Bob Carlson

April 29, 2016

The Surge in Home Prices

Filed under: Housing — Bob @ 5:20 pm

This report takes a different tack on reporting home price increases than the others. Most reports compare average or median selling prices one month to the previous month and calculate the price gain for the month. This report looks at what people paid for homes they sold this month and computes the gain they made on their sales. It found that people selling in March earned very substantial percentage gains on their homes.

“Home sellers in many markets are now seeing average price gains close to or above what home sellers experienced during the last housing boom,” said Daren Blomquist, senior vice president at RealtyTrac. “That should encourage more homeowners to take advantage of the prime seller’s market and list their homes for sale this year. Banks are already taking advantage of that market as evidenced by the uptick in the distressed sales share over the last two quarters.

“Given that bank-owned homes are selling at a median price that is 40 percent below the overall median sales price nationwide, the uptick in distressed sales combined with affordability constraints are contributing to faltering home price appreciation in some markets — most notably the bellwether markets of Washington, D.C. and San Francisco” Blomquist added.

Other markets with average seller gains more than twice the national average in March were Denver (42 percent); Portland (40 percent); Austin, Texas (40 percent); Seattle (38 percent); Baltimore (38 percent); Riverside-San Bernardino, California (37 percent); San Diego (36 percent); and Sacramento (35 percent).

How Companies Manipulate the News

Filed under: Investing — Bob @ 12:20 pm

This article provides a number of examples of studies that found publicly-traded companies try to reduce negative reactions to major news by issuing a lot of other news at around the same time. The studies also find that the efforts generally are effective.

What we have learned from these two studies is that firms are not sitting around passively waiting for the market to react to their actions. Rather, they are highly conscious of how the market might react to what they do and proactively try to take steps to influence and manage those reactions.

Firms may also attempt this sort of approach when it comes to earnings releases, new product announcements, the announcement of pending lawsuits, or any instance where the firm knows about an important event in advance. Sometimes their goal may simply be to muddy the waters so corporate leaders can interpret the market’s reaction in a way that is more beneficial to the firm.

The Next Shoe for Master Limited Partnerships

Filed under: Economy,Income Investing — Bob @ 10:36 am

MLPs focused on the energy industry suffered a great deal when the price of oil dropped. Most analysts believe the drop was excessive, because MLP profits don’t depend on the price of oil or gas. The MLPs provide facilities such as pipelines and storage tanks for fees that are independent of the price of energy. They also generally have long-term contracts. But this article explains the next threat to MLPs. The energy companies could file for bankruptcy and use bankruptcy to break their contracts with the MLPs. But the attorneys writing the article contend that the arguments for breaking the contracts are weak, so MLPs shouldn’t have as much at risk as some fear.

This argument seemed a strong one. However, after examining the applicable Texas property law at issue, on March 8, 2016, Judge Chapman issued a non-binding bench ruling holding that the legal requirements for treating these arrangements as real property interests were not satisfied and that they could be invalidated in bankruptcy through the contract rejection process.

This ruling rocked the midstream world. It also came when similar attempts to reject gathering agreements were underway in the Quicksilver Resources and Magnum Hunter Resources bankruptcy cases in Delaware, leading to a sense that the midstream industry was under assault.

As the midstream industry braced itself for more adverse rulings, many companies in the sector began examining their gathering contracts and asking how certain highly technical provisions in such contracts would be treated in light of Sabine.

April 28, 2016

Examining Lotteries

Filed under: Economy — Bob @ 12:20 pm

This post goes into great detail about lotteries from a number of angles. If you play the lottery or consider it, you should read this post.

We noted above the typical adult player will waste $135k.  This does not imply the median spending of anyone who will have ever played lottery in their life!  An incredible portion of American adults (~95%) will either never play, or will play such a small fraction of this level.  But there is a minimal number that will be regulars, who bring in nearly ½ the total revenue to keep this system afloat, and will be the ones who play nearly $135k in a lifetime.  Averaging the level of play among all people who ever play, we could still get to over $25k in a lifetime.  Both of these statistics are significant, as per the Federal Reserve (page 12), the median net worth of a family approaching retirement is $166k (per individual adult it would be nearly half this).

April 27, 2016

Do Negative Interest Rates Work?

Filed under: Economy — Bob @ 5:59 pm

This article argues that negative interest rates haven’t worked in Japan. There are some arguments that they generated modest economic growth in some other countries that weren’t as bad off as Japan. But most studies and theories indicate that the benefits of negative interest rates for the economy are low, and the more negative rates become the fewer the benefits.

Ten weeks after BoJ governor Haruhiko Kuroda startled both financial markets and parliamentarians with Nirp, the yen has appreciated by some 8 per cent against the dollar. The stock market has rebounded sharply this month, however the Topix bank index remains 11 per cent lower since the advent of Nirp.

Under such a policy, risk assets were supposed to rise, but instead demand for Japanese government bonds rallied, rewarding the risk averse. Meanwhile, even finance ministry officials concede that the deflationary mindset is more entrenched than ever. There is agreement that Nirp has backfired and such an unsustainable monetary policy cannot support growth, let alone help financial asset prices.

