If you missed From Idea to Ignition, you missed a treat! Here's what one attendee said...
"I must say, if you have ever thought of starting your own business and are looking for very engaging, convenient, detailed information on how to do so from an Entrepreneur who is RELATABLE and REAL...you've got to join this. Mark Anthony McCray gave an amazing presentation and admittedly, this is maybe the first time I have felt compelled to repeat a webinar. I was blown away by the organization, professionalism and I'm serious... I had some real epiphanies about my biz." - N. Wade
"Thank you for the seminar. It was rich with information. It was advanced! I know the business owners loved it!! Glad there was a replay and items to download. I am going to listen to it again. Thank you for sharing your wealth of knowledge!!" - A. Brundidge
So...how do you know a good business idea when you see it? It's really all about studying the business model. Most successful businesses have more in common than they have different and knowing the commonalities can save you a lot of headaches and make you a lot of money. Therefore, whether it's waste disposal or concrete mixing or baking, focus on building your business based on a proven model - it's structure - and you'll increase your chances of success.
A business model is the way that costs and potential revenues interact. Put another way, a model is the structure that a particular business will use to get raw materials, add value, and sell the finished product to the market. Therefore, there are three main components to a business model:
(1) The markets and customers (2) The services and products to be offered (3) The distribution method
Does a market exist? After all, you will need customers, right? For example, let’s say that you are the world’s foremost expert on asbestos. Asbestos is your life and you think about it all the time. Then, let’s say that you have developed a way to sell asbestos products via the Internet and have representatives local to the customer deliver them. Do you think that you will have an adequate market to allow you to reach your business revenue goals? Probably not. Asbestos sales aren’t exactly peaking right now.
I acknowledge that the example sounds silly. However, I can assure you that many people commit similar errors everyday. You must be fairly certain through observation or study that a market exists for your product. Furthermore, the market must be large enough to maintain your business. Finally, people should find it easy to understand the benefit that they receive from buying your service. People spend money to solve their problems. Are there a lot of people with the problem that you want to solve? Are they willing to pay you what you are asking to do so?
This workshop is for you if:
You want a simple approach to business planning... You want a simple approach to developing your launch budget... You want to understand the twelve winning qualities of a successful launch...
I'm always candid, always helpful and always focused on teaching YOU instead of selling stuff. Join me by getting your copy today here! This is a $199 value that I'm offering for a crazy low price of $49 for a limited time because I want this to be the year you take control of your future and GET YOUR BUSINESS OFF THE GROUND!
Here's what I've included for you:
The One Page Business Planning Guide (PDF)
Business Start-up Expenses Form (PDF)
Interview with Mark Anthony McCray on The 10 Commandments of Marketing (MP3)
Business Start-up Expense Analysis (Excel Worksheet)
From Idea to Ignition Live Webinar (Video File)
From Idea to Ignition Live Webinar (Audio-only File MP3)
From Idea to Ignition Presentation File (PDF)
Bonus: A Business Development System That Will Not Fail (PDF)
Bonus: Financial Worksheets for Business Plans (Excel Worksheet)
Bonus: 9 Devastating Financing Mistakes Business Owners Make and How to Avoid Them (PDF)
Bonus/Complimentary Copy: The Sales Monster: 10 Ultimate No B.S. MonsterTips to Help You Sell More and Earn More Money Now (PDF)
You get the idea. I shared with you lots of information to help you answer the questions...
1 - How to quickly and easily draft a business plan? 2 - How to position and market your business? 3 - What are the fundamental elements of a winning business model? 4 - How do you build your budget?
Get your copy today here for a ridiculous low price of $49 for a short time only! I can't keep this information priced so low. You won't be able to find this kind of training anywhere else... video and audio, templates, sales and business development guides. I'm giving you what you've been looking for and more!
Click HERE for information on Mark as a speaker or presenter and HERE to learn about coaching programs to help you realize your potential and live more prosperously!
It's easy to forget that it takes three components to make a fire: fuel, oxidizer and a spark. Typically, you only see two of the fire-making components coming together: fuel and the spark. But that's only because the oxidizer is already there, in the form of the invisible oxygen molecules that are in the air. Without it, you're not going to succeed in making a fire. But with it, not only can you make a fire, you can make a huge fire.
In this third installment of our series, we'll explore how oxidizer, in the form of the "environmental" factors of financial and governmental policies, contributed to the fire that was the first U.S. housing bubble.
The Impotent Fed
After consistently throwing fuel on the fire that was the first U.S. housing bubble during the first years of its existence, the Federal Reserve became increasingly concerned that the U.S. economy was becoming too overheated by June 2004, a year after it had lowered its benchmark Federal Funds Rate to what was then an all-time record low level.
The Fed's Open Market Committee then used every opportunity provided by its regular meeting schedule to jack up interest rates by quarter-point intervals over the next two years, with mortgage interest rates following suit.
