From PIMCO.
Global Central Bank Focus
Paul McCulley March 2007 PIMCO
Watching the on-going meltdown in the sub-prime mortgage market, which is triggering a sharp tightening of underwriting standards to these dicey credits, I was reminded of prescient writings by two serious thinkers: Bill Gross and Hyman Minsky. Both narratives go back a long ways, with something that Bill wrote in August 19801 – 27 years ago! – particularly poignant:
“The Plankton Theory, like life itself, begins and ends in the ocean. Plankton, of course, are almost microscopic organisms that serve as food for higher life forms. Without plankton almost every fish and mammal in the sea could not survive, since most species depend upon other fish for their existence and plankton are the initial building blocks of the entire process. Logic would suggest, therefore, that in attempting to forecast the well being of the Great White Whale, Jaws, or even Jaws II, that one of the factors to consider would be the status and future outlook of the plankton. That, in one hundred words or less, is the Plankton Theory.
Now, what possible significance could this have for the investment world? Plenty. Take for example, the area of real estate, especially that of single family housing. We’re all familiar with the rapid escalation of home prices over the last 10 years. For most Americans, their homes have been the best and in many cases the only investment that they have made in their entire lives. Some have gone so far as to invest in several homes and have endured ‘negative carry’ on the cash flow in anticipation of leveraged capital gains a few years down the road. But where does it stop? Can housing continue to increase at twice the Consumer Price Index for the next 10 years?
One way to measure might be via the Plankton Theory. In the case of real estate, the plankton would be the first-time buyer (perhaps a young married couple) with a desire to own their own home but with very little capital to carry it off. When the time comes that they can’t pull it off – either through an inability to come up with a down payment, or to service the monthly mortgage – then the ‘plankton’ would disappear and the rapid escalation in housing prices would ease as well. For, unless the current homeowner has someone to sell his house to, he’ll be unable to afford the house with the view or that extra bedroom, and the process would continue into the echelons of Beverly Hills and Shaker Heights. In the end, the entire market would wither on the investment vine and home prices would stop increasing at the same rapid rate. So to gauge the health of the housing market, look first at the plankton. Without their presence and financial vitality, the market’s not going to repeat the experience of the past 10 years.”
Bill’s call was a good one, as displayed in Chart 1: home price appreciation tumbled in the first half of the 1980s, as the homeownership rate fell: the Plankton Theory at work! Draconian Fed tightening at the beginning of the 1980s had something to do with it, too, of course, as the Plankton were priced out of the market by high interest rates, independent of the availability – or underwriting standards – for home mortgage loans.
But the theory held: it’s the first-time buyer, stretching to buy, that is the life’s blood of vibrant property markets. And intrinsically, there is nothing wrong with a young family stretching to buy that first house; most all of us did, as did our parents (many with the aid of the GI Bill). Optimism about rising incomes and making lives better for our children is the cornerstone of the American Dream.
But the human condition is inherently given to the Mae West Doctrine that if a little of something is good, more is better, and way too much is just about right. Such is the case in capitalist finance, as brilliantly diagnosed by both John Maynard Keynes and his disciple, Hyman Minsky. I first introduced Minsky to these pages way back in January 20012, just as the corporate sector was sinking into recession, taking the aggregate economy with it, and the Fed was initiating a massive easing cycle.
Minsky, who passed away in 1996, was the father of the Financial Instability Hypothesis, providing a framework for distinguishing between stabilizing and destabilizing capitalist debt structures. He first articulated the Hypothesis in 1974, and summarized it beautifully in his own hand in 1992:
“Three distinct income-debt relations for economic units, which are labeled as hedge, speculative, and Ponzi finance, can be identified. Hedge financing units are those which can fulfill all of their contractual payment obligations by their cash flows: the greater the weight of equity financing in the liability structure, the greater the likelihood that the unit is a hedge financing unit. Speculative finance units are units that can meet their payment commitments on ‘income account’ on their liabilities, even as they cannot repay the principal out of income cash flows. Such units need to ‘roll over’ their liabilities – issue new debt to meet commitments on maturing debt. For Ponzi units, the cash flows from operations are not sufficient to fill either the repayment of principal or the interest on outstanding debts by their cash flows from operations. Such units can sell assets or borrow. Borrowing to pay interest or selling assets to pay interest (and even dividends) on common stocks lowers the equity of a unit, even as it increases liabilities and the prior commitment of future incomes.