Recognizing Luck

Filed under: Happiness & Money,Retirement - General — Bob @ 12:20 pm

Most people who’ve had some success don’t want to recognize that luck played a role. But some people do recognize that a few lucky breaks or events outside their control contributed to their success. This article goes into some depth about the role luck plays in our lives and how important it is to recognize both large and small strokes of luck.

In an unexpected twist, we may even find that recognizing our luck increases our good fortune. Social scientists have been studying gratitude intensively for almost two decades, and have found that it produces a remarkable array of physical, psychological, and social changes. Robert Emmons of the University of California at Davis and Michael McCullough of the University of Miami have been among the most prolific contributors to this effort. In one of their collaborations, they asked a first group of people to keep diaries in which they noted things that had made them feel grateful, a second group to note things that had made them feel irritated, and a third group to simply record events. After 10 weeks, the researchers reported dramatic changes in those who had noted their feelings of gratitude. The newly grateful had less frequent and less severe aches and pains and improved sleep quality. They reported greater happiness and alertness. They described themselves as more outgoing and compassionate, and less likely to feel lonely and isolated.

Baby Boomers Moving the Markets

Filed under: Asset Allocation — Bob @ 8:20 am

About 10 years ago a common argument was that stock indexes either would steadily decline or crash as the Baby Boomers age. The theory was that the boomers would do as previous generations did and switch their portfolios from stocks to bonds as they neared age 65. The first boomers reached 65 in 2011, and that didn’t hurt the market. In fact, it appears that the boomers might be changing what moves within the stock indexes. This article argues that the stocks that have done best recently are dividend payers. The boomers want income, but they want it from stocks, not bonds. Be careful though, many of those stocks are selling at high valuations now.

“It’s the retirement of the baby boomers becoming a reality,” said Benjamin Dunn, president of Alpha Theory Advisors, which works with hedge funds overseeing about $6 billion. “It’s definitely valuation insensitive buyers. They either don’t know or just don’t care what they’re buying — they’re just buying dividend yield.”

Weird things are happening as a result. An exchange-traded fund stuffed with defensive shares and designed for calm, the PowerShares S&P 500 Low Volatility ETF, has been more volatile than the S&P 500 over the past month, according to data from Macro Risk Advisors. The fund has seen its market capitalization soar by more than 50 percent since September.

April 26, 2016

No Good Gold Analysts

Filed under: Asset Allocation — Bob @ 5:20 pm

Gold’s price rises and falls, and analysts usually are wrong about what it will do next. I haven’t seen much good research on how to decide when to invest in gold. The best work is from Claude Erb and Campbell Harvey, who argue that the real (inflation-adjusted) price of gold determines where the price will go over the next 10 years. But that’s a 10-year trade. It doesn’t say anything about shorter periods. This article argues that there are no good gold analysts, because gold doesn’t trade on fundamentals.

Explaining this price premium is a bit of a conundrum. After all, gold isn’t even a very useful commodity, however, due to the embedded demand due to its other properties, its price has boomed over time. I have referred to this price premium as a “faith put” due to the belief that gold is a form of money and insurance. But to be honest, I really don’t have a good explanation for this premium other than that. There have been other good attempts to explain gold’s pricing (Barsky and Summers on the Gibson Paradox is very good, for example), but I can’t say that I find many of them to be all that convincing.¹

Police vs. Prison Guards

Filed under: Economy — Bob @ 12:20 pm

Here’s an interesting article arguing that U.S. governments have misplaced spending priorities. We spend more on prison guards than the rest of the world, but we also spend less on police per capita. It argues that instead of emphasizing long prison sentences for the few criminals who are caught we should try to catch more criminals and give them short, sure, swift sentences.

Indeed, in a survey of crime and policing that Jon Klick and I wrote in 2010 we found that a cost-benefit analysis would justify doubling the number of police on the street. We based our calculation not only on our own research from Washington DC but also on the research of many other economists which together provide a remarkably consistent estimate that a 10% increase in policing would reduce crime by 3 to 5%.

A Little Trump History

Filed under: Economy — Bob @ 9:26 am

An episode from the 1990s reveals a lot about Donald Trump and is a template for how he still acts today. The story involves a stock analyst who was critical of Trump’s New Jersey casino operations in the 1990s. As this article recounts, Trump’s reaction was to belittle the analyst, browbeat his employer into firing the analyst, and make the guy unemployable. Fortunately, the analyst hired some good lawyers, sued Trump, and after years of fighting obtained an apparently favorable settlement from Trump. It’s an entertaining article.

What happened next was straight out of Trump 101. The “people I don’t take too seriously,” he had written in 1987 in The Art of the Deal, “are the critics—except when they stand in the way of my projects.” Roffman was in the way. Trump bombarded him with invective, threatened to sue his employer, demanded his firing and then publicly assailed him some more. The fact that Roffman’s assessment was grounded in reality—that he would prove to be right—didn’t stop Trump from attacking Roffman. It was the reason for it.

Three days after the quote in the Journal, Roffman was fired. What happened after that, though, was unusual. In the long history of the leading Republican presidential candidate’s use of disparagement, intimidation and forceful warnings of litigation, there is no person quite like Roffman. He filed a lawsuit against Trump and won a clear victory—a fat check drawn on a Donald Trump account.

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