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Bike lanes are not about bikes
6 minutes ago
Friday, October 31, 2008
Thursday, October 30, 2008
Radiohead still sucks
For the benefit of all those readers who have taken the time to try and
post such thoughtful comments:
post such thoughtful comments:
Radiohead is, was, and will remain a putrid vomit pile of dissonant
moaning and heroin-induced ambient noise. We can only hope that very soon
a janitor comes along and buries them beneath a crumbling pile of sawdust
and kitty litter, noting their passing through the music scene only with a
sign reading "Biohazard".
Wednesday, October 29, 2008
Inching towards Civilization
Ok, the title of the post is perhaps a little misleading. But we are now a
few weeks into Madeline being potty trained (during daylight hours, at
least). She could hold it, but had been struggling with the whole "Oh
wait, I think I'm about to pee all over myself. Perhaps I should do
something about that..." aspect of the process.
few weeks into Madeline being potty trained (during daylight hours, at
least). She could hold it, but had been struggling with the whole "Oh
wait, I think I'm about to pee all over myself. Perhaps I should do
something about that..." aspect of the process.
Now she's got her brain re-wired (no doubt thanks to the M&M's she gets
for each "major incident" on the potty) and we're down to only using
Pull-ups for her at night and during naps.
The other day, in fact, I forgot to put her in the Pull-up during her nap.
She got herself up, got one, put it on, and went back to her nap.
I guess sometimes her insistence on acting twice (four times?) her age
isn't so bad.
Tuesday, October 28, 2008
Hockey, Hockey, Hockey!
So it's been a long, hot summer/fall (it's Houston), but hockey is finally
back in swing. I'm at my office right now listening to a Caps game (so sue
me, they were the only internet feed I could find). Just checked out
USCHO.com to see the latest rankings for the college teams. Michigan is
holding at number 8 this week after a tough visit to Boston, where they
got smoked. It's alright, things like this happen early in the season.
back in swing. I'm at my office right now listening to a Caps game (so sue
me, they were the only internet feed I could find). Just checked out
USCHO.com to see the latest rankings for the college teams. Michigan is
holding at number 8 this week after a tough visit to Boston, where they
got smoked. It's alright, things like this happen early in the season.
Our favorite freshman from last year, Louie Caporusso, has 5 goals in the
first six games. Palushaj, Hagelin, and Rust, also sophomores, are 1,2,3
in scoring. But honestly, we all know that this year hinges on the ability
of Billy Sauer to keep it together when it matters. Hogan (another
sophomore) already has 3 wins, so maybe Red is hedging his bets.
By the way, did anyone notice if the Michigan football team was still
playing? Someone told me they lost to Toledo, but I'm pretty sure they
must have meant the field hockey team.
Ugh.
Thursday, October 23, 2008
Denmark
Kirstin and I got back last weekend from our junket to Copenhagen, where I was giving a talk. Grandma watched the girls and we explored Scandanavia when I wasn't "working". Here are the impressions of Denmark and Sweden:
- An almost movie-set quality to Copenhagen. Exactly what you think of as "European", 5-6 story old stone buildings lining twisty streets and surrounding open squares filled with outdoor cafes. The only drag is that almost all the storefronts look like places I could visit in the U.S. at a nice mall.
- In the main square they had set up a number of large tables, piled with white Lego pieces. People just wandered by and built towers, houses, etc. at all hours. It must be in their blood.
- The canal tour was exceptional, a great way to see the city (and the little Mermaid statue without being hassled by other tourists), and Kirstin and I were able to give our poor American feet a break.
- We established that there is a physical limit to the number of pieces of art I am capable of looking at.
- The food is good, and the best part is that most places go with a "Tapas" like approach. Lots of little portions of different items. That makes for more fun eating, and you aren't stuck with something you don't like. Especially when food has names like Smoorgenbroodenhvok.
- Any country that fries pork with the skin on is alright with me.
- Surprisingly, the coffee in Denmark blows.
- People are very friendly, and they all speak perfect English. Which reminds you what a rube you are for not sticking with the language that you learned in high school (which was 6 years too late, anyway).
- When we lived in Chicago, I remember how every nice day in the spring thousands of pasty-white people would evacuate their apartments and head outside. In Copenhagen, there is a similar phenomenon. Regardless of the actual temperature, if the sun is out so are the Danes. Most cafes have stand-up heaters and blankets available for each table. But if you can see the sun, then the cafes are packed.
