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The Recovery Is Here!

It’s not actually here. That’s a lie.

You may have noticed reports stating that real estate prices rose dramatically in 2013. That’s not because consumers are out buying homes, like one might expect. Like in any other market, real estate prices are market driven. Unfortunately, after the collapse there was a huge amount of unsold inventory on the market. This generally reflected the unwillingness of investors to buy homes as well as a glut of supply in foreclosed or distressed properties.

What happened is a small group of investment firms, such as Blackstone Capital, moved into certain areas and purchased the bulk of the distressed properties in bulk from banks. Some of these homes were torn down and others were rented out — the final result was a market controlled largely by speculative forces, price fixing and cartels. Prices are now artificially controlled. The ultimate design of this is to maximize profit for the investment groups at the expense of those seeking to purchase a home.

One might ask why this is bad — it’s not bad for everyone. Public investment funds that invested big in synthetic debt instruments attached to mortgage payments won’t see further declines in their investments. Home owners can sell their houses without taking a huge loss. And artificially high prices also allows home owners to borrow against the value of their house. However, real estate is a poor investment. It doesn’t produce economic growth through technological innovation. Also, high prices for homes raises the cost of living for many individuals as it translates into higher rents and less money being used productively in the economy. It ensures low economic growth and a declining standard of living for years to come.

And government and media are content to maintain the illusion of stability at the expense of our standard of living.

It's a GREAT recession!

Why a Great Recession?

A friend of mine asked why the recession has continued for so long, despite reports stating its end years ago. For example, the media, government officials and pundits declared the Great Recession over in 2008, 2009, 2010, 2011 and 2012.  If the government has been lying about the recovery, does that mean we’re still in a recession? And if we’ve been in recession for more than five years, why do we not call it a depression?

The answer is complex.

First, in a democracy voters can hold policy-makers accountable for the national economy by voting them out of office. Consequently, politicians make every conceivable attempt to trick their constituencies into thinking the economy runs great, even when it’s clearly dysfunctional.

Second, the government agency responsible for financial projections, NBER, uses a very liberal definition of recession, along with some very poorly interpreted and cherry-picked data. An unbiased observer might reason that US financial reporting has a great deal in common with political coverage from Pyongyang.

Third, media organizations receive pressure from ad sponsors to paint a bright picture of the economy – a positive future encourages consumption. While the media produces negative economic stories, they display an overwhelming bias toward positive news.

Unfortunately, this bias works against the average American. Consumers seeking to make long-term financial plans, such as buying a house or car, are severely damaged by mainstream media’s positive bias.

The term “Great Recession” originates with NPR. Unsurprisingly, no official definition exists for a depression. Therefore all economic decline is referred to as a recession, regardless of intensity and duration.  However, lacking a better expression, some writers began referring to our crisis as a “Great Recession”, a term obviously created through combining the depression of the 1930′s with the officially recognized term ‘recession’.

and they want you broken

Should I Buy a MacBook Pro?

Computers should do what you want, reliably, for the least amount of money.

Conversely, a MacBook Pro does what you want, for approximately twice what a comparable Windows laptop would cost.

From a utilitarian perspective, buying a Mac is a terrible decision, particularly given the reliability, performance and cost relative to the alternatives available.

According to warranty company, SquareTrade, Apple’s product reliability isn’t particularly good, ranking 4th out of 9 manufacturers. Considering their high prices, Apple’s mediocre durability and 1-year warranty can cause consumers significant problems.

Many a Mac owner regretted his purchasing decision after finding himself with a  report deadline looming, a $2,000 aluminum paperweight and irrecoverable data.

Considering that Apple’s MacBook Pro line is priced in the same category as ruggedized laptops, with 3-5 year warranties, it seems hardly justified to purchase a laptop with less features for more money.

MacBook performance also falls short of the mark. Even though the Pro lines comes equipped with Core i7 CPU, it can also run fairly hot, because of Apple’s obsession with tiny computers.

Simple preventative maintenance will go a long ways toward cooling it – but in general, laptops tend to run warmer than desktops. Some laptops have been engineered in such a way as to keep them as cool as possible, unfortunately, Apple’s engineers sacrificed cooling in favor of thinness and aesthetics.

