A mathematician, an accountant and an economist apply for the same
job.
The interviewer calls in the mathematician and asks "What do two plus two equal?" The mathematician replies "Four." The interviewer asks "Four, exactly?" The mathematician looks at the interviewer incredulously and says "Yes, four, exactly."
Then the interviewer calls in the accountant and asks the same question "What do two plus two equal?" The accountant says "On average, four - give or take ten percent, but on average, four."
Then the interviewer calls in the economist and poses the same question "What do two plus two equal?" The economist gets up, locks the door, closes the shade, sits down next to the interviewer and says, "What do you want it to equal"?
[via web_rules, 1/30/09]
Thursday, August 27, 2009
Saturday, August 22, 2009
existing-home sales rise
Existing-home sales rose for the fourth-straight month in July, rising 7.2% month-over-month (m/m) to an annual rate of 5.24 million units, higher than the forecast of 5.0 million and an increase of 2.1%, and June figures were unchanged from the 4.89 million unit rate initially reported. Single-family home sales increased 6.5%, while multi-family sales rose 12.5%. Distressed properties continue to weigh down the median existing-home price, which fell 15.1% year-over-year (y/y) in July to $178,400.
The release is impressive in many aspects, posting the first year-over-year increase since November 2005, and the first fourth-straight monthly rise in five years. And despite a 7.3% increase in inventories to 4.09 million existing homes available for sale, the months of supply of homes remained constant at 9.4 months from a month ago. Within single-family homes, the months of supply fell to 8.6 months from 8.9 months in June, while multi-family rose to 15.1 months from 13.1 months in June.
Sales at the low-end of the market have benefited from tax incentives for first-time buyers and are a disproportionate percentage of sales. The low-end doesn't face the obstacles of the higher-end of the market, which include difficult financing and lack of a trade-up market due to the large number of homeowners who are underwater in their mortgages. As unemployment rises, those homeowners who are underwater on their mortgage and lose their jobs become increasingly at risk of entering foreclosure.
As Schwab's Chief Investment Strategist Liz Ann Sonders, and Director of Sector and Market Analysis, Brad Sorensen, CFA, note in their bi-weekly "Schwab Market Perspective: Inside the Recovery Story", while home prices are still declining, they are falling at a slower pace, and combined with high home affordability and government incentives, buyer confidence has improved. Pent-up demand, seasonality and tax incentives have been able to stimulate sales in recent months. However, entering a seasonally weaker period and bumping up against the November 30 expiration of the $8,000 government incentive will test the sustainability of sales increases. To read the rest of the article, go to www.schwab.com/marketinsight.
[Schwab Alerts]
The release is impressive in many aspects, posting the first year-over-year increase since November 2005, and the first fourth-straight monthly rise in five years. And despite a 7.3% increase in inventories to 4.09 million existing homes available for sale, the months of supply of homes remained constant at 9.4 months from a month ago. Within single-family homes, the months of supply fell to 8.6 months from 8.9 months in June, while multi-family rose to 15.1 months from 13.1 months in June.
Sales at the low-end of the market have benefited from tax incentives for first-time buyers and are a disproportionate percentage of sales. The low-end doesn't face the obstacles of the higher-end of the market, which include difficult financing and lack of a trade-up market due to the large number of homeowners who are underwater in their mortgages. As unemployment rises, those homeowners who are underwater on their mortgage and lose their jobs become increasingly at risk of entering foreclosure.
As Schwab's Chief Investment Strategist Liz Ann Sonders, and Director of Sector and Market Analysis, Brad Sorensen, CFA, note in their bi-weekly "Schwab Market Perspective: Inside the Recovery Story", while home prices are still declining, they are falling at a slower pace, and combined with high home affordability and government incentives, buyer confidence has improved. Pent-up demand, seasonality and tax incentives have been able to stimulate sales in recent months. However, entering a seasonally weaker period and bumping up against the November 30 expiration of the $8,000 government incentive will test the sustainability of sales increases. To read the rest of the article, go to www.schwab.com/marketinsight.
[Schwab Alerts]
Wednesday, August 19, 2009
too many bulls?
In the US there’s a weekly poll of stock newsletter writers called the Investors Intelligence survey. This has a great track record as a gauge of investor sentiment. The latest reading shows the lowest level of gloom since the market peaked in October 2007, coupled with the highest level of optimism since January 2008 – just before markets plunged. What’s more, says the FT, another survey of individual investors’ optimism is near its highest point in over a year.
