Saturday, February 28, 2015

Arsenic, Mining and the New England Pastoral Industry

Photo: Gordon Smith, Ottery Mine Remains.

Gordon Smith recently toured the mining areas on the westen side of New England's Northern Tablelands. You will find his photos here, here, here, here and here.

Gordon notes that tin and arsenic were mined at the Ottery Mine, not far from Emmaville, from the 1880’s. Here we see the remains of the brick condensation chambers where arsenic solids formed on the surface of brick walls (see pink substance at the lower right hand side of the photograph). Workers then scraped the arsenic from the bricks.

Arsenic was used quite extensively in gold mining to help extract the ore.

At Hillgrove east of Armidale, the soil around the old mine processing plants is still heavily impregnated with arsenic, as are the waters of Baker's Creek at the bottom of the adjoining Hillgrove Gorge. Traces of arsenic can be found in sediments along the Macleay River all the way to the river mouth.

Arsenic was also extensively used as a sheep dip.

My grandfather who came to Armidale as a farm labourer in 1907 described the practice this way.

"The next three years were spent partly on farms around Armidale but mainly on a sheep station south west of Uralla. It was my first experience with sheep and the primative means of combating worms in sheep. The one and only practice was to muster a mob of sheep in the late afternoon and starve them in the yards till early next morning. On the previous evening, up to 30 poor and wormy sheep were separated and given a drench. This consisted of arsenic boiled in water, the sediment being drawn off and the selected sheep were drenched. If not more than half were dead in the morning the drench was at the right strength. It was a crude and drastic treatment, but some years elapsed before an effective drench could be found for the greatest scourge of all Fluke (liver worm) and the Lung worm."

New England is dotted with small sites with arsenic impregnated soil where this practice was carried out.






Australia's Property Markets Dart a Pellet!

After we consider the boil in the Chinese economy regarding the property and real estate hike and house and land pricing and packages, the next best thing is to have a look at the pace of the Australian property and real estate market as the rocketing scenario in Australia is far more and on a faster pace than any other country across the globe. Here, in this article, we are going to discuss about how the land and housing packages catch that heights and is not reachable by any laymen and the land pricing in Melbourne (Australia) are on a rocketing graph. In the graph 'Australian Trends' i.e. given blow, we project the Australia-wide market drift for houses and it units keeping in mind the boil in property market, which dual point to being at the base of its cycle.
In the section to the end of September, the Australian middle housing value decreases by 0.83 per cent and 0.24 per cent for units. However, September is the only month which witnessed a rise of 0.8 and 0.2 per cent for houses and units correspondingly, representing we may see some rise in upcoming times.
The current global economic scenario doesn't promote assurance and the stoppage in taking the end of the euro zone or directing a sturdy "medicine" is merely making things poorer. Providentially for Australia we are, till some level, resistant to what is happening in Europe. As a normal reserve based country we have our future inextricably related to the growth in budding world economies that need our reserves, not the old world economies. These budding countries are our neighbors and their graph of rise is so bulky that even a modest slow down would still permit us to see the rise in our economy in times to come.

Friday, February 27, 2015

Some Hollywood Facts I learned yesterday at the Lusk Rena Sivitanidou Research Symposium

From Elizabeth Currid Halkett I learned that the two most strongly connected cities (in terms of propensity to show up in Getty Images) are LA and New York, with LA and London second.

From Michael Storper (UCLA), I learned that while film production is increasingly outsourced, creative film talent is increasingly concentrated in LA.

From Matt Kahn I learned that movie stars get no more when they sell their houses than anyone else.

I will report on non-Hollywood related issues later.

Stock Tips For Your IRA-401K - Use ETFs to Diversify in All Asset Classes

For people looking for stock tips, it's important first that you understand about true diversification. The world is driven by money and the price of stock is driven mostly by the ultra rich investors who occasionally move their money in and out of major asset classes. There are various cycles that result as the money will flow to different asset classes. Although in the long run, stocks have gone up 10% per year, it can also be said that other major asset classes show consistent returns at lower risk, while others may show higher returns at higher risk. The reality is that if you are planning for retirement you will need both safety and earnings.
A simple investment in stocks is not enough even if you do diversify among the various stocks. What happens when 70 million baby boomers in the US alone all try to retire at once and they all start to take money out of the stock market? This is why some smart groups of people have used what's known as "age wave" theory which predicted a stock market top in 2008. The theory was that because the majority of the money in the stock market among common folks was owned by baby boomers that people that would get close to retirement would either start selling completely, or start gradually selling stocks and replacing them with more stable return devices such as bonds. Perhaps the bigger problem is that because the "smart money" would be aware of this, they would start selling in bulk to get a jump start ahead of everyone else.
Now with unemployment at a historic high in not only the US, but in Europe and other places around the world, the global economy is under stress. However, there's really no reason to fear, if money goes out of the stock market, it can only go into some place else.
Here are some places it can go:

Thursday, February 26, 2015

The End of Armidale's Club Hotel



Photo: Gordon Smith, Armidale's Club Hotel has undergone a major refurbishment and is now the White Bull.

My thanks to Gordon Smith's New England photo blog for this story.

All those growing up in Armidale or who went to school or university there will remember the Club Hotel in Marsh Street.

Well, after a complete refurbishment it has now emerged as the White Bull. Gordon wonders, fairly, why White Bull and also why the Bull is red.

I must find out one day.

New England's Chinese - Introductory Post


Photo: Chinese miner testing wash for tin, Great Britain Mine, Emmaville, 1899. By 1899 tin mining in the Emmaville (Vegetable Creek) district had passed its peak and the number of Chinese had dropped from around 1200 to 200. The posed photograph was a conscious commemoration of the Chinese role in tin mining.


Growing up as a kid, I used to play in the Armidale cemetery. There, in the "other denominations" section I found a number of Chinese graves. I was curious because I knew no Chinese. Later I found out that the Chinese had played a significant development role in New England.

According to the Australian National Museum's Heritage Scroll, a small number of Chinese settlers arrived quite early. Numbers then increased significantly after transportation ended in 1840 as Chinese were brought in as labourers. According to Geoffrey Blainey's Tyranny of Distance early people movements were facilitated by a quite complex web of trading and shipping links between Australia and China.

From the discovery of gold, Chinese numbers increased very rapidly. The Chinese immigrants referred to the Australian gold fields as 'Xin Jin Shan', or the New Gold Mountain as compared to the now declining California fields, as 'Jiu Jin Shan', the Old Gold Mountain. By 1861, 38,258 people, or 3.3 per cent of the total Australian population had been born in China, a number not reached again until quite recently.

Chinese diggers quickly appeared on all the new New England fields from the Hunter to the Queensland border. As other minerals and especially tin were discovered, the Chinese moved there too. Those visiting Uralla should visit McCrossin's Mill Museum which has a major Chinese display, including the pictured Joss House.

