Ireland's richest speculator goes bankrupt yet …
Why are bonds outperforming stocks over long term?
| New records are set again -- a few economists know why. We trim, blend, and append five 2012 articles from: (1) USA Today, Jan 4, on bonds by Matt Krantz; (2) AP, Jan 12, on mortgages; (3) AP, Jan 16, on going broke by S. Pogatchnik; (4) Financial Times, Jan 12, on land rent by C. Wilcox (Labour Land Campaign); and (5) Disssent Voice, Jan 10, on economics by A.G. Mukhopadhyay (retired from Indian Institute of Management – Calcutta). |
by Matt Krantz, by Associated Press, by Shawn Pogatchnik, by Carol Wilcox, and by Arun G. Mukhopadhyay
- Why are bonds outperforming stocks over long term?
Like the tortoise catching the hare, bonds have shaken up preconceived notions of stock investors who have endured historic volatility as they got lower returns.
Despite a reputation for growing slow, bonds just passed stocks' performance. The Ibbotson Associates SBBI bonds index, a broad bond measure, returned 11.03% a year on average over the past 30 years, edging out the 10.98% return of stocks.
Last year, the index returned 28%, crushing the 2.1% return of the Standard & Poor's 500 including dividends. The bond index also topped stocks for the past 10 and 20 years.
Bonds' impressive run is being powered by several factors, including declines in interest rates and inflation the past 30 years; bonds rise in price as interest rates fall [when holders sell their bonds at a higher price, they cash in].
If or when central banks or governments raise interest rates down, and/or inflation creeps up, that would end the bonds' run.
To see the whole article, click here .
JJS: Bonds and stocks operate in the business cycle which is powered by real estate -- actually, locations or land.
- Rate on 30-year mortgage drops to record 3.89%
Fixed mortgage rates fell once again to a record low, offering a great opportunity for those who can afford to buy or refinance homes. But few are able to take advantage of the historic rates.
The average rate on the 30-year fixed mortgage fell to 3.89%. That's below the previous record of 3.91% reached three weeks ago. Records for mortgage rates date back to the 1950s.
The average on the 15-year fixed mortgage ticked down to 3.16%. That's down from a record 3.21% three weeks ago [some historians say they were much lower at times before then].
Mortgage rates are lower because they track the yield on the 10-year Treasury note, which fell below 2%. They could fall even lower this year if the Fed launches another round of bond purchases, as some economists expect.
However, high unemployment and scant wage gains have made it harder for many people to qualify for loans.
To see the whole article, click here .
JJS: While the bottom is a good time to buy -- if you still have any savings -- the peak is, of course, the absolute worst time to buy.
- Ireland's former richest person declared bankrupt
Sean Quinn, 64, once Ireland's richest person, had euro4.7 billion ($6 billion) in 2007. But he sank much of his fortune into Anglo Irish Bank, the reckless lender at the center of Ireland's property craze, months before the bank suffered crippling losses as the country's decade-long land bubble burst.
As Anglo's share price plunged, Quinn says the bank encouraged his family to borrow hundreds of millions specifically to buy more Anglo stock, a charge the bank denies.
To afford a bailout of its banks expected to cost taxpayers euro29 billion, the government borrowed from the European Union and International Monetary Fund.
Quinn grew up on a border farm in Northern Ireland's County Fermanagh, left school barely literate at 14 and started his first construction-gravel business with a 100-pound ($150) bank loan.
Within three decades Quinn had transformed his quarry into a nationwide cement company. He built and bought luxury hotels, pubs, apartment complexes, and commercial properties throughout Ireland, Britain, Eastern Europe, and Asia, and founded Ireland's third-largest insurance company.
To see the whole article, click here .
JJS: Quinn owned everything in the FIRE sector (Finance, Insurance, & Real Estate) except a bank; yet bankers treated him like a lord -- until the crunch struck.
What made it possible for the Quinns of the world to speculate in land is the simple fact that society fails to recover land’s value, which is something that society itself generates.
- One way to claw back HS2 cost
All good public infrastructure investment increases local land values. The London Underground Jubilee line extension provides a perfect example: cost to taxpayers £3.5bn ($5.3bn); benefit to local landowners £13bn.
Given the limited number of locations to benefit from the proposed High Speed 2 project, is it likely that the value of all land affected by the project would rise to cover, let alone exceed, the cost? If the self-funding of public infrastructure by public collection of land rent was in place, this is the answer that would be sought.
To see the whole article, click here .
JJS: The notion of public recovery of socially-generated land values was quite popular over a century ago, thanks largely to one man.
- Pseudoeconomics Catalyzes Catastrophe
Classical economics was synthesized and represented by one dominant figure of the age: Henry George. His 1879 book, Progress and Poverty, sold more copies throughout the world than any book except the Bible. George propagated that land rent windfalls accrued to undeserving speculators and led to depression of labor’s wages. Following the classical tradition, George recognized that there is no justification for the titleholders to reap the return of what society has invested.
Mason Gaffney in The Corruption of Economics described how the railroad barons exerted their power to preempt the possibility of any rent extracted from land use. Leading economics scholars, then establishing the American Economic Association (AEA), were induced to change definitions and to initiate two-factor (capital and labor) neoclassical economics downplaying land. To alienate George from economics had been the preoccupation to the founding members of the AEA.
The global financial crisis in 2000s appeared a consequence of sub-prime housing mortgage practices in USA, yet has its root in growing disjuncture between the real economy of production and the paper economy of finance. Frederick Soddy (Nobel laureate in chemistry, 1921) argued that the financial system increases the public and private debts and mixes up this expansion of credit with the creation of real wealth.
To see the whole article, click here .
JJS: Geo-classical economics is different enough from the rest of the discipline to constitute a whole new field. As astrology evolved into astronomy and alchemy into chemistry, so may economics mature into geonomics. Of the two, the latter is the one able to explain and predict the market’s cycles.
Based on the 18-year land-price cycle and how long this bottom has already been, it seems now the bottom is over. The economy will heal but it'll be years before people go crazy bidding up land prices again. Check back in five years and see what will have happened.
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Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the “Land Rights” course, click here .
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Also see: Evidence the US is becoming a two-class society?
Those Debating Economic Policies, Attention
Veteran who called some major market junctures |
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