The Incomprehensibly Large Deficit and You

A little while back the Wall Street Journal ran a pair of articles about things we should do in preparation for the inevitable effects of the federal budget deficit. Brett Arends led off on February 4 with The Deficit: How to Protect Yourself and then on the 6th we got a round up of advice from most of the rest of the WSJ staff in Protecting Yourself from the Giant New Deficit: How to Keep the Scary U.S. Debt From Eating Up Your Assets.

To a degree, items like these almost comically miss the big picture. They remind me of pieces popular a while back that said that in anticipation of global warming we should all buy land in the Canadian interior. If the government continues on its present course, and I for one am not ready to concede that that is a certainty, it will be an economic calamity that will make us all drastically worse off. The best thing a person can do about the deficit is to vote for leaders willing to do the ugly and unpopular things necessary to reduce it.

But if you can ignore the big picture and focus on only the near term effects of the current and upcoming deficits, it is possible to come up with some coherent advice. Not that the crew at the WSJ consistently do this.

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Of Course It’s a Good Time to Buy a Toyota

Here at the Curmudgeon house, there is no question which was the funniest Super Bowl commercial. It was the ad for the local Toyota dealerships. I think what they had in mind was drumming up traffic for their Washington’s Birthday Sales (a big tradition around here) by quoting from positive car reviews. But what they wound up doing was filling the screen with short phrases in big block letters surrounded with quotation marks.

"The Best"

"Highest Quality"

"Best Resale Value"

Even my 12-year-old understood the quotes in the ironic sense and nearly pulled a muscle falling off the sofa. I’ve been looking around the web for a video to embed, but sadly cannot find one. As of mid-week they were still obliviously running the ad.

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Is a College Degree Worth Anything?

One of my favorite questions, the monetary value of a college degree, is back in the buzz. Last week the Wall Street Journal ran an article asking What’s a Degree Really Worth, with the alternate title "Earnings Gap Between College and High School Grads Small."

It seems that for some number of years the College Board, the lobbying group  for colleges, had been citing $800,000 as the difference between lifetime earnings of college and high school graduates. They got that number by taking the difference in average annual salary for high school and college grads as measured by the Census Bureau (about $20K) and multiplying that by a lifetime of work. (Which apparently is 40 years. I would have guessed higher.)

It is a very crude calculation, but then I am not sure that the College Board ever claimed otherwise. According to the WSJ, until December their website did say that

Over a lifetime, the gap in earning potential between a high-school diploma and a bachelor of arts is more than $800,000. In other words, whatever sacrifices you and your child make for [a] college education in the short term are more than repaid in the long term.

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House Confusion at The New York Times

The piece is entitled Believe It or Not, Existing-Home Sales Were Up in ’09. Why wouldn’t I believe it? Why wouldn’t anybody? We were supposed to have an opinion on this topic? And a wrong one?

I suppose that if you misunderstood what was meant by the term "existing-home sales," confusing it with the prices for houses, rather than simply the number of non-new houses that changed hands in 2009, you might be surprised. Through November ’09 the Case-Shiller 20 City was down a little less than 3% for the year. (December hasn’t been reported yet.) That’s a great improvement on the year before, ’08 was down more than 18%, but it’s still down. So, yes, if you thought "existing-home sales were up" meant that prices were up, your befuddlement might have caused a brief bit of erroneous optimism.

Alas, that’s not what it means. The count of houses sold is of great interest to real estate brokers, who make money on each transaction, and of almost no use to anybody else. True, there is a rough and unreliable relationship between sales volume and prices. (See chart here.) It is enough that if we had no price indexes we might use sales volume as one of our tea leaves to help us guess what was going on.

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Foolish Investors Make Foolish Predictions

Headlines for newspaper items and blog posts are troublesome things. They have always sold papers, particularly tabloids, but the advent of the web and search engines have made their importance, and the temptations to play games with them, even greater. The coin of this realm is the click, and if you want to get surfers to read your stuff you better have a catchy title, preferably including some popular search terms.

Earlier this month The Washington Post blamed an increase in typos (e.g. soldiers wearing "shiny black boats" on their feet) on copy editors being distracted by new duties. "Separate online headlines must be written in a way that attracts attention on the Web."

I bring this up because the other week Jason Zweig’s Intelligent Investor column in The Wall Street Journal was headlined "Why Many Investors Keep Fooling Themselves." (Mysteriously, the metatitle, the thing that appears at the top of the browser window, hedged: "Why Some Investors May Be Fooling Themselves.")

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