The rapid increase in immigration caused tensions and resentments among the European population There was intermittent violence against the Chinese, including the famous Lambing Flat (now Young) riots of 1861 when, in the worst outbreak, 2000 European diggers attacked the Chinese, injuring 250 and destroying their possessions.

I know of no equivalent violence on the New England fields, although that may simply mean I haven't found it yet.

The pressure of public opinion against the Chinese caused the New South Wales Government to pass the Chinese Immigration Restriction and Regulation Act in 1861 to restrict the numbers of Chinese in the colony.

As the level of mining dropped, some Chinese returned to China. Those staying could not bring in wives from China because of immigration restrictions. Some found local girls, others died alone far from family.

Many Chinese went into retailing if which Inverell's still surviving Hong Yuen business is an example.

By 1900 there were at least 5 Chinese owned stores in Inverell - one of these was Hong Yuen. Hong Yuen began its life in the 1890s as a small business trading from a wooden shop. By 1899 the adjoining land had been bought and in that year the first part of the store as it is now known was built.

The first town outside of Inverell where Harry Fay established a venture was Moree in 1926, which began as a general store. In Texas, Harry Fay was encouraged by the local community to open a store and by 1932 he had a thriving business up and running. In 1936 a store in Warialda was to follow. Harry Fay also set about expanding his business back in Inverell.

When he originally purchased the store it consisted of a grocery section. To this he added a drapery department and showroom in 1925. By 1935 a men's and boy's wear department were also established.

Hong Yuen has always been a family owned and run business. Most members of the family have done their fair share of work. Two of Harry Fay's brothers were employed in the business, his children and grandchildren have also played their part. In 1974 Harry Fay died, and his sons became the governing directors (the business was already jointly owned by the eight Fay children).

Two years later, a massive fire destroyed all but the oldest part of the building in Inverell. Despite the tragedy, the community effort which went in to helping the cleanup reaffirmed that Hong Yuen was there to stay

Photo: Gordon Smith, Emmaville Post Office undergoing repair from hail damage.

Today some of the once thriving mining settlements in which New England's Chinese once lived are ghost towns, others sleepy settements.

Today Vegetable Creek, now Emmaville, north of Glen Innes has a total population of around 350 as compared to a peak Chinese population of 1,200. Yet the village still retains links to its Chinese heritage.

Postscript

New England Australia's Chinese - Reference Post provides a list of posts on New England's Chinese along with some supporting references.

Succession Development and the Independent Business Owner

As a third generation independent business owner, I have lived through, and seen how sad it is when business owners retire with little to show for their lifetime of efforts. The statistics are not great either, approximately ****94% of Australians retire with little or no self-derived income and require Government assistance to survive.
In my opinion we have been sold a bit of a lemon with regards to superannuation with most Australians thinking that simply paying into a super fund will guarantee a great retirement income and lifestyle. The facts are that for Australian women our superannuation falls grossly short of what is needed and whilst the average Australian male has approximately double that of the women in Super, it is nowhere near enough to survive on. As we are living longer, we can spend almost a third of our lives in retirement. Just doing some simple maths will show if you have enough. But Australia we have been sold that by putting money into Superannuation that we will be all right in the end. Here is the wakeup call; Superannuation alone is nowhere near enough for most of us to survive on without Government assistance.
For the independent business owner, unfortunately, they pay themselves last and many don't even have superannuation or if they do, they have not contributed for years. The Government regulations on business owners is so arduous that it is becoming harder and harder to put away anything for themselves.
Many independent business owners spend their days completely occupied with gaining market share, hiring and keeping employees, motivating staff, beating the competition, to give succession development any thought. Strange how such highly motivated, intelligent and energetic people can avoid such an important planning issue to their business.

Wednesday, February 25, 2015

In the LA Times Dust-up this week

A discussion with Christopher Thornberg

Yesterday's lousy new home sales number and the supply effect

New homes available for sale are at their lowest level since 1971.



The data come from http://www.census.gov/const/www/newressalesindex_excel.html


Population in the US in 1971 was about 2/3 the current population. Maybe nothing is selling because there is nothing to sell. It is hard for me to see how construction doesn't make a come-back this year.

More on the relative tax breaks for owning and renting

Anonymous comments:

What's missing from this argument is that the lander is taxed on the rental income (after the deductions mentioned) but the homeowner is not taxed on the imputed rental income from the home.

The real tax break that homeowners get is not the interest deduction, but the fact that the imputed rental income (what the home would rent for) is not taxed.


This is because I did not write clearly, not because I hadn't considered it. Bill Wheaton's point was that the deduction for depreciation for rental units (about 3.3 percent per year) offsets the non-taxation of imputed rent. Most owners who get lots of net income from imputed rent are the elderly, who have paid off their mortgages. Because they generally have low cash incomes, they are in low tax brackets, which means that the value of the tax benefit are small. Owners of rental units are often in higher tax brackets, which means the value of the depreciation deduction might be high.

How it all washes out is an empirical question, of course...

Australia the Lucky Country? Try the Land of Broke Retirees

Retirement Shortfalls in Australia And Why Real Estate May Be The Saviour
Research shows that only one in 10 Australians currently invest in residential property as a vehicle for wealth creation.
Furthermore statistics also show that less than 10% of Australians are retiring in a similar or better financial position than pre retirement
According to the Commonwealth Bank on their website Commbank.com.au when it comes to wealth creation for Australians' residential property remains the number one asset, accounting for $4.4 trillion of our wealth."
In comparison to other asset classes, the bank states that superannuation accounts for $1.5 trillion, Australian listed stocks $1.3 trillion and commercial real estate $0.7 trillion.
Based on the above figures one could assume that these are strong indicators that the average Australian family feel safe in bricks and mortar compared to a managed fund or share portfolio.
Over twenty years experience in most sectors of Real Estate and in particular working closely with new investors for the past five years provides the author with an insight into what stops people moving down the track of property investment.
Generally there were three repeating themes that appeared when questioning people on what was stopping them from investing in Australian Residential Property.

Tuesday, February 24, 2015

One of my favorites lines from Bugs Bunny

is, "Daddy, you're back from Peru."

My kids will actually be able to say this to me on Wednesday night--I am going down to Lima to give a lecture at the Peruvian Central Bank. I am really looking forward to it.

Today's New Home Sales number...

...was awful. But it may be a supply effect as well as a demand effect. The gap between a used home and the cost of building a new home is large, meaning that people would rather pick something up in the used market. And in the spec market, builders have not built much of anything recently, meaning that the new stuff available for sale is quite low.

Just a thought...

Peter Allen, Armidale and Claire and Eileen Napier - an attack of nostalgia



Photo: This is Your Life. Peter Woolnough Allen, Peter's Aunt Nancy - black glasses, Claire Napier-McCann, Roger Climpson Channel 9. 1977.