But the rise in home prices that defined the inflation phase of the first U.S. housing bubble continued on unabated. Prices rose at the same rate they did before the June 2004 interest rate hike all the way through September 2005 before shifting to a slower upward trajectory.
But the forces behind the bubble's upward inflation continued, until the bubble finally peaked in March 2007, as it plateaued near that level for the next several months before finally entering its deflation phase after November 2007, as the U.S. economy entered into recession.
But why was the Fed's policy of increasing interest rates to halt the inflation of the bubble economy so impotent? With homebuyers worldwide traditionally very sensitive to changes in mortgage interest rates, how could the bubble in U.S. home prices have continued for so long after the Fed began acting to correct the situation?
The answer to these questions may be found in the reaction of financial institutions and government policy makers to the prospect of slowing economic growth, who responded to the Fed's efforts by fanning its flames in opposition to the Fed's actions - feeding oxygen to what might otherwise have been a fading fire and making it burn more brightly instead.
Fanning the Flames
Recalling that the first U.S. housing bubble was initially sparked by investors looking for something to do with the money they took out from the stocks they sold during the deflation phase of the Dot Com Stock Market Bubble, we should note that a lot of that money entered the housing markets of the U.S. in the form of large cash down payments.
Not coincidentally, the kinds of mortgages that were taken out to fund home purchases in the initial phase of the housing bubble were conventional mortgages, which really benefited from the Fed's low interest rate policy.
But as time progressed and interest rates began to rise again in 2004, those mortgages became more expensive. Along with the increase in home values that were taking place, the combination of rising rates and rising prices should have cooled the market.
But financial institutions, both private (PLS) and government-supported enterprises (GSE), enjoying the outsize profits they were making on their real estate loans fought back against the Fed's actions by funneling home buyers into adjustable rate mortgages (ARM) instead of fixed rate mortgages (FRM), which offered lower introductory interest rates, and which lowered the initial costs of buying a home.
Soon, even that change wasn't enough to continue the flow of profits, and more aggressive financial institutions began degrading their mortgage underwriting standards to fan the flames of the bubble. Subprime loans were increasingly pushed to bring individuals who would not otherwise qualify for a mortgage into homes they couldn't otherwise afford. Ultimately, outright fraud became a common practice in the form of "liar loans" and the "robosigning" of mortgage documents.
But how did that come to happen? And where was the government in all this?
As it turns out, many of these actions were actually enabled years earlier by seemingly well-intentioned government policies, and pushed by seemingly well-meaning politicians and regulators.
Enabled in Washington D.C.
What happens when powerful politicians use the power of their offices to sway regulators to push policies that promote home ownership, no matter the cost?
It's a tenet of economics to observe that people respond to incentives. And if those incentives come in the form of political and regulatory pressure to comply with a well-meaning politician's goal, or the goals of their major campaign contributors, then something is going to happen, especially if it puts money in certain people's pockets.
Unfortunately, we often only find out that particular dynamic after charges have been filed. Often years after the fact:
Washington, D.C., Dec. 16, 2011 — The Securities and Exchange Commission today charged six former top executives of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) with securities fraud, alleging they knew and approved of misleading statements claiming the companies had minimal holdings of higher-risk mortgage loans, including subprime loans.
Russ Roberts offers a perspective of the government's role in the years leading up to and through the inflation phase of the first U.S. housing bubble:
The SEC suit against former execs of Fannie and Freddie appears to vindicate the Pinto/Wallison view that government housing policy pushed Fannie and Freddie into unsafe loans and caused the financial crisis.
I think Pinto and Wallison are half right. Fannie and Freddie did help cause the financial crisis. But not in the way Pinto and Wallison claim and not without a lot of help from the investment banks. Fannie and Freddie helped push up the demand for housing between 1995 and 2003. During that time, they expanded their activities, particularly among low-income borrowers. They started making loans with low down payments. This was not a secret by the way. Fannie Mae’s CEO, Franklin Raines bragged about it in 2000. Josh Rosner wrote about it in 2001. All of that activity drove up housing prices. That in turn, made it imaginable to lend to people who normally would not qualify for a mortgage and to lend them money without very much or any down payment. That in turn made the financial alchemy of AAA-rated mortgage-backed securities (MBS) possible. So yes, Fannie and Freddie had something to do with the crisis.
This aspect of the government's involvement in enabling the housing bubble helps explain why so many minority and low-income earning individuals found themselves badly burned when the housing bubble finally entered into its deflation phase after November 2007 - they were the intended beneficiaries of the policies the government had established in the 1990s to help them become home owners. As things played out, they became the hardest hit victims of the degradation of underwriting standards championed for them by U.S. politicians, as many were financially incapable of sustaining the payments on the houses they bought when the economy turned downward.