- Staying for 6 days is precisely the *wrong* amount of time to be in Europe. Just when we got used to the time zone, we left.
- If you thought Bush's approval rating was low in the U.S., you should see Europe.
- You could improve the opinion of the U.S. in Europe solely by shutting down MTV.
- Despite sounding terrible, the curried pickled herring was actually kind of good. The Danes love a good pickling.
- Bikes, bikes, bikes. Everywhere bikes.
- Disappointingly, the Lego factory/hometown is in Billund, about 3 hours from Copenhagen by train
- By the way, I forgot how much I love travelling by train. It really is so much better than any other alternative.
I'm sure there are a million other things I've forgotten already about the trip, but overall it was an A+. We'd happily go back through Copenhagen, and I'd suggest it as a non-obvious place to visit if you're in Europe.
- An almost movie-set quality to Copenhagen. Exactly what you think of as "European", 5-6 story old stone buildings lining twisty streets and surrounding open squares filled with outdoor cafes. The only drag is that almost all the storefronts look like places I could visit in the U.S. at a nice mall.
- In the main square they had set up a number of large tables, piled with white Lego pieces. People just wandered by and built towers, houses, etc. at all hours. It must be in their blood.
- The canal tour was exceptional, a great way to see the city (and the little Mermaid statue without being hassled by other tourists), and Kirstin and I were able to give our poor American feet a break.
- We established that there is a physical limit to the number of pieces of art I am capable of looking at.
- The food is good, and the best part is that most places go with a "Tapas" like approach. Lots of little portions of different items. That makes for more fun eating, and you aren't stuck with something you don't like. Especially when food has names like Smoorgenbroodenhvok.
- Any country that fries pork with the skin on is alright with me.
- Surprisingly, the coffee in Denmark blows.
- People are very friendly, and they all speak perfect English. Which reminds you what a rube you are for not sticking with the language that you learned in high school (which was 6 years too late, anyway).
- When we lived in Chicago, I remember how every nice day in the spring thousands of pasty-white people would evacuate their apartments and head outside. In Copenhagen, there is a similar phenomenon. Regardless of the actual temperature, if the sun is out so are the Danes. Most cafes have stand-up heaters and blankets available for each table. But if you can see the sun, then the cafes are packed.
- Staying for 6 days is precisely the *wrong* amount of time to be in Europe. Just when we got used to the time zone, we left.
- If you thought Bush's approval rating was low in the U.S., you should see Europe.
- You could improve the opinion of the U.S. in Europe solely by shutting down MTV.
- Despite sounding terrible, the curried pickled herring was actually kind of good. The Danes love a good pickling.
- Bikes, bikes, bikes. Everywhere bikes.
- Disappointingly, the Lego factory/hometown is in Billund, about 3 hours from Copenhagen by train
- By the way, I forgot how much I love travelling by train. It really is so much better than any other alternative.
I'm sure there are a million other things I've forgotten already about the trip, but overall it was an A+. We'd happily go back through Copenhagen, and I'd suggest it as a non-obvious place to visit if you're in Europe.
Why I like Houston
Here's the weather forecast for the next few days:
Friday: 79/51 (10% chance of rain)
Sat: 81/56 (10%)
Sun: 83/57 (10%)
Mon: 75/46 (20%)
Tue: 72/46 (0%)
Wed: 74/53 (10%)
Not too shabby for late October.
Friday: 79/51 (10% chance of rain)
Sat: 81/56 (10%)
Sun: 83/57 (10%)
Mon: 75/46 (20%)
Tue: 72/46 (0%)
Wed: 74/53 (10%)
Not too shabby for late October.
Thursday, October 9, 2008
Stop with the Depression talk
Enough. Yes, financial markets are in turmoil, and your 401(k) is losing value daily. Yes, we are likely already in a recession and growth will likely be very slow next year. Yes, the unemployment rate is going to go up.
But stop listening to people who tell you this is the next Great Depression. During the Great Depression, real GNP fell by 30% in just four years. Year by year, here is GNP growth during the start of the actual Great Depression
1930: -9.9%
1931: -7.6%
1932: -14.7%
1933: -2.1%
We are close to the end of 2008, and estimates of total growth for the year are somewhere around.....+1.6%. That is, our economy will still have grown over 2008. Most of that was early in the year, yes, but it is still almost certain that our economy will be larger on 12/31/2008 than it was on 12/31/2007.
