommends using H tags in some kind of natural hierarchy for the page.   This kind of violates their not-very-sincere advise about pretending there are no search engines and just making good content - since H tag placement is really an aesthetic choice - absent SEO.
If there are other Google visual design gotchas, that'd be interesting...

Speed:  Google ranks fast sites higher.  They've said so.  Use of CDNs and quasi CDNs (cloudflare - a kind of a cache/security/dns more than a pure CDN) can help, BUT multi-family is LOCAL.   The best strategy is to use local hosting (with proper asset caching expiration).    A site I have on a cheap local low tech host outperforms another site I have on Cloudflare.  

Sunday, May 19, 2013

Amazon needs Machine Learning about Assholes

You know what's missing from Amazon etc. model for making recommendations?

A human model.

I'm always getting recommendations or seeing ads for stuff I just bought.  If I bought 48 rolls of toilet paper for $13.98, is there a reason to try to sell me more right away?  Nope.  There should be a human model.  At first it could be generic, but eventually using my "big data" profile (e.g. single guy) to estimate my toilet paper consumption.   It should bombard me with toilet paper deals a couple weeks before my supply runs out.

Ditto for wiper blades, shampoo, appliances.  I buy a dishwasher and they push adds on my for another dishwasher?   Detergent, or dishes even (people with dishwashers have more dishes).   But another dishwasher?

Clearly there is no human model of consumption behind these recommendations.  Just recent purchase info. 

If they had a few simple profiles - with age, marital status, sex, etc. and had some profile for each item (or category since there are too many items) of a reasonable expected consumption, they'd do much better at predicting what people are likely to want to buy.

For the toilet paper example, a human model would tell them that most people have just one asshole.

Sunday, December 16, 2012

Multi-Family Bubble Pop - Here's how it'll happen:

Here's the thing every multi-family analysis I've read skips or ignores:
We're in a period of unusually low occupancy of regular single family homes.
The vacancy rate is unusually high for those homes.

A small shift in that occupancy will have 2x as big an effect on multi-family vacancy (there are 2x more families typically living in houses than apartments in the US).

If/when there is a bubble popping in multi-family it won't be the increase in units from new building that causes the bubble-pop (by itself).
But all those new units combined with so many fewer renters once houses start selling again and all the people who normally would've bought already can buy again.

It only takes a small shift to go from shortage to glut in the apartment biz, and it can happen fast because there's a new set of renters every month who don't care what the rents were the month before.  

Wednesday, June 06, 2012

Solar Attic fans a waste of Money??

Looking at the description of almost every solar attic fan, they like to say "Up to XXX CFM"
They only produce that rate when the angle of the sun is optimal.   In the morning, and more importantly, in the later afternoon and evening, they ramp down the wattage produced, and so the speed of the fan.   At 8:30pm (when the roof is still more than warm after a warm day), it's not moving much at all.

On top of that, even the max rated "Up To" CFM is lower on most of these fans than is recommended for an average sized attic.
My attic happens to be fairly small.  The typical Solar fan - at its max CFM, is still too small for my attic (I probably need around 800CFM).
A fan like this one is rated that highly:
(They go out of their way to state the CFM, but another site says it's max is 850)

But given overcast Portland - even on a lot of Summer days (and, like I said, the issue with evenings), I don't have a lot of faith.
Solar companies are pretty abusive about the numbers they quote.  They love to put out maximums, but have no guides to realistic performance expectations.   When you have solar panels spec'd out for a roof, there's all sorts of analyses of angle of incidence, path of the sun seasonally, potential shadow sources.  Cloud cover.  The panel manufacturers don't give you that.  They just say 300W/panel or some unattainable number like that.    It's up to the installers to be informed and inform the customers. 

I think these attic fans might be a particularly egregious case of that because they are most wanted late in the day, and (depending on orientation, location, etc) that might be when they're ramping down.  In NW Portland, the West Hills shade us earlier than the rest of the City by a half hour or more (which sucks, in other ways, but certainly for solar).   The manufacturers say nothing about zero power in the evening.

[Info on CFM capability deleted.  I was wrong.  I cannot find any useful CFM stats for these fans.  Pointed out in the comments.]

ALSO:  Some experts believe attic fans should be weak if used at all.  Stronger fans may pull conditioned air from the home up into the attic.   A moderate fan will remove humidity (the original design function).  Any cooling function will be more limited.   For this purpose a solar fan is possibly adequate.  There isn't enough data I can find to really know.

Part 27 on a Glock is the Controversial "slide stop lever"

Part 27 on a Glock (17, 19, 22, 23 and other integers) is the "slide stop lever"

It looks like a little rectangular button about an inch and a half behind the slide release thingies you pull down when you're taking the slide off the gun.

I never saw anyone use it in videos or at the gun shop.  Yet, it's one of the very few controls on the gun so you'd think it is important.

Googling "slide stop lever glock instructions", it turns out it's a little controversial.  

The uncontroversial use is to hold the slide open when there's no magazine in the gun (when you're working on it or for no reason whatsoever).

You pull the slide back and push up the slide stop lever - and (surprise) - the slide stops.  It stays open.  If there's a magazine in the gun it just stays open with no thumbing of a lever required.

But Part 27 The Slide Stop Lever can also be used to chamber the first bullet when you put in a fresh magazine (The slide is held open after firing the last bullet.  The method you always see and just about everyone uses is to put in a new magazine and pull the slide back and let it go - aka "the slingshot method").   In general people prefer the slingshot, but here's what the manual says:

  After the last round has been fired, the slide remains open. Remove the empty magazine from
the weapon by pushing the magazine catch (19). Insert a new magazine and then either push
the slide stop lever (27) downwards (see photo), or pull the slide slightly backwards and allow it
to spring forwards
. The weapon is now again secured and ready to fire.

The weird part is that this is controversial.  For some reason people think you shouldn't use the slide stop lever to release the slide.  There are a number of specious reasons given.   I think the truth is that all pistols can be operated via the slingshot method, but the slide stop lever is specific to Glock and a few other guns.  So gun people are used to the slingshot and just think it's how God meant the gun to be operated.

You can use it to hold the slide open when you have no magazine in the gun with the slide stop lever, but it's pretty hard to push it down to release the slide without pulling the slide back to relieve the friction.  You can do it though.
If it's that hard to do with bullets in the gun (haven't tried it) then I understand why people don't like it -- and why there are after market extended  levers - including one from Glock -  so you can get a little more force on it.

And that's the Saga of the Slide Stop Lever, Part 27.
There are 32 + parts in the naked Glock.  this has been the story of one of them.

Saturday, April 07, 2012

Defense of Thomas Kinkade - without Irony

Thomas Kinkade is dead. His paintings were honest.
That's not something most critics would say. The gut reaction of most writers who would consider themselves (or, more to the point, that others would consider) serious critics is that he's pure kitsch. And not in a Jeff Koons social commentary re-contextualized kind of way.