But that's not the full scope of the damage. Roberts goes on to identify the "too-big-to-fail" moral hazard aspect of the government's involvement in backing the risks being taken by the U.S. investment banks and Government Supported Enterprises (GSEs) like Fannie Mae and Freddie Mac and how that directly led to the financial crisis in 2008:
To really explain the housing boom and bust followed by the financial crisis, you need an explanation of why Fannie and Freddie AND the investment banks were so reckless. The Pinto/Wallison explanation is that Fannie and Freddie were reckless because the government made them do it. The left’s explanation is that the investment banks were reckless because the govnernment let them do it. Both left and right ignore the role of the other part of the market. But more importantly, both the left and the right leave unexplained how the reckless risktakers–the GSE’s and the investment banks–were able to do it–how they all were able to borrow money at relatively low rates despite ridiculous levels of leverage. How were they able to borrow all that money at so low rates when leverage meant high risk for the lenders?
My answer is that they were all GSE’s, all government sponsored enterprises–Fannie and Freddie and Bear and Citi and Goldman and Lehman and on and on. They all had an implicit guarantee from the government that allowed them to borrow at low rates (often from each other), rates that were well below market because of the implicit guarantee. And they were able to borrow at low rates even though they were highly leveraged which made them vulnerable to defaulting on their debt. Despite that vulnerability, they were still able to borrow at low rates. When things fell apart, almost all the creditors, lenders, and bondholders got all their money back, 100 cents on the dollar. The only exception was Lehman. The rest were all taken care of despite funding really bad bets.
For institutions like these, it must be nice to have Uncle Sam either backing or directing your every ill-advised move.
From Bubble to Bonfire
We find then that the steady degradation of underwriting standards, often prompted by legislation or by political pressure placed upon financial institutions during the late 1990s and early 2000s, that enabled the first U.S. housing bubble to become as large as it did by supplying the oxygen that fanned the flames of the bubble when it might otherwise have died out. We can see this in the growing number of sub-prime loans, as well as outright "liar loans" made increasingly throughout the bubble's inflation phase. That Fannie, Freddie, Bear, Citi, Goldmann, Lehman, etc. were all behaving as if they could reliably expect a bailout from the taxpayers no matter what only contributed to that environment.
The fuel for the U.S. housing bubble was the interest rate policies of the Federal Reserve, which held interest rates well below where the market would have otherwise set them, and especially so in 2003 and 2004, following the terrorist attacks of September 11, 2001 and subsequent recession. The inflation phase of the housing bubble didn't begin to decelerate until the Fed began pushing up U.S. interest rates to where they should have been all along in 2005 and 2006, as defined by the Taylor Rule.
But the spark that ignited the fire was the bursting of the Dot-Com stock market bubble, which began after August 2000, as the outflow of funds from that event provided a good portion of the money that helped push up real estate prices at a time the U.S. was entering into recession, breaking the established relationship between housing prices and household incomes. That factor, combined with the development and expansion of low-and-no money down mortgage products, as well as relaxed underwriting standards, was sufficient to counteract what typically happens in a recession, when housing prices fall in lockstep with falling household incomes and to cause it to grow beyond anyone's imagination.
And thus the bonfire that became the first U.S. housing bubble was formed. All it took was fuel, oxidizer and a spark.
Notes
Sharp-eyed readers will note that we've modified our chart detailing the relationship between median U.S. new home sale prices and median household incomes since we debuted this series two days ago!
Incorporating just released data for February 2013 into it, we can make a pretty good, but only preliminary argument that the recent run-up in home prices since July 2012 only inflated at rates consistent with the inflation of the first U.S. housing bubble through December 2012. We'll be able to confirm if that's indeed the case with just two to three more months of data. (We don't cite Keynes often, but we find this alleged quote applies.)
If that is the case, what we saw from July 2012 through December 2012 is more consistent with the shift in home prices that occurred following the enactment of the Tax Reform Act of 1986. Here though, we suspect we'll find the fingerprints of the reaction to the risk of higher taxes related to the fiscal cliff crisis at the end of December 2012, which we'll take on in upcoming posts.
Previously on Political Calculations
The U.S. Housing Bubble Is Back - we apply our groundbreaking analytical methods to determine that a new housing bubble has begun to inflate in the U.S. economy.
Fuel, Oxidizer and a Spark - Part 3 - we examine the factors that kept the first U.S. housing bubble going, even after the Fed acted to stop throwing so much fuel on the fire.
I don't get credit for this wisdom. I am but a vessel. The great John Cruise gets credit for sharing this with me as what he learned from his best mentor and coach. Thank you, Mr. Cruise.
First, a definition: Prosperity is "the condition of being successful or thriving" according to Miriam-Webster. Focus on that last word "thriving." It isn't just about money. You can be rich and not prosperous though I'd venture to say it's very difficult to feel prosperous if your financial circumstances aren't at least improving.
