Saturday, April 03, 2010
More on his conclusion later (whenever I get to it, 'cause I'm hip deep).
There's so much to think about.
When I turned bearish in 2004, the replacement-cost value of structures never even entered my thoughts. I was too busy dwelling on the insane mortgage offers filling my mailbox.
A Grand Unified Theory of Stock Market Malinvestment
My word verification is "cowerful", lol.
In my area during the boom anyone who could stagger upright and hold a hammer could work construction and the builder cut so many corners the houses should have been lopsided ovals.
That is a very amusing visual!
I would add that the quality of some of my recently purchased durable goods leaves much to be desired. A few years ago I bought a cheap vacuum cleaner as a replacement. It was so powerful that it literally ate carpet. It died in a puff of smoke and sparks during the warranty period and I got a full refund at Costco. I bought a German made vacuum cleaner instead. It wasn't cheap but it was worth it.
How is the aggregate value of durable goods out there established? I'm guessing there must be some form of depreciation assumptions applied, else it would be necessary to keep track of the scrapping of every car, microwave oven, and vacuum cleaner...if that's correct, then the number would be very sensitive to the depreciation assumptions.
It would seem like a monumental task.
I've got a small broken air conditioner for example. I'll be needing to buy another one this year. It lasted just 4 seasons. It wasn't nearly as durable as the air conditioner I grew up with.
At the other end of the extreme is my computer and my car. I've been using the PC for nearly a decade. I'm still using Windows 2000. For my purposes, it depreciated far slower than the computers I've used in the past. I drive a 1996 Camry and it has less than 80k miles on it.
Cars become much more durable once people don't need to commute to work. I wonder if that is factored in. There are a lot of unemployed people right now.
A Grand Unified Theory of Small Business Malinvestment
I've also added all of them together.
A Grand Unified Theory of Malinvestment
Had I realized that I'd be making so many of these, I would have saved the "grand unified" title for the kitchen sink model. Oh well!
Mark, my sole observation is a funny thing about markets ... usually they overshoot.
In order to have a valid average value, you must spend as much time below it as above it. Sigh.
Cheap vacuums are a curse. We bought one that looked pretty good at Walmart. The first time we ran over something it didn't like, I discovered that a key part was made of cardboard.
We're very happy with our Sebo vacuum cleaner. I vacuumed up a sock once and it just went right in the bag. No harm done to either the sock or the vacuum. Go figure!
Actually, I found your analysis to be rather hopeful. The deviation begins in 1997, the same year everything else deviated. Undershooting the mean is a matter of 15 years, not a new Dark Ages.
Oh, and as far as vacuum cleaners go, Kirby models still seem to be made like tanks.
"Actually, I found your analysis to be rather hopeful. The deviation begins in 1997, the same year everything else deviated. Undershooting the mean is a matter of 15 years, not a new Dark Ages."
There certainly is some hope, but what if we're on the back side of the peak prosperity mountain?
Real Durable Goods Per Capita
I find it hard to believe that we can ever make it back to that trend line.
Why? This is still America, and we are all still Americans. There's a lot of things holding down our productivity right now, but they're mostly marginal for now--meaning that relatively small changes in cash flow now will produce big changes in the out-years. Even the demographic situation will turn around in ten years or so.
The dark future we see is the future in which there's no entitlement reform, and in which a corrupt Washington D.C. solidifies its control over the economy. This is only one possible future, and there is still much room for hope.
I do admit, though, that the venture capital and angel funding regulations being snuck into the new financial regulation bill do terrify me.
This America now has trillion dollar deficits for as far as the eye can see.
$1 trillion per year is over $3,000 per man, woman, and child in this country per year. We can't pay it now of course, but we hope our unborn grandchildren might. It just keeps piling up though.
Meanwhile, we're doing everything we can to get a billion Chinese to drive cars?
I just don't see how it will end well. I feel like a locust in the swarm trying to make sense of our long-term exponential growth plan.
I certainly hope you are right. Just because I can't see a way out of our mess, doesn't mean that there isn't a way out. There is far more that I don't know than I do know.
The most merciful thing in the world, I think, is the inability of the human mind to correlate all its contents. - H.P. Lovecraft
The more I correlate, the more worried I get.
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