But ponder this: When those same art critics go shopping for their own houses, more often than not, they find themselves and their families pulled towards houses and landscapes just like Kinkade's. Warm lighting, nice stonework. Pretty trees. A stream? Only in their dreams. This is what they want. Most do not look at Neutra/Eames/Johnson etc modernist glass boxes. They like rustic brick, lead glass windows, a curving stone path to the door.

A lot of us can sympathize with this. Our taste in paintings is nothing like our taste in homes. When we look at house listings, wouldn't we tend to skip over the abstract geometrics? The ones that stand out in their neighborhoods? Seem slightly off and uncomfortable making? Maybe the very features that would attract us to a painting on a museum wall.

So is Kincade more honest? Is he a "true artist" in the sense that he's pointing us to something we've internalized, but somehow cannot confront in a literal, verbal way?
That aesthetically, even those of us who consider ourselves sophisticated, or even enlightened, are still pulled towards imagery we completely reject as Art.

If Kincade does not represent that aspect of yourself and your view of what's beautiful- the part that would love to live in one of his scenes - then what Art does?

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Monday, February 06, 2012

Multifamily Market Analysts: Dumb or Lying?

There are a lot of cheerleaders (Marcus & Millichap and virtually every other multi-family broker) who claim there's nothing but rose petals and unicorns out there for the apartment biz. No vacancies, high rents, high selling prices. Woohoo!

But if you listen to the annointed gurus like M&M's head of research, Hassam Nadji, you can hear him talking out of both sides of his mouth. He starts of talking about a housing recovery in some of the worst places like Florida & Arizona. Then he finishes by projecting golden times for multifamily because housing ain't coming back.

Dig deeper and the analysis makes even less sense. Apartment vacancies are low because of the recent uptick in employment? The multifamily market vacancy rates and prices correlate w. absolute employment levels vs population regionally. Absolute levels remain very high, so something is out of whack. We've had some of the lowest vacancy rates in areas like Portland, OR with the highest unemployment. Again, you can't have it both ways. Either employment is a factor in current vacancy rates or it isn't.

- The thing that's out of whack is the high vacancy rate in single family housing. Locally, Single Family vs Multi-family is a zero-sum game. People live in one or the other. Right now, single family vacancy rates are high. With 2 or 3x the unit capacity in houses vs multi-family (depending on location), a small shift decrease in single family vacancy can mean a big shift increasing multifamily vacancy.

That brings us back to the first thing: What would precipitate increased purchasing of single family housing? As Mr. Nadji himself pointed out on Bloomberg, we're already seeing housing recovery in some of the worst areas. Improved employment (which is cited in this article as a bullish indicator for multifamily) could prove negative for multifamily if it increases a move to single family. And why wouldn't it? Employment means credit. Credit means you can get a mortgage. It's obvious that there are many many people currently renting who would buy houses if they could.

Zero Sum. Add up the numbers! (And try to be honest).

Friday, December 09, 2011

Marginal Multifamily

It's funny. I read these reports on multi-family all the time. Some of them are by sophisticated people.
But they seem to make some pretty big goofs about how/why rents go up or down.

The big error, I think, is that the analysis is done on the total population when pricing rents (or anything) is all at the margin. I mean, the people who set the prices aren't the 250,000 renters in Portland.
It's the 2000 or so who, at any given time, are looking for an apartment. There are around 110,000 units in Portland
At the moment there are 3000-4000 vacancies. In desirable neighborhoods, there are almost none.

There has been some speculation on why vacancies are so low. Some people cite population growth. But there's not much to support that. Some people say it's from employment improving - but it's still historically low.

But a thousand or two more people looking basically means there are zero apartments available. That appears to be what's happening now. There have been many thousands of foreclosures. Many thousands more people who would normally have purchased a home cannot (unemployment, or can't get a loan because of tougher down payment & credit standards - like my tenants at Savier) or are afraid to buy a house.

A few thousand more renters make a disproportionate change in rents. 10% (for example) more renters who soak up all the available vacancies will cause rents in any new vacancies to skyrocket much more than 10%. People NEED to live somewhere and will give up a lot for housing. On top of that, the people who do get the remaining desirable vacancies are going to be the ones with more money. The people who get the few vacancies there are will be the ones with money. The people at the bottom will be pushed out to the burbs.

The other big mistake is looking at rental inventory instead of total inventory of housing -including houses and condos - now vacant vs total renters currently looking at any given moment. Because the fact is, rents will rise high enough to push some of those who can buy to buy. And it will push some of those condos and houses onto the rental market (companies have sprung up in other states to manage large portfolios of foreclosed houses as rentals, for example).

That's where the real volatility in rents and multi-family valuations is. Adding a thousand foreclosed houses (a small fraction of total Portland foreclosures) to the rental market really throws the game out of whack. It can suck up a pretty large chunk of the renters looking at any given moment. But I think the bigger factor will simply be people buying houses again. Eventually those who can will start buying again. I think I'm already seeing that with some of my tenants. Also I get a lot of people coming from out of town who say they want to rent for 6 months while they figure out Portland and buy a house.

A market with just a FEW too many rentals drops the prices dramatically. How much will a landlord lower prices to fill a unit? A LOT. If the market is satiated, rents could (in theory) drop 50% from these levels. I don't think that's likely. At least, not close to the City. The burbs could find themselves with half empty buildings again though. House buying and rental vs buy preferences don't even have to get back to normal levels for that to happen. A fairly small shift will make for a pretty rapid vacancy surge.

I guess the biggest mistake is to always interpret what's happening at the moment as a long term trend. Rents are up and new construction units coming on-line are few (for the next year. Different story after that). So there is a tendency to project the higher rents forward as a trend. It ignores the fact that pricing is at the margin and that there are huge factors that can increase inventory and decrease demand other than population and construction.

Saturday, December 03, 2011

Black Swan of Cairo needs a Leash

If you read that Nassim Taleb & Nicholas Blyth Black Swan of Cairo article, the infuriating thing to me about Taleb is that he insists on making a sweeping (and wrong) generalization when he actually has a very insightful (but not so general) point to make.

He's right that some of the attempts to stabilize things -- in particular Greenspan keeping rates super low to keep the housing market going as it was starting to weaken -- actually not only made things worse, but set up a catastrophe. But he paints everything with the same brush.

He would wipe out the FDIC in particular if you really believe what he says. The FDIC smooths out dangerous events so people aren't afraid enough of impending doom, he might say. Actually he would wipe out all insurance, it sounds like.
Yet, he's right that suppression often leads to explosion. It just seems like he has to distinguish between suppressing risk and distributing risk.

Friday, July 22, 2011

Are landlords Evil? Am I Evil?