One might argue that the aesthetics and usability justify the bloated price tag. For example, no other computer has as beautifully a designed user interface as iOS. Moreover, the UI’s simple, intuitive design is in itself of tremendous value to customers, tired of the needless complexity of Windows. Also in Apple’s favor is iOS’s virus resistance.

However, I would argue, most users get bored with iOS’s appearance within a year. After that, the vast majority of consumers simply want performance and the right software to do their jobs.

Virus and malware resistance, on the other hand, is the only useful feature of iOS. But it hardly justifies a 100% markup.

As savvy consumers we seek to maximize our purchasing power when making any sort of purchasing decision. Sometimes we choose stylish cars over more reliable models but ultimately such decisions prove regrettable – the computer market differs not at all, with flashier computers being less reliable and more expensive than tried and tested models.

Rather than buying a MacBook Pro, consider a budget desktop PC:

First of all, a desktop is much cheaper. Second, a desktop performs better – almost never suffering from overheating. Third, and finally, they are more reliable – a budget desktop that you built yourself can offer a warranty period of five years.

Why pay more for a substantially riskier investment when the payoff is the same? Given the low price, reliability and longer warranties, a desktop is a superior choice to a MacBook.

Welcome to a Great Recession

This Blog Covers:

Deals on stuff and analysis of events impacting your wallet, which should be quite thin by now, thanks to the stagnant US economy.

For two reasons, the flat-lining economy hasn’t been all bad: first, it made blog possible, to which I give great thanks. Second, a whole lot of people who didn’t like their jobs now have a reason to be happy. It has been a great recession.

The Back Story

Explaining the Great Recession requires explaining three things: (1) the context of the Great Recession, beginning with the malinvestment encouraged by large banks from 1997 to 2012; (2) media’s unfortunate terminology used to describe the crisis (3) why our economic problems aren’t all bad.

The US real estate bubble began a rapid deflation in the summer of 2007, when the US real estate market began a slow, steady plunge which as of 2012, continues its descent. At the height of the market, real estate prices fetched on average approximately $300,000. Today, prices vary widely by region – homes in the West average $250,000. In the South and Midwest, prices are approximately $150,000. Although these are clearly different markets, and historical data by region is incredibly hard to get, these price differentials strongly suggest that prices in the West are capable of falling quite a bit more.

As of August of 2012, home prices hover near their, adjusted for inflation, historic values. The recent historic trend, adjusted for inflation, is about $100,000, suggesting that average home prices in some regions have another $100,000 left to go before returning to its normal steady state. However, the government has doubled down on encouraging home ownership in an economy where real estate prices are clearly overvalued relative to demand and the purchasing power of consumers.

Gone are the days of 3 or 4% annual national economic growth, replaced with growth largely consumed by inflation and rising energy/food prices – in other words, a stagnant economy. Unemployment remains between 8 and 9% in the USA, with those numbers not looking to change anytime soon. Our economic crisis is a direct consequence of the reduced spending power of households, many of whom have been suckered into making outrageously high mortgage payments on tremendously overvalued properties.

Given both the reduced buying power of a public committed to paying mortgages on overvalued homes, many producers have been forced to offer lower prices on their goods – a direct consequence of falling aggregate demand.

Why Not a Depression?

With the economic future looking bleak and the jobs situation likely to remain flat, we’re looking at the greatest recession since the Great Depression. NPR and other media outlets took to referring to our current economic state of affairs as “the Great Recession”.

And that’s because no “official” definition exists for a depression, and the government’s best interest is to put a happy face on a terrible economic disaster. Media, oftentimes, creates their own jargon, resulting in the wide adoption of NPR’s terminology: “the Great Recession”.

It’s my opinion that referring to the current economic crisis as a recession, great or small, does consumers a great disservice: Some will buy homes expecting returns on investment out of proportion with pragmatic analysis of the future of real estate. Others may refinance a home with the expectation that climbing housing prices will result in net gain. Both behaviors represent what damage bad information can cause households.

Look on the Bright Side!

A great recession does not mean the end of the world. Quite the opposite for those looking for sales in a fire-sale economy. Follow me on Twitter for the latest and greatest deals on a bunch of things that won’t help you get a job or fill that yawning void in your soul.