I was browsing the ABC New England North West web site when I found a story that really bought my past back in waves of nostalgia.

All those years ago I was friendly with a girl called Eileen Napier, now Kelly. Sometimes I used to visit her house across Dumaresq Street to listen to surfing music.

Through the mists of time I remember Eileen as a very pretty girl. But I was shy and I always felt that her mother did not approve of me as a Protestant. So it was a passing friendship. Yet I clearly remember the house and the lounge room.

Eileen's mum Clare was active in the local musical scene. I remember this, However, I did not remember (perhaps I did not know) the role she played in the early stages of Peter Allen's career.

So far I have written one story on Peter Allen, but I have not written much on his Armidale connection.

According to the ABC story, Eileen Kelly remembers Peter Allen turning up to tap dancing classes in what is now the Folk Museum in Armidale on roller skates. He was full of the energy, which became his trademark on stage.

"Mum would often just take off her tap shoe and throw it at Peter to pull him into line," Eileen recalls laughing.

Photo: Claire Napier-McCanns Childrens Dancing Troupe on Stage in The Cathedral Hall, Rusden Street, 1956.

For 30 years Claire Napier fostered the careers of many young entertainers, but none so famous as Peter Allen, who, she taught tap dancing for more than 8 years.

"In the finish she said in many of her interviews, she couldn't teach him anymore. He'd learnt everything she had to teach him," recalls Eileen.

According to Eileen, Peter Allen was six weeks old when his mother Marion brought him to Armidale where he stayed for almost 15 years, schooling at the local demonstration school, then Armidale High School.

Under the guidance of Claire Napier Peter, along with her other students performed around the region, and he formed a band called "The Skiffle Group" which used to play in a local hotel. The story does not record the name of the hotel, but this would have been the Mann's New England Hotel, the Newie to locals.

The story notes that some of those original band members were coming to Armidale to celebrate Peter's birthday. He would have been 68 years old.

Photo: Peter Allen on guitar at the spotlight parade in Armidale 1956.

Peter's Armidale connection is not well known. Tenterfield has always been in the spotlight because of the song "Tenterfield Saddler" which Peter wrote about his family.

"Peter was very proud of his Woolnough connections, and his father would take him back to see his grandfather and I think during Peter's hard times he looked at his early life and the Tenterfield connection to get a grip on his own identity," Eileen records.

Eileen has seen the musical about Peter twice, loving the performances of Huw Jackman and Todd McKenney, but she regrets there was no part for the character of Clair Napier in either script. Her mother however was among the special guests when Peter featured on channel Nine's "This is your life," in 1977.

Eileen recalls only one trip Peter made back to Armidale, just a few years after he left. He'd been given national exposure on bandstand with Chris Bell, and was soon to embark on an international career, which would see him working with and loving the likes of Judy Garland, Liza Minelli.

Eileen recalls he called in to see her where she was working at a local supermarket. Later she recalls going backstage at a concert on the Gold coast, one of his last in 1992, and he left her with words she will never forget.

"He said to me, and 'don't ever forget Eileen, make every moment count, "she says.

Auctions - Gold Coast Australia

I believe that certain real estate practices being conducted on the Gold Coast may be in breach of the Property Agents and Motor Dealers Act (PAMD) and the Trade Practices Act.
These practices relate to promotion and conducting Auctions.
The relevant legislation I will be referring to are;
PAMD Act
o Section 154 of the PAMD act specifies the Code of Conduct applicable to a real estate agency or agent.
o Section 231 of the PAMD act specifies the code of conduct applicable to Auctioneers.
o Section 593 of the PAMD act relates to false or misleading representations or statements.
o PAMD - Real Estate Agency Practice Code of Conduct - Schedule 7 - Honesty fairness and professionalism
o PAMD - Real Estate Agency Practice Code of Conduct - Schedule 9 - Agent to act in client's best interest
o PAMD - Real Estate Agency Practice Code of Conduct - Schedule 14 - Fraudulent or misleading conduct
o PAMD - Real Estate Agency Practice Code of Conduct - Schedule 15 - High pressure tactics, harassment or unconscionable conduct
o PAMD - Real Estate Agency Practice Code of Conduct - Schedule 18 - Soliciting through false or misleading advertisements or communications

Monday, February 23, 2015

The banality of Mitch McConnell

I heard him on NPR this morning saying we need to cut taxes more. Here are all federal revenues as a share of GDP going back to 1995:

1995 0.183
1996 0.185
1997 0.190
1998 0.196
1999 0.195
2000 0.208
2001 0.198
2002 0.174
2003 0.160
2004 0.158
2005 0.175
2006 0.180
2007 0.187
2015 0.178
2015 0.148
2015 0.148

The Bush Tax cuts pushed revenue down by about 20 percent relative to GDP; the recession has pushed them down another 7 or 8 percent. The American people like their spending (any reduction in entitlements or defense spending elicits howls. And the American people are not particularly greedy about what they want from their government--relative to other OECD countries, our social safety net is pretty small. At the same time, the average tax burden in the US relative to GDP is about 3/4 of the average tax burden for the OECD.

So, Senator McConnell, if you really think taxes are too high here, what would you cut? Don't tell me waste and fraud.

Alan Blinder and Mark Thoma want to bring back the HOLC

Mark's post is here.

I am myself a fan of the HOLC, and have said so in articles I wrote with Susan Wachter for Journal of Economic Perspectives and for the Jackson Hole conference last summer, as well as a comment I just wrote for Housing Policy Debate. Yet I am not sure it is alone the medicine for the current crisis.

When the Home Owners Loan Corporation was invented, it was in response to an economic tsunami that swamped lenders and homeowners. Moral hazard was not much of an issue, as loans were stringently underwritten (typical LTVs were 50 percent at origination). But loans had short terms, and therefore were vulnerable when people were forced to refinance in the teeth of the great depression. The HOLC allowed for massive loan modification and helped get incentives for borrowers and lenders aligned correctly.

Now, however, we are in the midst of a crisis that has arisen in part because of agency problems throughout the lending chain. To bail out lenders through some sort of HOLC setup could very well encourage excessive risk taking in the future, which is of course problematic.

I think if we are going to go the HOLC route, it needs to be accompanied by a regulatory structure that will prevent the sort of bad practices that led to the current crisis going forward. As I have noted before, such regulatory changes would require greater transparency, a requirement that everyone who touches a mortgage be subject to federal supervision, and a requirement that everyone who touches a mortgage have some capital at risk.

The brilliance of FDR

He made us confront our problems while making us feel good about ourselves:

But here is the challenge to our democracy: In this nation I see tens of millions of its citizens—a substantial part of its whole population—who at this very moment are denied the greater part of what the very lowest standards of today call the necessities of life.

