Political Calculations
Unexpectedly Intriguing!
April 30, 2007

Sometimes, as we work toward larger goals in our analysis projects, we find ourselves dealing with data that can be pretty neat in and of itself. Today, we're presenting some of that data in our chart below, which provides the number of registered births in the United States from 1909 through the most recently finalized data for 2004. Because we thought it might be fun, we've segmented the chart according to commonly accepted generation definitions:

The numbers behind the chart above are taken from two different reports from the bean-counters at the U.S. National Center for Health Care Statistics: U.S. National Center for Health Statistics, Table 1, Live Births, Birth Rates, and Fertility Rates, by Race; United States, 1909-2000 and Births: Final Data for 2004, tables E, 1, 18, 32.

Our table below provides the following data for each of the indicated generations: the total number of registered births, the peak number of births (and year), the low number of births (and year) and finally, the average number of births in each of the generations:

Highlights of US Registered Birth Data, 1909-2004
Generation (Years) Registered Births Peak Births (Year) Low Births (Year) Average Births
G.I. Generation (1909-1924) 46,316,000 3,055,000 (1921) 2,718,000 (1909) 2,894,750
Silent Generation (1925-1945) 55,332,000 3,104,000 (1943) 2,307,000 (1933) 2,634,857
Baby Boomer (1946-1964) 75,863,047 4,300,000 (1957) 3,411,000 (1946) 3,992,792
Generation X (1965-1981) 58,539,872 3,760,358 (1965) 3,136,965 (1973) 3,443,522
Generation Y (1982-1999) 70,125,668 4,158,212 (1990) 3,638,933 (1983) 3,895,870
Generation ??? (2000-2004+) 20,308,472 4,112,052 (2004) 4,021,726 (2002) 4,061,695

Looks to us like the next generation could put the baby boomers to shame!

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April 27, 2007

Welcome to the April 27, 2007 edition of On the Moneyed Midways, the blogosphere's weekly review of the best posts from each of the week's best assembled major business and money-related blog carnivals!

Each week, we seek out the best post from the hundreds contributed to the dozens of blog carnivals and proclaim it to be The Best Post of the Week, Anywhere!(TM) For those posts that come close to that standard, we declare it to be Absolutely essential reading!(TM)

Before kicking off this week's edition, we're going to highlight a post that was contributed to the latest Carnival of Real Estate, on the topic of The 10 Biggest Mistakes of Real Estate Bloggers.

Now, while the Real Estate Tomato's Jim Cronin cites many examples from real estate blogs, the 10 mistakes he illustrates apply to every blogger - if you are already or ever plan to write a blog post, it's Absolulely essential reading!

And now, on with the best posts of the week that was!....

On the Moneyed Midways for April 27, 2007
Carnival of Entrepreneurs 20 Ideas to Start a Part-Time Business that Make You More Money Journey to Financial Freedom Harrison Loke lists twenty ideas for supplementing your current income - while our favorite is the espresso cart, we have to admit we never considered maintaining and leasing plants!
Carnival of Ethics, Values and Personal Finance GE and Integrity Land Mines SOX First How does GE avoid the potential ethical nightmares that could easily undermine and destroy the multi-national corporation? Leon Gettler draws lessons from a recent analysis in the Harvard Business Review.
Carnival of Financial Planning Stocks vs Real Estate, Winning Investment Strategies Digerati Life The Silicon Valley Blogger highlights a story by Lazy Man and Money who critiqued a CNN Money article comparing stocks and real estate as investments.
Carnival of Fraud USANA Health Sciences Invokes the Chewbacca Defense Blogging Stocks Zac Bissonnette has questions that aren't being answered by a company that's invoking the famous "Chewbacca Defense" strategy made famous by South Park. Absolutely essential reading!
Carnival of Real Estate Misplaced Improvements in Real Estate Searchlight Crusade Buying a home and fixing it up to sell for a lot more is a dream of many real estate investors. Buying a fixed up home is a dream of many home buyers. Dan Melson says before buying into a dream, check in with reality first!
Carnival of the Capitalists Zillow.com at the Dawn of the Age of Abundance: Working for Free Is Not a Crime, Trying to Forbid It Is…. BloodhoundBlog The Arizona Board of Appraisal is attempting to stifle Zillow's latest innovation and Greg Swann illustrates just what's going on in The Best Post of the Week, Anywhere!
Cavalcade of Risk Are Baby Boomers Sicker Than Their Parents? The Sentinel Effect Richard Eskow reflects on the potential impact to society as a recent study indicates that the answer to the question might be "yes."
Home Business Carnival 20 Things Not to Do Before Starting a Business Business Opportunities Weblog We've come very close in recent weeks to linking to Dane Carlson's list of 20 things that really sidetrack new business starters from their main tasks on hand, but this week, it's by far the best post of the latest carnival to which it's made the rounds!

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April 26, 2007

Will the pornography industry ultimately select the winning next generation DVD technology?

The answer at this point in time is: maybe. Right now, there are literally hundreds of factors that are still up for play in the market for either the Blu-ray or HD-DVD formats, which are both still in the very early phases of being introduced to the mass consumer market. The reason why the question is being asked is because of the history of how the VHS format came to rule the world of videocassette players and recorders over the Betamax format back in the 1980s.