These are classic signals to contrarians like us that prices are about to crack. As David Rosenberg of Glusken Sheff puts it: “it’s highly unlikely that 90% of the economic community can be right on the same thing at the same time”.
These are yet more signs that most investors are gambling on the market rising. And that creates the contrarian’s second sign of a market top.
[via investwise]
And... the Ned Davis Research's NDR Crowd Sentiment Poll recently jumped just into the extreme optimism zone (which is generally bearish for the market).
These are classic signals to contrarians like us that prices are about to crack. As David Rosenberg of Glusken Sheff puts it: “it’s highly unlikely that 90% of the economic community can be right on the same thing at the same time”.
These are yet more signs that most investors are gambling on the market rising. And that creates the contrarian’s second sign of a market top.
[via investwise]
And... the Ned Davis Research's NDR Crowd Sentiment Poll recently jumped just into the extreme optimism zone (which is generally bearish for the market).
Saturday, August 08, 2009
surviving the end of civilization
In his 2008 bestseller, "Wealth, War and Wisdom," hedge fund manager Barton Biggs warns that investors must "assume the possibility of a breakdown of the civilized infrastructure."
And to prepare for a breakdown of civilization, "your safe haven must be self-sufficient and capable of growing some kind of food ... It should be well-stocked with seed, fertilizer, canned food, wine, medicine, clothes, etc." Bloomberg Markets suggested that by "etc." he meant guns, as Biggs added "a few rounds over the approaching brigands' heads would probably be a compelling persuader that there are easier farms to pillage."
That warning's not from a hippie radical. Biggs was a respected Wall Street guru at Morgan Stanley for 30 years. As the chief global strategist Institutional Investor magazine put him on its "All-America Research Team" 10 times. Smart Money said: "Biggs is without question the premier prognosticator on the international scene and a mover of markets from Argentina to Hong Kong."
Behavioral economists have answers. But your gut's also good at predicting. So here's what you'll likely do:
You'll go see the new disaster film, "2012" about the end of the Mayan calendar. After all, it's by the same director who "destroyed" the earth in "The Day After Tomorrow," "Independence Day" and "Godzilla." No new investment strategies, but a must-see film, a great catharsis and distraction.
What will Main Street investors do? Here again, even with the planet's survival threatened, they'll go watch "2012," be entertained, experience a catharsis, feel relieved, and afterwards, have dinner, slip back into denial. And later, they'll vote against anything that offers solutions to future problems, especially if it raises taxes.
Why? Very simple: Our "Brains Aren't Wired to Fear the Future," writes New York Times columnist Nicholas Kristof. We're wired to respond to crises, while pushing off the real big problems (health care, Social Security, etc.)
That's basic behavioral economics: Over tens of thousands of years, evolution has programmed our brains so that collectively we will behave counter-productive with the future, making an "End of Civilization" scenario inevitable, a foregone conclusion, a self-fulfilling prophecy ["Mr. Anderson"]. Why? Because our brains are handicapped, we are literally incapable of acting soon enough to solve the problem.
[via pbo]
And to prepare for a breakdown of civilization, "your safe haven must be self-sufficient and capable of growing some kind of food ... It should be well-stocked with seed, fertilizer, canned food, wine, medicine, clothes, etc." Bloomberg Markets suggested that by "etc." he meant guns, as Biggs added "a few rounds over the approaching brigands' heads would probably be a compelling persuader that there are easier farms to pillage."
That warning's not from a hippie radical. Biggs was a respected Wall Street guru at Morgan Stanley for 30 years. As the chief global strategist Institutional Investor magazine put him on its "All-America Research Team" 10 times. Smart Money said: "Biggs is without question the premier prognosticator on the international scene and a mover of markets from Argentina to Hong Kong."
Behavioral economists have answers. But your gut's also good at predicting. So here's what you'll likely do:
You'll go see the new disaster film, "2012" about the end of the Mayan calendar. After all, it's by the same director who "destroyed" the earth in "The Day After Tomorrow," "Independence Day" and "Godzilla." No new investment strategies, but a must-see film, a great catharsis and distraction.
