Archive for September, 2006
Reading time: 2 – 4 minutes
In a recent commentary article on Charles Schwab, Liz Ann Sonders recently pointed to signs of an impending recession. We’re experiencing an oil price shock, inverted yield curves, and a real estate slump. Three things that, while inconclusive, are not particularly desirable.
First, the oil price phenomenon:
“Since the late 1990s, oil prices have gone up from $10 to $76 per barrel! With OPEC effectively flat-out producing, the U.S. producing a record low percentage of its own consumption, pipeline problems in Alaska and our imports coming from increasingly unstable regions, a major drop in prices is unlikely. Add the effect of rising interest rates and rising medical expenses, and consumers are now spending 55% of their disposable personal income on “essential” non-discretionary consumption, an all-time record. The massive infusion of liquidity by the Federal Reserve, via 46-year record low interest rates earlier this decade, had been the tailwind offsetting the headwind of rising oil prices.”
So maybe the liquidity we saw in recent years will evaporate. Interest rates are rising, and if home equity stops flowing, consumer spending won’t be able to keep buoying up the economy. Consumers are important too. They account for close to two-thirds of our GDP.
Combine tightening consumer budgets with recent indicators of inverted yield curves. Inverted yield curves occur when longer-term interest rates are lower than shorter-term rates. Historically, these have preceded recessions. Especially a special one where the Fed inverts the curve by raising the fed funds rate above the 10-year Treasury yield. The Fed did this in June. Since the ’70s this happened 6 times and in every case the economy shortly therafter (or already) was in a recession.
“One of the well-watched models for recession predictability [the inverted yields thing I mentioned - JAW] now shows the odds of a recession at greater than 25% based on the degree of inversion (as of Aug. 11) between the 10-year Treasury bond and the 3-month Treasury bill, presently at -0.10 percentage points.”
Regarding housing, mortgage application volume was down nearly 30% year-over-year as of July 28th. Housing starts? They were down 11% from a year ago. Existing and new home sales? Yes, down too: 9% and 11%, respectively. One could hastily conclude people aren’t opening mortgages with the increasing rates. Or maybe Americans are too greedy and want too much for their homes, so buyers are more scarce. Perhaps. The inventory of unsold homes was up close to 40%.
The impending doom Ms. Sonders predicts, may or may not materialize. Regardless, I want your articles or predictions of the current economy. Please leave a comment below, just click the “comments” link.
Reading time: 3 – 4 minutes
Microfinance in developing nations holds the promise of eradicating poverty through capitalism. Does it work? What is microfinance? Here’s a (biased) video emphasizing microfinance’s benefits.
Mike Murray of Unitus Co-Founder and discusses his initial misconception of the poor in developing countries:
“I thought the poor in developing countries probably lacked work ethic, they didn’t try hard enough. You know if they would just put their shoulder to the wheel, and try a little harder, and maybe wake up a little earlier, and just go for it like we do here in America. Then they’d have a better life. Well shame on me, these people work incredibly hard. They have to, because if they don’t their babies starve and people die. Their life stops! There is no safety net to catch them if they fall.”
Lorene Arey, President of the Clara Fund claims the poor lack opportunity. As opposed to drive or opportunity.
Mana Otero, President and CEO of ACCION International claims there are millions of poor people around the world who have no lack to financial services.
Financial services? Like IRA’s or maybe the new Roth 401(k)? No financial services like loans at reasonable market rates or banks to save their capital.
Enter Microfinance: a method for the poor to help themselves. It came about first in the 1970’s, by giving the poorest people of the world credit. Yup just like mortgages or those credit cards with beefy interest rates that can eat up a person’s income… the power of credit can allow business development in the developing world. Microfinance is explicitly not a gift. It is a loan, repayable at market rates.
Initially organizations would make loans from US$50 to US$150. Recipients would use the loan to buy capital in a small business, then pay it back with interest. It actually works. Today, not in 20 years. Take venture capital and marry it to poverty, you’ll be surprised at the result.
Most surprisingly (if you’re new to microfinance), the repayment rates are exceptionally high (95%). And most of the loans are made to women. They are found to be more responsible with the money, and investing profits from their business into their families. If this interests you, watch at least the first 5 minutes of the video. This video is only 14 minutes.
Has anyone visited a UNITUS funded business? This video is a pitch for their services, anyone have critical reviews on microfinance? Let’s bring about a balanced, critical analysis of this topic. Thanks for finding this link from Ryan, here.
Eric has funded someone through Kiva’s peer-to-peer microlending program. Anyone else?
Unitus is a global microfinance accelerator that acts as a social venture capital investor for the microfinance industry. Unitus identifies the highest-potential microfinance institutions (MFIs) in developing countries and helps accelerate their growth through capital investments and capacity-building consulting, thus empowering them to help exponentially more poor people worldwide. In doing so, Unitus aims to demonstrate that MFIs can be run as profitable, large-scale, poverty-focused businesses with links to local capital markets. As of October 2005, Unitus had seven MFI partners worldwide serving more than 504,000 poor clients.
Reading time: 1 – 2 minutes
While reading IBD I found the following visualization of the housing market. Yet another sign of the housing market slowing.
The IBD article said:
Many economists stop short of predicting a wholesale housing bust. The Fed’s policymakers said they believed the “gradual cooling of the housing market” would help slow the economy and allow inflation pressures to moderate.
The Fed’s cease-fire on rate hikes came after various reports showed the housing boom is definitely over. Sales of new homes and existing homes have been falling. Though median prices are still rising, gains have been the smallest in years.
A record level of unsold homes is expected to exert even greater pressure on prices in coming months.
The concern is that the sizable inventory glut could worsen as millions of Americans with adjustable rate mortgages, taken out when interest rates were at four-decade lows, suddenly find they can’t meet new higher monthly payments.
Reading time: 4 – 6 minutes
I went to Yahoo Hack Day a few weeks back.
- 400 people from all over the world
- camping out at Yahoo’s headquarters
- going to a day full of seminars
- hacking on a project for 24 hours
- a private concert by Beck.
What I best enjoyed is 80% of the people I met were either working for a startup, or they just started their own. It won’t be long before I’ll chase after that dream too. I am insatiably drawn to the excitement, pressure, and flow you achieve working in small teams, on real projects, with real clients… and wondering if you’ll miss payroll or strike it big.
Here are videos from some of the sessions:
1) YUI Front End developer, Matt Sweeny explores the philosophy of frontend engineering architecture for modern web browsers. Web 2.0: Getting it right the second time.
2)Ian Lamb presents ten tools and skills needed by hackers who want to take full advantage of the emerging ecosystem of open APIs and web services. The New Hackers Toolkit.
And no, I didn’t quite make it with the camping outside in tents… I really wanted to, honest! I packed my ultra lightweight North Face my dad used to bike accross the country. Although it looks like I made it a little too lightweight. I forgot tent stakes and poles. So I slept under a copy machine.