Back then, Sony, which had developed the Betamax format, declined to license the technology to adult video product manufacturers. Consequently, the video pornography producers turned to the lower quality, lower cost VHS format to issue their products. Given the explosive growth of demand in the home video market for adult videos in the 1980s, the VHS format came to dominate the marketplace and Betamax was consigned to the technological "neat but not worth it" dustbin. Sony eventually abandoned its proprietary Betamax technology and became a producer of VHS products.

That history is already driving high definition DVD production purchasing decisions, as the producers of products using the high definition technology are gambling large amounts of money that one format will ultimately come to be preferred by consumers over the other. Consider this anecdote from the National Association of Broadcasters annual conference in 2006:

Ron Wagner, director of IT operations at E! Entertainment Television Inc., in Los Angeles, said his company has already chosen the Blu-ray Disc format, in large part because of talk in the porn industry favoring it over rival HD-DVD.

Wagner said that while attending last year’s National Association of Broadcasters (NAB) annual conference in Las Vegas, more than one panel discussed “several major players in the porn industry going the Blu-ray route.” He said the Blu-ray vs. HD-DVD rivalry was also the buzz around NAB 2006 last month.

“If you look at the VHS vs. Beta standards, you see the much higher-quality standard dying because of [the porn industry’s support of VHS],” he said. “The mass volume of tapes in the porn market at the time went out on VHS.”

What's more, the porn industry seemed to be climbing on board the Blu-ray bandwagon:

Porn studio Digital Playground, which claims to have produced the largest number of high definition movies in the industry over the past three years, said it is choosing Blu-ray Disc for all of its “interactive” films because of its greater capacity. It also selected Blue-ray because Sony chose the format for its PlayStation 3 (PS3) box, due out in November.

The co-founder of Los Angeles-based Digital Playground, who goes by the one-word name “Joone,” said the fact that Sony chose Blu-ray guarantees his studio an instant home audience.

“PlayStation 3 is going to be the Trojan horse that will get a lot of numbers into the home theater systems — the living rooms,” said Joone, who is also a movie director. “Technology-wise we’ve chosen Blu-ray, which doesn’t mean we won’t support both formats ... but as far as having really cool technology and a lot of storage for future proof, Blu-ray is a good format.”

But then, Sony did something remarkable. The company's leaders once again rejected approving the use of its technology for producing adult videos. "Joone" describes what happened:

"Sony wants me to publish my films on HD DVD." He then went on to explain that he had in fact wanted to publish his movies on Blu-ray Disc, but that all Blu-ray Disc copying facilities in the United States had refused to cooperate. The companies had unanimously declared that Sony had threatened to withdraw their Blu-ray licenses should they stoop to making HD copies of pornographic films, Joone said. Even though he would have liked to supply with his movies the predominantly male group of Playstation 3 players he had been forced by events, he declared, to switch to HD DVD. The game console has the ability to play Blu-ray Discs built into it. The director said he was puzzled by Sony's attitude, which, he noted, had also turned out to be counterproductive in the case of Betamax.

So, if that's true, what could Sony be thinking? If adult videos powered VHS to video supremacy over Sony's Betamax in the 1980s, what could stop the same thing from happening again? How can Sony expect to be successful with Blu-ray?

In our view, the answer to that question lies in the fact that the world of video entertainment in 2007 is a lot different from that same world in the 1980s. To start with, unlike in the 1980s, Sony has already partnered with many other major film producers, who will be producing content for the home video market using the Blu-ray format. Sony's greater openness with the video format this time around gives Sony an excellent window into being able to deliver more top-notch entertainment products sooner to the home video market.

More interesting is Sony's integration of Blu-ray disc playing technology with its PlayStation 3 (PS3) game system, which has already ensured that its product has achieved a decent sized penetration into consumer households. This base ensures that Blu-ray content can be played to a fairly large home audience already.

Sony is also moving to lower the price of its dedicated Blu-ray disc players much more rapidly than it did with Betamax in the 1980s.

Meanwhile, with the growth of Internet streaming video technology, the pornography industry has less pull in the home video market than it did 20 years ago, as many home consumers for adult video products are choosing this option over other formats.

Finally, the kind of video entertainment products being demanded by consumers has changed dramatically since the 1980s. Let's do a little bit of speculating here. Consider the growth of children's video entertainment products, which were nearly non-existent in the 1980s, but now represent 28% of the entire home video market. By combining accelerated price reductions in Blu-ray disc players and discs, which will keep the technology pretty competitive with the HD-DVD format, with a large inventory of Blu-ray discs aimed at the children's market, Sony could very well lock-up its early lead in the next generation DVD format - thanks to a very family-friendly business strategy.

And why should the pornography industry ever have been in charge of making this choice, anyway?

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April 25, 2007

Diversification can be a powerful tool for an investor seeking minimizing the risks associated with their investment choices. But it also leads to new questions, such as "how should I diversify my stock portfolio" and "how much should I invest in each of my individual stocks?"