It can be shown that if hedge financing dominates, then the economy may well be an equilibrium-seeking and containing system. In contrast, the greater the weight of speculative and Ponzi finance, the greater the likelihood that the economy is a deviation-amplifying system. The first theorem of the financial instability hypothesis is that the economy has financing regimes under which it is stable, and financing regimes in which it is unstable. The second theorem of the financial instability hypothesis is that over periods of prolonged prosperity, the economy transits from financial relations that make for a stable system to financial relations that make for an unstable system.
In particular, over a protracted period of good times, capitalist economies tend to move to a financial structure in which there is a large weight to units engaged in speculative and Ponzi finance. Furthermore, if an economy is in an inflationary state, and the authorities attempt to exorcise inflation by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate. Consequently, units with cash flow shortfalls will be forced to try to make positions by selling out positions. This is likely to lead to a collapse of asset values.”
Clearly, the explosion of exotic mortgages – sub-prime; interest only; pay-option, with negative amortization, et al – in recent years, as shown in Chart 2, have been textbook examples of Minsky’s speculative and Ponzi units3.
And as Bill Gross explained long ago, such mortgages have been the food of the Plankton, the first-time homeowner, driving the homeownership rate to record highs, as displayed back in Chart 1, while also fueling accelerating home price appreciation. But as Minsky had forewarned, eventually this game must come to an end, as Ponzi borrowers are forced to “make positions by selling out of positions,” frequently by stopping (or not even beginning!) monthly mortgage payments, the prelude to eventually default or dropping off the keys on the lenders’ doorstep.
That is happening. And true to form, Ponzi lenders are now recognizing their sins of irrational exuberance, repenting and promising to sin no more, dramatically tightening underwriting standards, at least back to Minsky’s Speculative Units – loans that may not be self-amortizing, but at least are underwritten on evidence that borrowers can pay the required interest, not just the teaser rate, but the fully-indexed rate on ARMs. From a microeconomic point of view, such a tightening of underwriting standards is a good thing, albeit belated. But from a macroeconomic point of view, it is a deflationary turn of events, as serial refinancers, riding the back of presumed perpetual home price appreciation, are trapped long and wrong.
And in this cycle, it’s not just the first-time homebuyer – God bless him and her! – that is trapped, but also the speculative Ponzi long: borrowers who weren’t covering a natural short – remember, you are born short a roof over your head, and must cover, either by renting or buying – but rather betting on a bigger fool to take them out (“make book”, in Minsky’s words). Thus, the supply of plankton is twice drained.
Which means that the bigger fish in the domestic and global economic sea are going to be living on leaner diets. It also means that any given level of central-bank enforced short-term policy rates will become ever more restrictive with the passage of time. That is nowhere more the case than in the United States, where mortgage originators’ orgy of Ponzi finance stifled the Fed’s ability to temper irrational exuberance in housing with hikes in the Fed funds rate.
More specifically, as long as lenders made loans available on virtually non-existent terms, the price didn’t really matter all that much to borrowers; after all, housing prices were going up so fast that a point or two either way on the mortgage rate didn’t really matter. The availability of credit trumped the price of credit. Such is always the case in manias.
It is also the case that once a speculative bubble bursts, reduced availability of credit will dominate the price of credit, even if markets and policy makers cut the price. The supply side of Ponzi credit is what matters, not the interest elasticity of demand.
Bottom Line
The ongoing meltdown in the sub-prime mortgage market would not matter, except for those directly involved, except that it marks the unraveling of Ponzi finance units that, on the margin, were the plankton of the bubbling property sea of recent years. As the bubble was forming, riding on first-time homebuyers with first-time access to credit on un-creditworthy terms, and first-time speculators riding the same with visions of bigger first-time fools to take them out, all looked well. But as Minsky warned, stability is ultimately destabilizing, as those who require perpetual asset price appreciation to make book are forced to sell to make book. Such is reality presently in the U.S. residential property market, which has flipped from a sellers’ market on the wings of buyers with exotic mortgages to a buyers’ market of only the creditworthy.