I was just listening to the CEO of Princeton property management (talk at an annual apartment management meeting).
She has switched all their leases to 6 months so she can put in raises more often. Limiting raises to once a year is less profitable in a rising market, but less ethical I think . Since the typical stay in our apartments is 18 months, if we do annual raises, people can leave more or less as a normal part of their lives, if they choose not to pay higher rent. Our expenses are actually up pretty mcuh in line with our rent raises this year (percentage-wise - and that's mostly water & taxes). And our rents still aren't up to where they were in 2008. When our rents collapsed 15%, tenants do not volunteer to pay more. So it's not a completely one sided thing.

So, as far as landlording goes, we're not evil. Not paragons of charity (or humanity) maybe. But not evil.
I do think it's important to think about that now and then.

My guiding gut check: I saw a documentary on Chinese workers. They could barely survive and were treated horribly.
When they talked to the manager, he said that's where the market was. If they didn't follow, they'd be swallowed by the competition.
So sometimes the market is evil. Following the market can make you do evil things.

I think our moral imperative has to be to provide a nice place to live and not to squeeze people unreasonably. With some exceptions, I think 6 month raises are unreasonable. I think raising rents just to force people out is unreasonable (for example for the guys paying $1000 on when the market is $1270, we would make more money if we raised their rent $200/mo which would probably force them out (and still would be below market).

A lot of people think landlording is intrinsically evil. In olde timey economics, we're called "rentiers," and one of the founders of what they call modern classical economics (David Ricardo) flat out said that rentiers serve no social good. Where is the social good in simply owning property and charging people more than the expenses? The only answer I think is in creating nice places to live.

Look at publicly owned and rent subsidized housing. Inevitably the public overpays to build it. Typically the public pays nearly double what we pay per unit - and we have nice units!. Then it starts out new and fairly nice. But it is not maintained well and it is not improved. Eventually it's torn down or the public pays more than a new building would cost to have it remodeled.

That happens because the Government property managers have little incentive (except kickbacks sometimes). We have an incentive for improving our apartments. Higher rents. So we perform the social good of improving the overall quality of housing available to renters. Ultimately we cannot charge more than people are willing to pay. There are only so many places at the top. My long term goal for our properties is to be as close to the top as we can be while improving our return on investment. So that translates to investing back into the properties (about 40% of our income this year) and also raising rents if we can. That was a risky strategy because there are so many new Pearl units that have been converted rentals over the last 20 months (3000 units) and more units that were planned as condos that became rentals in the North & South West waterfront developments (another 1500 units). If there aren't enough high end renters who prefer us to them, we loose. Right now, most landlords have chosen simply to raise rents, but not invest much in the properties. So our choice add more insulation the buildings, improve the electrical systems, refinish floors, and so on isn't something everyone does. There's a complex in NW Portland - NW 24th - called Nob Hill Apartments. They're kind of like what Corbett used to be. Aluminum frame windows, gray carpeting. No real improvements beyond maintenance. Their rents last year for a studio were around $720. Now their at $820 or so. They're providing less expensive housing in an expensive neighborhood. It's clean and functional. A different choice.

So, anyway, I do think about this.

Tuesday, July 12, 2011

A third of All Workers Work for the Government in America?

Someone said to me at a BBQ that a third of the US Population work the the Government in America. Taking that to mean a third of all workers, it still sounds pretty impressive. Is it true though?

I poked around some figuring this had to be one of those statements that had been fact checked a hundred times on the web already, but I didn't find anything. So I checked the Census data. Look for yourself here.

So what are the numbers? State & Local about 17MM "full time equivalent" workers (so two half time people = 1 full time). You can follow the above link for the breakdown, but some highlights are 9MM in education, About a million police, about 1.5MM in transportation (highways, air, harbors...), about 1MM in hospitals. So that's most of it right there (for State & Local). 12.5MM of a bit under 17MM. Mostly stuff people would agree is necessary and even underfunded (police and education). The stuff that people generally associate with Govt waste -- Administration - is about 700,000. Two thirds of them are accountants and watchdogs. Which most people concerned about the budget probably would want to keep.

What about the Feds?
The Census says (as of 2009): About 2.8MM including part time (2.5MM full time).
700,000 in defense (gee -- smaller than I thought. But there are another 1.5MM reserves. And then there are civilian contractors who are not Govt employees.), about 500k postal workers, 300K in the dept of Homeland Security (includes Coast Guard, Customs, airport friskers etc). Hospitals (like VA hospitals) - 200K. Those are the biggest groups. That's 1.7MM of the 2.8MM

So that's about 17MM + about 3MM = 20 Million Govt employees in 2009.
The total US labor force (Bureau of Labor Stats) is around 150 Million.
20/150 = 13% (about 6.5% of the US Population) Not small but hardly 1/3rd.
Contractors who aren't Govt employees - but are paid by the Govt - probably account for another couple percent (3MM workers), but that's harder to get data for.

Monday, July 04, 2011

FNMA FHLMC - Why not Private?

For a LONG time, FHLMC and FNMA were quite profitable. They buy mortgages from banks, put their guarantee on them, and sell them for more than they paid in nice pretty Mortgage Backed Security packages with a big bow. They made money doing this.

So why can't the banks get together and create a genuinely private entity that does exactly the same thing? It'd make a profit (if they're honest about underwriting criteria) adn FNMA and FHLMC can be quietly retired. (FNMA & FHLMC are technically private, but effectively subsidized).

It might work.

But there are a couple issues. Getting started, of course, requires a certain critical mass (and capital to back potential losses - like any other insurance). The big white potato in the room is the implicit government backing. Even though FNMA & FHLMC are in the toilet, everyone still expects their insurance on existing MBS to be honored.
Because the US Govt will honor it.

So how can a private mortgage bundling entity achieve the same thing? It would basically have to be honest! The purchase price for mortgages that conform to their underwriting criteria would have to be enough to cover the risk!

Right now, huge banks like B of A could do this internally. They can swallow their own risk. Why pay a 3rd party? The only reason they don't is because they get such an awesome deal from FNMA & FHLMC. They sell the mortgage (off their books) so they can generate more mortgages, collect more fees and servicing, and they pay only a small amount for doing so. It's a market distortion.

That's the bottom line. Remove the market distortion of the Govt providing free insurance to FNMA and FHLMC and they will have to build a lot more capital for their imprimatur to carry the same weight (and achieve the same price for their MBS's ).
Then they would be on a level playing field with a truly private entity.

Thursday, April 07, 2011

For love or money

One of the things you discover if you read opposing sides on liberal monetary policy vs gold standard/tight money is that at the very base of the arguments it's just emotional. It's almost like abortion. The arguments of one side are completely irrelevant to the other side because one side sees it as a pragmatic issue and the other as a moral one.

"Real" money has a technical meaning -- which is just $ value adjusted for inflation. So you'll see real CPI and real home price averages and all that. But not for economists who believe in gold or money tied to some unfutzable standard.