I see millions of families trying to live on incomes so meager that the pall of family disaster hangs over them day by day.

I see millions whose daily lives in city and on farm continue under conditions labeled indecent by a so-called polite society half a century ago.

I see millions denied education, recreation, and the opportunity to better their lot and the lot of their children.

I see millions lacking the means to buy the products of farm and factory and by their poverty denying work and productiveness to many other millions.

I see one-third of a nation ill-housed, ill-clad, ill-nourished.

But it is not in despair that I paint you that picture. I paint it for you in hope—because the nation, seeing and understanding the injustice in it, proposes to paint it out. We are determined to make every American citizen the subject of his country’s interest and concern; and we will never regard any faithful law-abiding group within our borders as superfluous. The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.

If I know aught of the spirit and purpose of our Nation, we will not listen to comfort, opportunism, and timidity. We will carry on.

Overwhelmingly, we of the Republic are men and women of good will; men and women who have more than warm hearts of dedication; men and women who have cool heads and willing hands of practical purpose as well. They will insist that every agency of popular government use effective instruments to carry out their will.

Government is competent when all who compose it work as trustees for the whole people. It can make constant progress when it keeps abreast of all the facts. It can obtain justified support and legitimate criticism when the people receive true information of all that government does.

If I know aught of the will of our people, they will demand that these conditions of effective government shall be created and maintained. They will demand a nation uncorrupted by cancers of injustice and, therefore, strong among the nations in its example of the will to peace.

If this is happening, the Administration is Pretty Clever

I heard a real estate investor this morning claim that as banks are making profits because of the spreads over their cost of money, regulators are forcing them to liquidate bad assets and realize the losses. If this is really going on, somebody really smart is behind the idea.

10 percent of Homeowners Upside Down???!!!

That was the headline in yesterday's NYT, based on calculations from economy.com. Because the article doesn't describe how the calculations were done, it is not possible to agree or disagree with them, but I don't find the number on its face implausible.

Let us say for the sake of argument that the number is correct. It means that for 10 percent of owners, the put option contained in their mortgage (i.e., the option to put their house back to the lender) is in the money. If all these households default, the mortgage market will be cooked: Fannie and Freddie, who put 45 basis points of capital behind each mortgage they guarantee, would likely not be able to withstand so many defaults. Moreover, if ten percent of the market becomes REO, inventories will swell further, putting more downward pressure on house prices, which in turn will lead to more borrowers being underwater.

It is unlikely, however, that all such households will default. Past work by people such as Bob Van Order and Yongheng Deng has shown that people in the past usually needed to face a trigger event, such as divorce, job loss or sickness, before they default. The question is whether things are different this time: that because people are so aware of the declining housing market, they will understand more quickly that their house value is less than their mortgage balance, and will therefore default. After all, in principle, if one observes that her house is less valuable than her mortgage balance, she could default one day and buy the house back the next, and be better off.

But default doesn't actually work that way. When a borrower defaults, she trashes her credit score, and therefore reduces her options for either owning or renting going forward: people like having a roof over their heads. Beyond that, houses are idiosyncratic and can be more valuable to their dwellers than they are to the market. Houses become associated with memories, neighbors, gardens, strange paint colors, and other characteristics that make them valuable to their occupants in a way that cannot be reflected in the market. These things prevent people from defaulting (or selling when it makes more sense financially to rent). Finally, many households still feel an obligation to pay their bills. The fact that so many mortgage borrowers in Louisiana continued to make payments for homes Katrina destroyed is quite remarkable, and quite germane to the situation in which we find ourselves now.

How much these phenomena will prevent defaults in the next few years is an open and interesting question. I suspect we will know the answer pretty soon.

The 20 Richest People in Australia

Every year Forbes publishes the list of the richest people in Australia. 2009 showed a drop in the number of billionaires (we're down to 9) but despite the changes in the economy these entrepreneurs proved that fortunes can still be made. Almost everyone on the list started out with a small venture that eventually flourished with dedication and a mind-set to defy the odds against making it big. They are an inspiration to Australians everywhere with dreams of success to hold their course and just keep going.
#20 Maurice Alter (Married with 2 children, age: 84)
$590 million
Who would not mind having a fortune worth $590 million at the age of 84? Mr. Alter landed on the shore in 1949 right out of Poland and hurried up to get a job, 2 jobs as a matter of fact. A bit later he bought a couple shops and a bank near Melbourne. Yes, that's right - a bank! Currently his son, Sam runs his Pacific Shopping Centers and manages his portfolio of prime retail properties in the vicinity of Melbourne and Adelaide.
#19 Robert Oatley (Married with 3 children, age: 80)
$600 million
This wealthy Oz tycoon likes things that give you a buzz. He started out on the path to fortune as a coffee farmer but really made himself known with the Rosemount Estates winery. In 2001 he sold off the entire kit and caboodle for cash and stock to Southcorp. He turned around in 2003 and flipped the stick to Foster's as a means to buy Hamilton Island. He has taken the cup in the Hobart-to-Sydney race 4 consecutive years with his yacht, Wild Oats. He keeps himself occupied with exporting his name-brand wines to the U.S.
#18 Angela Bennet & Michael Wright (Married with 7 children, age: 64, married with 3 children, age: 71)

Is this growing up?

I still like to listen to records. For years, I have had a British Belt Drive Turntable--a Linn Sondek LP12. When it worked, it sounded great, but it was extremely fussy, and repairs for it were astronomically expensive.

I now have a Technics 1200Mk2. I will stipulate that it does not sound as good as a Linn, but it sounds quite good to my aging ears--and it works all the time. So instead of spending time tweaking my turntable, I am spending time with family and friends--and actually listening to music.

Sunday, February 22, 2015

Labor's Newcastle Woes

In an earlier story I referred to the problems created for the ALP by the decision of three adjoining mayors in the lower Hunter to run as independents. In Newcastle itself, ALP problems were further compounded by the decision of the dumped ALP sitting member Bryce Gaudry to run again as an independent.

In a story next day on my personal blog looking at NSW as a whole, I said that my best election guess at that point was a hung parliament because of the independents.

I understand that polling shows a strong vote for Bryce Gaudry, a substantial vote for Mayor Tate, creating real problems for ALP candidate Jodi McKay. Definitely one to watch.

Principal Reduction or Interest Reduction?

A concern raised with the Obama housing plan is it focuses on payment reduction instead of principal reduction. But a payment reduction based on a cut in interest rates has a de facto impact on principal. While par remains the same, the present value of the remaining payments falls. For anyone who doesn't need to move, this has the effect of reducing the amount owed (the mortgage) relative to the amount owned (the house).

As for those who do have to move, they are still stuck with the par value of the mortgage. On the other hand, a lower interest rate allows for more rapid amortization. An 8 percent 30-year mortgage with a 100,000 balance amortizes by about $835 in its first year, while a 5 percent mortgage amortizes by $1475. Not a huge difference, but every little bit helps.