Second, regarding prosperity: Wanting to prosper isn't evil or unbiblical. In fact, true prosperity is a great thing for a Believer to aspire. I'm not a prosperity teacher by any means, but I don't believe one should expect only a life of adversity either. Adversity comes to all our lives, but victories should not be absent.
In any regard, I want you to do well and increase. If you want that for yourself, keep reading. Here are the four keys to prosperity as shared with me:
Profit: Measure every action and thought according to whether it produces a profit.
Protection: Protect what you've earned or there was no point in earning it.
Pride: Take a measure of pride in everything to which you put your hand.
Pleasure: Play last. Play once you've taken care of profit, protection and pride.
The problem with most people is they pursue these in the opposite direction and, therefore, out of order. They prioritize pleasure over profit or even pride. They make pleasure a priority for their money, time and energy leaving not much left to make their lives more profitable. Profit first. Not only, but first. This becomes a life worth living.
Click HERE for information on Mark as a speaker or presenter and HERE to learn about coaching programs to help you realize your potential and live more prosperously!
Now that we've addressed the combination of factors that sparked off the first U.S. housing bubble back in November 2001, we're going to turn our attention toward answering one of the most difficult questions regarding it:
Why here, but not there?
To understand why that's a difficult question to answer, consider that the two of the three contributors to creating the bubble were national in scope: money leaving the U.S. stock market in the deflation phase of the Dot-Com Bubble, which provided the spark for igniting the housing bubble, and the Federal Reserve's slashing of interest rates to record low levels, which was the fuel for the fire that followed.
So why didn't the first U.S. housing bubble inflate equally everywhere?
As you can see in the chart above for the years spanning from 2000 through 2006, the years covering the inflation phase of the first U.S. housing bubble, the U.S. housing bubble would appear to have been most concentrated in just six states. Or actually in just four states, since the growth in house prices in Maryland and Virginia was largely driven by the rapid expansion of the U.S. federal government following the 11 September 2001 terrorist attacks.
So that leaves California, Nevada, Arizona and Florida as the four states where the U.S. housing bubble had its greatest, most disproportionate impact on the value of housing, while most other states saw either moderate, and in some cases, almost no impact on housing prices.
Money Goes Home
The key to unraveling all this is the role of what we've described as oxidizer - the "environmental" factors behind the first housing bubble. And the first environmental factor to consider is where the money that provided the spark went first after leaving the U.S. stock market.
To put it simply, it went home. It first went to wherever those who had invested in stocks during the Dot-Com Bubble lived. As it happens, a very large portion of those investors lived in California, home to 1 out of every 8 Americans, but more importantly, whose Silicon Valley was the epicenter of the technology companies who benefited from the gains in the shares of stocks they owned and sold during the Dot-Com Bubble.
That combination meant that a lot more than 1 out of every 8 dollars leaving the stock market ended up in California. And subsequently, in California's real estate as many of these investors were young people who were also employed at the technology firms that directly benefited from the Dot Com Bubble. Many of these individuals took advantage of their windfalls to move up into nicer homes in the areas near where they worked, where housing prices were already high.
As for those stock market investors who lived in other parts of the country, many did the same thing with the money from their former investments. But with so much money in hand, and housing prices so much lower than California in most of the other places where investors pocketing Dot-Com Bubble dollars lived, a lot of that surplus money went toward second homes. Particularly in places where people would rather live, at least during certain times of the year. Such as during the winter months for the large number of Americans who live in the densely populated, but snowy northeast, who pursued the chance to own second homes in much warmer places known for their vacation resorts and other recreational amenities.
And that's why Florida, Nevada, and Arizona saw such a sharp rise in home prices compared to nearly all other states. Investors snapped up the available properties for sale in these states at a very rapid clip in the early stages of the first U.S. housing bubble, sending house prices skyrocketing in the places they coveted.
That activity, in turn, created opportunities for people who found it took very little effort to buy a house, wait a few months, then resell for a large profit as the inflated demand for housing stimulated further increases in home values, which then stimulated demand for building new houses.
And it wasn't just these home flippers and home builders who benefited from the rise in home values. Long term home owners took advantage of the rise in valuations to refinance their mortgages at the very low interest rates that took hold, taking out the gains in their home's equity and spending it, further stimulating the bubble economy that developed.
The Federal Reserve, for its part, aided and abetted the ignition of the first U.S. housing bubble by throwing more fuel on the fire it helped start, cutting interest rates in November 2002 and again in June 2003 to record lows, then holding them well below where the Taylor Rule indicated they should have been for a sustained period of time, as pointed out by Bud Conrad in the following chart from Casey Research.
Side Note: This is probably a good to time to ask the question: "Why wasn't there a housing bubble in the United States from 1973 through 1979?" After all, the Fed appears to have set interest rates far too low during that period with respect to the Taylor Rule according to the chart above.
