Bob Carlson

September 23, 2016

A Big Short Gives His Current Views

Filed under: Asset Allocation,Economy — Bob @ 5:20 pm

Steve Eisman is one of the people given credit for seeing the mortgage/housing crisis coming and benefiting from the collapse. He’s been quiet the last few years. But this post describes his latest speech, in which he describes what he thinks is likely to be a good short position and a possible source of a new financial crisis. He touches on a range of other assets as well.

By that measure, neither subprime auto loans nor student loans are going to be the next mortgage crisis. Eisman seems more concerned about Europe, where banks are still much more highly leveraged than in the U.S., and where regulators in peripheral countries like Italy, Spain and Portugal have been slow to force them to recognize losses.

But while the big picture may not be so bad right now, Eisman said he is not a big believer in marketplace lending. “Silicon Valley is clueless,” he says.

“If you buy a book on Amazon, that’s the end of the relationship.”  Whereas, if you make a mortgage, “that’s the beginning of the transaction.” And there are only two business models. “The first is to originate the loan and hold it, which means you’re a bank. That’s a low margin business. The second is to originate a loan and sell it, and who are they going to sell it to? You [Wall Street]. And you are fickle.”

How to Interpret Polls

Filed under: Economy — Bob @ 12:20 pm

Here’s an interesting exercise. A web publication conducted a survey on the presidential race. Then, to show how variable poll results can be, it gave its data to four other pollsters and asked them to interpret the data. The result was five different interpretations of the results of the same polling data. Those familiar with statistical sampling and polling methods will be aware of what happened and still be interested. Others can use this article to learn how to read polling articles and why to be skeptical of them.

Well, well, well. Look at that. A net five-point difference between the five measures, including our own, even though all are based on identical data. Remember: There are no sampling differences in this exercise. Everyone is coming up with a number based on the same interviews.

But their answers illustrate just a few of the different ways that pollsters can handle the same data – and how those choices can affect the result.

Their answers shouldn’t be interpreted as an indication of what they would have found if they had conducted their own survey. They all would have designed the survey at least a little differently – some almost entirely differently.

MLPs vs. Infrastructure

Filed under: Income Investing — Bob @ 8:20 am

Here’s an interesting post comparing investing in master limited partnerships to investing in infrastructure companies, including MLPs. It makes a number of good points and focuses on comparing two ETFs that initially appear to be similar but have very different holdings and performance over the last few years. It concludes that MLPs largely have morphed into something different than they used to be and what many investors thought they were buying.

One of the lessons of the past year or so is that the MLP sector, which started life as a largely utility-like asset class, didn’t escape the hype of the shale boom. The MLP financing structure was transferred from boring old interstate pipelines to riskier things like refineries and gathering systems, and a ton of debt was taken on, as the investment pitch changed from reliable payouts to fast-growing payouts.

Many investors, dazzled by the combination of yield, growth and apparently “toll-road” like assets, didn’t necessarily read the fine print.

September 22, 2016

A Different Take on the Polls

Filed under: Economy — Bob @ 5:20 pm

The polls on the presidential election have been volatile. This article describes the techniques and analysis of a firm that combines poll results with activity on the Internet. It believes the result is more accurate, and its evidence is that it forecast the Brexit vote when most polls had it wrong.

This isn’t the first time Predata has used its campaign score algorithm to conclude something radically different from that of mainstream pollsters.

Before the Brexit vote in late June, when most pundits predicted the Remain camp had an edge, Timms saw something else in his numbers. “There was a very clear message that was coming out of our signals and that wasn’t reflected in the polls,” he said.

According to Predata’s algorithm, the Leave campaign was overwhelming the online conversation about Brexit and had been since early May.

Art Market Bubble Bursts

Filed under: Cash Management,Investing — Bob @ 12:39 pm

The quote-to-remember in this article is: “That’s because speculators bought art to resell it, not to keep it.” The article chronicles the boom and bust that occurred in the last few years in art created by young artists, many in their twenties. While most people weren’t aware of it, speculators and traders spent the last few years bidding up the prices of the works by select young artists. Works the artists originally sold for a few hundred or few thousand dollars were selling for six figures a few years later. Now, they sell for a fraction of their high prices, if the owners can find buyers.

“When those speculators realize that there is no end user at a higher price, then they scramble to sell the work before they lose everything,” said Todd Levin, director of Levin Art Group, who advises collectors. “The demand is driven by greed, the selloff by fear. It’s Economics 101.”

Reviewing the Median Household Income Increase

Filed under: Economy — Bob @ 8:20 am

Last week a Census Bureau report said that the median household income increased sharply in 2015. The report generated a lot of headlines and comments that the financial crisis finally was behind us. One puzzle is why so many people are angry about stagnant incomes when incomes reportedly increased a lot last year. Another puzzle is how median household income could increase over 5% in one year when all other wage and income reports peg the increases around 2%.