While the answer to the first question may be as unique as each individual investor, the answer to the second might be found in the Kelly Criterion, a method that was originally developed in the 1950's by John Kelly, who worked at AT&T's Bell Laboratory, to deal with signal noise issues in long distance telephone service.

That the method might also be effective in reducing gambling losses and maximizing winnings over the long term became apparent to both Kelly and professional gamblers. For his part, Kelly described his method in 1956 in A New Interpretation of Information Rate.

Beyond the telecommunications and gambling industries, the Kelly Criterion has also proven to be useful for investors seeking to minimize the downside risk of losses in their investing portfolios while also increasing their returns over time. That's why our latest tool does the math behind the Kelly Criterion for working out how big your individual stock investments should be!

Here are the things you need to know or estimate before using the tool:

1. How many winning trades have you had? In other words, if you go back over your investing track record, how many of your individual investment trades that you've bought and sold provided positive gains?

2. How many individual investment trades have you made? This will be used to find your overall probability of making a winning trade based upon your historical track record. The tool assumes that you'll continue to have the same luck as you have had in the past in picking winning investments. You don't necessarily have to go all the way back to the beginning of your investing "career", but you do want to cover at least 50-60 trades (or as much as possible.)

3. What is your average gain on a winning investment? When you've come out ahead in the past, what's the average amount you've gained?

4. What is your average loss on a losing investment? If you've racked up any losses, here's where you account for the average amount you've lost for each of your losing investments.

And that's it! Enter the indicated data and our tool below will find out how much you should place in each of your individual investments using the Kelly Criterion:

Investing Track Record Data
Input Data Values
Average Gain on a Winning Trade
Average Loss on a Losing Trade

Kelly Criterion Results
Calculated Results Values
Probability of Making a Winning Trade (%)
Ratio of Win/Loss Amounts (%)
Kelly Criterion (%)

The Kelly Criterion percentage given above is the percentage of the entire value of your portfolio that you should invest in any one stock within your portfolio.

The system does require some common sense, however. One rule to keep in mind, regardless of what the Kelly percentage may tell you, is to never commit more than 20-25% of your capital to one equity. Allocating any more than this is carries far more risk than most people should be taking.

And he notes some other things you should know (the chart referred to is available through the link above):

No money management system is perfect. This system will help you to diversify your portfolio efficiently, but there are many things it can't do. It can't pick winning stocks for you, make sure you continue to trade consistently or predict sudden market crashes (although it can lighten the blow).

Also, there is always a certain amount of "luck" or randomness in the markets, which can alter your returns. Consider again the chart we looked at above. See how the best person received a 140% return, the worst got less than 40%. Both traders used the same system, but randomness and volatility can cause temporary swings in account value.

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April 24, 2007

Previously on Political Calculations, we featured our analysis of the trends over a series of 12-month rolling periods to track the rate of change in the balance of US-China trade, covering the period from January 1993 through January 2007. Our chart below shows the actual data and our generated trend lines:

The trend lines we generated are 6th-degree polynomials, which provided the best fit in going pretty much right down the middle of all the actual points of data. We've modified our original chart to show each trend line's corresponding polynomial equation:

We didn't think about this at the time, but 6th-degree polynomials like these underlie the climate change models behind the scientific consensus of global warming. We can therefore use our generated 6th-degree polynomials to extrapolate the future trend of trade between the US and China! Our next chart peeks out just one year into the future:

Pretty cool, huh? In the chart above, we see that the extrapolated rate of growth of U.S. exports to China will continue to grow, while the rate of growth of China's exports to the U.S. will bottom out and begin rising again. Let's next go two years out in our study of the future of US-China trade climatology:

Now isn't that something! After being relatively depressed, the growth rate of China's exports to the U.S. begins coming on strong, but still not growing as fast as the U.S.' exports to China. Let's next leap three years ahead in the trade-time continuum:

Talk about coming on strong - China's extrapolated rate of growth of its exports to the U.S. will be leaving the U.S. in the dust in the period from 2009 to 2010, as the rate of growth of U.S. exports to China stalls out. Let's next look five years ahead:

The five-year extrapolated forecast reveals that the rate of growth of U.S. exports to China is not just being left in the dust by the rate of growth of China's exports to the U.S., but being stomped on it too as the U.S. trade deficit takes a nasty turn to the downside. How bad can it get? Let's go out one more year:

By January 2013, even the idea of a trade balance between the U.S. and China is basically all over. The rate of growth of U.S. exports to China will have totally collapsed, while the growth rate of China's exports to the U.S. will be off the scale. The clear consensus of leading trade climatologists and scientists who use this sound scientific method is that the future of US-China trade is bleak and cannot be changed. Unless that is, President Lou Dobbs takes drastic action to impose severe quotas on China's exports to the U.S., before all jobs are outsourced from the U.S. to China for the sake of fulfilling U.S. demand for China's exports.

Only by doing so will the U.S. avoid destruction in the coming global trade superstorm.

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April 21, 2007

Welcome to the April 21, 2007 edition of On the Moneyed Midways, the blogosphere's only weekly review of the best posts from each of the week's major business and money-related blog carnivals!