The answer of course is that there is a missing element for making an economic bubble: the spark needed to ignite it. During that time, there was no relative windfall of cash suddenly coming into the hands of Americans looking to buy houses the way there was following the bursting of the Dot-Com Bubble two and half decades later. As a result, the Fed's policy of holding interest rates too low during much of the 1970s contributed to the high levels of inflation that characterized the economy during those years, instead of having the effects concentrated in the housing sector of the economy.
The party however couldn't go on forever, as the Fed became increasingly concerned about the economy becoming overheated. In June 2004, the Fed began cranking up interest rates a quarter point at a time in each of its Open Market Committee meetings for the next two years.
But it wasn't enough to stop the bubble, which didn't even begin to start slowing down its rapid expansion phase until September 2005, before changing trajectory to a much slower pace of increase after May 2006. Even then, home prices didn't peak until March 2007, after which they went mostly flat before the first U.S. housing bubble finally entered its deflation phase in November 2007, six full years after it originally ignited.
So how did the first U.S. housing bubble resist the Fed's efforts to extinguish it for so long?
In the third installment of our series, we'll point to the role of oxidizer once again in fanning the flames of the first U.S. housing bubble.
Previously on Political Calculations
The U.S. Housing Bubble Is Back - we apply our groundbreaking analytical methods to determine that a new housing bubble has begun to inflate in the U.S. economy.
For what do you burn? Would your friends and family say you're truly on fire about anything? I hope so because, from my point of view, if you're going to show up, show up with enthusiasm. Otherwise - and I mean this will all my heart - you might as well stay home! Check out my latest Google Hangoutwith Don Purdum and you can listen to me rant about this.
I mean what I said. If you aren't going to be fired up about your own purpose, calling and mission, why should anyone else be? Struggling to answer? The old saying from John Wesley is true: "Set yourself on fire with passion and people will come for miles to watch you burn."
Click HERE for information on Mark as a speaker or presenter and HERE to learn about coaching programs to help you realize your potential and live more prosperously!
Maybe I'm being a hater. I'm sure I am. But I was send an article the other week called "What Makes Men Fall in Love" and was asked my thoughts on it. I guess I'm predictable and people know my triggers because the first thing I did was an image search on "Cosmopolitan Magazine Covers" and this is what I got back.
Am I that old and out of touch? I am shocked at how often "sex" is the highlight of the issue considering their target market - mostly young, single women in their late teens and early twenties. That's the first way Cosmo is ruining marriage: It's got people thinking good sex = healthy relationship. Ummm...
But the second way Cosmo is ruining relationships and creating (future) divorces is by teaching gamesmanship as a part of the dating process. They say to pick fights as a way to show him you're not a pushover. Well, I'm not so sure about that. I think two people in relationship will have enough organic disagreements over time and you don't need to manufacture any. Don't pick fights to show you're strong. Just express your own opinions. You'll get enough disagreements in time. I'm sure of it! They also say you should blow him off from time to time. Since when has ignoring someone been a sign that you care? Go ahead and try that if you want to!
Finally, here's the deal. You can't make someone fall in love with you. Love is a choice. It's a decision to commit to you. The bottom line is a man (just like a woman) wants to be in a relationship with a person of character. Develop character from the inside. If you need help, grab a Bible. Go to the Proverbs. You'll get all the advice you need right there.
Here's where I will give this article credit. I think they are right about most of the male triggers to attachment. I just don't think you have to try a pull a guy's strings to get him there. You do that and eventually people figure you out and resent you for it.
Then you're looking for the article about what to do when he leaves you.
Click HERE for information on Mark as a speaker or presenter and HERE to learn about coaching programs to help you realize your potential and live more prosperously!
A good friend of mine, Betty-Anne Marie White, tagged me in/on/with (?) this article on my Facebook page. Deborah Gaines says hiring a coach doubled her income and I believe her. I believe her because it was having a coach that totally changed my life in the early part of my career. I give tons and tons of credit to a man named Duncan Butler who taught me more than I ever thought I'd know about business and entrepreneurship.
Duncan taught me something that I know I'll never forget: All of the most successful people (in every field) have coaches. In fact, most hyper-successful people have more than one coach. Think about someone like Tiger Woods. He has a swing coach, someone to help him with his short game, someone to help him with health and fitness and probably someone to help him with his overall competitive mentality. All the most successful people have coaches. I don't think you can find an exception to this rule - they just might not admit it because they want you to think they've stood alone the whole way. Bull spit! Don't believe that self-made garbage. Anyone who does anything great, gets help. I know I have. You should get help, too. Reaching beyond yourself for insight, tools, resources and even encouragement could be the best thing you ever do. At least think about it. If you've got an area in which you know you need to grow, get a coach.Where do you need help? Post your comments below!
Click HERE for information on Mark as a speaker or presenter and HERE to learn about coaching programs to help you realize your potential and live more prosperously!