For them, there is some sense of Reality to what money is. It is a measure of wealth and so to adjust its value is to undermine the earth. Nothing is solid. Paul Brodsky argues that sure - leverage and inflation have lead to a US Economy that appears to have performed exceptionally since the removal of the gold standard, but is it Real? He doesn't say exactly how it's fake, but wonders where we would stand if all the leverage and inflation were suddenly stamped out. Would all that wealth created still be there or is it all a bubble -- inflated (get it) by credit and generally just more money.

The emphasis is on the worth of things in a snapshot and not on the ongoing flow of the economy. Sure, credit and leverage have created jobs and industries, but is it all just sand castles? When they do talk about the operation of the economy, it's rarely in terms of the nuts and bolts of flow of money and credit, investment, trade, employment etc. Instead there is a lot of talk about "expectations." Expectations (formalized in the 70s as "Rational Expectations") is a way of taking the static thing (like the value of money or the impact of taxes) and turning it inside out to say that if someone has a rational expectation of the effect of the policy, their behavior will follow the expectation rather than the immediate impact. So if a policy is perceived as inflationary, people will think that's bad for the economy and so investment is a bad idea. If taxes are lowered, people will invest more, not just because they have more money but because taxes are bad for the economy so they expect things to get better. They emphasize "confidence" a lot as a signal of people's expectations.

Rational Expectation becomes code for a kind of brutal conservatism - because only tight and real money can create confidence. It hasn't proved true (which you'd think would alter people's expectations of tight money policies - Like H. Hoover's ...)

The other side again and again looks to the operation of the economy. They look at liquidity. How much money does the economy need in circulation to keep things running as smoothly as possible without having an excess (that increases prices but doesn't further expand actual GDP). Krugman is the loudest voice on this side. He will again and again (and again) talk about the liquidity trap. Not enough cash means people won't spend what they have (it will increase in value if they hold it because people will be so desperate for credit for new projects they will pay more for a loan - for example). He has this great example (he repeats) of a Washington Baby Sitting club. Parents in the group were all given 3 scrip. They would baby sit for each other in exchange for one scrip. So it would all be fair. But nobody wanted to give up their scrip so nobody went out. They saved them for when they really needed it. Scrip were too precious. That's deflation. Then they cut the scrip in half. Everyone now had 6 babysitting chits and suddenly things loosened up. They had enough of a buffer to be safe for emergencies plus they could go to movies. Suddenly the system worked.
A liquidity trap. That's what Krugman argues is happening now. Banks aren't lending. People are short on cash (high unemployment, fear of credit, hording money), so people aren't spending. So the economy is trapped.

The liquidity guys favor the Fed circulating enough money to keep things rolling smoothly.
1. Lower interest rates (so now they're near zero, so that can't be done any more)
2. Encourage the banks to loan money by reducing capital requirements.
Or even direct injection of cash into the banks, like during the financial crisis.
3. "Printing Money" aka Quantitative easing where buys treasuries and such (the purchase price is now in the economy).
4. Federal Spending - aka Stimulus.

This point of view is essentially indifferent to wealth. Wealth is a means to an end (the end being a strong economy). Rich people losing money is OK if it helps the economy. Not surprisingly, a lot of rich people don't agree.

So there appears to be no truth. Liquidity guys are right (I think) that you need to do what makes the economy strong. You can't slow the economy down with tight credit just to preserve the current rich. Better to create more future wealth.
Fuck the rich.

But what about the "haves." Is it fair? Is it wise to take away their wealth and so signal to future wealth producers that the Fed Giveth and the Fed Taketh Away? Won't they all just give up and stop producing wealth (c.f. Atlas Shrugged -aka Bible).


Tuesday, March 22, 2011

When will the next 9 plus Cascadia Fault Quake Happen

This PDF is an Oregon Dept of Geology publication about Cascadia fault earthquakes.
Page 8 has a graph of the past earthquakes showing both the really really big 9.x quakes and the smaller 8.x quakes (still pretty damn big).

I was trying to figure out if we're really overdue for a Big One or not. The usual statement is that we get a big Cascadia fault quake every 250 years or so and it's been 300+ years so Look Out.

Which is true... IF you include the 9.x and 8.x magnitude quakes lumped together. That makes about 41 quakes in 10,000 years. According to the graph.

But only 19 have been the huge 9.x quakes. (By the way, 1 point increase = 32x increase in energy released. Not 10x like some of the newspapers and TV say. It's logarithmic, but not base 10).

So the HUGE quakes are more like 500 years apart (10,000/19)

Which makes it seem like we're not at all overdue for another one of those 9.x's. We should have some breathing room since it has only been 300 years.

Also, in the past 10,000 years there have never been more than two 9.x earthquakes within a thousand years of each other.

Except that's not exactly completely true.
The last 1000 years breaks that trend. There have been three 9.x quakes since 1300. Plus another 8.x just for good measure.
So the last 1000 years have been much much more active.

That's really good! (or bad).

If you believe that earthquakes relieve stress built up and that the stress is building up at more or less the same rate (10,000 years isn't much time in plate tectonics earth changing scales), then whoopee! We've relieved a huge amount of energy buildup with those 3 quakes (the 8.x hardly matters. it's just 1/32nd as much energy as each of the other 3 quakes since 1300).

On the other hand, maybe quakes happen in swarms and we're in the biggest swarm in 10,000 years. Maybe the plates are moving faster and more stress is building up this millennium? I haven't found info about the speed of these plates over the past 10,000 years.

Historically though, it looks as though we've relieved way more stress than our epoch's share. We've relieved 97 "units" (if a unit is one 8.x quake) of stress in 700 years (3x 32x quakes and one 1x quake). A normal average stress relief would be less than 44 units in 700 years.

So we've got 200 years before a 9.x hits (on average) and
we've had enough stress relief over the last 700 years to be owed another 700 years of tranquility!

Maybe some geologist will say I'm full of crap. I'd love to know if I am...

Sunday, February 13, 2011

How the Fed thinks about Inflation

I was reading a posting by one of the analysts for the Atlanta Fed
talking about how people say there's a disconnect between what Bernanke says about inflation and what businessmen and consumers think is happening with inflation. His main point was that they don't just plug into a formula. They have a pretty elaborate system of interviewing a lot of people (businessmen and consumers) about the data and their impressions too.

But mostly I thought it was interesting that he says the Fed doesn't favor CPI (core or otherwise) as their favorite inflation index. They like something called the "personal consumption expenditures price index" PCEPI.
So far as I can figure from Wikipedia, the biggest difference vs. CPI is that it attempts to adjust for substitutions people might make if one item gets particularly expensive. It tends to make PCEPI a bit lower.