Each week, we seek out the best post from the hundreds contributed to the dozens of blog carnivals and proclaim it to be The Best Post of the Week, Anywhere!(TM) And if it's a very, very good post, we declare it to be Absolutely essential reading!(TM)

We liked last week's edition that got straight to the point without a lot of commentary, so without any further delay, the best posts from the best-hosted carnivals of the week awaits you below....

On the Moneyed Midways for April 21, 2007
Blogging for Cash How to Annoy the Entire Blogosphere Finding the Money "Slacker king" John (read the post comments) shows how not to build good will among the blogger community when attempting to build traffic to your own blog. Absolutely essential reading!
Carnival of Entrepreneurs Personnel Management: To Fire or Not to Fire Blog Business World Managing people is always a challenge and managing people who aren't performing to expected levels is particularly difficult. Wayne Hurlbert outlines the steps a manager needs to take when encountering low employee performance.
Carnival of Financial Planning The Impact of Inflation My Wealth Builder Will you need \$4,000,000 to retire comfortably if you're in your 20s today? The Super Saver shows how inflation drives the critical mass needed to support your future retirement upward.
Carnival of Fraud Would SOX Have Stopped Nacchio? Ideoblog The regulations passed into law in the Sarbanes-Oxley bill were intended to protect the investing public from CEO misconduct. Larry Ribstein observes that "at best, it has increased the costs of fraud, but of course without reducing the benefits." Absolutely essential reading!
Carnival of Money Stories 15 Financial Lessons from the Demise of Anna Nicole Smith (Yes, I'm Serious) Credit Card Lowdown Part of the consortium of blogs (we suspect based in India) that feature really dubious autopilot carnivals and a nearly infinite number of lists with lessons to be learned, Pushpa Sathish's list of lessons to be learned in personal finance from Anna Nicole Smith's life is surprisingly well done and entertaining!
Carnival of Personal Finance Which Vanguard Money Market Fund? Finance Buff The Finance Buff might be looking at Vanguard's 10 money market funds for short term savings, but the rationale for picking one over the others applies anywhere. As an added bonus, the Finance Buff provides a tool for calculating bond fund yields for various tax considerations!
Carnival of Real Estate Google Buys DoubleClick for \$3.1 Billion. Is Zillow Next? WebHomeUSEBlog It's been observed that Google has too much cash and no place to spend it. Cliff Jacobson views the pieces Google has put together with the pieces that it is still missing to suggest what they might be thinking to do next with their "mountain of cash."
Carnival of Taxes Debunking the Blagojevich Tax Plan KirkWalsh.com Kirk Walsh (D) finds a lot to not like about Illinois Governor Rod Blagojevich (D) and his proposed gross receipts tax, but what he really can't stomach is the governor's disingeneous campaign to make it law.
Carnival of the Capitalists Business Structures Help Fight War on Terror Small Business Buzz Can a book aimed at small businesses help the U.S. turn the corner on the global war on terror? Michelle Cramer reveals how the lessons of The Starfish and the Spider: The Unstoppable Power of Leaderless Organizations might refocus the nation's strategy.
Carnival of the Capitalists LinkedIn and the Art of Avoiding an Asshole Boss How to Change the World Have you ever considered checking your prospective boss' references? Guy Kawasaki shows how to link the power of social networking with sharp questions in The Best Post of the Week, Anywhere!
Festival of Stocks Utilizing Leveraged ETFs to Simulate the Performance of the S&P with Less Risk TheFinancialWhiz Finance major Bryan Moore reveals how to use the power of leverage and diversification to reduce downside risk and increase upside benefit. Absolutely essential reading!
Personal Development Carnival Life and Contrast Live the Power Why do we experience things we'd rather have avoided? Karen Lynch shares her thoughts on why it's actually important to experience everything.
Real Estate Investing The Unspoken Word: Real Estate Commission vs. Mortgage Broker Commission The Real Estate Investing Brain Why is it people are willing to work to negotiate down a mortgage broker's commission but not a real estate broker's commission? Trevor Mauch asks the question and argues that flat fee commissions may be the way of the future.

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April 20, 2007

It's simply too nice outside today to be indoors blogging! We'll have a Saturday edition for our weekly roundup of the best posts drawn from the web's money and business-related carnivals On the Moneyed Midways!

In the meantime, consider some of the following as reasons why you need to go outside:

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April 19, 2007

A short list:

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April 18, 2007

You know you've considered this question! Maybe you have a PhD in the liberal arts, but you're still waiting tables at a restaurant where your co-workers are a bunch of teenagers. Or maybe you're working in your chosen field and you've looked at your co-workers and wondered how you've managed to become surrounded by incompetence. Or maybe you've found that you seem to be doing an awful lot of the things that your boss is supposed to be doing, as well as your own job, but are doing both of them better than your boss ever could.

If you're working in a hierarchical organization (probabably 99%+ of all businesses, although we really have no idea) and you find yourself observing these things, you're very likely running on the underside of the Peter Principle. The idea of the Peter Principle is that over the course of an individual's working career for an organization, they will eventually be promoted to a position that reflects their highest level of competence. Or rather, a position where their incompetence prevents them from being promoted to an even higher level.

Then again, you may just be a whiner and only think you're better than your job (such as having a liberal arts PhD and waiting tables for a living!) How can you know for sure?

