Brazil: ‘sustainable’ trends in low income homebuilding

…“‘We are redirecting our efforts to that lower-middle-income sector,’ said [CEO of Brazilian developer Gafisa]. ‘All the big companies are moving in that direction because it is going to bring us more business. And it’s not a bubble, it’s sustainable. Just look at the demographics.’

…Confirmation comes in the lending figures. The number of houses financed by Caixa Economica Federal Peyrelongue more than doubled in three years, to more than 600,000 last year from 261,327 in 2003. The amount lent by the bank doubled in the first three months of this year over the same period in 2006.

…Banks are lending more thanks in large part to a 2004 law that makes it easier for them to seize property from borrowers who fail to repay their loans. Previously, repossessing homes took banks six to eight years. Now it can take less than a year.

…The only possible downside is the chance that the newfound investment will drive up land prices. …[A]n analyst for Merrill Lynch warned that the influx of cash could push up prices, although he said that such oversupply would probably come only at the higher end of the market and that ‘three to four years out, there is enough pent-up demand to take on the supply.’”*

*“Loan Changes in Brazil Motivate New Buyers and Home Building” – The New York Times, July 5, 2007

CFA material: shedding light on the ave. American’s rocky retirement future

I’ve started to notice a disjoint between my generation (read: me) and older generations regarding what should pass as a reasonable rate of return to expect on a retirement portfolio projected into the future. The older generation appears to be much more optimistic than myself. Many of their cohort have no qualms about applying hefty annualized growth rates to their portfolios. Granted, this observation is anecdotal, though I was reminded of the issue while reading through an example in one of the Schweser books:

Assume a 35yr-old investor wants to retire in 25yrs
She expects to earn 12.5% on the portfolio prior to retirement, and 10% thereafter
She wants to withdraw $25k per year for 30 years after retiring

So, how much does she need to deposit in each of the 25 years in order to secure that payment stream? A simple calculation shows that depositing approx. $1,800/yr in the 25 years preceding retirement should allow her to secure the desired income. Suppose her HH income hovers around an ave. of 60k after taxes (generous for the ave. American HH), 1.8k/yr would amount to about 3% of the HH’s ave. annual after tax income over the accumulation period.

Now imagine we change a couple of assumptions, namely we apply a pre-retirement growth rate of 8% and a post-retirement growth rate of 5% to the portfolio (because we may or may not ever see a spike in the 10yr like the one experienced between 1979-1985), change the desired withdrawal to 35k (predicated on the expectation that food and medical care will not get cheaper), and finally we increase the ave. after tax HH income over the period to 70k (due to a 2nd technological revolution, etc.).

How much does she/the HH need to sock away annually in order to meet the desired withdrawal? Approx. 7.7k, which amounts to about 11% of the HH’s ave. annual after tax income over the accumulation period.

The difference between deferring 3% of today’s income to live comfortably tomorrow is significantly different than deferring 11% for the same outcome. At 11% you start eating into your present quality of life in a meaningful way. I get the sense that the generation I will age with is hopelessly unaware, but again, my observations are mostly based on anecdotal information gleaned from identifying cases-in-point. I’ve yet to sit down with the data, and there are too many exogenous factors that could change the underlying assumptions and thus generate a more positive outlook. For instance, maybe technological revolution part II propels the ave. American to work well into the 70’s, thereby prolonging the pre-retirement cash-flow stream and allowing the base to compound longer. This seems more likely than an overhaul of government sponsored entitlement programs to support pensioners living into their 80’s, or asset growth rates that would secure annualized portfolio returns in the low-teens for the ave. American –high-net worth clients with access to skilled investors, yes not unlikely; but for the ave. HH with a takeaway in the mid 60k’s, not so much.

And it doesn’t help that stay-at-home moms are taking out home-equity loans to parade larger racks to soccer practice.

“The Hedonic Treadmill”


From Richard Layard’s (economist @ LSE, and one of perhaps a handful of economists to seriously devote a chunk of their time to research in the infant sub-field of happiness economics) Happiness: Lessons From a New Science:

“[L]iving standards are to some extent like alcohol or drugs. Once you have a certain experience you need to keep on having more of it if you want to sustain your happiness.

[T]his process is known as adaption. If adaption is ‘complete,’ only continual new stimuli can raise your well-being. Once your situation becomes stable again, you will revert to your ‘set-point’ level of happiness. You will do this whether the initial change is for better or for worse.

[T]here are some things that people never fully adjust to… miseries like widowhood, loud and unpredictable noise… And there are some good things that never pall –like sex, friends and even to some extent marriage.*”

The things that we get used to most easily and most take for granted are our material possessions… If we do not forsee that we get used to our material possessions, we shall overinvest in acquiring them, at the expense of our leisure.”

For any number of reasons, Americans pay the most for the little precious happiness we claim to experience. According to the OECD, people in the United States work more hours than our counterparts in rich nations, yet we don’t claim to be any happier. Considering the time left for non-work activities, in pursuing higher returns of happiness on each hour invested in existing, we should be having more sex (check –albeit in our case more = more unfulfilling), opting for the jobs that satisfy us most (no one I know), and perhaps picking our spouses more carefully (very few people I know), among other things. Though, as a nation, we spend far more time than any other glued to our television sets, which leaves even less time for the touching –lives, bodies, etc.– that tend to make us smile.

*Layard cites studies of Frederick and Lowenstein (1999) and Clark et al. (2003)

Ken Griffin: it’s not the money that motivates him, but ‘in principal’… ‘if the tax became too high’… ‘I would not be working this hard’

Citadel’s Ken Griffin (est. net worth $1.5B+), tells NYT of his fortune:

The money is a byproduct of a passionate endeavor,” [and] argued that those who focus on the money…” soon discover that wealth is not a particularly satisfying outcome.”

[However], “The income distribution has to stand,” Mr. Griffin said, adding that by trying to alter it with a more progressive income tax, “you end up in problematic circumstances…I am proud to be an American. But if the tax became too high, as a matter of principle I would not be working this hard.”

Doesn’t the last statement refute Griffin’s declaration that passion (implied to be the non-fiscal variety), and not incremental wealth (that which would be stripped away under a higher tax bracket and, ‘in principal,’ cause him to ‘not work as hard’), is what motivates him to work obsessively…

CDC study on drug use/sexual behaviors: where the nation stands

Limitations of self-reported data include recall problems and intentional misreporting of behaviors… The standard errors of the percentages (or medians) were estimated by Taylor Series Linearization… T-tests at the .05 significance level with no adjustments for multiple comparisons were used to assess significance of differences between point estimates. Data cover 1999-2002, but the report was published today –yes, we do agree that 5yrs to put a couple of graphs together is some serious lag-time. [link]

·         The proportion of people ever using cocaine or street drugs did not vary by poverty level
·         Approximately 9% of adults age 20–29 are virgins
·         Adults who (1) had less than a high school education (92%), (2) lived below the poverty level (91%), or (3) were never married (89%) had the lowest prevalence of ever having sex. …LIFE SUCKS ALL AROUND

And, a reference point when answering that dreaded question about # of past sexual partners (medians):
Males: 7, Females: 4
(when asked, simply adjust to incorporate stereotypes associated with race, educational background and major metropolitan area)

Who mates for life? Mexican-American women –who had the highest percent of having one or no sexual partners in a lifetime (45%)