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Outsider Trading is ran from the office of WealthMark. Our goal is to provide an alternative perspective on the finance industry through a detailed analysis of current issues.
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Outsider Trading
  • Technology For The Masses

    When it comes to technology, Universities have always been on the cutting edge. Today, many Universities sport subatomic microscopes, mass spectrometers, and particle separators to name a few. However, with all of this technology universities have failed to use technology to advance access to education. The cost of higher education has started a parabolic upward move in the last two decades (interestingly, for most of this decade the government has measured very low inflation) see chart below.

    Given the massive scalability of the internet nearly everyone could attend Harvard for a very low cost. Indeed I quite frequently watch lectures, free online, by professors all over the world including Harvard, Stanford, University of Boulder, Oxford etc. Where online education has been implemented it is ridiculously expensive, usually costing more than a traditional education at the same university. It is almost as if the Universities are charging a premium for affording you the luxury of studying online.

    From what I can tell the reason that prices have remained high for online education is simply elitism and defense of the status quo. If everyone can go to Harvard what is the advantage of going to Harvard? And if people can attend a University cheap online what would motivate that individual to enroll in the traditional on-campus experience?

    This is a proposal for a different type of elite university. If a University were to open enrollment for the first two years of school online very cheap but only passed a small percent onto the final two years of on-campus education this University would indeed have the graduated the best and brightest, and would most likely have one of the most diverse student bodies in existence. A program of this nature would look a lot like the CFA exam letting anyone compete but only passing the elite. By keeping the cost so low for the first two years students would have very little risk in competing for an education and students that knew they couldn't pass would simply self-select themselves out of the program and for students that made it to the last two years the added cost would be more than worth it and the student loans made to these students would likely be lower risk.

    I fully understand that such an idea would be a major threat to school as usual. Perhaps one of your last two presidents wouldn't have had the chops to make it through the program. This system would not cater to those with rich parents, high level connections or even those that suck up to the teacher; it would reward performance.

    I fully understand this is a radical idea but such ideas often carry radical benefits. By opening up very affordable education to the masses society will advance because more people would be educated and have access to the best educators. In addition, having a very strict level of competition would make people push their own boundaries. Perhaps this in and of itself should be the goal. I mean is the goal to educate the most people in the best way possible or is the goal to create a class system where some people can say I went to Dartmouth and you went to a State school? Is it possible that a school such as I outlined above that would have "failures" that were more prepared for life than many of today's university graduates?

    UPDATE: Our post coincided nicely with NPR's discussion of online classes on All Things Considered.

    Jul 10 5:02 PM | Link | Comment!
  • Housing: Is It Safe To Jump In?

    It seems that our nation's largest store of value is almost out of the woods. Ever since the housing boom reached its peak in 2006, prices have fallen upwards of 50% in numerous regions of our country, like Phoenix, Detroit, and Las Vegas. This loss has severely damaged one of the nations largest industries and crushed the majority of Americans purchasing power, impeding the global economic recovery.

    In today's environment, investors are forced to fund acquisitions through personal capital or meet higher credit standards, leading to a fraction of the top projects being developed. The once American dream of owning a home has turned into a prohibitively desperate run on the rental space, stretching an already low supply. Many cities across the country are seeing outrageous spikes in development of multi-family complexes; perhaps this will be the next bubble? As homeownership decreases, and foreign investment jumps, it is necessary to analyze the most recent economic reports to differentiate between an industry turnaround and market noise.

    Current State:

    The leading Real Estate indicator is the Case-Shiller home price index, which analyzes 20 different markets and is calculated monthly using a three-month average. It might come as a surprise that the top five states with the highest increases in annual home price appreciation are Hawaii, Washington DC, Iowa, Florida, and North Dakota.

    The latest report (chart above) shows that as of April 2012 we have finally reached the same price levels as in early to mid 2003. Although home values have not recovered to the inflated levels of 2006, I am optimistic that recent data indicates a turning point from a previous stagnate downtrend.

    Another major index is published by the Federal Housing Finance Agency, which compiles data monthly from Fannie May and Freddy Mac transactions and is released quarterly. The latest report shows minimal signs of a recovery in the year over year "purchase-only" index, increasing a slight 0.5%. The FHFA found an increase in purchases in 30 states and Washington DC, with strongest price increases in the Mountain Division and weakest in New England.

    Looking Forward:

    Investment throughout the housing industry is expected to increase, accelerating both single and multi-family development in attempt to meet consumer demand. The trickle down effect from increased home prices will stimulate related construction and material industries, as many "beaten-down" manufacturers re-enter the market, jumping at the opportunity of a turnaround.

    Due to the current financial capacity of many individuals, it should come as no surprise that increases in market rents outpace increases in home prices. Trulia, a real estate market data provider, reported that US rents have increased 5.4% over the past year. I expect this trend to continue as many individuals deleverage from underwater assets, greatly limiting their possible housing opportunities and driving rental demand.

    Calculated Risk, a leading Real Estate blog, recently ran an article noting Goldman Sachs call of market bottom. The team at GS cautiously states:

    Our model projects a nominal house price gain of 0.2% from 2012 Q1 to 2013 Q1 and another 1.4% from 2012 Q1 to 2013 Q1. Taken literally, this would imply that the bottom in nominal house prices is now behind us.

    With industry forecasts as weak as the statement above, it's tough to put much confidence in their conclusions. The lag between the real-time transaction environment and when reports are released makes one question the data's validity and ultimately the markets true direction. Improvements in the sourcing and reporting of information through new avenues of collection (redfin, zillow, & trulia) should greatly improve market data's relevancy.

    With many of the leading real estate indicators reporting positive trends, and housing values recovering to pre-boom levels, I feel that it is critical to remain cautious when analyzing market valuations. The accuracy of such data is likely skewed due to uncommonly low interest rates. As long as the US recovery does not follow a similar Jappanese pattern (cyclical deleveraging), I feel that the Real Estate industry has finally reached a turning point and I am bullish on selective assets.

    Jul 10 5:02 PM | Link | Comment!
  • The Chinese Propaganda Machine

    It is known that China maintains tight control of its media. Censorship has become so extreme even corporations such as Google have refrained from doing business in China. Now it appears China is trying to influence Westerners views of the country. Below is page A3 from last Wednesday's (6/27) Wall Street Journal.

    This page is designed to look like part of the newspaper's reporting with only a few small prints that say PAID ADVERTISING. The articles make it a point to show that China has been extremely neighborly, has aided in resolving the Euro crisis and remains a storehouse for global economic growth. What's not to love right?

    Only on closer inspection will you find that the article is paid for and published by China Daily, a national Chinese newspaper. With this type of blatant manipulation of perception it is no surprise that many find the economic data and figures coming out of China to be suspect.

    UPDATE:

    No less than a week after our first publication, China Daily is back at it again. But, this time, they have increased their campaign to two full pages in the Wall Street Journal.

    Assuming a liner progression… the complete WSJ will be taken over by China Daily by March 2013 (see math below).

    • 32 pages / 1 page increase per week = 32 weeks
    • 32 weeks / 4 weeks per month = 8 months

    Assuming an exponential progression… all major US new's sources would be controlled by China Daily by the end of 2013.

    Jul 10 5:02 PM | Link | Comment!
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