The socialist free-marketer

August 31, 2009

Oh the irony of ironies.  While News Corp is off calling Obama a socialist he is quietly pushing reforms Republicans have wanted for decades: Introducing competition to public schools via charters.

Advertisements

It should be perfectly possible to run multiple applications on the iPhone in a way that protects battery life:  It could limit to the last 2 or 3, it could allow the user to specify which 1 or 2 is allowed, it could wake a certain apps every minute for 5 seconds, etc.  Allowing just 2 would make a huge difference in usability.

I get the feeling Apple is not allowing it simply because then they would have to allow iPod competitors to run in the background.   So they are just protecting iTunes, giving it another year to get entrenched.

This is a huge competitive advantage: Pandora and Spotify are just some of the excellent music services, but you can’t play a game or catch up on the news while listening!

I was discussing yesterday just what will happen to the bottoming out of the housing market after all the tax credits, foreclosure mitigation programs, and rock-bottom mortgage rates end.

I argued the small rush of newcomers seduced by a bottom, and the improving economy (and therefore more relaxed lending) might be enough to hold sales and prices steady.

But then I found out about the administration’s plan to use 4.2 billion of stimulus funds to buy foreclosed homes and turn them into federal subsidized housing.  By my quick calculation that’s about 40,000 houses at $100,000 each, which is about 6% of current inventory, a big enough share to support the market.

Seems like a perfect plan to me: Ensure sustained recovery, put foreclosed homes to use before they fall in disrepair, help people who did the worse through the crisis, and expand a helpful government program on the cheap.

A columnist with guts

August 27, 2009

Kudos to Roger Simon at Politico for doing what every journalist should be doing but none seem to be:

It doesn’t matter what you say, as long as it is over the top and beneath contempt.

“Adolf Hitler, like Barack Obama, also ruled by dictate,” Limbaugh said. “Hitler said he didn’t need to meet with his Cabinet; he represented the will of the people. He was called the messiah. He said the people spoke through him.”

Which means, I guess, if Hitler were alive today, he would be a talk show host.

This is not the 90s

August 12, 2009

The constant comparisons between the current healthcare push and the Clintons’ are superficial and misguided.  It is actually much more like last year’s presidential campaign.

First off, the Clintons wrote the bill behind closed doors and then sent it to congress to rubberstamp.  When it came time to sell it congress was MIA, so it was left to Hilary alone.  A lady driving around in a bus.  This time around there are 200+ salesmen with skin in the game, that know their respective constituents and what moves them.  That means every day we are going to have dozens of advocates on local radio, network TV, morning shows, op-eds, etc.

On top of that you’ve got the best explainer in chief the White House has ever seen, a great communications machine, and an organizing arm.

Now think back to the presidential campaign: Early on McCain made outrageous accusations and fabrications about Obama.  That gave him an initial bump, but strategically it was a huge mistake because it gave Obama months to disprove each and every one.  Independents started seeing through the lies and distortions, and by election day nothing McCain could throw stuck.

Same thing is happening now.  Lies, misrepresentations and innuendos are scaring the beejesus out of grandma, but after a couple weeks of further silliness, and disproving from proponents, this tactic will lose teeth.

In the end public support will be split very much as in the election: 100% of Fox viewers (i.e. Republicans) will hate it.  Independents will lean in favor and Democrats will all support it (even though many will have to swallow hard).  Only difference is that since the election Republicans have bled members.

Of course this isn’t a popular vote, so it remains to be seen what a 57/43 opinion split will do to move Blue Dogs and the Maine Twins.

After their long alliance against Microsoft, Apple and Google parted ways today, and the stage is set for the great fight of the second decade.

I happen to think prices are bottoming out this Summer, and have said so since February (I would only exclude the worst offenders in subprime which additionally have high unemployment, places like the Inland Empire and Las Vegas).

However most people think even with sales picking up prices have more to fall.  So let’s say I’m wrong and prices do fall another 10% into next year.

Even then this is the best time to buy.  Why?  Because mortgage rates are going up and will be way higher this time next year.  About 3 points higher.

Mortgage rates will be up sharply because U.S. treasuries are shooting up (there is, of course, a strong direct correlation between treasury yields and 30-year fixed mortgage rates).  This is not due to inflation fears, or ‘China dumping our treasuries’ or some other ominous headline, but simply because:

a) The economy will continue to improve, and there will be a massive flight away from safety into higher yield asset classes.  People, funds and companies selling their treasuries and putting their dollars into stocks, commodities, hedge funds or Silicon Valley venture funds means treasury prices will go down, and yields up.

b) The Fed will start ratcheting the funds rate up by late 2010 to mop up the massive excess liquidity and keep inflation in check.

So let’s run the numbers using this calculator.

For a $500,000 house, with $100,000 down, at the current 5.5% rate on a 30-year fixed (1.25% tax and 0.5 PMI):

Monthly payment: $2854.49

Total interest paid: $440116.16

Now let’s look at the same house, one year later, now priced at $450,000 with a $90,000 down payment, and an interest rate of 8.48% (corresponding to a 7% treasury yield per this):

Monthly payment: $3,287.99

Total interest paid: $654,925.49

Even though the down payment was $10,000 less and therefore easier to ‘get in the house’, the increase in monthly payment is $433, for 30 years! which comes out to $214,809.33 in additional total interest.  So, again, house price was $50,000 less, and yet payments will be $433 more.

Of course, if prices do stabilize, monthly payments will be even higher ($799).

Some caveats:

  • If prices do go down 10% you will lose half of your equity in the near term (50K of the 100K down payment), so this only makes sense if buying for the long term.  But really, is anyone still planning on flipping a house?
  • A higher mortgage rate and corresponding monthly payment is not so bad if you’re able to refinance after some years.  But rates are near all-time lows, so they probably won’t come back down anywhere near this for another couple decades, if ever.

So, am I missing something?