We can help you find out. Our latest tool below takes the math developed by Geek Logik's Garth Sundem. Just enter your data below and we'll do the rest!

Input Data Values
Your Number of Years of Schooling
Your Boss' Number of Years of Schooling
Your Number of Years with the Company
Your Boss' Number of Years with the Company
Hours per Workday You're Able to Slack Off
(Checking e-mail, surfing Monster.com, chatting with co-workers, or otherwise wasting time)
(100 is average; more than 130 is Einstein, Newton, and Galileo; 70 is the Three Stooges)

Are You Too Good For Your Job?
Calculated Results Values
Qualification Index
The Bottom Line

In the results above, a Qualification Index score greater than 1 suggests that you are too good for your current job. If you scored less than 1, you might consider playing around with the other data inputs to find where you might cross the threshhold!

Now, to be fair, we picked on liberal arts majors in our commentary above, who are more prone to finding themselves in occupations that are less highly valued than occupations that focus upon creating higher levels of economic benefits for society at large, such as business, medicine or engineering. Garth Sundem suggests some adjustments to consider in your personal calculations depending upon your line of work:

In addition to weighing your intelligence and marketability against your current work situation (including a look at where you are in the company in comparison with where you deserve to be), this equation measures your current job against salary.

However, salary isn't always a direct measure of the job you can expect to find with your talents. For example, an educated director of a nonprofit might make only a fraction the amount of a high-school-dropout-pop-music-star. Thus, if you majored in English, music, fine arts, or environmental science, add \$20,000 to your annual income. If you majored in business, pre-med, pre-law, or engineering, subtract \$20,000).

If it helps assess the relative value of your intelligence, education and/or profession, here are our previous posts on Ranking School Smarts by Major and High Investment, Low Payoff Careers.

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April 17, 2007

With today's release of the latest Consumer Price Index data, we finally have all the information we need to update our signature investing-related tool The S&P 500 at Your Fingertips! The tool now spans from January 1871 through March 2007 and incorporates all the available dividend, earnings and inflation data available for this time span.

Running the numbers, we find that the year-over-year gain in the S&P 500 from March 2006 to March 2007 provided a non-inflation adjusted return of 8.75% without the reinvestment of dividends and 10.73% with full dividend reinvestment. The tool does not consider the effects of taxes or commissions and fees in its calculations, which vary from year to year and broker to broker.

If you factor the 2.78% gain in reported inflation over that time period, the real rates of return for the S&P 500 are 5.97% without reinvesting dividends and 7.95% with reinvested dividends.

And if we just run the tool's newly updated default settings, from January 1871 to March 2007, we find that the S&P 500 has provided nominal returns of 4.32% without dividend reinvestment and 9.15% with dividend reinvestment. Considering the very long term rate of inflation of 2.08% from January 1871 through March 2007, the real rates of return for the S&P 500 are 2.24% without reinvesting dividends and 7.07% with full reinvestment of dividends!

One last note: the dividend and earnings data taken from Standard & Poor reflects their estimates of these figures for this latest period, which means they may be subject to revision in the future. We'll update the tool along with S&P's data as they do each quarter.

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April 16, 2007

Recently, we reviewed the New York Times' remarkably well-designed online tool that can help its users decide whether they should rent or buy their next place to live. The tool's main strength is its user interface, which allows the user to individualize a wide range of information to tailor the tool's output for their specific circumstances.

We didn't think about it at the time, but the tool's elaborate interface might also be a weakness.

It's not what you think. The tool's interface is very well designed and it will produce very high quality output. The problem is more one that affects the user: To get the full benefit of making a buy-vs-rent decision using the New York Times' tool, you have to take full advantage of the full range of the data that it has been designed to consider.

That information can take quite some time to gather, which means that the user would only get the benefit of being able to get the tool's high quality feedback after they've done quite a bit of research while shopping for a place to live.

What if you as a user wanted to get feedback for making a decision on whether to rent or to buy while you're still early in the process of shopping for a place to live? Before you've narrowed your choices enough to where finding out all the things like property tax amounts, closing costs, appreciation rates and all the other things that might impact your decision based on feedback from using the New York Times' tool?

Now, that's where our kind of simple, home-built tools come into play! Our tool below is based on the Rule of 300, which we learned about from Econlog's Arnold Kling, his discussion excerpted below:

An even simpler rule that I use is the rule of 300. If the price is less than 300 times the monthly rent on an equivalent house, it is ok to buy. I figure that if the real interest rate (i.e., the after-tax interest rate minus the inflation rate) is 4 percent, then the ratio of price to annual rent should be 1/.04 = 25, which means that the ratio of price to monthly rent should be 300. In the example, they give, the ratio of price to monthly rent is well below 300, so my simple rule says "buy."

Housing Market Data
Input Data Values
Price of Home You're Considering Buying
Monthly Rent of an Equivalent House
Current Mortgage Interest Rate (%)
Current Rate of Inflation (%)

Rule of 300: Rent vs Buy
Calculated Results Values
Price vs Rent Ratio

So, there you go! A simple tool that can help you whittle down whether you should look at renting or buying a place to live. Do be aware though that the simple math behind this tool does have its weak points, as Arnold Kling notes:

The real killer, relative to my formulas, is the transactions costs. I think that an unheralded part of the housing boom of the past decade has been a reduction in transaction costs, as the costs of mortgage origination have fallen. Real estate commissions still wipe out a lot of the profit from buying a home, though, which is why it usually only pays to own a home if you plan to keep it a long time.