Another interesting thing: Wikipedia linked from PCEPI to a page on price indices in general. Complicated!
I had read some things about how the Case-Shiller housing price index is calculated and it's pretty intricate.
They try to make the index take into account the variation in which particular houses are sold in an area. So based on previous sales of the same house, they try to create an adjusting factor for the houses sold in a particular year.

But there are lots of choices to make. The Case-Shiller index is supposed to show a percent change in housing prices in a given area. Do you weight by the prices of houses so big houses count more than small houses? They do.
(A simple average would effectively do the same thing). But I can see why you wouldn't.

Saturday, January 29, 2011

Financial Crisis: Who to Burn in Effigy - A User's Guide

You know, things were unraveling long before FNMA & FHLMC relaxed their guidelines to allow subprime mortgages. They contributed to the avalanche after it started, but they were far from the cause. Packaging mortgages into CDOs which the rating agencies were giving AAA ratings completely bypassed FNMA and FHLMC because their imprimatur wasn't needed. CDOs were then further leveraged with Credit Default Swaps (also completely independent of not only FNMA & FHLMC but of any regulator).

If you're looking for causes, the principal cause is pretty simple: The assumption on the part of everyone involved in the whole system - from home buyers to hedge fund managers - that Home Prices Can't Go Down. After all, they hadn't gone down for 100 years or whatever (not significantly).

If you're looking for blame (which isn't the same as cause), then you've got a couple things to consider:
- Who Should've known better?
- Who Profited from creating bad debt even though they did know better
- Who should've made sure the incentive system didn't risk the whole system

If I were to pick a single link in the chain to blame for most of the debacle it would be the investment banks.
Morgan Stanley
Citi (formerly Solomon Bros)
and the smaller specialty guys and the London companies too like Barclays.

These guys knew what was going on. They knew the bonds they were making weren't really AAA quality (though they didn't know how bad).
Investment banks are like sausage makers: The put the ground up mystery meat into a casing, put a fancy label on it, and sell it.
If they can remove enough stink to sell it, they've done their job. There's not much incentive for them to care.
There's no one watching really. If they burn enough customers, they'll lose business, so they try to avoid selling stuff that will actually lose money, but it's not a hard rule.

Goldman, being the smartest, deserves the extra blame they got. But stupidity should also get a prize. Merrill Lynch no longer exists.
That would've been hard to imagine just a couple years ago. It was the biggest by many measures. But they were a little stupider than Citi and Morgan (just a little). They held on to their own sausage and when it turned out to be poison, they'd already swallowed tons.

Goldman was smarter and started to bail out (and even bet against the bonds they continued to sell to their sucker customers) before things turned really bad.
But I'm not convinced they're really any more evil than Merril or Morgan. Just smarter. It's easier to hate the winner.

The rating agencies: But beating up on the rating agency is a little like getting angry at a retarded kid in the special olympics who's caught cheating.
I mean - yeah - he cheated. But he's retarded!
The rating agencies aren't that dumb, but their staff from top to bottom consists of guys who can't get jobs at investment banks. The pay is only different by a factor of 4x (at the lower levels. Many 100x at the higher levels). And these bonds were created by the Investment banks. The rating agencies depend on people from the banks to explain how the bonds work (I used to have to do that for the guys at Standard & Poors & Moody's). Not because their dumb but because they basically have 24-48 hours to rate a new bond issue. In that time they're supposed to get a model working and evaluate the credit supports.
It's an impossible job without trusting what the banks are telling them. It's hard even with the banks. If they can't sign off in time, the bank goes to one of the competing agencies.

That's a fault in the system. Nevertheless, at some point it should've been pretty clear these bonds were not AAA. And the agencies should NEVER have allowed the synthetic CDOs (the ones backed by other CDOs instead of actual mortgages) or worse - backed by credit default swaps - to be rated AAA.
That would be virtually impossible to analyze. Back in my (old fashioned) times, we weren't even allowed to make bonds that used formulas more complicated than simple addition or multiplication for allocating payments. Because it was too difficult to analyze risk.

After that you can start blaming the regulators. But that's hard to do. I mean even AFTER the crisis, the Republicans fought like hell against any real regulation and WON! So you can only imagine how hard anything would be to get passed in normal times (or now).
The regulators were defanged. The SEC was practically decommissioned during the Bush years.

So that's what I think.

Friday, July 09, 2010

Journey or Desintination

Journey leads to a destination. Which leads to another journey. So the destination actually becomes (spawns) another journey. Which spawns a destination. The destination really is the same as the journey, if you think about it. I think there's no meaningful way of separating them.

One thing I discovered about philosophical questions like this: My instinct is to get really specific definitions to the bits of the question.
What Journey? What Destination? When does the journey end?
That act of specifying tends to trivialize the question. Which is satisfying in a way. It makes everything simple and clear.
But it is unsatisfying because it doesn't really answer anything interesting.

Philosophers are naturally attracted, I think, to questions with fuzzy definitions. Those are the ones that seem to be interesting.
Wittgenstein, for example, basically said any question with simple clear statements that could be logically resolved was essentially a triviality.
A tautology. He included all of mathematics in the "trivial" category.

(Gödel actually - ironically - proved him wrong. With a mathematical proof. Gödel had sat in on Wittgenstein's seminars. Wittgenstein basically ignored his work and continued with biz as usual, which seems kind of curious).

(They sure look like smart guys, don't they?)
Anyway, I guess that means the question of Journey/Destination reduces to defining what YOU mean by Journey and Destination.
So I'm bouncing that one back to you :)

Friday, May 28, 2010

Dividend stocks ARE NOT a bargain

Cramer (and every other stock would-be pundit) is pushing high dividend stocks. The rational seems to be that you are locking in some profit if you collect the dividend. But I don't think that not-so-certain cash flow is worth the cost. Dividends are not free money.

I'm yet to see a convincing rational argument for preferring high dividend stocks to low dividend or no dividend stocks(unless you need the cash - like for retirement income). Tax-wise, dividends are taxed less than regular income, but at about the same level as capital gains.

If a company keeps the cash instead of paying a dividend, its stock price should be elevated by the value of that dividend. They have more cash in the kitty, so they're a more valuable company. As the stock price rises, you not only get the cap gains tax rate, but you get to defer those taxes till you actually sell the stock.

If the company is doing well and is growing, they probably need cash. They're probably borrowing money. They would be more profitable if they invested the money they're paying out as dividends. That would increase the price even more than just the cash value of the dividend, since it would save them on interest and (presumably) would allow the company to increase future earnings.

Companies pay taxes on dividends. That's after tax money. If they invested it in expansion or acquisition or something else, they would pay lower taxes (they would get depreciation on that investment).

SO: Just on a raw numbers kind of analysis, it seems to me that a company will make more money (and decrease their expenses -- and you will pay lower taxes) if the company does not pay the dividend.

If the company is not growing and has no use for more cash, it's probably not that great a stock to buy.

