Tuesday, April 24, 2012

Our Dying Growth Engine

Click to enlarge.

October 6, 2011
Housing Can Be 'Key Engine of Job Growth'

The housing industry can be the “key engine of job growth” the country needs, says Bob Nielsen, chairman of the National Association of Home Builders.

Then again, maybe not.

1973 oil crisis

The 1973 "oil price shock", along with the 1973–1974 stock market crash, have been regarded as the first event since the Great Depression to have a persistent economic effect.

Click to enlarge.

Source Data:
St. Louis Fed: Custom Chart
St. Louis Fed: Spot Oil Price: West Texas Intermediate


Stagflationary Mark said...

This is not an endorsement to buy oil by the way.

1. Oil is well above the long-term trend.
2. On a BTU basis, oil is very expensive compared to natural gas.
3. The global economy may or may not be able to tolerate $100 oil. I suspect the latter.

Just opinions of course!

Troy said...

if you could store oil like gold, it'd be a good buy.

AFAIK, the thing about natgas is that it wouldn't be $2/mbtu or whatever if there were millions of natgas cars on the road.

$100 oil / $4 gas still beats walking to the store and back.

But housing is not a wealth engine. Housing is 40% ground rent capture (a weird and unreliable form of capital -- just ask the Japanese), 40% consumption (gift-wrapping rooms & granite counters), leaving 20% for bona-fide capital investment (the actual net wealth-add of the real estate vs. living in a yurt or something).

Troy said...

and I think it's really quite something that neither neo-classical economics or our society at large really has the first clue about real estate.

Back when the 2001-2003 tax cuts were going through I too didn't understand anything about it. But my exposure to the argument of Henry George school opened my eyes to the reality of how real estate is a really bizarre element of the economy, more of a wealth sink for the masses -- I didn't understand in 2000 that (ceteris paribus) the Bush tax cuts would goose housing prices, but that dynamic is in Georgism's wheelhouse of predictions (all taxes come out of rents, and thus all tax cuts get added to rents).

We're so immersed in the world, we're like fish in water wrt real estate -- we're affected by it tremendously but invisibly and imperceptibly.

But I also blew my mind again recently thinking how by definition land is not actually wealth, it's more --the very wealth-bearing fabric of the universe.

Except for the air and insolation, these are freely available forms of natural wealth that you don't need to get a license or title to acquire and consume.

Stagflationary Mark said...


I didn't buy my first home until I was 33 (1997). 20% down. Intended to retire in it. Paid off. Still living in it.

I couldn't understand why people would even want a "starter" home since real estate transaction costs were so high! I moved many times from apartment to apartment. The added mobility was certainly worth something to me. As an added bonus, renting allowed me to invest the difference and fortunately thagt worked out very well.

I guess there was no powerful "renter" lobby explaining that owning a home could also be like flushing money down a toilet.

In my opinion, a house is a depreciating structure (without money continually being pumped in for maintenance) that is never truly owned (thanks to property taxes and rightly so). I'm not sure that would qualify as a great investment.

As a side note, I've lived here 15 years. I'd say I spent close to $50k on maintenance (new roof, exterior paint, fence repairs, tree pruning, and so on). None of it really improved the house. I'm also a bit behind. The furnace and carpets are now 22 years old and more than a few windows need to be replaced (condensation).

Fritz_O said...

"...renting allowed me to invest the difference and fortunately thagt worked out very well."

You know, no offense intended but...I believe this is the key to where you now find yourself...rather than that you were oriented towards wealth accumulation in junior high school.

Just my opinion.

Stagflationary Mark said...


No offense taken. Unless, of course, you are heckling my newly invented "thagt" word, lol. ;)

In all seriousness, I do not use the "fortunately" word lightly.

I had a three-pronged approach to retiring early.

1. Work hard. My company gave me stock options. Corporate fraud ripped that path away in its entirety.
2. Max out my 401k. As of 2000 (after I retired), that path would have been less than impressive.
2. Invest on the side. This path seemed the least likely to work but I was in the right place, at the right time, and was therefore extremely lucky.

Then again, it was always a priority for me. Most probably have one prong at best. I did have to sacrifice. As a lead software engineer I had to choose between continuing to drive a Hyundai and buying stock in the company that ultimately retired me. It was not entirely a trivial decision.

HYUNDAI - Hope You Understand Nothing's Dependable And Inexpensive

That car had SO many problems! The upholstery was even replaced under warranty. No joke. And don't even get me started on the electrical system and transmission. But hey, best car I ever owned in hindsight, at least from an oppurtunity cost perspective. Upgraded it to a new Camry in 1996. Still feels like a new car. Very few problems with it. Doesn't even have 90k miles on it yet.

Fritz_O said...

"...heckling my newly invented "thagt" word..."

No, I wouldn't do that. I tend to save my heckling for words like "oppurtunity"!

That's a purty word.