The IMF has issued an estimate of growth in the U.S. next year of +0.6-0.8%. Very slow, very low, but growth. Let's even assume that the IMF is wrong, and the U.S. economy shrinks in the year 2009 by 1%. That is still not even remotely close to what happened in the Great Depression.
What about the Great Depression was so awful from the perspective of the common person? I'd suggest the following three items
1) Unemployment rates of up to 25% (in 1933) mean that people either couldn't find jobs, or had no leverage to get raises or improve their situation at work
2) Bank failures wiped out all of peoples savings
3) Deflation (falling prices) made the real cost of mortgages and loans much higher. (e.g. your wages are falling because prices are falling, but your mortgage payment is fixed)
So does the current situation pose any of these problems?
1) Unemployment: yes, the unemployment rate will go up, and that sucks for the lots of people who will be out of jobs, and sucks for everyone else who then has to forego raises. This will be harmful, but even if unemployment doubles from its current rate (6.1%) we will still only be halfway to the dire situation of the Depression.
2) Bank failures: yes, banks are failing, but your savings are not being wiped out. You have FDIC insurance, so your money will be returned to you if your bank goes under. Remember that in the 1930's, people didn't have 401(k)'s and IRAs and brokerage accounts - ALL of their savings was likely in their bank. When their bank went under, they lost EVERYTHING. This will not happen to you. (And yes, your 401(k) is going down, but remember that you still own the shares, so when share prices recover you'll benefit. You are also still paying into your 401(k), meaning that you are buying up shares on the cheap these days, meaning that your gains will be very large. So stop whining.)
3) Deflation: not happening. If anything, we're still worried about too much inflation. If all prices are going up (and this includes wages, remember) then over time your mortgage payment becomes a smaller and smaller part of your monthly paycheck. You are not going to have to default on your mortgage just because your paycheck is shrinking. (And by the way, I know you think that you get raises on a regular basis because you're a hard worker and a people person, but some of your raise is simply the general drift upwards in prices over time. Sorry. I'm sure you're quite good at what you do.)
So when you hear people shout "It's the next Great Depression!", please just tell them to shut up. It is not. Could it be the worst recession since 1980-82? Maybe. That is not a generation-shattering event.
1934: +9.2%
1935: +9.7%
1936: +14.2%
1937: +5.2%
1938: -5.4%
1939: +8.9%
1940: +8.6%
But stop listening to people who tell you this is the next Great Depression. During the Great Depression, real GNP fell by 30% in just four years. Year by year, here is GNP growth during the start of the actual Great Depression
1930: -9.9%
1931: -7.6%
1932: -14.7%
1933: -2.1%
We are close to the end of 2008, and estimates of total growth for the year are somewhere around.....+1.6%. That is, our economy will still have grown over 2008. Most of that was early in the year, yes, but it is still almost certain that our economy will be larger on 12/31/2008 than it was on 12/31/2007.
The IMF has issued an estimate of growth in the U.S. next year of +0.6-0.8%. Very slow, very low, but growth. Let's even assume that the IMF is wrong, and the U.S. economy shrinks in the year 2009 by 1%. That is still not even remotely close to what happened in the Great Depression.
What about the Great Depression was so awful from the perspective of the common person? I'd suggest the following three items
1) Unemployment rates of up to 25% (in 1933) mean that people either couldn't find jobs, or had no leverage to get raises or improve their situation at work
2) Bank failures wiped out all of peoples savings
3) Deflation (falling prices) made the real cost of mortgages and loans much higher. (e.g. your wages are falling because prices are falling, but your mortgage payment is fixed)
So does the current situation pose any of these problems?
1) Unemployment: yes, the unemployment rate will go up, and that sucks for the lots of people who will be out of jobs, and sucks for everyone else who then has to forego raises. This will be harmful, but even if unemployment doubles from its current rate (6.1%) we will still only be halfway to the dire situation of the Depression.
2) Bank failures: yes, banks are failing, but your savings are not being wiped out. You have FDIC insurance, so your money will be returned to you if your bank goes under. Remember that in the 1930's, people didn't have 401(k)'s and IRAs and brokerage accounts - ALL of their savings was likely in their bank. When their bank went under, they lost EVERYTHING. This will not happen to you. (And yes, your 401(k) is going down, but remember that you still own the shares, so when share prices recover you'll benefit. You are also still paying into your 401(k), meaning that you are buying up shares on the cheap these days, meaning that your gains will be very large. So stop whining.)