THAT SAID: If there's an industry you like (like Oil for example) that is awash in cash and has excess cash on top of their growth needs, then maybe dividends make sense. CVX/Chevron is a good example.

I have never read any analysis of actual market data that showed you make more money on high dividend stocks than you would on cap gains if they kept the money. Even after the tax rules changed to favor dividends, I haven't seen a study like that.

Also, conventional wisdom says dividend stocks are less volatile. People assume the stock can't go too low or people will jump in for the great dividend yield and bring the price back up. I think more often, if a company is doing badly and the stock price tanks, they will cut the dividend.

The reputation for dividend stocks being less volatile is probably because dividend stocks used to be sleepy utilities.

It's pretty typical for pundits to skip the homework part and just pontificate and advocate whatever the trend of the moment is. For pundits "the trend is your friend." If they're wrong, so was everyone else. If they're right, they'll baste themselves in that glory for years or even decades.

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Wednesday, May 19, 2010

Roubini Says Short Treasuries: DON'T DO IT!

Nouriel Roubini, according to this article - May 19, 2010 - says you should short US Treasuries because "bond vigilantes" are going to run up interest rates, killing the value of existing bonds. The rational, roughly, is that the US has a lot of debt and rates are low now, so they'll go up. Yup.
Roubini Thoughts.

In particular, he says:
> To me, it's clear from the chart that Treasury Bond yields have hit a
> low

Duh. I mean, yes, treasury bond rates are low. Obviously. The will go up. That's not news.
The questions are:
Will the $ remain stronger than alternative currencies? (Sure looks like it. The dollar is strengthening against everything)
Will there be big inflation (doesn't look like it so far...)
WHEN will rates go up?

Take a look at this. Look at the interest rate scale on the left. 1/2 - 2%. Scale on the bottom is 2000 - 2010.

That's the yield on Japanese Government Bonds (10 year bond) over the last 10 years.
They're low. They stayed low for 10 years. Our boat is not so different. The Japanese Government had a massive stimulus package too.
They took on tons of debt. That's what happened after their real estate bubble.
(I Just noticed that Roubini dismisses the Japan argument because Japan is "a country of savers." The US Savings rate has risen very significantly.
Just this month there has been another drop in mortgages for buying houses as opposed to refinancing). And another drop in mortgage rates.
People are borrowing less. )

So Roubini saying something is "clear from the chart" is just crap.
It's worth remembering the Roubini was dead wrong for a good long while about the market collapse, about bubbles and so on.
Then finally he was right! And he's a genious? He has said himself that a lot of his opinions aren't from data analysis or research - but from his gut.
He's a lot like that guy who wrote the Black Swan (Taleb). The more publicity he gets, the more arrogant he gets and the less substance there seems to be to his arguments.

Of course, he will be right again. Bond yields will go up. Maybe in 2020, but they'll go up!
They might go up sooner. I'm just saying no one knows the timing.
Right now the signs are mostly pointing the other way.
The Fed may start raising rates a little, but short term rates are not long term rates.

Another thing: He suggests GOLD as a good hedge against inflation. Gold is a terrible inflation hedge. It has very little correlation with inflation.
Inflation has been nearly flat and low for a good long long while now. Has gold been flat? Nope. It's gone up and up and up.
Almost certainly a bubble. So ... buy gold? That's supposed to be a good investment against a rise in interest rates?
His suggestion of shorting Treasury shares is at least a bit more direct. There are other factors besides rates the impact that stuff (volatility for example).
And he doesn't mention that not only do you lose interest on any money you put in the short TBT exchange traded fund, but you lose another 1% on top of that (built in fee -- it look slike just from glancing at their site).
TBT ETF from ProShares


Thursday, February 18, 2010

No white text or other light colors on Craigslist

Something I just discovered: You cannot use white text (or other light colored text) using HTML FONT tags on Craigslist!

If you try to use something like color="white" color="#FFFFFF"> in a FONT HTML Tag, it will simply be removed from your code.

Other font colors like "RED" are supported. A little testing shows that if the color is #CC____ or darker, it works fine. Otherwise, nope.

Probably this is to subvert some businesses that were hiding keywords (white text on a white background) to improve their ads coming up in google. Unfortunately, it makes using darker backgrounds in Craigslist ads sort of Iffy.


Sunday, October 25, 2009

Taxes Increase Productivity for Rich People

The Official Economist Dogma on taxes is that they discourage work and innovation. It seems to make sense because you get less money for the extra work you do (progressive taxation means the better you do, the higher a percentage of your income is taken away by taxes).

And, certainly, if the absolute amount of money gained is the goal, progressive taxation would seem to discourage more work and innovation.

But any economist will tell you that money is not utility. Utility is what people (in theory) optimize. Utility is how much a dollar is worth to you. Clearly the first $30k or so you earn - which provide you with basic food and shelter - will be worth more to you than the $30k that pushes you up to 1000030$.

So, one positive effect of taxing the hell out of rich people is that it makes them value the actual marginal wealth increase MORE than if they weren't taxed. At least in some cases.
If Rich makes $1MM and is taxed down to, say $500,000 actually retained, how much more is an extra dollar of after tax income worth to him? How much more might that retained dollar be worth than the dollar that would push his income to $1,000,001?

Obviously it's not worth the $500,000 he lost to taxes (vs retaining all $1,000,000).

Or is it? What is the utility of a $1 to someone who doesn't need it.

A popular mantra amonth billionaires (if you don't mind adding a few zeroes to the example), is that they don't care about the money for spending. It's about keeping score!

If everyone is in the same tax boat, then the billionaire who is taxed an an extreme rate may actually end up with a better "score" in comparison to his fellow players for a dollar retained than he would have been had he not been taxed at all.

This assumes the "utility" of earning an extra $1 when you're income is much lower (due to taxes) is increased by more than the marginal tax rate. That seems clearly to be true.
For a billionaire who is keeping score rather than using his money, the utility is in topping your peers. But if you tax him/her down to the point where the money is ACTUALLY SPENT --- aside from being better for the economy (money is spent rather than invested), the $1 is worth a heck of a lot more. Actual spending utility is clearly hugely more valuable than "keeping score."
Ask anyone who doesn't have everything they want! Misers excepted.
The savings rate in the US would tend to suggest miserliness is not a wide spread problem.

SO: Taxing the hell out of billionaires increases the marginal utility for them of an extra $1 and should incent them to produce more.
(This does raise a Prisoners' Dilemma type problem. The Billionaires only want higher taxes if all Billionaires - against whom they compare scores - also get taxed. All agree to taxes and get the benefit of improved utility or none do).

Monday, May 25, 2009

Productivity Schmoductivity

You know how politicians love to talk about how the US worker is the most productive in the world?

That's based on GDP / hours worked.