In any case, once you are getting nearer signing a lease or a purchase contract for your next place to live, the New York Times' tool will help you take these things into account as you fine tune your choice between the two options.

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April 13, 2007

Welcome to the April 13, 2007 (Friday the 13th!) edition of On the Moneyed Midways, the blogosphere's only weekly review of the best posts from each of the week's major business and money-related blog carnivals!

In addition to assembling the weekly roundup of the best posts we find, we also select one post from the hundreds we review and declare it to be The Best Post of the Week, Anywhere!(TM) Those posts that come very close to earning the title of being the best earn our equivalent of a silver medal, which for us means that they're Absolutely essential reading!(TM)

Let's not waste any time this week! The best posts from the best produced blog carnivals of the past week awaits you below....

On the Moneyed Midways for April 13, 2007
Carnival of Entrepreneurs Ten Rules for Surviving, Thriving as an SBO The Freestyle Entrepreneur John Ingrisano lists the 10 things that Small Business Owners (SBOs) need to pay special interest to in running their business. The Best Post of the Week, Anywhere!
Carnival of Fraud What Credit Card Companies Don't Want You To Know The Digerati Life The Silicon Valley Blogger relates how poor business practices in the credit card industry can put your credit at risk.
Carnival of Home Business The Self-Employment Blues - 5 Keys to Surviving the Dry Spells The Small Business Leap John McCrea offers five tips for how to best use the "gift of time" between high demand cycles for your small business.
Carnival of Personal Finance Why Didn't I Buy More House? MightyBargainHunter The Mighty Bargain Hunter reflects on a recently developed trend that has lenders providing counseling and some really good breaks to weak borrowers to keep mortgage defaults at bay.
Carnival of Taxes America's Love Affair With Deadbeats Twelve Years of Being Annoyed by Chloe Sevigny Dot Com Aspeth draws some intriguing excerpts from the Tax Foundation's recent special report: Who Pays America's Tax Burden, and Who Gets the Most Government Spending?
Carnival of the Capitalists Social Security is Robbing Me of \$1 Million; You Too? Free Money Finance FMF runs the numbers to compare how he would have fared if he had been able to invest what he's paid in Medicare and Social Security taxes against what he can expect to receive in benefits from each program.
Carnival of the Capitalists Finding Work at Any Age Ripples… David St. Lawrence describes the skills you need to find work at any age, including real networking, prospecting, marketing yourself and setting your expectations properly.
Cavalcade of Risk Excessive Tort Costs Specialty Insurance Blog Bob Sargent highlights findings of a recent study that finds the costs of the U.S.' tort system upon business account for an 8% tax on consumption or equivalently, a 13% tax on wages. Absolutely essential reading!
Festival of Stocks Buybacks Can Reduce EPS and Still Add Value to Firm Shareholders Disciplined Approach to Investing David Templeton comments upon and excerpts from a 2006 article by Michael Mauboussin, providing analysis for how investors should evaluate share buyback purchases.
Money for Young People My Big Fat Inanimate Object Wisdome from Wenchypoo's Mental Wastebasket Young 20-somethings often feel that they should be doing at least as well as their parents as they're striking out on their own. Wenchypoo observes that kind of thinking can be a huge mistake!
Personal Growth Carnival Does the Law of Attraction Really Work? ZenChill.com Power Tools Is the New York Yankees collapse at the hands of the Detroit Tigers proof that the Secret's "Law of Attraction" is wrong? Raymond David Salas offers his thoughts….

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April 12, 2007

Deep in the core of economics, lies a factory that makes pins. It was here that Adam Smith first recognized the advantages to the division of labor, or rather, the specialization of skills among individual members of a workforce. That specialization of skill, where each member of the workforce performs a unique task geared toward a particular productive end, allows for far higher levels of production than would be possible if each member of the workforce performed all the tasks needed from start to finish to produce the same outcome.

Today, as in Smith's time, we recognize the advantages and reap the benefits of the division of labor. There is the timeless story of I, Pencil and the results of a recent experiment that produced the 100-Mile Suit that confirms the inherent truths of Smith's insight. And in fact, entire institutions in society are structured to promote the limitless expansion of specialized skills and knowledge among individuals.

Those individuals, having acquired or developed those highly specialized skills and knowledge, can expect to draw greater income and acquire greater wealth throughout their lifetimes than those who have not done so to the same degree. And we see this in the growth of today's so-called "income inequality" - it's the driving factor behind it! And what's more, everyone in society benefits from the gains in efficiency that result.

So, everyone should find some field in which to specialize and do just that throughout their lives, right?

Also in the core of economics, are the effects of the seen and the unseen. Here, what is unseen in the benefits of the division of labor are the risks that come with it. Consider technological innovations, which make entire classes of previous occupations obsolete, much like the "best goddamn buggy whip" maker in the new world of automobiles.