Property Market, Share Market, New Developments in Byron Bay

There has been a lot going on lately - shake down and confusion. During these times human emotion works like this - greed is the accelerator and fear is the break. Many people have been jumping from one pedal to other - or applying pressure to both at the same time - not good for the health of the vehicle.
Property Market:
Agents - can you trust them? - Some have been saying that it is still full tilt boogie and business is strong. I think this is an automatic default response. Some agree that the recent stock market melt down has slowed the property market a bit. Many people are just sitting on their hands and waiting for the dust to settle. The big question is will this market meltdown create the same rush to property that happened after the meltdowns in 87 and 2000.
Of course agents are predicting so but there are few indicators that may hinder that outcome - mainly interest rate fears and housing affordability. Yes property usually doubles in Australia every 9 years but there must be some constraints sometime around rental returns and the ability to purchase a house without a corresponding increase in incomes. At present it takes 7 times average annual income to buy an average Australian home - the highest ratio in the world. Can this keep increasing? Can rental returns keep going up to support the increasing costs of investment properties? Stay tuned for the next thrilling installment!
To put Oz house prices in perspective - the only country if a higher median house price than Australia which is $412,000 is the UK at $472,000. Compare it with other similar countries: Spain $369,000, France $293,000, US and Canada $324,000.

Saturday, February 21, 2015

Are Owner and Renter Housing treated equally under the federal tax code?

UC-Irvine, The MacArthur Foundation and the Rockefeller Foundation sponsored a conference this week on "Housing after the Fall."

The conference featured a number of interesting papers, but one of the most interesting conversations happened in the aftermath of Marge Turner and Denise DiPasquaule's talks on rental housing. They both pleaded for equal treatment of owner and renter housing (as did Stuart Gabriel the day before). But Bill Wheaton and John Weicher made provokative and possibly correct arguments about why the two house tenure are basically treated equally.

The biggest benefit of owner relative to renter housing is that imputed rent is not taxed. But as John points out, those who own their homes with equity are largely the elderly, many of whom have low cash incomes, which means that they have low marginal tax rates a so get small after tax benefits from owning. Both owners and landlords get to deduct interest and property taxes (although owners who pay the AMT cannot deduct property taxes). Landlords can deduct depreciation and maintenance; owners cannot. Landlords are probably in higher tax brackets than renters. Owners are (largely) exempt from capital gains taxes, but so are landlords, who can use like-kind exchanges to defer capital gains taxes forever.

Bill said he did a back of the envelope calculation that shows that the tax code treats the two tenure types about the same. The topic merits further research, but it may mean that those who think owner housing gets treated preferably may be wrong.

Property Valuations, Replacement Value And Equity Finance Mortgage

It is hard to gauge the mood of the moment. Some agents have mentioned that they are experiencing a short lull - possibly due to the election and the rate rise - while others are saying they have not stopped. Who knows - but my guess is that some people are waiting for the new year to make any big decisions.
Property Valuations
Last mail-out I said I was going to talk about property valuations. When property values start to rise a buyer needs to know that they are paying fair value for a purchase and not be taken in by what agents hype or what is known as "undue vender expectation". As you know an agent is expected to get for his client (the vender) the best possible price and will never tell a potential buyer that they are paying well over market value. That is the job of the buyers agent who is working solely for the buyer.
So - how is a property valued?
Mostly it is just an agreement between the listing agent and the seller on what they both think the property is worth. It is easier to value a normal suburban house in a busy neighborhood as you can go on previous sales of a similar nature. But when a property is unique or different, renovated or highly sought after then different rules may apply. An agent will be happy to come to your house and value it for free. However, (Shock! Horror!) it has been know that some agents may inflate their market valuations in order to get the business.

Friday, February 20, 2015

Testing Micky's Kaus' Election Hypothesis

I don't care much for Kaus' stuff, but he puts forward an interesting hypothesis: that every time Hillary Clinton does well in a primary, there is a backlash in the following primary, and that when she does badly, she generates sympathy and does better in the following primary.

I took her primary percentages each week since Iowa (using this handy dandy web site.)

The finding? There is a negative correlation of about .65 in her share of the primary vote from one date to the next.

Managing Risk In Property Development

Whether we realise it or not, managing risk is something we all deal with everyday. For example, the simple process of crossing a street involves a certain degree of risk which we manage without even blinking an eyelid. Imagine for a moment crossing a busy street without looking left and right, without gauging the direction and speed of traffic, and without gauging the distance of the street we are crossing. Thankfully most of us are very good at managing these everyday risks effectively.
But what about managing the risks of something as complex as a property development project? Well, whilst the risks are more numerous and greater in complexity there are still certain measures you can take to manage them effectively. Let's take a look at some of the more notable risks in performing a property development project and how you can manage them effectively.
Risk #1 - Not Having Enough Knowledge
By far and away the greatest risk in property development is the risk of undertaking a project with insufficient knowledge. I have seen it many times before where individuals undertake their first project with sugar coated expectations of how easy property development is only to find themselves in strife half way down the track because they were not willing to invest in knowledge. Many people will tell you that ignorance is bliss but when it is your money in the deal and your name as guarantor on the loan ignorance can be a very costly thing! So, how can you manage this risk and become more knowledgeable in property development? Well, there are three main options available to you.

Thursday, February 19, 2015

New England Australia blog - looking back

Creation of this blog has been a slow, slow, process.

I put up the first post on 8 April 2006, so the blog is coming up on its second anniversary. I must remember to celebrate when I get to that date!

Since 8 April 2006 I have put up 252 posts. That's a fair bit.

After all this time, I take a degree of satisfaction that the blog is slowly taking form. Traffic is still not high, but I do get a steady stream of visitors.

Where will I go from here? No idea at the moment beyond plugging away.

Top Ten Tax Depreciation Tips

Claiming depreciation on your property is one of the most important steps in an investor's journey. To take full advantage of the return on your investment property, here are the top ten ways to appreciate depreciation.
Tip 1: Maximise the cost of construction
When depreciating an investment property, the original construction cost must be used.
Many of our clients are now buying properties at dramatically reduced prices - nearer to the original building cost. So the tip is to make the most of the current market conditions and search for properties where the actual construction cost is close to the current purchase price.
By way of example, we had a client that bought a property in Sydney's western suburbs for $250,000 recently. It was a two-year old, two-bedroom unit. We were the quantity surveyors on the project - and I know the original construction cost for that unit was $175,000. But its purchase price - brand new was $335,000.
Guess what? We still use original construction cost as the basis for the incoming property investor. So not only has the new purchaser paid less stamp duty and increased their chance of a capital gain - their depreciation deduction relative to the purchase price has also increased.
So this property would be cash flow neutral at worse - cash flow positive at best.
Tip 2: Old properties depreciate too

Wednesday, February 18, 2015

Why an Interest Rate Freeze won't solve the Subprime Problem

I. Freezing interest rates on Adjustable Rate Mortgages would have little impact on the current mortgage crisis.

As I noted in a previous post, a recent paper by Federal Reserve Bank of Boston economists Kristopher Gerardi, Adam Hale Shapiro, and Paul S. Willen take a careful look at the characteristics of 2-28 ARM mortgages. Among its findings are that interest rate resets have little if anything to do with the large number of defaults we are observing. For the vast majority of subprime loans, defaults or refinances happen before resets take place. Moreover, the size of the resets is smaller than most of us think, because the initial teaser rates are pretty high. Also, because the Federal Reserve Board has cut interest rates so aggressively, reset rates will not be as high as people have feared.

