Too many people?

There is an interesting debate in "The Economist" on whether there are too many people on planet Earth.

My perspective: All of the current crises (financial, economic, energy, climate change, food, water) are, in essence, expressions of the excessive population of the world, which will only grow worse as the 9.2 billion population figure is reached.

In some cases (food, energy, climate change) the connection is rather obvious. Prices are rising as demand outstrips supply. Greenhouse gas emissions are increasing as the population produces and consumes more and more. Other asset bubbles (housing, financial assets) are also related to the growing pull of demand.

It was appropriate that one of President Obama's first actions was to overturn Bush's ban on funding and promoting population control activities. But, as others have noted (for example, an article in Newsweek last week), perhaps it is too late to revert global warming.

A bottom to house prices?

Paul Krugman blogs that the end is in sight for the bursting of the house price bubble.

He quotes an entry in the "Calculated Risk" blog, which states that:

"especially [in] the mid-to-high priced bubble areas, there will be further price declines... It seems there are many more foreclosures coming. Some of this depends on the success of the modification programs, but the Q2 MBA delinquency report shows a growing number of homeowners in the problem pipeline".

Krugman himself thinks that:

"In 2005-6 it was a slam-dunk prediction that housing prices were headed for a huge fall; that was obvious to everyone except the likes of Alan Greenspan and everyone else who mattered (and a few who didn’t, like Larry Kudlow.) At this point, squinting hard at various measures suggests that housing prices are still a bit high, but we’re within debating range. Home prices could stabilize not too far from here".

"The Economist" also sees signs of continuing trouble:

"the recovery’s foundations look shaky. Rising joblessness will continue to weigh on demand for homes. The unemployment rate, currently 9.4%, is expected to peak at more than 10% some time next year... Consumer confidence remains fragile... For those seeking a mortgage, credit is still hard to come by... With 1.8m homes already in foreclosure, a “similar amount” may be heading that way... the rise in negative equity — when a borrower’s mortgage debt exceeds the value of his home— is also fuelling foreclosures, not least because many would rather walk away than keep making payments on a home that is worth much less than the sum owed on it. Zillow.com, a property-information service, estimates that 23% of homes with mortgages are underwater. Others put it higher. A staggering 60% are submerged in Las Vegas. Deutsche Bank’s securitisation team expects negative equity to peak at 48% of total homes by 2011. That may be too pessimistic, but all agree that the number will rise further".

"The Economist" concludes that: "

Most economists expect them to fall by a further 5-10 percentage points, to their long-term trend line at roughly 40% below their peak, and not to reach bottom until some time in 2010. The pessimists predict they will go crashing through the trend-line to as little as half their 2006 high.

Personally, I think prices will continue to fall, especially in metropolitan areas where they had more than doubled in the 2000-2006 period (Miami, Los Angeles, Washington D.C., San Diego, Las Vegas, etc.).

Top sectors by Return on Equity

Cigarrettes and alcohol I can understand, but why would "Information & Delivery Services" have the top Return on Equity (ROE) by sectors?

http://biz.yahoo.com/ic/827.html

Top companies by market capitalization in this sector are Dun and Bradstreet (DNB), FactSet Research Systems Inc. (FDS), DST Systems Inc. (DST), and Interactive Data Corporation (IDC). I guess something about providing financial information generates efficiency!

Number 2 on the ROE ranking is cigarettes; third is "Aerospace/Defense - Major Diversified"; and in the seventh slot we find "Beverages - Wineries & Distillers"

http://biz.yahoo.com/ic/l/roe.html

I guess the sin investments (alcohol, tobacco, gaming, defense) are worth another look - although the FocusShares ISE SINdex Fund (PUF) is closing. There is a mutual fund in this sector, VICEX.

Investing for the really long-term (or, profiting from baby boomers)

I was checking my portfolio today, and, other than rejoicing that I am back in the green overall, I noticed that my best single investment was in Sunrise Senior Living Inc. (SRZ), with a gain of 500 %!

This, of course, is by no means average, and you should not be able to reproduce it (I bought it at 37 cents per share). However, the basic principle, of investing in companies or indices that will benefit from the ageing baby boomers, is, I believe, a sound long-term strategy.

What other broad sector indices could you buy:

- Powershares Dynamic Leisure ETF (PEJ)
- iShares Nasdaq Biotechnology Index Fund (IBB)
- iShares Dow Jones US Healthcare Sector Index Fund (IYH) (although, in the short term, might show some volatility based on the health sector reform plans).
- Dow Jones US Healthcare Providers Index Fund (IHF)
- Market Vectors Gaming ETF (BJK) (can't quite figure out why seniors love casinos so much).

This CNBC article picks up on the topic, recommending, for example "Ventas [VTR] and Senior Housing Properties Trust [SNH], both of which are real estate investment trusts weighted toward nursing homes". They also recommend Starbucks and Barnes and Noble, as "Baby boomers also will seek out casual leisure places".

Yet another take on "Why Economics Failed"

Yet another take on "Why Economics Failed".