Or consider just business as usual, where your ability to earn income through your specialized knowledge, experiences and skills comes up against an unsteady level of demand for them. Or maybe you're knowingly or unknowingly coming up against someone else's specialized knowledge, experiences and skills in direct competition. Maybe it's where you are; are you sure you're in the right place where people will seek out someone with your talents? And if not, are you willing to move to get to where those people seeking someone like you are and where you can command the greatest benefits for what you do?

Think of your acquired specialized knowledge and skills as if they were an investment. Now stop kidding yourself - they are an investment. Would you put all your investing eggs in one basket? A basket named Enron, maybe? Or maybe a basket named Starbucks? The rewards can be huge, but that's a lot of risk to have to worry about, isn't it?

Economics has the answer here too for producing the best possible outcome: as you would diversify your investment portfolio to minimize risk, you should do the same with your development of specialized skills and knowledge. By doing so, your personal well-being will be less at risk from the volatility of demand for one set of your skills.

Consider the housing market. If you're a real estate agent in a booming market, you'll very likely have little trouble making ends meet. If the housing market heads south however, and significant numbers of people begin having to go through foreclosure proceedings, odds are that you're in for a rough period in your life.

Now, what if you had the additional specialized skill of being able to appraise the value of houses. While that skill may not have delivered anywhere near the kind of money you may have earned during the boom times, it's one that might just be able to see you through the bust times. The diversification of your skills has reduced your overall level of risk and in doing so, you will have succeeded in providing yourself with a greater degree of security through diversification than you ever could have through the sole specialization of a single skill.

Taking that one step farther, who said that whatever additional specialized skills or knowledge you would seek to develop would have to have anything to do with the skills and knowledge you're using to produce your income and wealth today? There's nothing that says you only have to have oil stocks in your investment portfolio, and there's not likely much of a penalty to you as an oil stock holder to also own stocks in pharmaceutical companies. So why not have both? Or others?

And why not provide the same kind of protection to your career path in life? Why not reap the benefits of the division and the diversification of your labor?

Why not indeed?

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April 11, 2007

Via Barry Ritholtz, we've discovered an interactive tool that provides the user with a highly personalized answer to the eternal question "Is it better to buy or rent?" Amazingly, the tool is provided by the New York Times, perhaps better known in recent years for the declining quality and increasing political bias of its news reporting that have coincided with its declining fortunes.

The tool is a marvel of how to do things right in integrating a graphical interface with text data input to provide the user with an extraordinarily rich amount of information for determining whether or not renting or buying a place to live is desirable for them. The image below shows the tool's user interface (click the image for a larger version):

This is a fantastic example of how to do things right. The user may enter numbers at the top of the interface directly related to their local housing market for the costs of renting or buying and owning a house, including the monthly rent, house sale price, mortgage interest rate, percentage of down payment and annual property taxes.

What's more, the tool provides advanced options that allow the user to go beyond these basic categories for their considerations. Here, such things as the security deposit, broker's fee and insurance rate to be considered on the rental side, while a host of options affecting the buying side of the equation may also be considered, including such options as the homeowner's insurance rate, closing costs, mortgages terms, utility costs and the capital gains exclusion amount.

But wait, there's more! The tool also provides an additional advanced option under the "General" link for entering the rate of return the user might receive on investing their money instead (to consider the user's opportunity costs), as well as taking their income tax rate and the general rate of inflation in the economy into account.

Where the tool really stands out though lies in the sliding scale controls on the left hand side of the graphical interface. Here, the user can adjust the home price appreciation rate and the annual percentage change in rent amounts and receive instant graphical feedback. The graph, which shows the annual returns associated with home ownership, provides instantaneous feedback for changes in the data entered by the user.

At a glance, the user can find out how long they must own a home for the benefits to outweigh the costs of doing so compared to renting. Here, a negative value indicates that renting provides the better option (most commonly over the near-term), while a positive value indicates that buying is the better choice (typically over a longer period of time.)

Better yet, clicking on any of the graph's data points provides the associated data that underlies it. The point on the graph is highlighted, while the data is presented in the text output on the lower right hand side of the interface.

Where the tool truly excels however is in showing where the transition point between being better to rent or buy lies. Here, users who are reasonably confident that they will be living in their residence for a certain number of years can tweak the inputs (representing how they might allocate their resources) to make one option clearly better for them over the other.

Beyond these features, the tool is backed by solid data provided by Moody's Economy.com. The tool's developers are the New York Times' Tom Jackson and Archie Tse.

If you're going to be making the choice between renting or buying a place to live, Jackson and Tse's tool will provide you with outstanding feedback based upon your unique inputs. The tool has earned Political Calculations' Gold Standard(TM) and is well worth bookmarking or noting for future reference.

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April 10, 2007

Tax day is coming! And what better way to mark the upcoming day income taxes are due than by providing another form for you to fill out to see how much you would have been taxed when income tax forms were first issued by the IRS in 1913!

Our tool below is based upon the first page of the original Form 1040, which originally consisted of just four pages: the summary sheet modeled below (Page 1), the Gross Income calculation sheet (Page 2), the General Deductions sheet (Page 3) and finally, one page of Instructions (Page 4). Yes, you read that right. Just one page of instructions!