The authors also note that while ARMs have higher default rates than FRMs, putting ARM borrowers into FRMs (which is what a freeze would effectively do) will not necessarily reduce defaults. The difference in default performance between the two instruments may reveal more about the borrowers than the instruments themselves. ARM borrowers by their very nature are more prone to risk-taking that FRM borrowers.

Finally, some of the most potentially explosive mortgage products, such as Option-ARMS, have negative amortization features—that is, borrowers actually accrue interest, so their mortgage balance rises each month for awhile. These features produce default incentives independent of changes in interest rates; an interest rate freeze will not help home borrowers who are under water because early payments did not pay for all interest due.

II. Freezing Rates on all Adjustable Rate Mortgages could reduce the availability of mortgage credit in the future.

Sometimes in the search to find the source of a tragedy, people try to settle on a villain. There have been lots of villains to go around in the sub-prime tragedy: unscrupulous brokers, speculative borrowers and lax rating agencies among them. But to the extent that investors in mortgages are villains, they are already being punished pretty severely, as they have taken on billions upon billions of dollars of losses.

It is therefore not surprising that investors—some of whom include the pension funds that provide the retirement incomes for schoolteachers and firefighters—are being frightened away from mortgages. The upshot is that the subprime market has nearly vanished for the time being, and mortgage credit more generally has become more expensive and scarce in high cost areas such as the coasts.

In light of this, policy responses that add to the perceived risk of investing in mortgages—including safe mortgages – would be counter-productive. A policy whereby the government freezes interest rates is a policy in which the government changes the terms of contracts, and thereby adds both to the perceived and real risk of investing in mortgages. This will make it harder and more expensive for borrowers to obtain mortgage credit, and could spill over to the point where it becomes more difficult for all entities in the US—including the U.S. Government—to borrow.

Other countries around the globe, such as India and Korea, have experimented with major government intervention in the enforcement of mortgage terms. These have produced stunted mortgage markets. We need to remember that the United States had until quite recently the most robust mortgage market in the world. We also need to remember that the adjustable rate mortgage saved the mortgage market in the 1980s, when macroeconomic conditions were unstable. Had it not been for the adjustable rate mortgage (along with investor confidence that those mortgage rates could reset with the market), housing conditions in the US in the 1980s would have been far worse.


Pause in Posts

I apologise for the gap in posts.

I have been tied up on a major project. Regular transmission will begin again later in the week.

Brad Delong (and I) on Robert Barro

Evidence, Logic, and Robert Barro

Hoisted from Comments: Richard Green writes:

Grasping Reality with Both Hands: Council on Foreign Relations Wingnut Watch: Benn Steil: I am glad that Barro's logic escaped you, as well. As I am not a macroeconomist, I figured that it was I who was dense. But it seemed to me that the facts presented in the article showed that even an enormous stimulus that burned a lot of resources (building tanks and ships that will be destroyed are kind of like bridges to nowhere, economically) had very little crowding out effect.

The context is Benn Steil's claim that Robert Barro's January 22, 2015 Wall Street Journal op-ed "provides logic and offers evidence" to support Steil's claim that the interest elasticity of money demand is zero and thus that the fiscal multiplier is zero too.

As I said before, the evidence that Barro presents suggests a multiplier for temporary government purchases not of Steil's zero but instead of 0.8:

Robert J. Barro: Government Spending Is No Free Lunch: Because it is not easy to separate movements in government purchases from overall business fluctuations, the best evidence comes from large changes in military purchases that are driven by shifts in war and peace. A particularly good experiment is the massive expansion of U.S. defense expenditures during World War II.... I have estimated that World War II raised U.S. defense expenditures by $540 billion (1996 dollars) per year at the peak in 1943-44, amounting to 44% of real GDP. I also estimated that the war raised real GDP by $430 billion per year in 1943-44. Thus, the multiplier was 0.8 (430/540).... We can consider similarly three other U.S. wartime experiences -- World War I, the Korean War, and the Vietnam War.... Combining the evidence with that of World War II (which gets a lot of the weight because the added government spending is so large in that case) yields an overall estimate of the multiplier of 0.8 -- the same value as before...

But it is the logic that most puzzles me. Barro writes:

The [Keynesian] theory... assumes that the government is better than the private market at marshaling idle resources.... Unemployed labor and capital can be utilized at essentially zero social cost, but the private market is somehow unable to figure any of this out. In other words, there is something wrong with the price system. John Maynard Keynes thought that the problem lay with wages and prices that were stuck at excessive levels. But this problem could be readily fixed by expansionary monetary policy, enough of which will mean that wages and prices do not have to fall. So, something deeper must be involved -- but economists have not come up with explanations, such as incomplete information, for multipliers above one...

If I read this paragraph correctly, Barro thinks (a) there are theoretical reasons to think that the fiscal multiplier cannot be greater than one, and (b) there are theoretical reasons for thinking that if you believe in positive fiscal multipliers you should also believe that expansionary monetary policy that raises the flow of nominal spending will also raise employment and production--which people do, for it is only when they fear that monetary policy is tapped out and cannot raise the flow of nominal spending any more that they fear that monetary policy may be ineffective.

So I don't understand how Barro gets to his very next sentence:

A much more plausible starting point is a multiplier of zero...

A good plan, except...

I just watched the President outline his mortgage plan. I think it has two of the three key elements necessary: it will get people's loan balance below the value of their houses, and it will reduce payments to a sustainable level. What is missing (or at least I think it is missing), is a clawback provision for those homeowners who get a subsidized loan and then profit on sale later. I think this is critical for fairness. But perhaps I have just not digested the details of the plan yet.

It was so refreshing to see a President explain things so well, though...

Is Now the Right Time to Buy a Home?

