Apparently house prices are hitting new highs, particularly in Auckland where they are up 25.4% year-on-year. The median house price in Auckland is now $771,000 so a 20% deposit equals $154,200 or about 30 times median household financial assets of about $5,000.
It will be really interesting to see what happens if prices start falling. If you read through how the ratings agencies assign ratings to Kiwi originated residential mortgage backed securities there are some really interesting details about mortgage underwriting in New Zealand and the intricacies of gross loss estimates that more commentators should understand and think carefully about when reckoning about house prices.
Robo-advisors differ from normal financial advisors in three main ways: they manage your portfolio primarily through automated software (rather than having humans pick stocks and bonds for you), they’re much cheaper than traditional financial advisors, and they custom-build an efficient portfolio for you based on your very own personal risk profile. (“Efficient”, here, is a technical term: it means a portfolio on the “efficient frontier”, where you get the lowest amount of risk for any given return, or conversely the highest return for any given level of risk.)
The excellent Felix Salmon explores one of the fastest growing segments of the wealth management industry. His exploration of the asset allocation to cash that Schwab Intelligent Portfolios take is one that many Kiwisavers might find interesting, but his broader theme that investing comes after you have no debt and emergency savings is something pretty important for Millenials.
If you read the reports you get from your Kiwisaver provider, you may find that a higher allocation to cash than you expected is there, which is an interesting situation to be in and further reinforces arguments made by the likes of NZIER that Kiwisaver is important in household asset allocation and obviously diversification away from residential property.
An interesting long article by Michael Lewis, over at Vanity Fair explores the career and life of Tom Wolfe.
This part jumped out at me:
The idea that leaving Yale and becoming a beat reporter at a small-town paper should have created anxiety—well, he doesn’t even understand my question. He had no student debt—no one did—and no sense that he had to make his way in the world immediately or be devoured by it. He seems to have been entirely free of pre-professional angst. The notion of roaming the earth and groping toward a purpose in life now seems ridiculous to 22-year-olds, but that’s the notion Wolfe more or less embraced.
This chart is from a US Federal Reserve survey of household financial wellbeing. Remember, negative equity in a house can only happen in other countries. It has never happened in New Zealand, right?*
Imagine for a moment if a similar situation arose in New Zealand.
Given what some investigations have found about marginal propensity to consume any increase in housing “wealth” through additional household borrowing, what would be the impact of tens of thousands of households facing this sort of situation?
Of course, this is New Zealand, where the only literature that matters is this week’s copy of Property Press, so move along, there is nothing to see here, house prices always go up, right?*
“Rich Formula: Math And Computer Wizards Now Billionaires Thanks To Quant Trading Secrets” is an interesting look at a quant hedge fund (Two Sigma) and that space of the actively managed market.
My favourite part of the article is this sentence, which highlights the irony of a quant fund built on computer science and data science having relatively higher numbers of employees to practically every other hedge fund strategy:
By 2008 Two Sigma already had $4.6 billion in assets and 200 employees, while other similar-size value funds had far fewer employees.
If you’re running a value or growth strategy, you need a PM, a sales team and some analysts – it would be feasible to outsource almost everything else or leverage prime broker relationships for soft billed infrastructure. If you’re running a quant strategy, you need a PM, lots of data scientists, developers, infrastructure staff and it would be a lot more difficult to outsource because of the high frequency you’re executing trades. This is quite a delicious irony.
The College Scorecard championed by the Obama administration has had generated some interesting commentary. Of course, the data is about US colleges and US graduate earnings, so we’re not comparing apples with oranges for drawing any lessons for the New Zealand situation, but it is interesting data nonetheless.
The NYT article points out how you can conflate college attended with other factors like innate intelligence and work ethic, which is problematic because if you have a pool of talented high school students applying for spots at selective universities then in the case of the US you get very talented pools of graduates coming from predominantly high socio-economic backgrounds. There is some implication that they were always going to be economically successful – see studies that look at father’s earnings etc for a broader review.
The obsession with college rankings and graduates’ earnings “is just the most recent example of a larger phenomenon, which is that the gathering of numerical information acts as a kind of wish fulfillment,” Professor Muller said. “If you have enough metrics and benchmarks, somehow people believe that’s going to solve a major problem. It rarely does.”
But the selection of what college to attend is merely the first hurdle for students from poorer backgrounds in achieving some level of social mobility. In the excellent book “Pedigree”, Lauren Rivera points out how the highest paying jobs out of college predominantly hire students who have similar socio-economic backgrounds. It’s practically inevitable because of the way different hiring systems are set up to function.