This post digs into some of the details of the report and explores other commentaries that say it should be treated with caution.

Despite these caveats, consistent results emerge from the two surveys. Even with the rising share of young adults living with parents, household size was essentially unchanged and therefore does not explain the rise in median household incomes. Both employment rates (especially full-time, year-round employment) and per-worker earnings rose, and the percentage rise in earnings was larger than the percentage rise in employment. Most of the jump in median household income, therefore, appears to be rising earnings, with rising employment playing an important supporting role. The labor market improved for workers on both of these fronts: the rise in median household income is indeed good news.

September 21, 2016

Making the Most of Credit Cards

Filed under: Cash Management — Bob @ 5:22 pm

The Points Guy, an expert in how to maximize the benefits of credit card reward programs, was the subject of an interview with MarketWatch. He gave seven of his top tips for playing the credit card game.

On using cash-back cards instead of working toward points:

“If you want to fly first class to Europe, you’re looking at $4,000 or $5,000 flights most of the time. So you have to spend a couple hundred thousand dollars to get a business class ticket. On the Chase Sapphire Reserve, you’re getting three points per dollar on dining and you can transfer them to frequent-flyer programs. It’s 115,000 United miles to fly business class round trip to Europe (of course you have to find availability), and you get 100,000 points for getting that card, so it’s like, you can get business class trips much quicker by learning the rules of how to transfer points to different frequent-flyer programs.

“I look at flights domestically and you’re getting less than a cent per mile, and in that case, don’t use traditional airline miles. If you’re earning one airline mile and getting less than a cent back. If you’re using 40,000 miles to get a $350 ticket, it’s much more wise to just get 2% cash back and buy it in cash and then earn miles on that ticket. You also have to factor in the miles you forego when you redeem miles.”

Household Net Worth Increases

Filed under: Economy,Housing — Bob @ 12:18 pm

The Fed’s quarterly Flow of Funds report shows that the net worth of households continues its slow, fairly steady increase from the bottom of the financial crisis. Rising home prices and stock prices are big boosts to net worth, plus households simply aren’t taking on additional debt the way they did in the old days.

Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008.

In Q2 2016, household percent equity (of household real estate) was at 57.1% – up from Q1, and the highest since Q2 2006. This was because of an increase in house prices in Q2 (the Fed uses CoreLogic).

Note: about 30.3% of owner occupied households had no mortgage debt as of April 2010. So the approximately 50+ million households with mortgages have far less than 57.1% equity – and a few million homeowners still have negative equity.

Election Poll Update

Filed under: Economy — Bob @ 8:20 am

This has been a very volatile presidential election campaign. Just a month or so ago, Nate Silver of fivethirtyeight.com calculated that Hillary Clinton has about a 70% probability of winning the election. In his latest update, Silver says the probability is down to about 60% and that Clinton needs to worry if the polls don’t improve in a week.

When a candidate has a rough stretch like this in the polls, you’ll sometimes see his or her supporters pass through the various stages of grief before accepting the results, beginning with a heavy dose of “unskewing” or cherry-picking of various polls. In this case, however, the shift in the race is apparent in a large number of high-quality surveys, and doesn’t depend much on the methodology one chooses. FiveThirtyEight, Real Clear Politics and Huffington Post Pollster all show similar results in their national polling averages, for example, with Clinton leading by only 1 to 3 percentage points over Trump.

This potentially ignores a more important question, however. Sure, Clinton might lead by only a percentage point or two right now — with a similarly perilous advantage in the Electoral College. But is that necessarily the best prediction for how things will turn out in November?

September 20, 2016

The Unemployment of Young Men

Filed under: Economy — Bob @ 5:31 pm

A couple of articles recently explored the causes of unemployment among young men, especially young white men. This article says that a large number of men have simply dropped out of the work force. They prefer leisure to work and aren’t even looking for jobs. It seems to be most prevalent among those without college educations who don’t have the desired skills for the available jobs with salaries that interest them. The article says they are being replaced in the work force by immigrants. This is another piece making similar points and adds discussions about how the graduation rate for colleges has declined sharply. Finally, this post links to an article that argues young men in America are more interested in video games than work.

Native high-school dropouts of “prime age” (25–54) work only about 35 weeks per year, on average; comparable immigrant dropouts work 49 weeks. Native dropouts are the outliers. Immigrant dropouts work roughly as much as both native and immigrant men with higher levels of education—and they do 60 percent of the work performed by dropouts in America, despite being less than half of the dropout population. “[T]he United States has been a magnet for low-skill immigration even as low-skill natives have worked less and less,” Richwine writes.

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