Posts filed under “Mathematics”

Sunk Costs Dilemma: “About Those Housing Bears” . . .

From the annals of wrong comes this article, published 6 years ago today (2005): The Housing Bears Are Wrong Again.

Here is a quick excerpt:

“Homebuilders led the stock parade this week with a fantastic 11 percent gain. This is a group that hedge funds and bubbleheads love to hate. All the bond bears have been dead wrong in predicting sky-high mortgage rates. So have all the bubbleheads who expect housing-price crashes in Las Vegas or Naples, Florida, to bring down the consumer, the rest of the economy, and the entire stock market.

None of this has happened. The Federal Reserve has effectively mopped up excess cash and calmed inflation expectations. That’s why bond rates are hovering around 4 percent, with most mortgage rates about a point higher . . .”  (emphasis added)

This is a fascinating study of how hard people fight to retain their preconceived belief system, their notions of what they already know – and what challenges that information.

Some of this may be the result of ideological bias, but I suspect most of this is a case of the Sunk Cost dilemma. When you have spent so much time and energy and money –indeed, your entire professional career — acquiring information and a supporting belief system, it is rather challenging to reverse course from that.

Hence, the difficulty in getting someone to recognize events that are outside oft heir experience. Consider this paragraph:

Meanwhile, the homebuilders index has increased 76 percent over the past year, with particularly well-run companies like Toll Brothers up about twice as much. The bubbleheads missed all this because they haven’t done their homework. If they had put a little elbow grease into their analysis, they would have learned that new-housing starts for private homes and apartments haven’t changed much during the past three and a half decades.

If you looked at home-building relative to Income, or to Household Formations, or to GDP, by 2005 it had was already 2 standard deviations away from the historical mean. It is very challenging to convince people what the norm is int he midst of bubble. And in 2005, we were in the middle of the world’s biggest credit bubble.

What fascinates me is how reasonable the arguments against the bubble sound. Read the whole article without the benefit of knowing how it all crumbled, and you will find it is surprisingly persuasive — just as the housing boom reached its peak.


The Housing Bears Are Wrong Again
This tax-advantaged sector is writing how-to guide on wealth creation.
Larry Kudlow
National Review, June 20, 2005

Category: Mathematics, Psychology, Real Estate, Really, really bad calls

Steven Levitt Analyzes Crack Economics

Freakonomics author Steven Levitt presents new data on the finances of drug dealing. Contrary to popular myth, he says, being a street-corner crack dealer isn’t lucrative: It pays below minimum wage. And your boss can kill you.

Recorded Feb 2004 Posted Sep 2006

Category: Economy, Mathematics, Video

Should You Buy a Home? Looking (Again) at Housing

I posted a video of my pal James Altucher on Yahoo Tech Ticker this week, declaring he was “Never going to buy a home ever again!” Whenever I hear that sort of declaration, it tells me we are closer to the end of down cycle than the beginning. The psychology is reaching a negative extreme,…Read More

Category: Mathematics, Real Estate, Really, really bad calls

Embrace Your Inner Statistician!

You are a probability machine, a statistician, a mathematical wizard. You may not be aware of this simple fact, but its true: Every day, you engage in a series of probabilistic decision-making. You choose based on the probabilities of various outcomes taking place. This occurs whether you are changing lanes on the highway or deciding…Read More

Category: Apprenticed Investor, Investing, Mathematics, Psychology

Doodling in Math: Sick Number Games

I don’t even know if this makes sense. Boo cold. Doodling in Math Class videos:

Category: Mathematics, Weekend

US Map: Rent vs. Buy

By the time Case Shiller drops today at 9am, I will be very busy (lounging on the beach). Expections are for the biggest drop in home prices a year. In the meantime, you can check out this cool interactive Housing map, via Trulia. As you click around in this map, keep in mind the 4…Read More

Category: Digital Media, Mathematics, Real Estate

No, 1 in 4 Homeowners Are Not Underwater…

Earlier this week, I pointed out Diana Olick’s technically accurate but misleading post about the Housing Unoccupied Rate. (US Homeowner Vacancy Rate is 2.7%, Not 11%). I expect to revisit that int he future in much greater detail. Today’s statistics lesson is from an error at HuffPo. It begins with the statement “Nearly one in…Read More

Category: Data Analysis, Mathematics, Real Estate

US Homeowner Vacancy Rate is 2.7%, Not 11%

I don’t know what to make of this bizarre headline from Diana Olick, who made the claim that “Nearly 11 Percent of US Houses Empty.” > Source:  CNBC > That 11% number is about 4X of what is should be, according to the data wizards at Census, and Economagic, who note that the rate was…Read More

Category: Data Analysis, Mathematics, Real Estate

Is China Really Funding the US Debt?

I keep hearing people erroneously claim that China is funding US deficit spending. It seems that every eejit with a fundamental misunderstanding of mathematics (and access to Xtranormal‘s animated talking bears) has been pushing this concept. It turns out to be only partially true — and by partially, I mean 7.5% true. But that means…Read More

Category: Credit, Mathematics, Really, really bad calls

Population 7 Billion

Population 7 Billion” is a 7-part National Geographic series on global population.

With the worldwide population expected to exceed seven billion in 2011, National Geographic magazine offers a 7-part series examining specific challenges and solutions to the issues we face. The magazine introduces the series with its January cover story “7 Billion,” offering a broad overview of demographic trends that got us to today and will impact us all tomorrow. The first in-depth story will appear in the March issue, focusing on humans’ impact on the planet’s geology. Other stories will follow throughout 2011.

See photos from 7 Billion:

Category: Mathematics, Video