bostonbubble.com

GenXer · Joined: 20 Feb 2009 Posts: 703

We may be discussing different things. I'm talking about the future, near, far, doesn't matter, and not 2010. Also, I'm not talking about 1 month forecast. I'm talking about several years ahead. I already offered people to play this game. Try to make forecasts several years ahead, and see how close you come. Do it with an S&P index. Try it for a couple of months ahead. I think you'll find that it doesn't matter HOW MUCH data you have or how you weigh it. The results are always the same. You will guess right by pure luck, which won't happen very often. And above all, do provide a STANDARD ERROR of your guess, i.e. S&P will be at 1500 with 95% confidence interval in 3 months, for example

Otherwise, I can guess randomly, and my guess (while aiming to be 'accurate', whatever that means) will be the same or better than those who crunched 100 years worth of data, including all available data on our economy for 100 years. Those two approaches will be equivalent, simply because nobody knows what the standard error is. If the prediction error is 1000%, then a guess is as good as an 'accurate' prediction based on data that has 1000% error.

Kaidran · Joined: 17 Mar 2010 Posts: 289

Sorry we seem to be having multiple conversations at once. I was thinking about one additional forum on the main page for "Town Specific Data and Discussion", then topics in that would be just the names of towns, or possibly sub forums if one thread could not handle it. It has the potential to be neater but does not allow for lazy posters. You know the forum history better than me though obviously.

john p · Joined: 10 Mar 2006 Posts: 1820

GenXer:

I'm basically saying that you talk about certain benchmarks that are unattainable to most young potential buyers, so "In a perfect world" you would have a 20% down payment with 2 years of salary saved up and a 1/4 of a million dollars socked away. I think that is what is frustrating people here, that you raise the bar so high that people feel like they shouldn't be considering buying. Hell, you may be right with the majority of people.

Just to settle this what do you think the benchmarks ought to be:

Down Payment X%
House Price X times household income
Emergency Fund of X months
Debt Ratio X
Percentage of Monthly Income to service Mortgage X?

I used to play lacrosse in college. There was this thing against "hot-dogging" or practicing moves that you would never use in a game. Many would say that it was a waste of time, but others said that if you could develop motor control and concentration to bounce a ball on the side of your stick while running, you'd elevate your ability to do other things. Bottom line, the kids who could hot dog could flat out play. Wayne Gretzky could hot dog, Tiger Woods could hot dog (remember the commercial where he could bounce the ball on his driver), and the guy who can spit out recent reports of data will most likely get a better deal than others. In lacrosse we couldn't predict the future, but we elevated our skill level to outperform those around us.

I see you GenXer as a defenseman or goal tender, you don't want people drifting off and chasing something when they need to stay "at home" defend. If you, however, have 11 guys playing defense all the time, you're not going to score. I think you get a lot of heat because deep down people see you as the voice of reason (sometimes their own voice of reason) telling them to be careful and the optimistic side of them is pushing back. I mean people who have decided to not buy at all most likely aren't reading a housing blog, there is some part of them that eventually wants to buy. When I see people mad at you GenXer, I see them chomping at the bit to buy and they are really checking to see if you're right or you're Chicken-Little.

Your Roy Schneider in the movie "Jaws" who wanted to close the beaches because of the sharks and your critics are often like that local Mayor who wore the tacky anchor blazer who wanted to keep the beaches open to generate business. Others, I think really respect your view and are more critical of you because they want clarity. That resistance is really the weight that is falling on you as a voice of reason. Part of maturity is understanding when others depend on you and behaving in a way where people can come to you feeling exposed and confused and comfortable.

Warren Buffet said, you'll miss the Spring if you wait until you see the (little birds, I forget which kind...).

Now Buffet can afford to take on more risk than most.

I think that througout generations we have fundamental values, and in times like these we need to root ourselves in them so that we don't get uprooted in the chatter.

I also look at risk as, younger people who can't afford a "Plan B" shouldn't take on risk, or those close to retirement. A "Plan B" is basically, If I buy this condo, is it possible that if the prices tank, could I rent it when I eventually want to move to a single family? It is also could I afford to make the payments if I got laid off for 18 months?