As all fans of the Discovery Channel's Mythbusters know, it takes three things to make a fire: fuel, oxidizer and a spark. If you combine these three things in the right proportions, you too can make a fire.
Economic bubbles work much the same way.
Let's start by considering the circumstances that launched the first U.S. housing bubble back in 2001. Here, the leading role of "fuel" will be played by the Federal Reserve's policy regarding interest rates. The role of "oxidizer" will be represented by a number of factors that are always present in the economic environment, much like oxygen is always present throughout the Earth's atmosphere. These factors include things like mortgage loan underwriting policies, state and local zoning policies, etc.
But the key role of the spark belongs to another bubble, whose own origins we've already addressed: the Dot-Com Stock Market Bubble.
Let's set the stage. The Dot-Com Bubble, which began in April 1997, reached its peak in 2000. Here, stock prices had inflated dramatically until the S&P 500 peaked at a value of 1,527.46 on 24 March 2000, after which the stock market bubble entered into its deflation phase as stock prices began moving sideways for the next five months.
That plateau lasted through August 2000, which coincidentally marks the peak of the S&P 500 when measured as the average of the index' daily closing values during a calendar month, with an average value of 1,485.46. By comparison, the average value of the S&P 500 back in March 2000 when it marked its peak daily closing value was 1,442.21.
Stock prices then began to fall steadily in September 2000. By the end of 2000, the S&P 500 had lost 10% of its value from its August 2000 average peak. Stock prices then rebounded a bit in January 2001 before falling back in February 2001. And then the deflation phase of the Dot Com Bubble really took hold as the U.S. economy entered into recession.
Stock market investors got whipsawed over the next several months, as stock prices became extremely volatile. Overall, stock prices fell sharply, as many investors sold off their holdings and exited the stock market, taking whatever profits they still had and capping off their losses.
The sheer amount of funds that left the market at that time is astounding. From September 2000 through September 2001, the market capitalization of the S&P shrank by 25%, as investors pulled 3.2 trillion dollars out of the U.S. stock market. They then began looking for something else to do with all that money.
And that's where the fuel represented by the Federal Reserve's policy on interest rates comes onto the scene. Recognizing that the U.S. economy was falling into recession, the Fed began implementing a series of interest rate reductions throughout the year, reaching historic lows. In response, mortgage interest rates soon reached levels not seen in years.
So what did the investors who had pulled their money out of the stock market react to that situation? Well, they started buying real estate. Lots of real estate, as the following story that appeared in the Chicago Tribune in July 2002 indicates....
Some figures suggest that buyers are funding the bigger down payments by cutting their losses in the market. It's estimated that investors withdrew more than $20 billion from mutual funds during the last month.
Bill Stofko, a native of Fort Lauderdale, Fla., who has long invested in historic properties in Key West, Fla., moved some of his capital back to his hometown in the last year.
He purchased a unit in a high-rise condo under development. It has gone up 10 percent in value even though construction hasn't started.
And he purchased a corner-lot triplex for $350,000. The lot is zoned for townhouses, which could sell for about $400,000 each.
"I have money in the stock market, but in the last two years it's gone down," Stofko said. "I'm putting it in real estate."
In just a matter of months following the monthly peak of the S&P 500 in August 2000, the available inventory of housing for sale in a number of regions across the United States was depleted, creating relative shortages of homes for sale in the local markets seeing the greatest infusion of Dot-Com Bubble dollars. Consequently, with demand now greatly elevated in these regions, home prices began to rise sharply in November 2001, which marked the beginning of the inflation phase of the first U.S. housing bubble at the national level.
That month also marks the official end of the 2001 recession.
In Part 2 of our story, we'll discuss how the "oxidizer" element of the U.S. housing bubble, which was present all this time, affected not just where the housing bubble really caught fire, but also who would ultimately come to be burned by it.
Previously on Political Calculations
The U.S. Housing Bubble Is Back - we apply our groundbreaking analytical methods to determine that a new housing bubble has begun to inflate in the U.S. economy.
Aside from relatively minor noise in the market, the S&P 500 is continuing to behave as expected.
To underscore that point, let's revisit the "what if" game we started playing three weeks ago, following the Italian election fiasco noise event, when the S&P 500 had closed the previous Friday, 1 March 2013 with a value of 1518.20.
Playing "what if", we asked the question: "What if investors continue to focus on 2013-Q2 in setting today's stock prices and the change in the expected growth rate of dividends for that quarter stays constant with where it is today. How much would the value of the S&P 500 have to change on average per trading day to converge with that level by 21 March 2013 - the last day we have shown on our chart?"
We came up with an average increase of 2.75 points per trading day.
Spanning 14 trading days from 4 March 2013 through 21 March 2013, the S&P 500 would have to have risen to a level of 1556.70 before the end of that period for our "what if" game to hold true, a 38.5 point gain from the Friday, 1 March 2013 closing value of 1518.20 over those three weeks of calendar time.