This state of affairs need not produce a U.S. recession. But it does unambiguously render any given stance of Fed policy more restrictive: a tightening of credit supply based on underwriting terms means that any given policy rate will elicit reduced effective demand for credit. And that’s the stuff of seriously easier monetary policy to come. Just as mortgage demand seemed inelastic to rising short rates when availability was riding relaxed terms, so too will demand seem inelastic to falling short rates when availability faces the headwind of restrictive terms.
It may be a while before the Fed accepts and recognizes this, waiting for these Minsky style debt-deflation dynamics to become evident in broader measures of the economy’s health, notably job creation. But make no mistake: A Minsky Meltdown in the most important asset in most Americans’ asset portfolio is not a minor matter. Bill Gross’ Plankton Theory ain’t just a theory, but a reality.
Once the Fed begins easing, it will be a long journey down for short rates.
Paul McCulley
Managing Director
February 28, 2007
Tuesday, September 11, 2007
Light Rail Doesn't Work: CATO
Another interesting article from the CATO Institute, which goes counter to conventional wisdom. Food for thought.
Light Rail Doesn't Work
by Randal O'Toole
Randal O'Toole is a senior fellow with the Cato Institute and author of Great Rail Disasters: The Impact of Rail Transit on Urban Livability.
I have always loved trains, and if light-rail transit worked, I would be the first to support it.
So it is with some dismay that I review the sorry record of transit in Canadian and U.S. cities that have built light-rail lines. For the most part, light rail has increased congestion, harmed transit riders, and wasted taxpayers' money.
Even so, there seems to be a consensus among politicians of all stripes in Ottawa that light rail is necessary, and the only debate left is how to implement it.
But let's look at what light rail can and cannot do.
1. Light rail can spend lots of tax dollars.
Rail construction is extremely costly, so it is a great way for politicians to reward favoured contractors. Siemens, the company that is suing Ottawa over the cancelled north-south light-rail line, is obviously more interested in getting lucrative contracts than in improving your transportation network. If you are a taxpayer, hold onto your wallet: between cost overruns, high maintenance costs, and endless proposals for new rail lines, your costs will never end.
2. Light rail cannot get a lot of people out of their cars.
Studies show that transit riders care more about frequencies and speeds than about whether the vehicle they ride has rubber tires or steel wheels. Light-rail lines may boost ridership because transit agencies run the trains more frequently and (because they stop fewer times per kilometre) faster than buses. But, as the U.S. General Accountability Office has shown, transit agencies can run bus services as fast and as frequent as any light-rail line at a fraction of the cost of light rail.
3. Light rail can inconvenience transit riders.
While rail may improve service in one corridor, it is so expensive that it leads transit agencies to neglect service in the rest of the region. Many U.S. cities that built light-rail lines have seen total transit ridership decline because rail costs forced transit agencies to raise fares and reduce bus services.
4. Light rail increases congestion.
Most light-rail lines operate on streets for at least part of their length, and transit planners time traffic signals to favour trains over automobiles. The delays that result greatly exceed the benefit of getting a handful of people out of their cars.
A new light-rail line in Minneapolis so disrupted traffic signals that people using a parallel highway found they were spending an added 20 minutes or more sitting in traffic. Internal documents revealed that the government knew this would happen, but the state says it can never be completely fixed because federal rules require that signals favour the light rail.
5. Light rail benefits downtown property owners at the expense of property owners elsewhere.
A study funded by the U.S. Federal Transit Administration found that "rail transit investments rarely 'create' new growth, but more typically redistribute growth that would have taken place without the investment." Such redistribution, the study found, was usually to downtowns from other parts of the city.
6. Light rail does not stimulate economic development.
Claims by some cities that rail transit stimulated new construction ignore the tens to hundreds of millions of dollars of taxpayer subsidies going to those new developments. Without the subsidies, rail lines generate little in the way of new development. In fact, street closures during construction and parking limits after light rail opens put many shops and restaurants out of business.
7. Light rail increases energy consumption and greenhouse gases.
Light rail uses less energy and generates less carbon dioxide, per passenger kilometre, than buses (though not necessarily less than autos). But light rail does not replace buses; instead, transit agencies typically reroute corridor buses to be feeder buses for the light-rail line.
Many people choose to drive to light-rail stations rather than wait for a bus and then transfer to a train, so feeder buses are much more lightly used than the previous corridor buses. When Salt Lake City opened its light-rail system, the average number of people riding its buses fell by nearly 50 per cent.
