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Thought Experiment – What if Social Security Invests in the Stock Market

A link to an interactive spreadsheet where you can change the % invested, and the start date.   This has been an idea that has been kicked around for years – what if the US Social Security Trust invested in the stock market? It is an interesting idea. Indeed there have been a number of papers on the subject. Given the rise of Sovereign Wealth Funds, it is understandable that there would be those who would want to put this money to greater use, earning better returns in this Zero Interest Rate environment. We have created an interactive sheet to test this idea. At the top, in cell A2, select a percentage of the Social Security Trust surplus assets which should be placed in the stock market. For the purposes of, “the Stock Market” we have used the S&P500 and its annual dividend yield. Our starting year is 1957.  You can... Continue reading
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Thought Experiment - REITs vs Investment Property

An interactive chart on Google Docs. Trying to answer the question, "Which would have been a better investment - property or REITS?" I took the Case-Shiller set of indices for the 20 largest property markets in the US. On the sheet labelled "Main" you can select a city from the list of 20, in cell B5. Assumptions were - 10% down payment, 1.5% expenses for insurance, taxes, maintenance, etc. For the REIT proxy, I used the Vanguard REIT Index Fund. I assumed 100% leverage (VNQ is the ETF equivalent, and can be held on margin), a 2% broker financing rate, and 2% earned when in cash. The only wrinkle to Buy-and-Hold is that I assumed the Kalenjin trend following methods would be applied to this position. This results in a flat line 2007-2009, which would have saved a lot of people a lot of pain.About half of the covered markets would... Continue reading
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'Safe as Houses' Meets ZIRP

  In the US it has practically been gospel for the past 30 years that home buying was a path to wealth. This is indeed the case if one buys a property and keeps it until at least 50% of the mortgage is paid (roughly 2/3rds of the term of a mortgage) and the home does not drastically decline in value in this period. However, in the US, the average homeowner moves every 7 years, when an average mortgage balance has declined by a mere 10%, barely offsetting closing costs. So for better or worse, US homeowners are betting on price gains. For the past 30 years, they have been right.The nominal changes in homes in the US for Fannie Mae mortgages has gone from $43k in 1977 to $164k by the end of 2011. 300% returns for homes in all brackets are the norm in this period. So what has... Continue reading
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A Real Estate Developer Flaps its Wings in the US and a Factory in China Closes

We read a lot about the rise of China, and its growing economic power, but what is the source of this? Did China all of a sudden decide to start growing its GDP? Or was there an underlying catalyst for this unprecedented 30 year run? China has always run a trade surplus with the US. It does not really run a significant trade surplus with any other nation, and in fact runs deficits with a few others in Asia. So the relationship is, China makes stuff, the US buys it, the US pays in US$, the Chinese then take this money, and put it in US Treasury bonds. Because their own economy could not handle the large influx of currency, and there are not enough domestic investment opportunities to place $3 trillion in bets (see Carl Walter's brief video for an excellent explanation), it goes into the most liquid market in... Continue reading
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N.E. Asia Going Down for the Demographic Count

All good things must come to an end, as the FT outlines in this article. And so too will the population growth of N.E. Asia. Japan is already in decline. The Japanese headcount is expected to shrink from 130mm to 100mm by 2050, with all the commensurate externalities - higher dependence ratio, so lower consumer spending, more spending on healthcare, etc.China and Hong Kong are set to "hit the wall" in 2017. Taiwan in Korea 2016, Singapore 2018. Fertility rates in Shanghai are already estimated to be 0.74. Taiwan's fertility rate is the lowest of any country measured now, at 1.1, and this in a country with no "one-child" policy. In addition, the preference for boys in these societies means that the actual fertility rates will decline at an even more drastic rate. From a street-level view in Taiwan, this phenomena is manifesting itself in a number of ways. Cram schools - traditionally a... Continue reading
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