The S&P 500 did just that on Wednesday, 20 March 2013, when the index closed at a value of 1558.71.
On Thursday, 21 March 2013, the market responded to a new noise event, with the S&P 500 pacing the reaction of global markets to uncertainty related to the EU's bailout of Cyprus' banks that day. But, that noise event was short-lived and the market recovered to close at 1556.89 on Friday, 22 March 2013.
So, aside from relatively minor noise in the market, the S&P 500 is continuing to behave as expected. Here is where the market stands at present:
This will be the last updated version of this chart that we'll be featuring for some time.
In the meantime though, here are three thoughts to consider for this week. First, not all noise events have a negative effect on stock prices. Second, following up a seemingly random comment of ours last week, you don't have to wait for a 150 point decline in the value of the S&P 500 for a clear sell signal. There are other, less clear ones that you might also consider!
And third, yes, what we've just demonstrated over the last three weeks is nearlyimpossible. We just have a knack for being able to execute that sort of thing.
We'll explain more of that second thought later this week....
Update 29 March 2013: Make that "sometime next week". We're going to take a day to savor the S&P 500's new all-time high and enjoy the holiday weekend!
Most inventions are meant to make life easier in some way. Even the Rube Goldberg-inspired contraption for removing the creme filling in Oreo cookie that we featured last week does that, in that it automates what might otherwise be a manual effort. It's a complicated way to do the intended task, but other than to load Oreos in and to unload the creme-filling free chocolate wafers out at the end is the only physical exertion required of the invention's user.
So what are we to make then of the following invention, which has been specifically developed to make a common physical task much more difficult to accomplish (HT: Core77):
Believe it or not, the Labyrinth Security Door Chain solves a problem, and does in fact make life easier. Just not for the people who will be the most likely ones who will be directly challenged by the invention.
In this case, the people for whom this invention makes life easier are the owners and employees of establishments that serve lots of alcohol-based beverages. It helps them identify those customers who have had so much to drink that their ability to quickly solve the maze and enter the restroom has become significantly impaired, as has likely their ability to accomplish other tasks that might expose the establishment to liability, such as if they attempt to drive while under the influence of alcohol and get into an accident.
That information, in turn, allows the owners and staffs of alcohol-serving establishments to decide how to deal with the impaired customer, where options may range from changing the services being offered to them, say exchanging food service for drink items, to declining to continue serving them altogether and making arrangements for them to be driven home.
You have to admit - it's a simple and relatively inexpensive way to sort out which customers have a greater potential to expose the establishment to the risk of costly liability-related actions.
What is the risk that your baby will become overweight or obese at some point during their childhood?
Today, we're going to help you find out using new research developed by a number of international researchers to determine the likelihood that an infant will be overweight or obese as they grow older, based only upon a handful of risk factors that are evident when they are infants.
Just enter the indicated data in our tool below, and we'll do the researchers' math for you!
In the tool above, perhaps the most difficult input value to consider is your child's race or ethnicity, where you can only select one option. In case those individual options don't apply for your child's race or ethnicity, you should select the option that would correspond to a greater risk of obesity for your child, as determined by statistical health studies of each group in the U.S. population, which have found the black or African American population to be the most at risk, followed by Hispanics, then the white population and finally the Asian population.
Not long ago, we featured a pretty cool looking chart illustrating the many minimum wages that have applied at the federal and for various states in the U.S. since 1994. Today, we're streamlining things a bit to determine the national average minimum wage for the United States!
To do that, we've calculated the percentage share of each state's population with respect to the combined population of all 50 states and the District of Columbia, and multiplied each state's share of the U.S. population by the greater of either the federal minimum wage or the state's minimum wage. We then summed up the results for each year from 1994 through 2012 to find the population-weighted national average minimum wage for the United States.
Those basic results are presented below:
And here are the results for each year again, this time adjusted for inflation to be in terms of 2012 U.S. dollars!
In these charts, the biggest deviations from the federal minimum wage in any given year can be mainly attributed to large population states that have set their minimum wages well above the level set by the federal government. The largest deviation occurred at the beginning of 2007, when states like California ($7.50), Florida ($6.67), Illinois ($6.50), Massachusetts ($7.50), New York ($7.15) and Washington ($7.93) had set their minimum wages significantly above the U.S. minimum wage of $5.15 per hour.
Together, these six states accounted for almost one-third of the U.S. population in 2007, which was enough, when combined with the higher-than-federal minimum wages of smaller population states to boost the population-weighted national average minimum wage to $6.35 per hour, 23% higher than the federal minimum wage on 1 January 2007.
The timing of when these large population states increased their minimum wages over the years also explains an apparent anomaly for those analyzing U.S. national employment data. Namely, why increases in the federal minimum wage would not appear to generate the large reductions in the number of the employed that might be expected in economic theory.