So the US Worker has produced more GDP per hour than any other country by a safe margin.
(Ok. Except for Luxemberg. Actually, Ireland has been pretty high too lately. Both are tax havens, so a lot of foreign companies with virtually no workers dump $$$ there, which distorts the "productivity" number.)

US productivity kept growing and growing. Greenspan attributed it to technology - improving worker efficiency.

I think the truth is, a lot of it was the growth of the Financial sector. In 1973 it made up 16% of Corporate profits.
The recent peak put it at 30%. I think it made up something like nearly 20% of GDP at one point (I can't find the exact number).

So, with Financials of all sorts (banks, insurance, investment banks, brokers) all in the toilet, what happens to that big clump of GDP?
It was a fantasy. And Financial "productivity" was absurdly high. Very few employees per $ earned.
So with that collapse, productivity will go way down. Republicans are already saying it's because people aren't working as hard and they're going on welfare and all that. But it's the banks. (And housing distorted things too - towards the end. Though housing is more labor intensive, of course).

PKrugman about the growth of Financials way back in '07. The huge strength on growth and the "miracle of the American Worker" was basically propaganda.

Because so many hours (e.g. Wal*Mart) are off the books and US workers put in so many extra hours that the Bureau of Labor statistics don't record (illegal alien hours add to GDP but don't count in the BLS Productivity number).

On top of that, high medical costs actually add to the productivity number! Hospital GDP is still GDP!

Productivity-wise, we're closer to France than anyone wants to admit.

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Wednesday, May 13, 2009

Solar Sucks

Everyone knows photovoltaic solar panels suck. They're inefficient, expensive and impractical. They indirectly increase green house gases and energy usage by diverting money that should go to insulation and other conservation improvements.
All for a teeny tiny teeny little few watts.

I had hope for solar water heating though. It is much more efficient than photovoltaic solar electricty. But...

Turns out even solar hot water sucks. From all the propaganda and junk about getting water up to 160F or higher (even here - Portland fall days ), I thought maybe solar "thermal" (that's what they call it, Solar Thermal) would be a reasonable idea.


It costs about $2100 to get a panel (which weighs 200 lbs and measures 4x10') that will produce 10,000 btu on a cloudy day (40,000 on a nice summer warm summer day).
10,000 BTU

For reference, in gas terms, 100,000 BTU = 1 Therm.
NW Nat sells one therm of natural gas for $1.29

So TEN DAYS (regular portland cloudy days) of production from a $10,000 of panels would produce about $1.29 of equivalent gas water heating.
Or about $50/year, rounding up a little for furnace inefficiency. Wow. $50/10,000 = half a percent return. Actually not even that. The panels don't last forever...

Some different calculations get it up to 2%. Still sucks. After incentives? Maybe.
The whole thing just sucks.
And, I haven't even figured in the cost of the storage tank & heat exchanger system and other plumbing.

It's mind boggling that PV is so popular and even lower efficiency.

Of course, energy costs could go up. Also, that 3-4% return isn't real because (at best) that solar thermal system will last 30 years.
Your roof won't last that long. Also maintenance costs will eat into it. You're never going to recoup your costs anything like your costs.

I was really hopeful we could use Solar to reduce energy expenses. Insulation gives far far better return (even wall insulation).

ALL THAT SAID: With Federal Credits and Energy Trust money, maybe you can make a profit on the solar Thermal systems.
50% BETC (or RETC) tax credit - uncapped now, I think - even for residential.
About 15% from the Energy Trust straight cash incentive (taxed)
+30% Federal Tax credit.
You've got enough of your costs covered so you will eventually possibly do OK.

It's a better deal for businesses, because they get to depreciate the full cost of the system.
That's worth about another 32%, so you are over 100%.

Free Panels! And you get to feel good about yourself because the $10,000 in incentives (you paid for with taxes) is buying you $50 worth of warm water every year.
Take that OPEC.
It's just not time for Solar yet.
It's time for efficiency and conservation. Not as hip, but much smarter.


Tuesday, May 12, 2009

Why is Microsoft Selling Bonds for the First Time?

Microsoft recently announced they are issuing billions in bonds, and this is the first time they have ever sold bonds. They plan to use the money they raise for stock buy backs.

I'm convinced for MSFT borrowing money with bonds is a dividend reduction without calling it one.

Some Theory:
Whether you finance your company with bonds or stock doesn't change your company's profitability except for interest and taxes.
Otherwise, the results are mathematically identical.

Also, in theory, if you buy back stock, that should have no impact on your stock price. The cash used by the company for the buyback is company equity.
Spend equity to buy equity. There are fewer shares, but the company is smaller.

So... MSFT issues bonds. In the short term, they trade interest for dividend payments since the stock they buy back no longer gets paid dividends.
(and there's a tax break because interest payments are deductible and dividend payments are not).
And the existing shareholders (in theory) shouldn't see any improvement in their share price.
BUT: They own a bigger share of the company and get only the same amount paid as a dividend.

To take an extreme case, if MSFT borrowed money to buy everyone's shares except For Bill Gates' shares, Gates would get exactly the same dividend he gets now.
Even though he would own the whole company.

In the short term, like I said -- a wash (in theory). The dividends are offset by interest payments and the tax break. So the company doesn't really retain more money.
In fact, it probably chooses to start paying back bonds as profits improve. In the end, the bonds are gone. Paid down. Called. Now there would be fewer shares, and dividends are the same in $/share, but smaller in proportion to the ownership share.
(Each share represents a bigger part of the company, but only gets the same old dividend payment.)

What I don't know:
Why doesn't MSFT just use some of their cash hoard for the buybacks? Their debt does pay pretty low interest, so maybe they just have a better return on their cash already. But they sure have a lot of cash.

A lot of companies believe their stock is worth more than the market thinks it is. They believe in momentum and doldrums and stuff like that. Maybe they believe a few billion thrust into the market to buy back their shares will give it a temporary pop that other investors may see and they just might jump back on board. That would really raise the stock price.

Maybe there's other stuff going on? Companies buy back stock to redeem options. They could have a dozen other reasons for wanting a buyback or issuing debt.

This is just my thought.


Wednesday, May 06, 2009

Photography for Selling houses or Renting apartments

I rent apartments. I've had a fair bit of experience posting with architectural photography for the purpose of marketing.

My approach is simple, but I think produces very useful results.

The most critical tool I've found is a WIDE lens. I use a Canon compact (S70) with a 28mm equivalent. I've recently added a wide-angle adapter to make a 21mm equivalent. It adds some blur but FOR THE WEB that's OK.

If you're using a compact camera and not an SLR, a cheapo tripod is also very very useful.

In my mind, the keys are:
Use only natural light whenever possible. Turn off your lights and turn off your strobe (sorry strobist). You're not capturing action so a 1/2 or 1 second exposure is just the thing.
(Set your lens to 5.6 or 8 aperture for the best sharpness).

