economy | Ashworth Partners

Apartment building investments good for the ‘Age of Deleveraging’ Says author Gary Shilling.

Apartment building investments are a top choice according to Gary Shilling, one of the world’s foremost economic forecasters, a long-time Forbes columnist, publisher of Insight Newsletter with his editor Fred Rossi, and author of “The Age of Deleveraging,” (http://amzn.to/L9hm7W on Amazon) the perfect playbook for America’s new Age of Austerity.

Quoted in the Market Watch post:

Rental apartments. A huge inventory still overhangs the housing market as prices continue falling. The American dream of homeownership may be history. Renting is the affordable option. And with REIT prices running high, “direct ownership of rental apartments may still be attractive.”

See the whole post for more ideas for investing in these turbulent times.

European debt-crisis issues are lessons for the US. We’re just a few years behind them and if we pay attention…

European debt-crisis issues are lessons for the US. They belong in the political debate. Both political parties are responsible for our growing debt issues. Bush ran up huge deficits. Obama continued them. Each party blames the other. See the whole post here: Back from Paris

Especially pay attention to item #4. that begins: Private holders of Greek debt had several years to get out…

Yet Another Government Debt Crisis

For extra credit from ‘The Only Thing New In History’ department: Yet another sovereign debt crisis If that link no longer works use this one to see the PDF.

The bullet points:

Having believed the myth that governments don’t default, many banks and investors will take huge losses in Europe’s sovereign debt crisis.
The historical regularity of government defaults—more than 250 have occurred since 1800*—gives the lie to the notion that holding sovereign debt is “risk-free.”
The sovereign debt crisis of post–World War I Europe provides highly relevant lessons for today.

*Referencing Rogoff & Reinhart’s work in “This Time Is Different”. See ‘Whodunit’ in the column to the right for this essential book.

A new (and simple to understand) economic model that actually works- Via Bridgewater Associates

Three related research pieces from the guy about whom former Fed Chairman Paul Volcker said had a degree of detail that is “mind-blowing” and admits to feeling sometimes that “he has a bigger staff, and produces more relevant statistics and analyses, than the Federal Reserve.”- The Economist

A Template for Understanding…

…How the Economic Machine Works and How it is Reflected Now

Ray Dalio | October 2008 (Updated March 2012): The economy is like a machine. At the most fundamental level it is a relatively simple machine, yet it is not well understood. I wrote this paper to describe how I believe it works. My description is not the same as conventional economists’ descriptions so you should decide for yourself whether or not what I’m saying makes sense. I will start with the simple things and build up, so please bear with me. I believe that you will be able to understand and assess my description if we patiently go through it.

An In-Depth Look at Deleveragings

Ray Dalio | February, 2012: The purpose of this paper is to show the compositions of past deleveragings and, through this process, to convey in-depth, how the deleveraging process works.

Why Countries Succeed and Fail Economically

Ray Dalio | June, 2011: This study looks at how different countries’ shares of the world economy have changed and why these changes have occurred, with a particular emphasis on the period since 1820. As explained in this study, the rises and declines in countries’ shares of the world economy occur as a result of very long-term cycles that are not apparent to observers who look at economic conditions from a close-up perspective.

Bad Economic Theory caused the financial collapse along with greed, corruption and leverage says new book

Last week in Economists Prove Einstein’s Theory About Repeating Behavior And Expecting Different Results I was talking about how mainstream economists have earned their dismal reputation because I’ve been searching for a better model of how the economy actually works. Now a new book explains just how the current mainstream economic theory of ‘Rational Expectations’ not only is wrong but in fact is one of the leading causes of the financial collapse. Better yet the author explains why the new economic model which is based on game theory is better for understanding the financial world but additionally offers a way to avoid future collapses.

I have read in numerous places recently about how the profession of economics has failed to deliver real benefits because the mainstream theory is built on the wrong assumptions. I and I’m sure you also have experienced the downside of this but these pieces until now have only been able to point out the problem not the solution which would be a new model of the economy and what it would teach us to do differently. Well now we have a better model and what needs to be done to move Continue reading Bad Economic Theory caused the financial collapse along with greed, corruption and leverage says new book

Economists Prove Einstein’s Theory About Repeating Behavior And Expecting Different Results.

Mainstream economic theory (MsET) has two fundamental tenets that most thoughtful people (even economists) realize are wrong and yet economic decisions and importantly even Fed policy is still based on this flawed model. We know what Einstein said this defines and it’s true.

Problem #1 is the Efficient Market Theory (EMT) or Theory of Rational Expectations says that economic information is widely distributed and that we as individuals and collectively as a market of decision makers and consumers consistently make our choices based on what will give us the most benefit. This has been scientifically proven to be not the case way more often than we like to think. For more on this see “Predictably Irrational” by Dan Ariely and “Thinking, Fast and Slow” by Kahneman in the ‘On Our eReaders Now’ box in the far right column of this page.

The second problem is that MsET is built on the idea that the economy tends to be stable and that dislocations are temporary and tend to correct themselves back to stability somewhat like a train running down the tracks that gets thrown off from time to time. History teaches us that is not the case either. Most often we are moving away from or back towards stability and occasionally pass through stability but typically overshoot. It doesn’t take much imagination to see how these two errors cause problems for economists (and us) and leads to a dismal reputation for them.