Here, by increasing their minimum wages in advance of when increases in the federal minimum wage have taken place, many states would bear the brunt of reduced employment earlier as a result of this action. By the time the federal minimum wage was increased with respect to the earlier actions of these states, a good portion of the job loss that might reasonably be expected if it were the only minimum wage in the U.S. would have already taken place.
We think that factor goes a long way to explaining why the Age 15-24 population of the U.S. with incomes saw a net decline during the years from 2004 through 2006, which were otherwise characterized by solid economic growth in the U.S.
It would seem that all it took to make that decline happen during these years was for the large population states of Florida, Illinois, New Jersey, New York and Wisconsin to rashly boost their minimum wages above the federal minimum wage level of $5.15 per hour, as those five states together account for over one-fifth of the U.S. population.
Meanwhile, virtually all of the net decline in the number of Americans between the ages of 15 and 24 with incomes during these years occurred at the levels of annual income that would be most directly affected by the minimum wage increases that occurred in each of these states.
(Note: The data for the Age 15-24 segment of the U.S. population is the most likely to show the real effects of minimum wage increases, because American teens and young adults make up approximately half of all individuals earning wages at or near the federal minimum wage level.)
By the time the federal minimum wage was increased to $5.85 per hour nearly two-thirds of the way through 2007, the impact that might otherwise have occurred was muted, which we see in the number of American 15-24 year olds with incomes declining much less than might otherwise have been expected from the 13.5% increase in the federal minimum wage that took effect on 24 July 2007.
And that's what separates our minimum wage impact analysis from other efforts that only look at the federal minimum wage - we've accounted for the different minimum wages that most affect the population of the United States!
I work with many engineers: software, mechanical, and electrical. It is truly an honor to work with them and watch them tackle challenges. They have a distinct approach and they love attacking problems. Never do they throw up their hands and say, "I don't know!" or give up on a challenge.
So, for today's lesson I decided to try a fun event to really get them talking and working. On Dave's ESL Cafe, he has a lesson plan called "Protect your egg" and I thought it was perfect for Easter. It appears the lesson is originally from the book Business English Recipes by Judy Irgoin. Sadly, the book is not available digitally so I haven't reviewed it.
The basic lesson is simple. Pairs are given string, tape, two balloons, two pieces of A4 paper, and a raw egg. The task is to construct a device which protects the egg when dropped from arms length. The only rule is that the egg must fall freely and cannot be lowered to the ground with the string.
For the A2 learners we started by looking at phrases for making and responding to suggestions. For the B1 group, the support was eliciting and boarding phrases beforehand. For the B1+ and B2 learners, they were not allowed to use the word "I". For the weaker group I helped them with a few phrases, nothing amazing... just as reference for during the activity...
Perhaps we could... We might be able to... It seems/appears that... How about -ing... One idea is to... What if we [past]...?
Then they were off to the races. I stepped back and let them at it, assisting only with slight corrections and unobtrusively boarding lexical gaps. In one group, I called a short timeout during the planning/building to replace the word "fix" with better options like "attach", "secure", "stabilize", etc.
Here is the winning design from the day...
The egg was suspended with strings in the center of the tetrahedron. The bars are made of rolled paper. In total, we dropped nine eggs. Four did not survive the fall intact and we broke two during construction... bring paper towels.
An added benefit of the lesson was that it has helped draw the students to their new course site. I have spent considerable time building material and creating the website. Of course, adoption takes time. To pull interest, I took pictures of the them holding their designs and then posted a recap of all the projects at the end of the day. They were intensely curious and nearly everyone logged in within an hour of sending the email notification that it was uploaded. For many, this was their first login to the site.
Also, the restriction on the stronger groups by outlawing the word "I" was outstanding. It eliminated the "I think, --- Well, I think" exchanges. Afterwards, we discussed how avoiding "I" generated more ideas and dialog because the suggestions were no longer personal property.
So, a wonderful day with lots of laughs and great language. Thanks to Judy Irgoin and Dave's ESL Cafe for creating and sharing this lesson for my engineers. Have a Happy Easter!
PS - My apologies for the blog slow down. I am working on a large CPD project for BE Trainers I hope you will enjoy... more to follow.
![Inflation-Adjusted Federal vs National Average Minimum Wage, 1994-2012 [Constant 2012 U.S. dollars]](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgo1NiEAuvc8mUokCqEmoJPs0KKZUEgARIYkMy-y4nWbfHcg6EJy2yvL5emDfXDAP8B8uHsH1ru8ziBXD_VF6E_reDJmYK8nyr3arosw3WApg99zDcub5X0dx4xYVVTizva4J4Mj2NwVFQ/s1600/zb-real-federal-vs-national-average-minimum-wage-1994-2012.png)
