Carl from Chicago

Business executive interested in history, economics, taxation and energy policy.

The War on Drugs… From a Different Angle

by

Recently Rolling Stone magazine had an article titled “War On Drugs” or “How America Lost the War on Drugs”. The article went through the usual statistics showing how our tactics aren’t working and that we have “lost” this war. As proof, they cite that the number of Americans behind bars on drug charges has increased from 41,000 in 1980 to 493,800 in 2003 (and presumably more in 2007).

The point of this post isn’t whether or not you are “for” or “against” the war on drugs – that is done to death at a million other places. The purpose is to look at the situation from an entirely different angle…

Out of these 493,800 offenders behind bars, how many were “casual users” caught in a net of enforcement (run a red light, get stopped for having drug paraphernalia, go to jail) and how many were gang members selling or transporting drugs for resale? Um… while Rolling Stone is definitely catering to the casual user and happily points out those (relatively) few individuals caught in the dragnet I would estimate that the vast, vast majority of these almost 500,000 in jail are actually gang members trafficking or selling drugs.

To Rolling Stone magazine, these offenders are “lost souls” who took some sort of wrong turn and are just languishing in prison due to our society’s rigid and unrealistic moralistic stance. But for our “drug wars”, these would be fine, upstanding individuals presumably designing rockets somewhere and volunteering in schools.

Not so. The key elements are KNOWLEDGE and INTENT. Everyone of these individuals in jail, whether they thought they’d be convicted or not, knew that selling drugs was against the law. Even on the talk shows no one ever says “but I didn’t know it was against the law…”. The second element is intent – they consciously went down the criminal path to make money, choosing this route instead of some legitimate path (i.e. getting a job).

Read more

Stocks in November

by

INVESTING BACKGROUND

I run three trust funds for my nephews and nieces that are old enough to understand the concept of saving, investing and stock selections that are documented at the site www.trustfundsforkids.com. I don’t mind directing people over there because there are no ads and it just describes what the funds are about, our selections, and our returns. Here is a post with more background on the topic.

RECENT EVENTS

For anyone who has been following the markets this year, it has been a roller coaster ride. The US stock indices were up for the year with some decent gains but have recently given up almost all of those gains and seem to be in a state of flux right now. High oil prices, the falling dollar, the credit freeze, housing woes, and finally massive write-offs in the financial sector have taken their toll.

Another important element that is coming to light is that profits for US companies are down significantly; per Barron’s the Q3 EPS for companies reporting are down 8.5% from the prior year – this is a big downturn, comparable to the quarters right before prior recessions (1989 and 2000). Without profit improvements, hiring and capital spending tend to fall in a bad spiral.

One term to keep in mind when investing is “negative covariance” – in layman’s terms this means that “bad things tend to occur at the same time”. Thus everything is fine, and then it’s not. For instance, the housing market goes down, liquidity evaporates, banks make huge write-downs, and then the companies that guarantee or eat these debt instruments struggle to understand the damage. These items were all related, and while models may value the probabilities of each individually, they all work together (in a bad way).

The stock markets recently went down about 10% – this is now officially a “correction”. No one knows if this is the start of a long swoon or a “buy on the dips” opportunity.

Read more

CTA At Work… Not

by

On Saturday morning I was out meeting some friends for lunch and we walked by Bed Bath and Beyond to pick up a housewarming gift. Out front of the building at State and Grand was a CTA truck parked halfway up on the sidewalk, with its usual lack of respect for the city or pedestrians.

And why barge up on the curb and park your truck? To take a nap, of course. This hard at work CTA employee was sleeping on the bench in the Bed Bath and Beyond lobby… it wasn’t just a quick nap, either – he was down there when we went upstairs, selected our gift, paid for it, and came back down. In this picture you can see the reflection of his truck on the corner – usually the glare from store glass hurts the photo but in this rare case it worked in my favor.

Cross Posted at LITGM

Valuing Your “Stuff”… Near Zero

by

One trend in housing is the ever-increasing size of the average American house. A drive through any city or suburb will show that new houses are growing larger, right up to the lot lines, and buyers perceive total square feet to be an important amenity. If you took the typical suburban family and put them in the house that they originally grew up in they’d generally shudder – only one bathroom for all those people, sharing a bedroom, and hardly any closets! Closets are viewed as a key amenity, with the ability to store racks and racks of shoes and clothes for all seasons is a virtual requirement.

In parallel with this is the growth in off site storage. When I was growing up it seemed that few people I knew had off site storage, but it seems much more prevalent today. Storage for furniture, hobbies, collectibles and everything else that people can’t bear to throw out.

While houses are getting larger and in particular storage elements & off-site storage is a growth industry, a different trend is going the OTHER way. Deflation, or chronic price reduction, is occurring with most of the “stuff” that people are storing.

Here is one example – my new “blog” camera with a small footprint (it is pretty slim although the lends does pop out when you turn it on) was only $212 and it has 7 megapixels and a bunch of cool features, like when you tilt the camera 90 degrees the photos switch from landscape to portrait in “view” mode. This camera blows the doors off previous digital cameras that I paid over 600 dollars for just a few years ago.

Read more

Real Estate Purchasing… and Wishful Thinking

by

Like much of the USA, Chicago and in particular my neighborhood (River North) has had an immense construction boom in housing over the last decade or so. Condos have sprung up everywhere, and some buildings that initially started out as high-end apartments converted over to condominiums.

Not only has there been an increase in the number of units, the turnover in units once purchased by the buyer is quick. If our building is any guide, perhaps 25% of the units are resold on the secondary market every year. We are a medium sized building, which I consider anywhere between 75 – 150 units, and not a weekend goes by without a couple of Realtors in the lobby and a few open houses. The Chicago Tribune has a decent real estate section and you can select a given building (by defining a unique address) & see the turnover across a period of time, along with the gain (or loss) in pricing on units that have been purchased more than once in that time period.

The boom seems to be coming to an end. There is a lot nearby that was going to have a 19 story condo building; now there is a sign on the lot saying that a ground level lease is available. Some other buildings that were proposed seem to be moving quite slowly, as well.

I would broadly segregate the condo real estate market into the following groups: 1) developers that haven’t started yet 2) developers for which construction is substantially committed and units are being sold 3) units available for resale from owners who own / occupy the unit.

This advertisement is from a developer in category #2 – the building is up, many of the units have been sold, and now the developer is trying to clear out the rest of the inventory. This building in particular (I can see it outside my window, picture below) was an apartment building that converted over to condos; the process is pretty far underway (I think that they have sold most of the units) and the developer apparently is pretty committed to unload the rest of the units. In the fine print of the ad you can see the straightforward comment:

“We’ve lowered our prices to give you the kind of deal that you’ve been waiting for. If you think you can do better, tell us. We’ll see what we can do.”

Read more