ERICOPOLY

Here is a good one: http://en.wikipedia.org/wiki/File:United_States_Population_by_gender_1950-2010.gif It's an animated GIF that shows the age demographics of the United states from 1950 to the present. Every second it increments the year and the picture changes. A martian would comment "this is going to lead to a higher proportion of millionaires" even if he had no other data to look at. Older people have saved longer and had the magic of compounding in their favor. I would say this is a no-brainer. The "typical" millionaire is age 57. As the proportion of the population increasingly shifts towards that age group (the baby boomers), should we therefore expect more millionaires. Thrifty people who save and invest are not millionaires by age 25. It takes a bit of time to get the snowball rolling. This isn't really related, but do those of you in your 20s really feel jealous of 50+ yr old millionaires? They can't take it with them.

Actually the table below shown in the other referenced article above tells more about the story. The "top 1%" just happens to be a gross approximation of what has happened with extreme polarization of wealth. Table 3. The Count of Millionaires and Multimillionaires, 1983–2007 Total Number (in thousands) with Households Net Worth Equal to or Exceeding (in 1995$): (1,000s) Year Households 1 Million 5 Million 10 Million 1983 83,893 2,411 247.0 66.5 1989 93,009 3,024 296.6 64.9 1992 95,462 3,104 277.4 41.6 1995 99,101 3,015 474.1 190.4 1998 102,547 4,783 755.5 239.4 2001 106,494 5,892 1,067.8 338.4 2004 112,107 6,466 1,120.0 344.8 2007 116,120 7,274 1,466.8 464.2 % Change 38.4 201.7 493.8 598.3 Is this partially explained by the baby boomers? In other words, if the age distribution is top-heavy, it stands to reason that there will be more millionaires. Expressed differently, is this huge demographic more or less likely to have millionaires today at age 55 vs 24 years ago at age 31?

Quoting from that article: financial wealth is what counts as far as the control of income-producing assets Table 1 shows that the top 1% owned 42.9% of total financial weath in 1983, but this number slipped to 42.7% by 2007. The trend shows that the top 1% is taking a relatively smaller slice of the financial wealth pie. I'm not sure that's bad, unless you are that 1% and you are worrying about losing your control?

Wow. I'm turning up some interesting things. It looks like one may be able to purchase $1,000,000 properties in Australia for just $20,000 down! http://www.debtdeflation.com/blogs/ I’ve just been alerted by Banking Day (a subscriber-only service) that Westpac–via its subsidiary St George–is now allowing potential borrowers to treat their rental payments as “evidence of genuine savings” when applying for a home loan. This is of course portrayed as good thing in the press release that announced the development–issued by the broker Loan Market (see the press release at the end of this post). It will, they state, enable Australians who currently can’t afford to buy a home–because they can’t save a deposit–to do so. All good news. The more cynical interpretation is that this is a way to let banks increase their maximum LVR (loan to valuation ratio) without actually saying so, and to expand their pool of potential borrowers as a consequence. At present, you need a $30,000 deposit to bid $1 million for a property if you get a loan from the Commonwealth Bank, which currently has one of the highest maximum LVRs of 97%: “The maximum we will lend you is 95% of the valuation amount. We also add the Lenders Mortgage Insurance or a Low Deposit Premium to your loan (up to a maximum of 97%), so it doesn’t cost you anything upfront”. This press release implies that you could approach St George with $20,000 in savings, be given a $1 million loan, and have it recorded as a 95% LVR loan (since St George probably has the same maximum published LVR as Westpac of 95%) where $20,000 was your actual deposit and the effective LVR was actually 98%. The effect of this trick is to expand the pool of potential borrowers to whom St George can extend a loan, while appearing not to alter its lending standards. There’s at least one line that I agree with in the following press release: “This is a major step forward which will also boost activity in the struggling home finance sector and we expect other lenders to follow suit.” It will enable the banks to meet their loan sale targets, by expanding the number of applicants who qualify for a loan. To me, this move smacks of desperation. The house price bubble has made entry into the market impossible without sky-high LVRs, and this in turn has undercut the banks’ business model. Increasing their maximum LVRs by around 5% back at the end of August apparently wasn’t enough to secure the level of loans business they wanted, and St George’s response is this ruse that gives a higher LVR without calling it such. It will be interesting to see how regulators treat this: will they allow rent that you’ve already paid to a landlord to be recorded as “evidence of genuine savings” and pretend that St George hasn’t increased its maximum LVR?