3) Deflation: not happening. If anything, we're still worried about too much inflation. If all prices are going up (and this includes wages, remember) then over time your mortgage payment becomes a smaller and smaller part of your monthly paycheck. You are not going to have to default on your mortgage just because your paycheck is shrinking. (And by the way, I know you think that you get raises on a regular basis because you're a hard worker and a people person, but some of your raise is simply the general drift upwards in prices over time. Sorry. I'm sure you're quite good at what you do.)
So when you hear people shout "It's the next Great Depression!", please just tell them to shut up. It is not. Could it be the worst recession since 1980-82? Maybe. That is not a generation-shattering event.
1934: +9.2%
1935: +9.7%
1936: +14.2%
1937: +5.2%
1938: -5.4%
1939: +8.9%
1940: +8.6%
Tuesday, October 7, 2008
Tiny (or huge) bubbles
The financial markets continue to be panicky, waiting for another shoe to drop. I saw something by Nick Rowe of Carleton University on how we got into this whole crisis in the first place, the emergence of the housing "bubble". How did we get into a situation where a) house prices were going up dramatically and b) then not only stopped going up, but collapsed? (Said collapse triggering defaults and destroying much of the value of many mortgage-backed securities, which in turn generated much of the current mess.)
Nothing particularly dramatic happened in August 2007, the point at which this all started to go south. So how come home prices collapsed and defaults started to go up?
Let's start with how you would value a hosue, if you were going to sell it one year later. You'd set the price today according to the following:
P(Today) = Annual Rent + P(Year Later)/(1+r)
The price today is equal to what you'd earn by renting out the house (or, equivalently, the amount of rent you don't have to pay for a year) PLUS the price of the house in one year from now, discounted. What is this discounting term, 1/(1+r)? This comes from the fact that you are waiting one year to sell. If you could sell the house for $1000 in one year, then you'd be willing to take less than $1000 today, just because you don't have to wait to get the money. The higher is r, the stronger this discounting.
Now, let's assume that you aren't planning to sell the house any time soon. In fact, you will hold the house until an infinite number of years from now (I know, dumb, but not much different mathematically from holding it for 30 years). You expect that both rents and the price of the house will go up at G percent per year. So now the value of the house is
P(Today) = Value of Rents to Infinity + P(Infinity) / (1+r)(to infinity power)
Given the growth rate of G, this works out to
P(Today) = Today's Rent / (r-G) + P[(1+G)/(1+r)](to infinity power)
So what do we have? The price of houses today depends on the rental value divided by this term (r-G). This is just valuing the stream of rental payments (or implicit payments to yourself) that the house generates. The second term depends on the ratio of (1+G) to (1+r), raised to the infinity power.
Now, as long as G < r, or the growth rate of house prices is less than the interest rate you can earn investing "safely", then the price of your house today depends ONLY on the rents you earn. Why? Because if G < r then (1+G)/(1+r) < 1 and any fraction to the infinity power is essentially equal to zero. In contrast, let's consider the origin of a bubble in housing. What happens here? The assumed growth rate of house prices, G, goes up for some reason (perhaps lots of people with subprime mortgages bid up the price of houses). At the same time, the "safe" return rate, r, is pretty low thanks to a) a Fed that is averting a recession in 2001/2002 and b) a glut of global savings. This means that G is almost equal to r. The ratio of Rent/(r-G) blows up, and therefore so does the price of a house. (Note that if r-G is very small, then Rents divided by something very small is a very large number). Any small changes in Rents results in really dramatic changes in price levels for houses. What if our assumed G goes up above r? Then the valuation of a house is P(Today) = Infinity Now, obviously house prices didn't go to infinity, but it seems pretty clear that house prices were way larger than made sense. In other words, there are only two outcomes that can happen when we get G > r. 1) House prices actually DO go to infinity or 2) we were wrong about G and eventually we will come to our senses and reset our assumed G to less than r and get finite values for houses.
So let's go back to the case where G < r, but really really close to r. House values still go WAY up, but not to infinity. Now in August 2007 some of the subprime mortgagees who had bid up house prices (and hence made us believe that G was really big) default, and everyone realizes that the rents they could earn on their house just went down (even by just a little). A small drop in rents, given that G is almost as big as r, means a huge drop in the price of houses.
