Good Reading and Charts

My friend sends out this email every few months. He puts together a great list of some articles, studies, numbers and more. Some more good Holiday weekend reading:

Quoted

“I think the future of equities will be roughly the same as their past; in particular, common-stock purchases will prove satisfactory when made at appropriate price levels. It may be objected that it is far too cursory and superficial a conclusion; that it fails to take into account the new factors and problems that have entered the economic picture in recent years — especially those of the movement toward less consumption and zero growth. Perhaps I should add to the my list the widespread public mistrust of Wall Street as a whole, engendered by its well-night scandalous behavior during recent years in the areas of ethics, financial practices of all sorts, and plain business sense.” — Benjamin Graham, June 1974 (source: Financial Analyst Journal of Sept./Oct. ’74, via Longleaf 3Q11 letter)

Facts and Figures

• 11.6% of Americans moved residences between 2010 and 2011, the lowest level since records began in 1948. The peak of 20.2% occurred in 1985. (source: U.S. Census Bureau via Bloomberg)
• “Among the 20,000 Chinese with at least 100 million yuan ($15 million) in individual investment assets, 27 percent have already emigrated and 47 percent are considering it. Rich Chinese [with 10 million yuan] have about 3.6 trillion yuan ($564 billion) invested overseas.” (source: China Merchants Bank and Bain & Co.)
• In September, stock price correlations surpassed the levels experienced in 2008 after Lehman’s collapse. Correlations hit 85% for the FTSE 100 and 90% for the S&P 500 (vs. a rough historical average of 30%). (Source: Longleaf 3Q letter)
• These figures from a recent Allstate/National Journal poll are pretty striking — the ongoing deleveraging of consumers’ balance sheets has largely been forced by lower incomes and asset values, but now it is also backed by a decided anti-debt bias by the majority of borrowers, which is a sea-change from just a few years ago (although that’s not quantified).

• The affluent were much less likely to see debt as an obstacle, but otherwise the belief that it created more problems than benefits for society was widespread. That conviction is evident in another stunning result: Three-fourths of those polled said they believed they personally would be better off if they carried “no debt by paying off all your loans right now.” Just one-fourth accepted the idea that debt made them better off by allowing them “in effect [to] borrow from your future income.” 
• Just 39% agreed that “personal debt provides a path to achieving the American Dream by making it possible for people to borrow against their future
  earnings,” while a solid 56% majority said that “personal debt creates an obstacle to achieving the American Dream by encouraging people to spend beyond their means.”
• 47% say the downturn has encouraged them to pay off debt or not take on new debt, even if that meant cutting back spending. Only 12% say the economy has required them to take on more debt to meet their daily expenses.

Attachments

• “Credit Scarred” — the full article regarding the aforementioned consumer credit survey.
• “Another Look at China’s 12th 5-year Plan” — Prof. Wong at The University of Hong Kong provides an interesting look at China’s economy. (See here for video.)
• “Reengineering the Appraisal” — a good historical overview of U.S. residential real estate by my favorite housing finance expert, Ed Pinto. In the second half of the presentation he lays out an excellent analysis of home appraisals, a key cog in the machine and highlighted by many industry participants as a major, ongoing problem.

Links

• “Taking the Longview” — I included an excerpted clip last time, but this is the full 44-minute panel with Eddie Lampert, Eric Schmidt, and Larry Summers, among others. Highly recommended. (thanks, Steve)
• “Demographics Are Not Destiny” — I disagree with many of the conclusions, but this article has some great data and charts. “From 2010 to 2050 the dependency ratio will quickly start increasing…the world is at an inflection point.”
• “Occupy Wall Street: It’s Not a Hippie Thing” — Roger Lowenstein’s excellent perspective on Occupy Wall Street and the broader economic implications.
• “Corzine Forget Lessons of LTCM” and “In Corzine Comeback, Big Risks and Steep Fall” — two interesting profiles; the first by Roger Lowenstein of “When Genius Failed: The Rise and Fall of Long-Term Capital Management” fame has some excellent historical lessons and parallels. To see my (Jacob Wolinsky’s) interview with Roger Lowenstein, click on the following link-Exclusive Interview with Roger Lowenstein)

• “Bill Gates on Being the Top 1 Percent, Fox News, and Taxes” — “Asked about economic disparity, how money is influencing politics and the challenge voters face making informed decisions, Gates said ‘the world at large is less inequitable today than at any time in history.'” He later added, “So if you really look at where we’re letting people down in terms of the American dream, I wouldn’t say – you can take this as self-serving – I wouldn’t say it’s because of a few people are very rich. I’d say it’s because we haven’t been doing a good job on education to give them an opportunity to move up into the top few percent.”
• “The King of Human Error” and “The Anti-Gladwell“ — this will be the last mention of Kahneman and new book, I promise. (But if you need one more endorsement to go read it, I just did and it was even better than the hype.) Be sure to also check out “The Quiz Daniel Kahneman Wants You to Fail” and “Debunking Myths of the Medical World.”
• “Cargill: Inside the quiet giant that rules the food business” — Cargill is an amazing organization, and as a private company that has purposefully avoided attention, most people don’t know much about it. This is a decent profile but really just scratches the surface. One big clue to its success: “[Our] capital’s not only private, it’s patient and permanent.” Later the CEO adds, “As far as how our corporate strategy works, we don’t say, ‘We think the world’s going to look like this, let’s define our strategy for that world.’ We say, ‘We don’t know what the world’s going to look like. We need a strategy or a set of strategies that can be successful almost irrespective of what the world looks like.'”
• “How a Financial Pro Lost his House” — this is truly incredible on multiple levels. At the least, it’s a microcosm of housing and consumer finance in the U.S. last decade, not to mention the “financial advisory” industry.
• A series of interesting articles on China — a couple of these are a few months old, but they’re all very good. The first one in particular is excellent but concise.

• “Why We Should All Be Very Skeptical on China” — a brief historical primal on the dismal track record of centrally planned economies. The particular focus is on the ultimate and often sudden drop-off in growth once investment opportunities become scare and/or debt begins to pile up. Examples are France in 1820s/30s; Germany and Italy in 1930s; USSR in 1950s/60s; Brazil in 1960s/70s; Japan in 1980s; and China more recently. (Full audio is here and requires free registration.) And I don’t know if this was in direct response or not, but Pettis published an article just a few months later titled, “Don’t Panic, China’s Economy is Not on the Rocks Yet.”
• “Swimming Naked in China” — back to the ledge…
• “Top of Chinese Wealthy’s Wish List? To Leave China”
• “Rich China, Poor China” — be forewarned that there is a Cato economist behind this one.

“The No Growth Trap” — in case you have any optimism left, this article should take care of it. I actually think there are some useful historical lessons in here, but I would be careful not to extrapolate too much.