Your mother was right! Mothers like stability, and nothing says it more than owning your own home - it's the ticket to sitting at the big people's table and being treated as an adult. Talk to anyone over the age of forty - or most people in a suit - and they'll no doubt advise you: 'Buy a house as soon as you can, start paying it off, it's the best investment you can make.'
While it's true that if you plan on living under a roof for the next fifty or so years, it's probably a good idea to eventually buy a house, but the notion of 'buy a house as quickly as you can' is based more on emotion than logic. This is a weird aspect of the financial world - there seems to be an undertone of largely condescending advice that presupposes there is just one correct path, one correct action for everyone to follow.
Hey I'm not dissin' the great Australian dream, just merely highlighting that home ownership isn't solely a financial decision - it's an emotional one as well. Far better for me to discuss both sides of the home ownership coin and let you reach your own conclusion. Let's take a look at some of the advantages of owning your own home, followed by some of the disadvantages.
The up side

Tuesday, February 17, 2015

What is wrong with this picture?

I read the following in today's Slate about Clinton and Obama sending representatives to the AAAS meeting this year:

About 400 science researchers, policy wonks, and journalists packed into a meeting-room to see the surrogates duke it out. In the Clinton corner was Tom Kalil, a ruddy, thick-necked bureaucrat armed with a PowerPoint presentation and a full clip of obscure facts about academe. (Did you know that the average age for receiving your first NIH R01 grant is 41?) Representing Obama was Alec Ross, a smarmy and pandering thirtysomething in shirtsleeves. “I'm one of those guys who’s deeply moved by data,” he said, and then failed to adduce a single obscure fact about academe through the course of the session.


Let me say that I think either candidate would make a fine President, although personally I prefer Obama. I am glad that they at least sent representatives to talk to scientists (the other party's hostility to science is an important reason why I don't support it). But I looked up both Kalil and Ross--and neither of them is a scientist! JFK and LBJ used Jerome Wiesner, who would later become President of MIT, for science policy advice. It occurs to me that there are lots of articulate, policy-minded, honest-to-goodness scientists out there. It would be good to hear from them.

Joint University of Newcastle, University of New England medical program starts


Photo: the first intake of medical students at UNE in the joint program with the University of Newcastle.

The first students ever to embark on a medical degree program at the University of New England have begun their studies, Monday 18 February 2015.

The 62 students, including three from New Zealand, nine from inter-State, and many from rural areas, comprise the "pioneer" cohort in UNE's School of Rural Medicine. The new School is the UNE component of the Joint Medical Program, run in collaboration with the University of Newcastle (UN) and Hunter New England Health (HNEH). This is the program's first year of teaching, with 100 students enrolled at Newcastle as well as the 62 at UNE.

Early on the first day before teaching began, the students were welcomed to the program by Professor John Fraser (Head of the School of Rural Medicine at UNE), Professor Alan Pettigrew (Vice-Chancellor of UNE), Professor Victor Minichiello (Pro Vice-Chancellor and Dean of the Faculty of the Professions at UNE), Professor Michael Hensley from the University of Newcastle (Dean of Medicine – Joint Medical Program), and Dr Nigel Lyons (Chief Executive of HNEH).

All the speakers emphasised the importance of the Joint Medical Program for the future recruitment and retention of medical practitioners in northern NSW (as well as other non-metropolitan regions), and its significance as the first collaborative venture of its kind in Australia.

"It's been very much a team effort," Professor Fraser said.

They also emphasised the scale of the achievement in turning what was a mere concept only two years ago into a reality, and thanked everyone involved. Professor Pettigrew remarked on the prevailing "sense of achievement" among the staff and "sense of excitement" among the students.

Professor Hensley thanked the students for "embarking on this career from which the community expects such a lot", and encouraged them to go on and "graduate at the end of 2015 as outstanding doctors".

He pointed out that, under the system of "problem-based learning" that UN had developed for its medical degree course more than three decades ago and now shared with UNE, students were required "to be doctors from day one". This teaching method requires students, working in teams of eight, to analyse and solve problems presented to them by a tutor. Dr Lyons, who was among the fourth intake of medical students at UN, told the students that "problem-based learning" would give them "skills that will last for life".

The students themselves were unanimous in their enthusiasm for the program. Daniel Tilley from Foster in Victoria and Emily Lewis from Adelaide were typical of many in welcoming this opportunity to train for medical practice in a rural area. They were also excited about what lay before them over the next five years. "We've got this brand new, amazing anatomy lab," Emily said, "and I'm excited about going there later today."

Sources:

What Opportunities Are There For Me?

I could have easily ignored the old man but something inside me felt that I just couldn't. And what a difference it has made to my life.
It all started around Feb 05 on a Friday night when I had stayed back with my work colleagues for a few drinks and caught the train from Circular Quay to Miranda.
When I sat down on the train and got settled for my 45min ride home I pulled out of my bag the real estate magazine from my local area which comes every Tuesday. My parents always pressured me saying "save your money and buy property" over and over again and as history shows they are right. I mean my parents bought a house in 1979 for around the $40K. It was just a 3 bedroom fibro house with a garage. In 2005 it was valued at $650K-$700K and you hear these kind of figures everywhere. I had enough money for a deposit and I guess the reason for this is because I still lived at home.
Anyway I was flicking through the magazine when this old skinny man with a mustache who was sitting behind me says "Are you interested in property young man". I turned to him and replied "yes. I'm looking at buying my first property this year". He replied "good for you" and sat back and smiled. Anyway we get to the next stop (Redfern) and almost everyone got out of the carriage accept me and the old man. I turned to the old man and ask him, "What are thought's on buying property?" and he replies with a big smile "In Australia only or around the world". I hate a question with a question but I answered with amazement of the overseas comment as I didn't know you could buy property overseas and why would you. I mean who could you trust. It just seems risky. I could have easily got out of my seat right there and then and changed carriages and never see this guy again, but this smile had more to say. I could see it and feel he had something he wanted to say but wanted to be asked.

Monday, February 16, 2015

Gary Kamiya says the Newspaper Business Model won't work anymore

I have said something like this too, but I think he says it better:

But the real problem isn't that newspapers may be doomed. I would be severely disheartened if I was forced to abandon my morning ritual of sitting on my deck with a coffee and the papers, but I would no doubt get used to burning out my retinas over the screen an hour earlier than usual. As Nation columnist Eric Alterman recently argued, the real problem isn't the impending death of newspapers, but the impending death of news -- at least news as we know it.

....

If newspapers die, so does reporting. That's because the majority of reporting originates at newspapers. Online journalism is essentially parasitic. Like most TV news, it derives or follows up on stories that first appeared in print. Former Los Angeles Times editor John Carroll has estimated that 80 percent of all online news originates in print. As a longtime editor of an online journal who has taken part in hundreds of editorial meetings in which story ideas are generated from pieces that appeared in print, that figure strikes me as low.