"2. Max out my 401k. As of 2000 (after I retired), that path would have been less than impressive."

Yeah, I get this. It's been my belief all along that when the Reagan era ushered in "self-directed" and "defined-contribution" retirement plans that we would all be forced to worship at the wallter (that's short for Wall Street alter.) We now know just how solid a plan that can be.

"...I was in the right place, at the right time, and was therefore extremely lucky."

Yeah, I get this too. The thing is, you seem to be bent on showing us all how the debt system is doomed to fail, while at the same time using your lucky gains to fund your "free time" by relying upon the repayment of debts.

Stagflationary Mark said...


The thing is, you seem to be bent on showing us all how the debt system is doomed to fail, while at the same time using your lucky gains to fund your "free time" by relying upon the repayment of debts.

I'm suggesting that it is failing right now. The 0.0% I-Bond I bought this year is virtually guaranteed to lose purchasing power over the long-term.

There is no safe store of value in a doomed debt system. Sigh.

If it is any consolation, I don't have anywhere near the resources of the rich and famous. I spend like a poor person would and have an unemployed girlfriend with extreme medical expenses to support. Full price hamburger continues to be a luxury item.

Stagflationary Mark said...


Perhaps my economic philosophy has been biased by science fiction.

It isn't about when the next round of pain will begin to me. I see it all around me each and every day. I expect it to continue for the rest of my life (and then some).

I hope that hindsight shows I was way too pessimistic.

Stagflationary Mark said...

One more thought.

I wake up every day thankful. I do not feel entitled to be paid in full. I actually plan for a 2% real loss each year (after taxes) on my investments. What was once a fairly generous safety buffer has become closer to the expected case.

I'm 47. If I lose everything in the next decade then I will still feel thankful to have been born when I was and where I was. Over the course of human history, I clearly could have done much worse. As an example, I had my appendix removed as a kid. It didn't kill me. Lucky!

That said, if things do fall apart at least I won't need to buy more toilet paper. If I someday find myself flipping fries for a paycheck (again) then I at least had that part right.

Stagflationary Mark said...

I'm an introvert and I'm wondering if I'm coming across to others in ways that I did not intend.

It is certainly not my intent to say how lucky I am in comparison to this country's millions of unemployed or this country's tens of millions on food stamps.

It pains me to no end and is one reason that antacids are pretty much part of my food pyramid.

I do not like where this country is headed. Rising income and wealth inequality are near the top of my list of concerns.

Troy said...

It's kinda bad to have been fortunate enough to have made the correct choices in life but living in such a crooked society.

My mom says my idea of running back off to Japan again is chickenshit (in so many words).

You're the guy who carefully studied the "in case of emergency" brochure the first night out on the Titanic.

You could certainly see how the future was going to evolve a lot sooner and clearer than I did (I was buying 3 month treasuries in 2006-2007, LOL).

But there's not going to be much reward if this place turns into Mad Max or the ptb somehow screw things up worse than they are.

'course, there's always BC for you. A spot in eastern BC would be just like living in the Columbia basin . . .

That's why I like Bellingham. Geologically, it belongs to Canada, eh.


Troy said...

you might get a kick out of this . . .


Anonymous said...


Never fear--we are saved (again).

Stagflationary Mark said...


Parents say their most precious resource is their children. If I was a parent, I doubt I would disagree.

The math guy in me says children are expensive though, especially when factoring in this. I didn't end up with the resources that I felt were necessary to both retire early and have children. There was clearly a trade-off.

I therefore think it could be argued by a rational person that I did not make the correct choices in life. However, if that is true then I will never know.

Stagflationary Mark said...


you might get a kick out of this . . .

I did!

The first thing I saw was the Monster can attached to Coca Cola. I didn't know they bought Hansen.

I bought Hansen in the 1990s (before they came out with their Monster energy drink). It was the last stock I owned and had become my largest stock investment. I made about 6x my money on it. If I had held it to today it would have made more for me than the company that retired me (slightly smaller percentage gain but larger initial investment). I missed the vast majority of the ride.

It was about $4 per share when I bought it. On an adjusted basis (counting splits and dividends), that works out to about 25 cents. It now trades at $63.53.

Even as a bull I would have never ridden it that long though. I would have diversified out many times.

I would have done it with the company that retired me too if I had the option. It was a private company though so I was forced to hold (to my benefit thank goodness).

Stagflationary Mark said...


From your link...

Before declaring “peace” with a forecast of below 8% for unemployment for the election, I would worry about the alternative measures of employment.

Central theme of the day: Antacids

Troy said...

"Arguably, graduates in those majors (and many more) should be thankful to get any job. Therefore, those who do land a job should therefore be considered fully employed, not underemployed."

there's a little mish in me. He's a dick in me too, but hey.

(Well, that didn't come out right.)

Troy said...

