Hipster Of The Year: Thomas Piketty

“Probably A Good Idea” Isn’t Very Encouraging

According to this list of 5 rookie investing mistakes, “trying to time the market can be disastrous,” “investors need to make sure their long-term financial goals don’t depend on lofty expectations being sustained over a long period,” and “there is already plenty of risk that comes along with investing, but many people complicate matters by using leverage.”  OK, now to the rookies themselves.  Somewhere between a near zero federal funds rate and sluggish economic growth, interest rate swaps went from “probably a good idea” to “unfair deals”:  “municipal borrowers nationwide have paid at least $4 billion to banks to end privately negotiated interest-rate bets sold as hedges.  The Federal Reserve’s policy of holding its benchmark borrowing rate near zero since 2008 has turned many of the swaps into wrong-way bets.”  Take, for example, the City of Los Angeles: “BNY Mellon and Dexia are profiting by a total of $4.8 million a year on the swaps deals and that they demand $24 million to terminate the deals (“negative fair value of $38.7 million as of June 2012” makes $24 million sound good, but its still $24 million).  Meanwhile, “banks again are doling out money to hedge funds and other investors to finance purchases of complex debt securities.  [Their] increased willingness to lend follows new rules weighing on the $300 billion U.S. CLO market…finding new buyers would help them offload the debt, while keeping prices relatively high…using borrowed money to buy securities may help hedge funds bolster returns, a useful strategy with interest rates at rock-bottom levels…overall, borrowed money is mostly being used to buy triple-A-rated CLOs, say bankers and investors.”

Reality Check: Housing

“For the same price, 2 in 5 Americans surveyed in March by Trulia said they would either strongly or at least somewhat prefer to buy a newly built home over an existing home.  Twenty-one percent strongly or somewhat preferred an existing home.  The rest had no preference.”  So that’s about 40% of Americans surveyed who don’t seem to care about your housing question.  Furthermore, “just 46 percent of the people who strongly prefer a new home are willing to pay the 20 percent premium that new homes typically cost.”  Meanwhile, some Americans are starting to see owning a home as less of a foolproof investment and possibly more of a “liability masquerading as a safe asset.”  Robert Shiller is pretty OK with that: “What kind of houses will they be building in 20 years?…They may have lots of new amenities.  They will be computerized or something in a way that we can’t anticipate now.  So people won’t want these old homes…To me, the idea that buying a home is such a great idea is just wrong.  They may very well decline for the next 30 years in real terms.”  Barry Ritholtz isn’t buying it: “eventually, the memory of the recent crisis will fade.  The economy will one day improve, and the millennials will move out of their parents’ basements.  When that happens, expect to see homeownership rates move back higher.”  Speaking of millennials, here’s how millennials (in the Sacramento region) compare to the generations before them at the same age.  Now look at how the first three (unemployment, living with parents and earning more than $40K) are different from the last three (owning a home, having children and getting married).  There has been a downward trend in these last three categories since 1970, while the others appear to be effects of the recession.

Wage Inflation And Labor Market Slack

A new study by a senior economist at the Fed suggests that “short-term and long-term unemployment seem to have similar downward effects on inflation across cities.”  The motivation for such a conclusion is probably related to this: “A series of high profile economists…have published papers recently suggesting the long-term unemployed are too disconnected from the labour market to hold down wage inflation.  Given short-term unemployment is almost back to normal, that would mean wages are about to accelerate, and interest rates would have to go up.”  Meanwhile, the debate over labor market slack continues, and Goldman Sachs thinks some of the “irreversible structural” changes are more like “possibly reversible, less structural.”  Reasons for this are: 1) the rate of retirement has gotten ahead of population growth, 2) disability claims are actually more cyclical than they may seem, 3) the number of people going to school instead of working is already starting to decrease, and 4) people are feeling less discouraged from the labor force overall.  Meanwhile, about 11% of recent college graduates in part-time jobs say they would like to work full-time.

USA: Millionaires Survey

“CNBC’s first-ever Millionaire Survey reveals that 51 percent of American millionaires believe inequality is a ‘major problem’ for the U.S., and nearly two-thirds support higher taxes on the wealthy and a higher minimum wage as ways to narrow the wealth gap…a majority (63 percent) also support a minimum wage.  Only 13 percent supported reducing unemployment benefits to encourage more work as a solution to inequality.”  Meanwhile, Obama’s proposal to raise the federal minimum wage to $10.10 is getting the “flogging a dead horse” treatment.

AMZN: Amazon And Twitter Join Forces On Shopping (Alt)

“Join forces” puts a nice collaborative spin on what’s happening here.  In case you haven’t noticed, Amazon is like, really good at making other businesses work for them.  They are like the bad guy in The Matrix 2, going around making copies of themselves out of their “non-rivals” like Procter & Gamble and now Twitter.

TP: Thomas Piketty Is Such A Hipster

“Marx?…I never managed really to read it.  I mean I don’t know if you’ve tried to read it.  Have you tried?”