Personally, I've found a lower camera angle works best for most rooms. It emphasizes the size of the room and the wood floors.

With my camera, I find overexposing by about 2/3rds stop gives the best results.

I prefer to shoot Raw because it gives me a bit more latitude for the photoshop manipulations I almost always do:
1. Use the Exposure slider till the room looks Bright. Brightness is almost always a better marketing tool than moody. There are exceptions, but that's what I've found. Go for as bright as you can without blowing out detail.
Flashes and "accent lighting" make for hot spots. That's one reason I prefer natural light.

2. Since I'm using a wide lens, the distort>Image correction tool is fantastic. Get rid of that barrel distortion and do some vertical perspective correction.

3. SLEAZY: Don't do this.
In PS4 there's a nifty tool for "context aware" resizing. You can make rooms look bigger without distorting the objects in them.
For a small bathroom...
But really. Don't do it. It's unethical.

Examples at and

OH. If you know how to do quicktime panoramas, for nice rooms with some architectural detail, that can just be an amazing thing to add to a website.

By big, I mean about 800 - 850 pixels wide. It boggles my mind that so many professionals post 400x300. POST BIG PICS.

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Wednesday, March 04, 2009

Liberal vs Conservative Economists and Predetermination

The interesting thing is how different experts break down the analysis of the financial crisis.

Democrats (or liberals), like Paul Krugman and Joseph Stiglitz see this crisis as a unique event, or possibly an analogue of the great depression. They have very good arguments for why its different than previous US recessions since WWII and compare the differences with the Japanese Lost Decade.

Pretty central to their arguments is the idea of a Liquidity Trap - originated by Keynes to help explain the Great Depression and a big focus of Krugman who created some of the main models for the Asian Crisis. The thumbnail is, when you have very low or zero interest rates, there's no incentive for people to invest. They may as well just hold cash. You can't make money any cheaper. Money doesn't get invested. Monetary policy is pretty much useless. You can't fix it like a normal business cycle because you can't spur demand with monetary policy by itself.

In a normal business cycle, when things slow down, stuff gets cheap, demand increases, and things get better.
When that doesn't happen, the monetarists (Milton Friedman) say it's the fault of the central bank like the Fed.
If there is inflation and that's the problem, you need to tighten and raise rates. Deflation, and you lower rates.
Money is just a flow and if the business cycle doesn't flow naturally, you need to unstopper the flow.

This idea really took off in the 70s when Friedman became THE economist for the right. When Reagan took office, inflation was huge and the economy wasn't good. Carter had been ineffectual. Volker as Fed Chief and Reagan took really bold (monetarist) steps. Like raising interest rates 10 points! That lead to a huge recession, but it did kill inflation and was followed by a mammoth recovery called the 80s.

SO: Republican's believe in the model of Reagan/Volker/Friedman. If they fixed the 70s, surely they must be on the right track, and all can be fixed by tax cuts (Friedman believed in zero taxes, though I think his arguments are less clear on that and tended to be more populist than analytical) and proper flow of the currency.

And the Dems like to look to the Great Depression which was the origin of modern progressive politics.
It has in it the justification for all the policies they have a hard time getting through otherwise.

As analytical as Economists on both sides can be (with all those percentages and case histories and what not), a liberal economist is going to say this is a unique or Depression/Asian Crisis type event and a Conservative Economist is going to say it's a normal business cycle (odds are), and all will be happy soon (if we cut taxes).

There are a few things that make the world very different now. You have to decide if it is different enough to disqualify a normal biz cycle analyis:
- Credit/Banking Crisis: Credit isn't flowing even when there's plenty of cash. So low interest rates won't help that.
- Interest Rates are already near Zero: The Fed can't tweak normal monetary policy any further.
- It's already longer than any postwar recession

On the "Normal" side:
We have had worse unemployment in the past and recovered. (Though things could/will get worse)
We don't have inflation. (Deflation is worse, but people argue about whether we have deflation)
Productivity (GDP per hour worked) is up.
Wages are actually up.

Personally, I take the NOT A NORMAL CYCLE view. This doesn't feel like something we just slid in to and can slide out of. It feels like major bad mojo that isn't fixed and is getting worse.


Saturday, November 29, 2008

Cause of the credit crunch and how to fix it - I think.

I wonder if the investment banks could actually save the day by creating some new securities. That's (partly) what created the mess, so it'd be only right...
I just read that securitizing residential & commercial mortgages, car loans, credit cards, and other consumer debt dropped 75% from last year.

That number seems like the best evidence of the credit crunch I could find. That's trillions less available money to be borrowed The people who would have bought those securities seem not to have found a place to put that money yet.
For one thing, a lot of them were bought by banks,pensions, or insurance companies for reserves . Since most of those securities were AA/AAA, they were bought by people who needed something conservative. Most of that money seems to be going to treasury bonds or AA commercial paper (30-90 day) stuff.

The banks continue to need reserves since their reserves were depleted. They're not loaning out their excess cash.
The insurance companies and pension funds just want to wait things out. They're filling their reserves or underfundings too. And they don't want to fill up with the same stuff that broke them (even though a lot of the structured securities are very secure and have very low losses).

I actually think the solution might come from structured finance. Chopping up and repackaging the consumer debt into bonds has three main parts.
Arbitrage (create bonds that are worth more than the collateral). That only works when the yields you have to pay out for the resulting bonds are low compared to the yields paid on the collateral (on average). Without arbitrage, no one will create the new securities. Extremely high yields on these securitizations (if they sell at all) are the big reason they've dried up.

Liquidity (chicken/egg with the arbitrage. You pay lower yields on the bonds partly because they're more liquid than the collateral. Also more secure, and maybe more desirable for regulatory reasons.)

Security: The bonds have credit enhancement structures. The simplest example is a "B" pool of collateral that is drawn on if there are defaults on any of the main A pool. What's left of the B pool is the "residual." Fancier structures also throw off excess interest and such to the B pool (or draw on excess interest from the B pool).

SO: Liquidity and Security are two of the HUGE objectives of structured finance. Since the banks, credit card companies and such have all this collateral building up and blocking their ability to do business, they will sell it for cheap (relatively), which normally would create a big arbitrage opportunity. All the investment banks have to do is come up with a new credit enhancement structure that isn't too expensive and that their customers will have some faith in.

Probably that's where the Treasury could actually do some good. They could make credible guarantees on bonds that (even without the guarantee) would be strong enough to get a legitimate AAA from overfunding, diversification, or some other means. (Not credit default swaps, probably).

So far, the treasury has guaranteed existing structured bonds. The TARP collateral purchases.
I think they should guarantee new bonds instead. That is what's needed to get the credit markets going again.
And it would be cheap. They'd be guaranteeing new bonds with new standards. Good enough to earn a AAA now (a lot harder than a year ago).