A big drop in house prices convinces everyone that G is in fact lower than we had assumed. The drop in G then lowers the price of houses even more, and we have ourselves a crash.
Ultimately, the origins of this bubble are a shrinking of the difference between G and r. The crash happens when this difference widens out again. Why does this gap shrink? We assume that a surge in house prices today thanks to higher demand is indicative of higher G forever (as opposed to a temporary blip). Also, the risk free rate, r, is coming down at the same time.
Why does the gap open up again? First, when defaults show that rents (or the implied value of your house) are lower, and second, when this causes us to realize that G isn't as high as we thought.
Nothing particularly dramatic happened in August 2007, the point at which this all started to go south. So how come home prices collapsed and defaults started to go up?
Let's start with how you would value a hosue, if you were going to sell it one year later. You'd set the price today according to the following:
P(Today) = Annual Rent + P(Year Later)/(1+r)
The price today is equal to what you'd earn by renting out the house (or, equivalently, the amount of rent you don't have to pay for a year) PLUS the price of the house in one year from now, discounted. What is this discounting term, 1/(1+r)? This comes from the fact that you are waiting one year to sell. If you could sell the house for $1000 in one year, then you'd be willing to take less than $1000 today, just because you don't have to wait to get the money. The higher is r, the stronger this discounting.
Now, let's assume that you aren't planning to sell the house any time soon. In fact, you will hold the house until an infinite number of years from now (I know, dumb, but not much different mathematically from holding it for 30 years). You expect that both rents and the price of the house will go up at G percent per year. So now the value of the house is
P(Today) = Value of Rents to Infinity + P(Infinity) / (1+r)(to infinity power)
Given the growth rate of G, this works out to
P(Today) = Today's Rent / (r-G) + P[(1+G)/(1+r)](to infinity power)
So what do we have? The price of houses today depends on the rental value divided by this term (r-G). This is just valuing the stream of rental payments (or implicit payments to yourself) that the house generates. The second term depends on the ratio of (1+G) to (1+r), raised to the infinity power.
Now, as long as G < r, or the growth rate of house prices is less than the interest rate you can earn investing "safely", then the price of your house today depends ONLY on the rents you earn. Why? Because if G < r then (1+G)/(1+r) < 1 and any fraction to the infinity power is essentially equal to zero. In contrast, let's consider the origin of a bubble in housing. What happens here? The assumed growth rate of house prices, G, goes up for some reason (perhaps lots of people with subprime mortgages bid up the price of houses). At the same time, the "safe" return rate, r, is pretty low thanks to a) a Fed that is averting a recession in 2001/2002 and b) a glut of global savings. This means that G is almost equal to r. The ratio of Rent/(r-G) blows up, and therefore so does the price of a house. (Note that if r-G is very small, then Rents divided by something very small is a very large number). Any small changes in Rents results in really dramatic changes in price levels for houses. What if our assumed G goes up above r? Then the valuation of a house is P(Today) = Infinity Now, obviously house prices didn't go to infinity, but it seems pretty clear that house prices were way larger than made sense. In other words, there are only two outcomes that can happen when we get G > r. 1) House prices actually DO go to infinity or 2) we were wrong about G and eventually we will come to our senses and reset our assumed G to less than r and get finite values for houses.
So let's go back to the case where G < r, but really really close to r. House values still go WAY up, but not to infinity. Now in August 2007 some of the subprime mortgagees who had bid up house prices (and hence made us believe that G was really big) default, and everyone realizes that the rents they could earn on their house just went down (even by just a little). A small drop in rents, given that G is almost as big as r, means a huge drop in the price of houses.
A big drop in house prices convinces everyone that G is in fact lower than we had assumed. The drop in G then lowers the price of houses even more, and we have ourselves a crash.
Ultimately, the origins of this bubble are a shrinking of the difference between G and r. The crash happens when this difference widens out again. Why does this gap shrink? We assume that a surge in house prices today thanks to higher demand is indicative of higher G forever (as opposed to a temporary blip). Also, the risk free rate, r, is coming down at the same time.
Why does the gap open up again? First, when defaults show that rents (or the implied value of your house) are lower, and second, when this causes us to realize that G isn't as high as we thought.
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