What will Main Street investors do? Here again, even with the planet's survival threatened, they'll go watch "2012," be entertained, experience a catharsis, feel relieved, and afterwards, have dinner, slip back into denial. And later, they'll vote against anything that offers solutions to future problems, especially if it raises taxes.
Why? Very simple: Our "Brains Aren't Wired to Fear the Future," writes New York Times columnist Nicholas Kristof. We're wired to respond to crises, while pushing off the real big problems (health care, Social Security, etc.)
That's basic behavioral economics: Over tens of thousands of years, evolution has programmed our brains so that collectively we will behave counter-productive with the future, making an "End of Civilization" scenario inevitable, a foregone conclusion, a self-fulfilling prophecy ["Mr. Anderson"]. Why? Because our brains are handicapped, we are literally incapable of acting soon enough to solve the problem.
[via pbo]
unemployment rate dips, stock market goes up
The American economy has shed 6.7 million jobs since the start of the recession, but workers got a bit of good news this morning: the unemployment rate dipped for the first time in more than a year. It now stands at 9.4 percent, down from 9.5 percent. The U.S. Department of Labor reported this morning that employers still cut payrolls in July, but the total job losses were far lower than expected: 247,000.
"The worst may be behind us," President Barack Obama said outside the White House today.
The Dow Jones industrial average climbed 113 points to close at 9,370, closing off another straight up week on Wall Street.
The Standard & Poor's 500, the broadest index of the nation's corporate economy, rose 1.3 percent to close at 1,010, a 10-month high. The Nasdaq rose 1.37 percent today to close at 2,000.
With the pop Friday, the S&P 500 index is up 14.9 percent in only four weeks and 49.4 percent from a 12-year low in early March.
* * *
So I'm guessing if the unemployment rate resumes rising on the next report, expect a market dip.
"The worst may be behind us," President Barack Obama said outside the White House today.
The Dow Jones industrial average climbed 113 points to close at 9,370, closing off another straight up week on Wall Street.
The Standard & Poor's 500, the broadest index of the nation's corporate economy, rose 1.3 percent to close at 1,010, a 10-month high. The Nasdaq rose 1.37 percent today to close at 2,000.
With the pop Friday, the S&P 500 index is up 14.9 percent in only four weeks and 49.4 percent from a 12-year low in early March.
* * *
So I'm guessing if the unemployment rate resumes rising on the next report, expect a market dip.
Thursday, August 06, 2009
The Lottery Effect
One way optimism in security selection is evidences is by the lottery effect. Investors seem driven to investments as having the potential for large gains, such as biotech companies working on cancer cures or mutual funds investing in developing countries. Behavioral researchers have found their decision-makers tend to overweight the strength of information signals (i.e. return potential) and underweight their probability of occurrence (i.e. likelihood of success).
Simply stated, investments perceived as having high return potential tend to be overvalued.
-- Greg Forsyth, OnInvesting, Summer 2007
Simply stated, investments perceived as having high return potential tend to be overvalued.
-- Greg Forsyth, OnInvesting, Summer 2007
Monday, August 03, 2009
federal tax revenues plummetting
WASHINGTON (AP) -- The recession is starving the government of tax revenue, just as the president and Congress are piling a major expansion of health care and other programs on the nation's plate and struggling to find money to pay the tab.
The numbers could hardly be more stark: Tax receipts are on pace to drop 18 percent this year, the biggest single-year decline since the Great Depression, while the federal deficit balloons to a record $1.8 trillion.
Other figures in an Associated Press analysis underscore the recession's impact: Individual income tax receipts are down 22 percent from a year ago. Corporate income taxes are down 57 percent. Social Security tax receipts could drop for only the second time since 1940, and Medicare taxes are on pace to drop for only the third time ever.
The last time the government's revenues were this bleak, the year was 1932 in the midst of the Depression.
The numbers could hardly be more stark: Tax receipts are on pace to drop 18 percent this year, the biggest single-year decline since the Great Depression, while the federal deficit balloons to a record $1.8 trillion.
Other figures in an Associated Press analysis underscore the recession's impact: Individual income tax receipts are down 22 percent from a year ago. Corporate income taxes are down 57 percent. Social Security tax receipts could drop for only the second time since 1940, and Medicare taxes are on pace to drop for only the third time ever.
The last time the government's revenues were this bleak, the year was 1932 in the midst of the Depression.