Explain then how rental income as a percentage of the property value has fallen from 8% yield in late 1980s to 3.5% today. Are rents immune to a supply shortage? That says it right there in a nutshell. My parents are both from Australia, I was raised in California (born in 1973). Throughout my young life we'd visit relatives in Australia every two years and one thing I remember is that Australia was about 4 years behind on my sister's favorite TV program (The Days of Our Lives) and that theaters would always be showing the "new releases" that I'd seen a year earlier back at home. Today, I go online to the "property" section of the Sydney Morning Herald online and judging by the tone of the articles I feel like I'm once again watching last years' show.

I only mentioned it because I think some people who own DELL have bought it for the 5x operating income allure. I haven't yet heard of an acquisition made at 5x earnings, so I was just pointing out that people likely aren't getting 5x earnings -- it just looks that way for now because the cash hasn't yet been deployed. Apollo's acquisition of Brit at 5x earnings will close in a few days. Validus bought IPC at a similar low multiple last year. That's insurance though. DELL isn't going to venture outside of technology one would assume.

I only mentioned it because I think some people who own DELL have bought it for the 5x operating income allure. I haven't yet heard of an acquisition made at 5x earnings, so I was just pointing out that people likely aren't getting 5x earnings -- it just looks that way for now because the cash hasn't yet been deployed.

The dollar is practically at parity, so the math is getting easier. Australian median household incomes are 34% higher, but the median house price is more than triple. Despite the seeming relative bargain, people in this country still point out that houses are not cheap by historical comparison.

Were the cash to be used for an acquisition at 20x earnings, the argument would go "poof" pretty quick. And that cash hoard has been sitting there for years. What is a dollar of cash worth today if you can't get it for 5 years? I don't know, but I figure one should discount it. Would I pay book value for a company that held cash only (no debt and no operations), but I was confident that it wouldn't be liquidated for 10 years? Nope.

nwoodman, Thanks for those links. I see the bubble naysayers arguing that the tight supply justifies increased housing costs. Yet in that data it points out that real rents have risen 15% since 1987, whereas real house prices have climbed roughly 170%. I'm not sure why, but the greater mass of people are not connecting the dots between 15% and 170%.

This is an interesting article -- lots of good numbers in there: http://www.marketoracle.co.uk/Article16958.html Check out Figure 7. Wow! "‘‘I think it is a mistake to assume that a riskless, easy, guaranteed way to prosperity is to be leveraged up into property." - Glenn Stevens, Governor, Reserve Bank of Australia http://www.smh.com.au/business/rbas-housing-comments-stun-real-estate-chief-20100330-raxn.html How much faith do you have in the IMF? "Australia’s house prices may be overvalued by 5 per cent to 10 per cent, the International Monetary Fund said last week." http://www.smh.com.au/business/top-end-house-prices-sag-as-rates-bite-20101222-195ac.html Prices of the most expensive 10 per cent of Sydney properties dropped 7.5 per cent in the six months to September, compared with an average 1.1 per cent increase in the rest of the market, according to real estate researcher RP Data. Melbourne’s top end property prices fell 10.8 per cent in the period, compared with an average 2.5 per cent price climb for the remaining homes. John McGrath, chief executive officer of Sydney-based realtor McGrath, said his company had seen a 50 per cent increase in listings from the same time last year. Reserve Bank governor Glenn Stevens raised interest rates seven times since October last year, citing a surge in home prices among reasons for the increases. Economists expect the central bank to raise rates by another three quarters of a percentage point by the end of next year, according to the median forecast of economists surveyed by Bloomberg.

Nice ending.

Alexander Hamilton did it -- so at least the newspapers can't say it's "unprecedented". John Adams' wife wanted to buy the paper when it was discounted -- but John Adams refused because he said that Adams' only invest in land. His wife was right -- the paper was trading at such a discount that it would have been a multibagger.