It would be great if you could give us a "Top 10 List" of common misconceptions in the current market.

john p · Joined: 10 Mar 2006 Posts: 1820

Another thing is that some know how to act very cool, calm and collected and it gives many a sense of confidence in them. You have to be a subject matter expert to know the difference between the truly erudite and those that are full of shit. GenXer, you are absolutely not full of shit.

Kaidran · Joined: 17 Mar 2010 Posts: 289

Could you elaborate John please. As far as I know nobody has hot-line to the future. We make plans and base opinions on our own feelings of optimism/pessimism and our tolerance of risk. Since no-one has the whole story a combining of thoughts and ideas in a forum like this would seem to be the best way to come to a better understanding, even if we cannot reach a consensus.

What opinions expressed here do you consider to be "shit" and why?

admin · Posted: Wed Jun 02, 2010 3:22 pm GMT Post subject:

GenXer · Joined: 20 Feb 2009 Posts: 703

admin · Posted: Wed Jun 02, 2010 5:27 pm GMT Post subject:

john p · Joined: 10 Mar 2006 Posts: 1820

Kadrian:

regarding (full of shit)

When I was buying the Realtors would give me all these (full of shit) reasons why I ought to buy right now. This was like at the peak of the market in 05 and I wasn't as researched about economic issues so I was a bit like a deer in the headlights and unsure if it was true or not. I realized pretty quickly that I needed to get up to speed on things. I can just imagine realtors telling young buyers that they'd better buy before mortgage rates skyrocket and things like that. This is kind of why I throw out economic context here and there.

Even at the time the Massachusetts Association of Realtors and the National Association of Realtors used to put out almost propaganda to prop up their bubble market. Even when the market was correcting, we had this blogger named "Condo" who used to always tell everyone that the condo market in Boston was going to keep going up and up. I and others used to always ask him for data and he would act very cool like he was an expert but he never had anything to support his claim. We discovered that the guy was in fact a condo realtor and had a self interest behind his posts, and when things became clearer we didn't hear from him again.

regarding "Tell Signs"

If your industry is say Manufacturing or global professional services or something, a weaker dollar will help you. If you see "Buy American" clauses in the Stimulus Bills, you know that the Unions will make out. In New York, the Governor is blaming the Unions because he wanted to have furloughs and the senior union members wouldn't have it, or pay freezes, so they get their raises while the younger union members are getting laid off. There are winners and losers today and you have to look for indications as to whether or not whatever you're in is going to benefit or lose.

I have a brother in law from D.C. and he bought a place over asking price. He has a nice "safe" cushy job with the Federal Government. D.C. has increasing house prices. Now should my brother in law feel as secure as he does? I think if political pressure mounts like it did in New Jersey and they ended up getting a Governor that cuts like crazy, he might lose his cushy job. I just had a younger guy send me his resume and he actually said that he got laid off because the Governor of New Jersey made so many cuts that all the school projects were put on hold and he was an architect working on them. Bottom line here is that certain people believe in supply side economics (Keynesian / Paul Krugman) kind of stuff and they think that the US Government ought to be providing MORE Stimulus. Now, if these guys prevail, those that benefit from government spending are winners. If those that believe that you ought to live within your means prevail, like the Governor of New Jersey, you'd be a loser.

Last year, the greatest influence in the market was government interaction in the first time buyer incentive program. Maybe this new "Caulking for Clunkers" might offer benefits for the older Boston housing stock because they might have a few freebies for insulation and remodelling; who knows.

A big "tell sign" I look at is what is driving the mortgage rates? Perhaps because of the stresses and strains in the European Union, investing in the US might be a temporary sanctuary. Also, I look to see if China is overheating and overproducing. People in sweat shops are committing suicide at pretty high rates.

Old school economists look at things like orders of transportation fleets. If companies who transport goods invest in their fleets, that is a good sign that they are getting orders.

In my business, you want to be on a big 5 year contract and hope that you have a decent pipeline of work flowing in.