"Obama wants to throw more money at education, and that is exactly the wrong thing to do. Instead, I propose stopping student aid programs and accrediting more online schools to lower the cost of education so that degrees do not have negative payback. "

yeah, a couple of weeks ago I was thinking about the Japanese higher-education model.

They have 2-year schools called senmongaku -- specialty schools -- that are focused on teaching one set of skills only, for music, nursing, game programming, etc.

Last year I took Stanford's online machine learning class, and I'm doing its successor's coursera course in natural language processing now -- this is a much, much better deal than a 4 year UC degree that costs $15,000 for the room & board alone.

If EA is the major leagues, they should establish some farm clubs where people can hook into educational content to get up to speed as content creators.

These days a $500 PC puts you right at the state of he art, hardware-wise. After that piddly capital investment it's all drive and talent.

Hell, the software costs more than the hw these days for most disciplines.

Stagflationary Mark said...


They have 2-year schools called senmongaku -- specialty schools -- that are focused on teaching one set of skills only, for music, nursing, game programming, etc.

My girlfriend has been in college for more than a year to become a nurse. She's yet to even draw blood. Instead, she's got to take all those bonehead prerequisites. Keep in mind she already has a college degree (in a field that doesn't help her get a job). It is such a HUGE waste.

These days a $500 PC puts you right at the state of he art, hardware-wise.

Out of curiosity, what would you recommend? I think I've limped along long enough on my current 10-year old computer. Today's indicator that I should upgrade came from Firefox. They no longer support my Windows 2000 lazy man lifestyle, lol.

Stagflationary Mark said...


(Well, that didn't come out right.)

I've always loved self-defecating humor. Deprecating you say? Whatever. ;)

Troy said...

I adore putting together my own PCs from parts from newegg.

But if hamburger is the occasional luxury to you, parting with this much cash will be kinda tough : )

Intel's finally bumped up the graphics interface to PCIe3, which has twice the bandwidth of PCIe2.

Not going to matter for your needs since you won't even need a graphics card, but I only update my hw when intel ups the graphics interface like this (AGP, AGP 4x, PCIe).

Ivy Bridge CPU architecture is coming out now, and motherboard manufacturers are already shipping the next generation of MBs for it. Z77 MBs are the best bang for the buck, and I'm partial to the micro-atx form factor . . .

ASRock Z77 Pro4-M LGA is the cheapest Z77 mb at newegg, for $110 it's got eSATA which I like in combination with a SATA dock for easy swapping of backup and media hard drives.

If you're still happy on Win2k, the Socket 1155 CPUs -- Sandy Bridge from last year and now Ivy Bridge -- will be more than good enough for you, graphics-wise.

Ivy Bridge comes with HD-2500 and HD-4000 option for on-die GPU, going with the former makes sense since if you need more oomph you can always add a dedicated graphics card.

So for the CPU, the bottom-guy Ivy Bridge i5-3450 would be good enough (or 3450S if you want to run ~12W cooler).

That's going to be around $200 at newegg when they start shipping (next week?).

2 x 2GB of DDR3-1600 RAM is $25 these days, this leaves 2 slots open to expand to 8GB.

SSD is the most meaningful upgrade these days, and a 64GB drive is large enough to host Windows 7 fine.

Intel Z-series MBs also allow you to mix SSD and fixed-disk storage to get the best caching performance ("Intel Smart Response Technology").

The 64GB Crucial M4 CT064M4SSD2 for $85 is pretty popular.

I only get Seasonic PSUs -- $60 for the cheapest brings the build so far to $498.95, LOL.


(I'm using the i5-2500K as a placeholder for the i5-3850)

If you're not going to junk your old PC you're still going to need a case. I'd also add a better heat sink and fan compared to stock, but that's probably not important.

The power of this basic build compared to the VR stuff I was doing 15 years ago is sobering.

Troy said...

Oh yeah, add $100 for Microsoft Windows 7 Home Premium SP1 64-bit - OEM

Stagflationary Mark said...


Thanks for your response. I have to laugh.

I adore putting together my own PCs from parts from newegg.

My current computer was purchased as parts from newegg in the fall of 2002. A friend helped me put it together (meaning he did most of the work). Seriously.

The box for the Lian Li case was very amusing. I believe it said...

Two Balls Bearing Fan

Gotta love translations, lol.

But if hamburger is the occasional luxury to you, parting with this much cash will be kinda tough : )

It's kinda tough, but not if I can amortize it over 10 years (again), lol.

Speaking of which, I spent $2,100 10 years ago. Behold the power of anti-hyperinflation.

Troy said...

Oh yeah, I forgot about H77 vs. Z77.

You can go for the H77 version of that mb and save $20 . . . (you lose support to OC the memory to 2000 and above, but who cares)

yeah, my first build from parts in 2002 was around $2000, too.

2.8Gz P4 Northwood. Funny how CPU speeds are the same still . . . process has gone from 130nm feature size to 22nm tho. . .