There's no reason to believe this is going to change. Currently there is no business model that makes online reporting financially viable. From a business perspective, reporting is a loser. There are good financial reasons why the biggest content-driven Web business success story of the last few years, the Huffington Post, does very little original reporting. Reported pieces take a lot of time, cost a lot of money, require specialized skills and don't usually generate as much traffic as an Op-Ed screed, preferably by a celebrity. It takes a facile writer an hour to write an 800-word rant. Very seldom can the best daily reporters and editors produce copy that fast.


I have one little suggestion for those who want papers to survive. When you are on their website, if you see an ad for anything that remotely interests you, click on it. It is not much, and almost certainly not enough, but it at least will show advertisers that you are reading the site.

Fannie and Freddie must be making large profits on their new business

According to Ken Harney, even if borrowers have a 20 percent down payment, if their FICO score is less than 740, they will pay hefty fees to obtain a Fannie Freddie mortgage. Given how far prices have already fallen, and given that borrowers are required to have a lot of their own money at risk, it is hard to see how the GSEs will lose on these loans, while at the same time they will collect a lot of money in fees.

Of course, they have lots of losses to make up for, so new borrowers are being charged for the mistakes of old management. But this seems neither forward looking nor productive to me.

Environmental Regulation can Leave the Economy Better off (h/t Elizabeth Vivian)

From the EPA:

The direct benefits of the Clean Air Act from 1970 to 1990 include reduced incidence of a number of adverse human health effects, improvements in visibility, and avoided damage to agricultural crops. Based on the assumptions employed, the estimated economic value of these benefits ranges from $5.6 to $49.4 trillion, in 1990 dollars, with a mean, or central tendency estimate, of $22.2 trillion. These estimates do not include a number of other potentially important benefits which could not be readily quantified, such as ecosystem changes and air toxics-related human health effects. The estimates are based on the assumption that correlations between increased air pollution exposures and adverse health outcomes found by epidemiological studies indicate causal relationships between the pollutant exposures and the adverse health effects.

The direct costs of implementing the Clean Air Act from 1970 to 1990, including annual compliance expenditures in the private sector and program implementation costs in the public sector, totaled $523 billion in 1990 dollars. This point estimate of direct costs does not reflect several potentially important uncertainties, such as the degree of accuracy of private sector cost survey results, that could not be readily quantified. The estimate also does not include several potentially important indirect costs which could not be readily quantified, such as the possible adverse effects of Clean Air Act implementation on capital formation and technological innovation.

One of the foundations of Meg Whitman's gubernatorial campaign is the gutting of California's environmental laws. Anyone who remembers what LA was like before the Clean Air Act will have to wonder whether this is a good idea.

It should have been Lincoln Institute of Land Policy

And I should have known better...

Airline Mergers and Urban Dynamics

Apparently there is a very good chance that Delta and Northwest will merge. Delta's three domestic hubs are in Atlanta, Cincinnati and Salt Lake City; Northwest's are in Minneapolis, Detroit and Memphis.

The distance between Atlanta and Memphis is only 380 miles. It is hard to see both hubs survive: Pittsburgh couldn't survive as a hub given its proximity to Philadelphia for US Airways (even though Allegheny, US Airway's predecessor) was originally a Pittsburgh company)and St. Louis couldn't survive as a hub after TWA's merger into American given its proximity to Chicago. Jan Brueckner and I have done separate papers showing that this is very bad news indeed for Memphis. My paper, moreover, shows that air cargo has little impact on local economic development, so the presence of FedEx at Memphis won't do much to soften the blow of a likely dehubbing there.

Old Fishermen Never Die - Marketing Techniques That Work

Spend time in a boat with a fisherman and you are bound to get some advice. I've spent some time on the Manning, Hastings, Clarence and Richmond Rivers over the years - and some of the advice the old fishermen along the New South Wales coast dispense can easily be applied to the real estate business. 
They've got a lot to say about life, or business, or the universe, when they're telling you about fishing.

Fishing is a recreational pursuit for many Australians. It is the largest participation sport in the country.
My Dad loves fishing and he's passed that on. He knows a bit about it, and has dispensed his own advice about how to catch particular fish over the years. He used to beach fish, but doesn't any more. He would rarely go "black fishing" when we were kids - but likes to now. We used to go fishing on the river bank - but now he's got a boat. He likes to catch flathead, whiting and bream, but won't eat them.
He knows what bait to use; where to get the bait (live or not); and knows where the "fish are biting" (even if they're not, he reckons he does!).
Applying the same principles to the real estate game, a good fisherman can catch whatever they are fishing for. If they have the skills (or know where to get them); if they can apply the knowledge; if they have the right gear (or know where to get it); then it's likely they'll eat a hearty meal of good sized fish - as regularly as they like!
The parallels are yours to draw. See how the lessons of fishermen apply to the real estate industry.
"There's a fine line between fishing and just standing on the shore like an idiot". 

Sunday, February 15, 2015

An Update on my Sunk Cost Paper with Rosenblatt and Yao

In the earlier version, we found that Loan-to-Value at origination predicted default probability, even after controlling for market-to-market (i.e., contemporaneous) LTV. We now find that the results are robust to whether we look at LTV at origination, dollar amount of the down-payment, or down-payment relative to income. This is consistent with prospect theory--borrowers show aversion to [realizing the loss] on their down-payments, even when walking away seems to make sense financially.

The paper is on SSRN.

[Thanks to Tstockmann for more correct wording on prospect theory].

The Trouble with Washington

I was back at GW the last few days for a conference the George Washington Institute for Public Policy put on with the Lincoln Institute for Land Policy on Local Government Autonomy in the United States.

Overall, it was a great event. I was priveleged to discuss a Bill Fischel paper (Bill knows more about property taxes than just about anyone), and the quality of the discussion was excellent. But when people asked me whether I missed Washington, I had to say "no," but I couldn't quite put my finger on why. Washington is a beautiful city, with wonderful cultural amenities. It is diverse, it has many people there I like very much (and whom I do miss), and I got to read while riding Metro to work in the morning, afther which I would have a pleasant walk from Dupont Circle to Foggy Bottom.

I then came across the following quotes on mydd (h/t to atrios) this morning:

"It's eerie -- I read the news from the Beltway, and there's this disconnect with the polls from the Midwest that I see all around me," said Ann Seltzer, the authoritative Iowa pollster who works throughout the Midwest.

[...]

"I don't think he's lost anything in terms of overall job approval or favorability," said Andy Smith, a pollster at the University of New Hampshire. "That's just the a perception inside the Beltway that everybody outside Washington pays attention to politics and eats and lives politics the way you guys do down there."


I think these quites sum up the trouble with Washington quite well. It is a city full of self-important naval gazers. The biggest difference between DC and LA is that the first question you get asked in DC is "what's your title," while the first question you get asked in LA (outside of Hollywood, anyway) is "how bad was the traffic on your drive here?"




http://mydd.com/story/2015/2/14/1597/39888