When taken as a whole, then, most transit systems with light rail use more energy and emit more greenhouse gases per passenger kilometre than they did when they operated only buses. Most also use more energy and emit more carbon dioxide, per passenger kilometre, than typical automobiles.
In the rare cases where light rail has reduced energy use, the energy cost of building it swamps any savings. If we want to save energy and reduce greenhouse gases, automotive improvements such as hybrid-electric cars can do far more at a far lower cost than even the best rail projects.
8. Light rail diverts tax dollars that could be used for truly productive transportation projects.
If you want to boost transit ridership, improve bus service. If you want to reduce congestion, improve highways -- particularly with toll roads, which both pay for themselves and can reduce congestion by varying the toll by time of day. If you want to punish people for driving cars, then take the money that could be used for buses or highways and spend it on light rail.
You can see who favours light-rail construction: Downtown property owners; rail contractors like Siemens; and people who hate automobiles.
If you are not in one of these groups -- if you are among the vast majority of Ottawa taxpayers who use automobiles for much of your travel -- then light rail will cost you far more than any benefits you will ever receive.
Light Rail Doesn't Work
by Randal O'Toole
Randal O'Toole is a senior fellow with the Cato Institute and author of Great Rail Disasters: The Impact of Rail Transit on Urban Livability.
I have always loved trains, and if light-rail transit worked, I would be the first to support it.
So it is with some dismay that I review the sorry record of transit in Canadian and U.S. cities that have built light-rail lines. For the most part, light rail has increased congestion, harmed transit riders, and wasted taxpayers' money.
Even so, there seems to be a consensus among politicians of all stripes in Ottawa that light rail is necessary, and the only debate left is how to implement it.
But let's look at what light rail can and cannot do.
1. Light rail can spend lots of tax dollars.
Rail construction is extremely costly, so it is a great way for politicians to reward favoured contractors. Siemens, the company that is suing Ottawa over the cancelled north-south light-rail line, is obviously more interested in getting lucrative contracts than in improving your transportation network. If you are a taxpayer, hold onto your wallet: between cost overruns, high maintenance costs, and endless proposals for new rail lines, your costs will never end.
2. Light rail cannot get a lot of people out of their cars.
Studies show that transit riders care more about frequencies and speeds than about whether the vehicle they ride has rubber tires or steel wheels. Light-rail lines may boost ridership because transit agencies run the trains more frequently and (because they stop fewer times per kilometre) faster than buses. But, as the U.S. General Accountability Office has shown, transit agencies can run bus services as fast and as frequent as any light-rail line at a fraction of the cost of light rail.
3. Light rail can inconvenience transit riders.
While rail may improve service in one corridor, it is so expensive that it leads transit agencies to neglect service in the rest of the region. Many U.S. cities that built light-rail lines have seen total transit ridership decline because rail costs forced transit agencies to raise fares and reduce bus services.
4. Light rail increases congestion.
Most light-rail lines operate on streets for at least part of their length, and transit planners time traffic signals to favour trains over automobiles. The delays that result greatly exceed the benefit of getting a handful of people out of their cars.
A new light-rail line in Minneapolis so disrupted traffic signals that people using a parallel highway found they were spending an added 20 minutes or more sitting in traffic. Internal documents revealed that the government knew this would happen, but the state says it can never be completely fixed because federal rules require that signals favour the light rail.
5. Light rail benefits downtown property owners at the expense of property owners elsewhere.
A study funded by the U.S. Federal Transit Administration found that "rail transit investments rarely 'create' new growth, but more typically redistribute growth that would have taken place without the investment." Such redistribution, the study found, was usually to downtowns from other parts of the city.
6. Light rail does not stimulate economic development.
Claims by some cities that rail transit stimulated new construction ignore the tens to hundreds of millions of dollars of taxpayer subsidies going to those new developments. Without the subsidies, rail lines generate little in the way of new development. In fact, street closures during construction and parking limits after light rail opens put many shops and restaurants out of business.
7. Light rail increases energy consumption and greenhouse gases.
Light rail uses less energy and generates less carbon dioxide, per passenger kilometre, than buses (though not necessarily less than autos). But light rail does not replace buses; instead, transit agencies typically reroute corridor buses to be feeder buses for the light-rail line.
Many people choose to drive to light-rail stations rather than wait for a bus and then transfer to a train, so feeder buses are much more lightly used than the previous corridor buses. When Salt Lake City opened its light-rail system, the average number of people riding its buses fell by nearly 50 per cent.