One guy I worked with at Microsoft was a refugee from Cambodia as a little boy. I believe he survived with an uncle but most of the rest of his family was murdered. We also have a lot of "Lost Boys" of Sudan living in this country. This is the kind of people I like to see granted immigration. When it comes strictly to people looking for a better opportunity, I prefer another path. Last year I gave $6,000 to a local charity that buys educations (careers) for the students of Omatepe (the sister island of our community). Omatepe is an island in Nicaragua. That $6,000 will fund one young persons' medical education (it costs about $1,000 per year for a medical education in Nicaragua). My thinking is that the $6,000 will then benefit many more people in Nicaragua who this young doctor goes on to help. Anyways, my point is that $6,000 won't get them very far here in the US. If the goal is to help the world, it might be cheaper on a person-by-person basis to help them succeed in their home countries. This way they also benefit by not having to leave their communities and loved ones.

I thought I'd share this link I came across: http://2010.census.gov/2010census/data/ It's a terrific way to see which state are experiencing population growth from decade to decade. Just mouse over the state to see the rate of growth. My own state of Washington grew 14.1% over the past 10 years. It won't take long for the housing supply to be absorbed at that rate. What I find astounding is that Nevada grew it's population by 63.8% between 1970-1980, 50.1% between 1980 and 1990, then by 66.3% between 1990-2000, and yet again by another 35.1% between 2000-2010. No wonder Nevada had a high amount of housing speculation!

The voter initiative in the state of Washington to install an income tax on persons earning over $400,000 per year was shot down. We don't do tax increases in this state I guess. The Democratic governor of the state is proposing to balance the budget by cutting spending: http://seattletimes.nwsource.com/html/localnews/2013685184_budget16m.html Unlike the last budget, higher taxes are not being considered. A Tim Eyman initiative approved by voters in November requires a two-thirds vote in the Legislature or voter approval to increase taxes. It's hard to imagine a supermajority of Democrats and Republicans agreeing to boost taxes.

Did anyone notice that Michael Milken made the list? http://givingpledge.org/#enter

I wonder what effect the changed economic climate is having on the immigration rate.

Bronco, He's a great guy, however he is slinging mud at me and all other share lenders. It's rude.

I reverse engineered your support of legal short selling. It's like saying air travel is okay, but selling jet fuel is unethical because some bad people use jet fuel for nefarious reasons. We could picket against the production of jet fuel, or we could go after the terrorists instead. Byrne has stated that he doesn't mind people legally shorting OSTK. He can't have people legally shorting it without people lending the shares out in the first place. Yet your argument is that nobody should be lending OSTK shares because somebody might do something illegal with them. So you go farther than Byrne -- he implicitly supports lending of OSTK (how else can we have legal shorting?).

Here you go: http://antisocialmedia.net/media/reverseconverts-primer.pdf

My memory might be incorrect, but Sanjeev didn't you object to the short selling ban? I think you reasoned that legal short selling is okay -- but my point to you is that one can't have legal short selling without a LENDER of shares. You implicitly said that LENDING is okay when you said that legal short selling is okay.

The funny thing is that I held them in a margin account before I lent them out. We all know what brokerages do with shares in a margin account: they lend them out! So by these standards of ethics one cannot have a margin account.

Naked shorts are by definition NOT the people borrowing my shares. I lowered the borrowing cost for the LEGAL shorts. That's perfectly clear and you have to admit it. So why are you now calling the legal shorts unethical? I don't understand the connection you are making -- I helped people short LEGALLY. The naked shorts were not at the other end of my transaction. The only way I facilitated them was when I bought call options -- the "options market maker exemption". I find it confusing that you have no problem with buying the call options which actually does bear some connection to knowingly facilitating naked shorting (doing business with the market maker who you understand to be crooked in renting out his exemption)... but instead you have a problem with lending shares out to the honest shorts. I remember you bought OSTK calls, did you not? Why do you do business at a marketplace that you know is engaged in rotten behavior, but throw stones at people who lend shares? Personally, I've bought calls too. Try to see what I'm getting at here... I have no interest in saying that you are unethical, I just want you to understand that it's unfair to accuse honest share lenders of ethical breaches. Watsa, Byrne, Buffett -- those guys have no problem at all with legal shorts. And legal shorts only get their shares from... lenders like me.

Lending your shares is participating in the game fair and square. I lent mine out... for a time until it was smarter to pull them back in, sell them, and buy calls. No breach of ethics here. From what I understand some people were motivated to go the naked shorting route in order to get around the high borrowing costs... lending them shares helps bring the rate down, thus less need to naked short. One could argue that buying options on Fairfax was unethical, because it facilitated the market maker exemption game that they were running. You can't take an honest business practice and say it's unethical just because somebody else (who is unethical) is going to play unethical games.