The reign of David Lereah as chief economist of the National Association of Realtors (NAR) is finally coming to an end. I'm not going to lie, I am going to miss being able to make fun of David month after month as his overly sunny analysis of the real estate market proves false again and again. Lereah has been an utter embarrassment to REALTORs for years and I imagine few are mourning his decision to leave.
Lereah is supposedly leaving NAR to begin working with MOVE Inc. a company that provides neighborhood and community information to new and prospective homeowners. Why Move Inc wants to subject themselves to criticism for hiring Lereah is unknown. The equity markets did not reward MOVE for the hire. Move Inc.'s stock was off 2.5% today perhaps as investors begin to calculate just how much damage Lereah can do before they realize their mistake (okay, okay that's probably not why the stock is off).
The real question for me is what will become of the blog that quickly became my favorite housing bubble blog: David Lereah Watch. My sources tell me that the site will probably be renamed and follow the next qualified economist who can stomach cheerleading for the NAR during a market downturn. That's not an easy job. Just imagine trying to pitch technology stocks to investors in 2002 . In the event that no one signs up NAR will probably contact someone over at the Competitive Enterprise Institute (CEI), the favorite PR spin artist of ExxonMobil and Big Tobacco. I'm sure they'll come up with something.
The ability of markets to process large volumes of pricing information is indisputable. So while polling is still the method of choice for predicting voter behavior, prediction markets, by letting voters put their money where their mouth is, may be a more efficient and continuous means of predicting our next president. With that in mind I scoured the existing prediction markets that allow real money trading -- Iowa Electronic Markets and InTrade -- as well as those that only use play money -- News Futures and Prediction Xchange (currently offline) -- for information on who our next president will be.
In case you are wondering I feel that InTrade is perhaps the best prediction market site because of its easy navigation and advanced graphing capabilities. I am not endorsing that you engage in betting on any of these sites, and if you want to learn more about the potential legal consequences of doing so you should check out this article from Slate.
The electronic prediction markets pose a question, for example "Will Hillary Clinton be the 2008 Democratic Nominee for President?" If Hillary wins the contract is worth $100, if she loses it is worth $0. So logically the more likely she is to win the more someone will pay for the contract and the higher the contract will be worth. Let's start with the real money sites:
Here to is the chart for Rudy Guiliani. You can see that Rudy was up on strong volume in February and March but had trouble breaking 40. He is still the leading Republican candidate.
Recently many economists have welcomed Dani Rodrik (pictured right) to the world of blogging. Rodrik, though a blogging novice, is a well respected economist at Harvard's Kennedy School of Government in the areas of development and international economics. I personally discovered Rodrik's blog through that of another Harvard economist, Greg Mankiw (pictured left). Mankiw has been blogging for about a year, and though he originally started blogging to communicate with his Ec 10 students (Harvard's introductory economics course) his blog is extraordinarily well subscribed and widely read outside of Harvard's walls.
Interesting enough, within days of Rodrik's first foray into the blogosphere Mankiw and Rodrik began engaging in what I would call a "vigorous" debate about the benefits of trade and the merits of various trade models. It is my feeling that public dialogue between economists can be incredibly illuminating and useful to arm-chair economists like myself who no longer have the pleasure of attending lectures along the Charles River. However there are risks to the economists themselves, and for the casual observer.
First of all, for the economists, engaging in debate in a casual nature through a blog is perhaps less convincing (though more timely) than engaging in debate via academic paper or opinion articles in the WSJ. The risk of sounding petty or of blithely denigrating the work of another economist may serve to alienate rather than encourage readers. The risks to the reader are perhaps more important. Because of the lack of thorough explanation and data/models in blog debates the result is a more accessible but less rigorous debate than is possible in an academic setting.
The good news is that Greg Mankiw seems unlikely to be lured into a more active debate with Rodrik or anyone else for that matter. After all, Mankiw uses his blog largely as a pedagogical tool, not as a means to pursue policy debate or profess personal opinion. Only time will tell how academic economists will utilize blogging in the future; it is my sincere hope that lively debate will not descend into churlish attacks via blog.