We'll make it just a bit easier still. All you need to do is to enter the indicated data (shown in boldface type) below with your figures from this year, and we'll take care of the math:

IRS Form 1040, Circa 1913
Return of Net Income Received or Accrued During the Year Ended December 31, 191_
1. Gross Income (see page 2, line 12)
2. General Deductions (see page 3, line 7)
3. Net Income
Deductions and exemptions allowed in computing income subject to the normal tax of 1 per cent.
4. Dividends and net earnings received or accrued, of corporations, etc., subject to like tax. (See page 2, line 11)
5. Amount of income on which the normal tax has been deducted and withheld at the source. (See page 2, line 9, column A)
6. Specific exemption of \$3000 or \$4000, as the case may be. (See Instructions 3 and 19)
Total deductions and exemptions (Items 4, 5, and 6)
7. Taxable Income on which the normal tax of 1 per cent is to be calculated. (See Instruction 3)
8. When the net income shown above on line 3 exceeds \$20,000, the additional tax thereon must be calculated as per schedule below:
INCOME TAX
1 per cent on amount over \$20,000 and not exceeding \$50,000
2 per cent on amount over \$50,000 and not exceeding \$75,000
3 per cent on amount over \$75,000 and not exceeding \$100,000
4 per cent on amount over \$100,000 and not exceeding \$250,000
5 per cent on amount over \$250,000 and not exceeding \$500,000
6 per cent on amount over \$500,000
Total normal tax (1 per cent of amount entered on line 7)
Total tax liability

### Excerpts from the Instructions

3. The normal tax of 1 per cent shall be assessed on the total net income less the specific exemption of \$3,000 or \$4,000 as the case may be. (For the year 1913, the specific exemption allowable is \$2,500, or \$3,333.33, as the case may be.) If, however, the normal tax has been deducted and withheld on any part of the income at the source, or if any part of the income is received as dividends upon the stock or from the net earnings of any corporation, etc., which is taxable upon its net income, such income shall be deducted from the individual's total net income for the purpose of calculating the amount of income on which the individual is liable for the normal tax of 1 per cent by virtue of this return.

19. An unmarried individual or a married individual not living with wife or husband shall be allowed an exemption of \$3,000. When husband and wife live together they shall be allowed jointly a total exemption of only \$4,000 on their aggregate income. They may make a joint return, both subscribing thereto, or if they have separate incomes, they may make separate returns; but in no case shall they jointly claim more than \$4,000 exemption on their aggregate income.

Well, wasn't that a fun exercise! Are you ready for the "improved" modern version of the same thing now?

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April 9, 2007

What accounts for the number of Realtors® in the United States?

We found ourselves asking the question after looking at data on the number of Realtors® provided by the National Association of Realtors® (and before we go any further, yes, we're trying to avoid tripping over the NAR's registered trademarks, which accounts for the abundance of ®'s in this post!) What we saw in looking at the NAR's annual member count didn't match up with what we would have expected: there was very little correlation with the health of the U.S. economy and the number of Realtors®.

In fact, we only see the effects of just two recessions showing up as sharp declines in the number of Realtors® over the history of the organization since it was founded in 1908: 1980-1982 and 1990-1991. Meanwhile, we didn't see any surges in membership occurring when the U.S. economy was booming or when interest rates were especially low (such as in the 1960s.) What we found instead is that the number of Realtors® grew at largely stable rates from year-to-year with some really remarkable surges in growth (1975-1980, 2001-2006). So something else would seem to be driving the growth in the number of Realtors® over time.

That something else would appear to be technology. We found the smoking gun, so to speak, in the summary of the NAR's history, which identified 1975 as the year in which the NAR's Multiple Listing Service (MLS) was computerized. In just that year alone, the number of Realtors® more than tripled from 134,362 at the end of 1974 to 435,485 at the end of 1975.

That growth continued until 1980 when the Federal Reserve's exceptionally high interest rates put the brakes on the U.S. economy and triggered a recession. From there, the number of Realtors® stayed relatively constant until 2001, when the numbers surged again from 803,803 to 1,357,732 at the end of 2006, the most recently available number.

This time, the surge in the number of Realtors® corresponds with a period of historically low interest rates (not seen since the 1960s), but again, a time that follows the NAR's implementation of modern database and Internet technologies. 2001 in particular is significant in that the Realtor.org web site was launched, providing much easier access for the group's members to it's proprietary information and services.

Our chart below illustrates the role of technology in expanding the number of Realtors®:

Our working theory is that technological innovation, first in the form of the computerized MLS and later through improved access to information through computerized database and Internet technologies, lowered the barriers and costs of entry to larger numbers of real estate agents, above and beyond what would be expected if only the health of the U.S. housing market and economy is taken into consideration. The improvements in technology have produced this result by making information easier to enter and access, reducing the amount of time needed for agents to become skilled in using the systems and also to conduct transactions.

What will be interesting to see is if the democratization of access to housing information away from sources operated by the NAR to such outlets as Zillow and Google will ultimately reduce the number of Realtors® over time, as new technologies make it less necessary to become a member of the National Association of Realtors® to have access to the same information.

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