- "I am wholly unconvinced most macroeconomic theory can ever hope to make consistently accurate predictions. There are entirely too many variables, and people just aren't as rational as economists like to assume they must be".

- "the concept of rationality even exaggerates rationality. Even with good information, people often make stupid decisions based on emotion. I would even argue that generally people are more emotional than rational -- and that's a huge problem for modern economics".

On the other hand, truly modern economics takes into account behavioral factors and irrational behavior of some economic agents.

Why is the yen rising?

Can someone please explain to me why the yen keeps rising?

The ratio of public debt to GDP is approaching 200 %, more than twice the OECD average.

Public finances are in disarray, the ruling "Liberal Democratic Party" will soon lose power, the economic rebound is very weak, exports and industrial output have not recovered, and Japan is losing market share to other Asian companies.

Even with a slip today versus major currencies, the yen seems to be grossly overvalued. I would expect the euro to strengthen, in particular due to the improving economic fortunes of Germany and France, and their relatively modest stimulus packages (and deficit).

But I would still suggest investing in inflation-protected equities, as mentioned in a previous entry.

Economy on the rebound

The green shoots are taking hold.

The Economist cover story focuses on the Asian rebound.

Germany and France have crept out of recession, growing by 0.3 % in the second quarter.

The U.S. showed a much slower contraction (-1.0 %) in the second quarter.

And the manufacturing sector is definitely on the mend:

"surveys of managers on the "front line" in the sector in the UK, the US and the eurozone released yesterday all show a marked improvement in sentiment in what has been the hardest pressed part of the global economy".

In the US, "the ISM confidence index improved for the seventh consecutive month in July, increasing to 48.9 from 44.8 in June, well above the market's expectations for a 46.5 reading and the record low of 37.4 set last November. Again, the figures attracted cautious optimism form observers. Julia Coronado, economist at BNP Paribas said; "We continue to expect modest growth in economic activity in the second half of the year as the record correction in inventories slows and the auto sector reopens after an extended shutdown. That said, we expect growth to be subdued as consumer and business demand are expected to recover more slowly than in previous cycles."

Jon Stewart spanks Jim Cramer

Jon Stewart demolishes Jim Cramer in this extended version of his interview on "The Daily Show":

http://www.huffingtonpost.com/2009/03/13/jim-cramer-on-daily-show_n_174558.html

Jon castigates Cramer for constantly switching positions on stocks, and in particular for his role in the "shady hedge fund days", showing videos in which Cramer indicates that it was easy to manipulate markets by spreading misinformation.

"You knew what the banks were doing, and yet were touting it for months and months, the entire network was; so now to pretend that this was some sort of crazy, once-in-a-lifetime tsunami, that nobody could have seen coming, was disingenuous at best, criminal at worst", states Stewart.

"I understand that you want to make finance entertaining, but it's not a ... game," Stewart told Cramer. Cramer responded "Should we have been constantly pointing out the mistakes that were made? Absolutely. I truly wish we had done more."

Someone (kinoptikation) comments "wish to see Jon Stewart pick up the topic on why this guy is still on CNBC and going on Morning Joe attacking, once again, The Daily Show... Jim Creamer should be unemployed by now, please make it happen".

Jim Cramer is wrong

My comment on Cramer's Mad Money - Paul Krugman Is Wrong

I'll pick Krugman over Cramer any time.

As far as I know, Mr. Cramer does not have any qualification of any sort to perform economic or financial analysis; whereas Dr. Krugman has a Ph.D. in Economics and won the Nobel Prize in Economics in 2008.

I read in Wikipedia that Mr. Cramer does have a Law Degree from Harvard.

I also read the following: "On February 29, 2000, about one week before the historic all-time high of the NASDAQ Composite index, Cramer delivered his "The Winners of the New World" speech at the 6th Annual Internet and Electronic Commerce Conference and Exposition in New York. In this speech, Cramer recommended 10 stocks and went on to say "I wouldn't own any other stocks in the year 2000". By 2009, all of the mentioned companies have either gone out of business, have been taken over by competitors or trade at fractions of their 2000 stock price".

Here is the 2000 article, in case you still want to buy these stocks:

http://www.thestreet.com/funds/smarter/891820.html

Another take on fast food

Another take on fast food:

Fast Food Restaurants Have Right Menu for Recession

Main points:

- "quick-service operators such as McDonald’s (MCD), Burger King (BKC) and Wendy’s (WEN) may enjoy a comparative advantage that helps them navigate the weakness better than their competitors in the casual-dining and higher-end segments, according to Moody’s Investors Service".

- "A recent analysis by restaurant industry consultant John Gordon showed a mixed picture for fast food restaurants, with McDonald’s, Chipotle (CMG) and Steak N Shake (SNS) faring better than Yum Brands (YUM) and than Darden’s (DRI) Red Lobster and Olive Garden. All were faring much better than fine dining , where sales are down some 15% from a year earlier".

Given that Jim Cramer is recommending Wendy's, I guess I will take a contrarian view and suggest that MCD and YUM have greater room for an upswing.