This means that even if all of the data in the world is available to the high future-time orientation high school student whose parents are also aware of all of these factors and how they affect lifetime earnings, there are still many myths and misconceptions around the less transparent ways in which desirable jobs are allocated after completing your degree or during your degree in the form of work experience, internships, scholarships or part-time work.
Perhaps people who care about these sorts of issues could explore this issue in more detail. Take the lifetime earnings of Harvard graduates for example – if the pool the undergraduates are coming from is predominantly from a wealthy background, is it really surprising that higher lifetime earnings will arise in aggregate for the graduating class but not necessarily on an individual basis? There has been a lot of work about how students from poorer backgrounds don’t apply to colleges that would give them almost 100% a free ride on financial aid because no one in their entire social circle or any of their high school advisers even understands how the most elite universities award financial aid!
I don’t understand why anyone would try and run a moral argument in the 21st century. It’s patently absurd to try and argue against adblocking because of some insinuation that it’s “unethical” to block ads when they lower the quality of your content consumption experience and the publisher of the content hasn’t offered an appropriate payment method for your jurisdiction.
I use Purify on iOS to block ads in Safari, which not only saves mobile data, it also improves page loading times. I use Adguard on my laptop and that, too, improves the browsing experience and reduces page loading times. I really couldn’t care less that some content producers can’t make money – there are so many choices of content to consume on the internet that losing a couple of marginal voices because no one wants to pay for a subscription isn’t really something to run to the barricades about.
Does this mean I don’t pay for content? Ironically, I pay for the content I value and can access on reasonable terms to me – remember, in this consumer driven era, it’s not about what the producer wants to sell it’s what the consumer wants to buy on their terms.
My current content subscriptions include:
- SKY + SKY Sport
- Apple Music
- New York Times
My one-off online content purchases include:
- Amazon – ebooks
- Apple Store – ebooks, some music
If someone wants to block ads to improve their browsing experience that’s their perogative. If content drops out of the marketplace because it can’t survive, then that’s too bad for them. The internet, like life, isn’t fair, and attempts to make moral arguments in an inherently amoral sphere are amusing.
Even with very high rates of adblocking, the major online content sites people think of when they think about who is impacted by adblocking are still generating revenue and visitors. The site founded by former Wall St analyst Henry Blodget, Business Insider, was recently sold for a pretty sum. I’m sure most of its users would block ads or their IT department would.
“The government has to try and talk it down and say it’s inflated, but at the same time all they can try and do is control the ongoing growth as best they can,” Mr Van-Petersen said. “If they wanted to prick it, they could, but Australia simply cannot afford to.”
Source: Australia can’t afford to burst housing bubble as wave of Chinese money looms
The IMF report referred to in the SMH article is worth a skim read.
There is a strong trend for economists to ignore that there are costs to open capital flows and high levels of immigration. The specific impact on house prices in Australia and New Zealand needs a lot more attention. Michael Reddell’s work in this space has been excellent.
It isn’t really possible to take models that try and explore the implications of “hot money” that seriously. The lessons of the Global Financial Crisis have led to significant reforms of banks but for shadow banks, not so much. To the regulator with a hammer, everything looks like a nail. And there has been a lot of financial innovation – particularly on the part of the Federal Reserve in the mechanics of QE – that hasn’t experienced a sudden collapse in confidence like that experienced in late 2008.
Over at The Awl a while ago in internet time….
What’s remarkable, perhaps, is that for all of Uber and Lyft’s innovations, beyond a certain scale, they have yet to devise wholly unique or vastly differentiated solutions to the problems of moving people around in large cities. (This is not to downplay at all the enormous potential efficiencies of transit that is networked and dynamically responsive to rider demand, but only to point out that if public transit agencies were also beholden solely to people who own smartphones and mostly lived in relatively affluent areas, one could more easily imagine the MTA or Muni or the TLC making such upgrades.)
This is amusing because my own use of Uber is balanced by a very reliable bus service or walking to and from work each day. Uber is basically for edge cases that can’t be solved by public transport in Wellington – which don’t apply for a lot of people thus even in Wellington, Uber use isn’t acclerating as much as technology evangelists might expect it to.
The post title is obviously a trick question. There isn’t a “right play” but there are many “wrong” plays. We currently have troops in Iraq “training” the Iraqi army, and it isn’t clear how long that deployment will remain tenable. It would certainly be insane to try and deploy any forces outside of Taji Military Complex as some sort of soundbite enhancer for the government.
The “less wrong” play would be stop trying to play at being a country that matters and focus on protecting New Zealand’s interests. There really isn’t much for us in the Middle East, unless you think building sheep farms in the desert is the height of foreign policy achievement. Where is the vision? Where is the quantifiable achievement for New Zealanders who live in New Zealand in the form of jobs, higher household incomes and greater standards of living?