When taken as a whole, then, most transit systems with light rail use more energy and emit more greenhouse gases per passenger kilometre than they did when they operated only buses. Most also use more energy and emit more carbon dioxide, per passenger kilometre, than typical automobiles.
In the rare cases where light rail has reduced energy use, the energy cost of building it swamps any savings. If we want to save energy and reduce greenhouse gases, automotive improvements such as hybrid-electric cars can do far more at a far lower cost than even the best rail projects.
8. Light rail diverts tax dollars that could be used for truly productive transportation projects.
If you want to boost transit ridership, improve bus service. If you want to reduce congestion, improve highways -- particularly with toll roads, which both pay for themselves and can reduce congestion by varying the toll by time of day. If you want to punish people for driving cars, then take the money that could be used for buses or highways and spend it on light rail.
You can see who favours light-rail construction: Downtown property owners; rail contractors like Siemens; and people who hate automobiles.
If you are not in one of these groups -- if you are among the vast majority of Ottawa taxpayers who use automobiles for much of your travel -- then light rail will cost you far more than any benefits you will ever receive.
Sunday, September 9, 2007
How the "Core CPI" number is a poor model of inflation
When the Main Stream Media quotes inflation numbers, unfortunately, they typically report Core CPI. There are two main problems with the Core CPI. The first problem is, “Core CPI” excludes food and energy costs. I have referenced the data from the most recent CPI data, from the BLS (Bureau of Labor Statistics). It lists 2.5% as the annualized inflations rate for the past three months (June to August, 2007)….excluding energy and food, which is also called the “Core CPI”. However, note the following numbers which are conveniently excluded from that 2.5%:
- Transportation (which includes such things as airfare, bus tickets, and car purchases) increased 9.4%.
- Energy increased 16%
- Food went up 4.4%. Of note here, also from the report, is a rise in the price of milk of 16.9% from January 07 to July 07 – approximately a 30% annualized rate….also excluded from the “inflation” number commonly quoted, but not excluded from the impacts to our pocketbooks.
The other very key discrepancy concerns the housing component of the CPI. To determine housing cost inflation, the survey asks a random sampling of homeowners the following question (again, I quote directly from the BLS CPI website):
“If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”
They define Rental equivalence as follows: “This approach measures the change in the price of the shelter services provided by owner-occupied housing. Rental equivalence measures the change in the implicit rent, which is the amount a homeowner would pay to rent, or would earn from renting, his or her home in a competitive market.”
Housing - Owners’ equivalent rent of primary residence (BLS). CPI Data (2003: http://www.bls.gov/cpi/cpid03av.pdf, 2007:http://www.bls.gov/news.release/pdf/cpi.pdf)
2003 - 219.9 (This is the index number they come up with)
2007 - 246.15
Change: 11.9%
Housing - National Average - Based on sales price (Sales price data: http://www.census.gov/const/quarterly_sales.pdf)
2003 - $195,000
2007 - $246,500
Increase: 26.4%
CPI versus "Core CPI".
Fed's comfortzone for inflation is 2%.
Core CPI - 2002 to 2006: 2.1% increase annualized. Adjusted for home sales in place of "equivalent rent": 3.4%
NonCore CPI: 2002 to 2006: 3.2% increase annualized. Adjusted for home sales in place of "equivalent rent": 4.5%
So, I am suggesting that the inflation model used by the Fed may be fundamentally in error. The problem with this is twofold:
It is my understating that the Fed uses Core CPI data to determine monetary policy. Having never been in an FOMC meeting, it is difficult for me to verify the accuracy of that statement, but it is commonly stated in periodicals. “Monetary Policy” includes such things as the Fed Funds Rate and the amount of liquidity they pump into the system. A flawed model could result in the wrong decisions by the Fed. Now, some might say that the Fed is certainly smarter than that, and I will wholeheartedly agree. However, intelligence has a very quiet voice in any bureaucracy when it runs counter to policy. So, what exactly is the stated policy:
“Until the early 1980s, the CPI used what is called the asset price method to measure the change in the costs of owner-occupied housing. The asset price method treats the purchase of an asset, such as a house, as it does the purchase of any consumer good. Because the asset price method can lead to inappropriate results for goods that are purchased largely for investment reasons, the CPI implemented the rental equivalence approach to measuring price change for owner-occupied housing. It was implemented for the CPI-U in January 1983 and for the CPI for Urban Wage Earners and Clerical Workers (CPI-W) in January 1985.” Therefore, even if the Fed knows housing prices are increasing rapidly despite moderate increases in equivalent rent, the current policy prevents them from taking that into account when making monetary policy decisions.