I’ve been reading a lot on economics lately searching for a new improved model and have just found a number of articles that tackle those issues. They are lengthy but well worth the reads. The first two were posted by John Mauldin in his ‘Outside The Box’ (OTB) series where others write about and discuss their sometimes opposing views from John’s. Mauldin will begin each piece with an intro about the author and where he might differ from that point of view. His guests are typically people who deal at the highest levels and their insights are Continue reading Economists Prove Einstein’s Theory About Repeating Behavior And Expecting Different Results.

Multifamily Buildings to Lead U.S. Construction Gains-

Feb. 13 (Bloomberg) — Construction of multifamily units will lead the U.S. building industry again this year, allowing housing to contribute to growth for the first time in seven years, according to economists Michelle Meyer and Celia Chen.

Work will begin on about 260k apartment buildings and townhouse developments in 2012, up 45% from last year and the most since ’08, according to Meyer, a senior economist at Bank of America Corp. in New York. Chen, an economist at Moody’s projects a record 74% jump to 310k.

Homeownership rates, which have declined to the lowest levels since ’98, may keep dropping as the foreclosure crisis turns more Americans into renters. In addition, household formation will probably accelerate as an improving economy and growing employment embolden more people to stop sharing residences and strike out on their own.

“Given the ongoing shift from owning to renting, there is increasing demand for multifamily construction,” Meyer said in an interview. See the whole Bloomberg piece here: Foreclosures are transitioning people out of ownership

Why it’s good news that more Americans are renting rather than buying homes. Via Slate. Good for #Multifamily

Exec Sum:

The American economy is making a significant shift from buying to renting, and that may ultimately be good news. According to a USA Today analysis of Census data released this weekend, since 2006, the number of households that rent has grown by about 700,000 a year, while the number of households that own has fallen by about 200,000 a year.

[R]enting is better than owning for many Americans. Indeed, dozens of recent studies have shown that, excepting the go-go bubble years, houses tend not to make very good investments at all: A prospective homebuyer would have made more money taking her down payment, parking it in inflation-adjusted Treasury bonds, and renting.

But it is conclusive: Not everyone should own a home. The recession has helped erode the stigma against renting, with about 70 percent of Americans now admitting that it has advantages over buying a house. If people are making unsentimental decisions about whether homeownership is really worth it for them, that is at least one small benefit of the housing bubble bursting.

See the whole article with links to reports and surveys here: The Rent Isn’t Too Damn High

Is a Gold Standard the Answer to Our Monetary Crack-Up?

My brother Tom shared an article from the Cato Institute entitled: “Why Gold-Defined Money Is the Answer to Our Monetary Crack-Up”.

I agree with the writer in theory but as Yogi Berra said: In theory, there is no difference between theory and practice. In practice, there is. A couple points:

With a fixed currency like a gold standard innovation and value creation that grows the economy will be constrained and what growth does occur will cause prices to fall, hurting the producers of goods and limiting real returns to their investors. There has to be some mechanism to grow money supply at the approximate rate of real growth in the economy.

The real problems we’re facing around the world are from excess leverage and at the end of every debt binge the unwinding happens in three ways. Debt creation can be reduced and austerity can be imposed to make room for Continue reading Is a Gold Standard the Answer to Our Monetary Crack-Up?

Leading Indicators and the Risk of a Blindside Recession. In-depth on economic indicators from John Hussman

Over the past few weeks, investors used to setting their economic expectations based on a “stream of anecdotes” approach have seen their economic views evolve roughly as follows:

“After a brief ‘scare’ during the third quarter, economic reports have come in better than expectations for weeks – a sign that the economy is on a gradual but predictable growth path; Purchasing managers reports out of China and Europe have firmed, and the U.S. Purchasing Managers Indices have advanced, albeit in the low 50’s, but confirming a favorable positive trend, and indicating that the U.S. is strong enough to pull the global economy back to a growth path, or at least sidestep any downturn…”

“Unfortunately, in all of these cases, the inference being drawn from these data points is not supported by the data set of economic evidence that is presently available, which is instead historically associated with a much more difficult outcome. Specifically, the data set continues to imply a nearly immediate global economic downturn… Frankly, I’ll be surprised if the U.S. gets through the first quarter without a downturn.” (Underlining mine)

Definitely worth a careful read: http://bit.ly/ArTDyK John Hussman is a value investor and a serious student of the economy, we may not always agree with him but we should not dismiss his research.

Is the credit crisis the disease or the symptom?

I am running a friend’s campaign for city council so I’ve been talking to a lot of people the last few months. Most of the conversations have been about our home town of Bellevue WA and the local issues the city is facing but I’ve also had a number of conversations about the economy, real estate and the credit markets. The majority of the people, many of whom are developers, property/asset managers or owners, are searching for the turn in the cycle and are looking forward to the opportunities that will arise when things return to normal.

I too am looking forward to the upswing in the real estate cycle but I’m not sure that back to ‘normal’ is where we headed. I believe for the last two decades we have been and are living in the ultimate payoff of the Marshall Plan and its siblings. We have successfully avoided a third world war by creating market based economies where enemies might have arisen. This is an entirely positive outcome and surprising to me, a child of the cold war era. Continue reading Is the credit crisis the disease or the symptom?