This Health Care Bill will cause some to lose their jobs and others will make out great. This new Finance Bill will also have their share of winners and losers.

Now in some cases, people might have the political juice to win the argument for the time being, but if things don't change because there is a structural flaw, they can only win it for the time being. For example, when I was on my town's finance committee, the workers wanted a 2% raise for 2009. I said they ought to freeze wages so that nobody would have to lose their job moving forward. Well, they won their 2% Cost of Living Raise (when the CPI Index they were benchmarking said 0%) and this year, they had to take pay cuts.

Hey, a big "tell sign" is Governor Deval Patrick ending the controversial State Holidays:

http://www.boston.com/news/local/breaking_news/2010/06/patrick_vows_to_1.html

One of these is basically St. Patrick's Day. Now South Boston has been the epicenter of State Politics since Billy Bulger and they have this big St. Patrick's Day Breakfast and if you don't attend you get ragged on. I see these holidays being taken as a sign that the State workers are weilding less power and it politically recognizes that the public sector is currently getting a better deal than the private sector.

Locally, my town had a Special Election vote to see if we would spend $250k on the drawings for a Senior Center. Now although we were cutting wages and postponing repairs on our existing building stock, the Seniors wanted their Center. Now the Senior are a very strong voting block and they are the people that actually watch those local t.v. airings of the Town Selectman's meetings etc. Well, to my surprise, the Senior Center was voted down. I attribute a bit of it to the Tea Party chatter. Now, I'm not a big Sara Palin guy, but the Tea Party Movement is giving political support to politicians who sometimes have to be the bad guy and say "No". Most of the time, the people who actually show up to Town Meetings are those that benefit from government spending and the rest of us don't bother concern ourselves with it. It's when that tax bill starts to hurt that we pay attention more closely. Now, lets say you were on the ballot with the Senior Center vote and you opposed the Senior Center. You'd be in trouble with those old folks, so most likely you wouldn't take a position. Today, the Tea Party Movement is about punishing that politician for not saying no to unnecessary spending and not standing up to the special interests. I'm really just saying, pay attention to how strong this becomes. When you do, you can see all the angles people have and see who's behind who and it is enlightening. People's perspective indicates their position and when you understand the lay of the land and these predispositions you can better predict the behavior of things.

Kaidran · Joined: 17 Mar 2010 Posts: 289

Ha, Ha I dont think you'll get any argument about the Realtors. I remember in 2007 after I pulled out of buying and I decided to wait longer; my old realtor (who was after a referral bonus) actually asked what I thought I was waiting for. (Now being a great time to buy).

I think the idea of "tells" is very compelling but I wonder how good we would be at interpreting the results. I am fearful of the senior voting block but I almost want them to overreach to motivate people enough to stop them. Very interesting about the town meeting only having people that stand to gain. I'll read again more thoroughly tomorrow when I have more time.

GenXer · Joined: 20 Feb 2009 Posts: 703

admin · Posted: Thu Jun 03, 2010 12:55 am GMT Post subject:

GenXer · Joined: 20 Feb 2009 Posts: 703

GenXer · Joined: 20 Feb 2009 Posts: 703

Just doing this with Bodie's data yields the following % error (guess - mean)/mean * 100 (starting somewhere in 1911, and using the mean before 1911 that as my initial guess, guessing 5 years ahead and ending sometime in 2008):

29.
44.
66.
230.
23.
59.
65.
102.
304.
488.
616.
496.
281.
387.
553.
979.
1023.
2415.
1188.

So, you still think 1000% error is not possible? Guessing averages will not get you much when 20 sigma standard deviations are possible. This is why the markets are so complex - the statistics is very complex making 'common sense' analysis prone to big errors, unless of course one is careful to avoid making predictions based on the past data.

It is best to have daily data for this, as your average is much less accurate if annual data is used. Also, dividends must be reinvested as well, and I've not done that. In any case, this is all irrelevant - the point is that with all of our ingenuity, we are not capable of guessing the future accurately given such huge spreads.

It is true that Case Schiller index will be somewhat more mild, yet, with 5 sigma deviations, guessing will still be prone to large error.