For the first time ever Toyota surpassed GM in quarterly world-wide sales. Most industry analysts have been calling for GM's dethroning for quite some time, so this is really no surprise. Unfortunately for Toyota being on top in vehicle sales is not an end unto itself. In the auto industry it isn't just quantity that counts, it is profitability. GM has always sold more cars than Toyota but they haven't been nearly as profitable in years.
I personally feel that the real growth story in cars over the next 5-10 years will be who can bring to market a compact, fuel efficient, ultra cheap car that can be sold to the burgeoning
middle class in China and India. Who has the lead on that prototype? I'll give you a hint, it isn't Toyota and it isn't Hyundai. The leader is Tata Motors. The NYSE-listed (TTM), Indian auto maker announced plans for a car that retails for $2,500. And get this, their engineers have been trained in Toyota's manufacturing techniques! I agree it is an ambitious project but if Tata pulls it off they will be leaps and bounds ahead of GM and Toyota.
In retrospect however I think I may have missed out on one of the best paired trades ever. Check out the graph below assuming you had gone long TM and short GM 5 years ago today (click to enlarge):
Barack Obama is a legitimate presidential candidate. If this wasn't clear before, it was certainly clear after he announced he had raised $25 million in campaign contributions, putting him just $1 million behind seasoned fundraiser Hillary Clinton. Having the support of hedge fund legends George Soros and Paul Tudor Jones certainly hasn't hurt either. But, until recently Obama hasn't revealed much about his economic policies. To be perfectly honest his entire domestic policy agenda is largely unknown. Even a thorough analysis of speeches, interviews and his congressional voting record reveals very little substance (some information can be obtained from his website.) I feel the Wall Street Journal described it best when they said he is best known for "his biography, his charisma and his early opposition to the Iraq war."
In his defense, Obama's fundraising ability and charisma has meant that he hasn't had to take strong policy positions thus far, and this will undoubtedly work in his favor as he surveys his opposition and his voter base and develops policies that could place him in the oval office. For now, one of the only ways we can evaluate where Obama will land on the political spectrum is to evaluate the economists he has added to his team. Atop his economic team are star Chicago Economist Austan Goolsbee and two Harvard professors who served on Bill Clinton's economic team, Jeff Liebman and David Cutler. At first blush this is an accomplished and experienced team. Because health care is such an important Democratic issue it is not surprising that Obama will lean heavily on Cutler. Cutler's outstanding research background and his political experience make him a crucial part of a team that will have to come up with a health plan that, as Obama pledged, will "have all individuals covered by the end of his first term." Expect more information on Obama's policies to emerge in the weeks ahead. The first Democratic debate is this Thursday evening.
Below is more detail on the team (click to enlarge):
In the chart below I graphed the performance of 4 prominent Asian stock market indexes -- Japan, Malaysia, Hong Kong, Singapore -- and Australia over a 5 year period. If I had taken a survey to see if investors thought that the Asian countries or Australia was a better market to invest in over the past 5 years, I would bet that most retail investors would put their money on Asia. Here is the list from worst to best:
So what is the lesson here? Well, for starters proper asset allocation hopefully gave each of you exposure to these and other emerging markets in your portfolio. If you didn't have adequate exposure to this area your returns have probably lagged over the past 5 years. Today with companies like iShares offering more and more invidual country ETF's you can get more precise exposure to countries that are well positioned for growth over the next 5-10 years. Even though Australia (EWA), Singapore (EWS) and Malaysia (EWM) have all been hot for some time I believe that all three will continue to benefit from the explosive growth of China and India. The downside of course is the volatility. 
While we are talking about all things green I figured I would draw some attention to an article in the Economist about the IndyCar Racing League (IRL):
"This year's IndyCar Series, America's “open-wheel” version of Formula One Grand Prix racing, is not like any other. After the first two races of the season, held in Florida, drivers sniffed the air appreciatively. “It's kind of sweet. It's very organic and it's not really a harsh smell at all,” said Jeff Simmons, a driver with the Rahal Letterman team. What he was sniffing was ethanol. And as the large “E” signifies on the green flag that drops to start each race, all the whirling motors on the track are now propelled by corn-fuel."It seems everything I read mentions Ethanol, biodiesel and other alternative fuels. Its a shame alternative fuels are still largely unavailable in gas stations. After all there are already 5 million flex fuel vehicles on the road today. If you look at the gas price map below you'll notice that California is getting hot (see chart below).