In this case, the presumably flawed model could potentially result in an over-exuberant consumer. All markets rely on data and information. Compiling and analyzing the above analysis took me about 2 hours. What percentage of Americans is actually going to do that kind of research? I would guess it is in the 1% to 3% range, most of whom are academics publishing white papers in journals which are read by an even smaller portion of the general population. The question becomes, is an over-exuberant consumer necessarily a bad thing? While I believe the answer to that question is difficult, I do believe that the most efficient markets are based on accurate data.
- Transportation (which includes such things as airfare, bus tickets, and car purchases) increased 9.4%.
- Energy increased 16%
- Food went up 4.4%. Of note here, also from the report, is a rise in the price of milk of 16.9% from January 07 to July 07 – approximately a 30% annualized rate….also excluded from the “inflation” number commonly quoted, but not excluded from the impacts to our pocketbooks.
The other very key discrepancy concerns the housing component of the CPI. To determine housing cost inflation, the survey asks a random sampling of homeowners the following question (again, I quote directly from the BLS CPI website):
“If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”
They define Rental equivalence as follows: “This approach measures the change in the price of the shelter services provided by owner-occupied housing. Rental equivalence measures the change in the implicit rent, which is the amount a homeowner would pay to rent, or would earn from renting, his or her home in a competitive market.”
Housing - Owners’ equivalent rent of primary residence (BLS). CPI Data (2003: http://www.bls.gov/cpi/cpid03av.pdf, 2007:http://www.bls.gov/news.release/pdf/cpi.pdf)
2003 - 219.9 (This is the index number they come up with)
2007 - 246.15
Change: 11.9%
Housing - National Average - Based on sales price (Sales price data: http://www.census.gov/const/quarterly_sales.pdf)
2003 - $195,000
2007 - $246,500
Increase: 26.4%
CPI versus "Core CPI".
Fed's comfortzone for inflation is 2%.
Core CPI - 2002 to 2006: 2.1% increase annualized. Adjusted for home sales in place of "equivalent rent": 3.4%
NonCore CPI: 2002 to 2006: 3.2% increase annualized. Adjusted for home sales in place of "equivalent rent": 4.5%
So, I am suggesting that the inflation model used by the Fed may be fundamentally in error. The problem with this is twofold:
It is my understating that the Fed uses Core CPI data to determine monetary policy. Having never been in an FOMC meeting, it is difficult for me to verify the accuracy of that statement, but it is commonly stated in periodicals. “Monetary Policy” includes such things as the Fed Funds Rate and the amount of liquidity they pump into the system. A flawed model could result in the wrong decisions by the Fed. Now, some might say that the Fed is certainly smarter than that, and I will wholeheartedly agree. However, intelligence has a very quiet voice in any bureaucracy when it runs counter to policy. So, what exactly is the stated policy:
“Until the early 1980s, the CPI used what is called the asset price method to measure the change in the costs of owner-occupied housing. The asset price method treats the purchase of an asset, such as a house, as it does the purchase of any consumer good. Because the asset price method can lead to inappropriate results for goods that are purchased largely for investment reasons, the CPI implemented the rental equivalence approach to measuring price change for owner-occupied housing. It was implemented for the CPI-U in January 1983 and for the CPI for Urban Wage Earners and Clerical Workers (CPI-W) in January 1985.” Therefore, even if the Fed knows housing prices are increasing rapidly despite moderate increases in equivalent rent, the current policy prevents them from taking that into account when making monetary policy decisions.
In this case, the presumably flawed model could potentially result in an over-exuberant consumer. All markets rely on data and information. Compiling and analyzing the above analysis took me about 2 hours. What percentage of Americans is actually going to do that kind of research? I would guess it is in the 1% to 3% range, most of whom are academics publishing white papers in journals which are read by an even smaller portion of the general population. The question becomes, is an over-exuberant consumer necessarily a bad thing? While I believe the answer to that question is difficult, I do believe that the most efficient markets are based on accurate data.
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