Thursday, June 16, 2005

The Madness Of Modern Parenting

The Madness of Modern Parenting

This woman scares the bejesus out of me. For anyone who is too busy to read the whole article, here are the basics. High-powered Wall Street woman decides to have a baby. When the baby arrived, she discovers what all new parents discover: Parenting is a bitch. A wonderful, amazing bitch, but a bitch nonetheless.

But instead of simply rolling with the punches, she decides to apply her type A skills and experience to becoming supermom. And along the way, she has a brilliant idea: Why not create a TV channel for people in the same situation. Alpha Mom TV tries to show you how you can have it all. Just the thing for women with five nannies, and who cry when their 2-year old isn't accepted into "the Harvard of pre-schools."

The article itself is very clever--I can't decide whether it's a hatchet job or a puff piece. But the screamingly obvious irony which the author clearly intends to highlight is simply this: The woman who wants to teach you how to be supermom spends barely any time with her child, thanks to her army of nannies. She's proud of being a mom, but sees her son for less than an hour per day.

It's as if she decided to create her new TV channel because she wanted to feel like she was being a good parent, but without actually parenting. Instead of sleepless nights and playtime, she has substituted sales, marketing, and strategy. She came face to face with the challenge of taking care of her son, and chose instead to retreat to the familiar world of business.

It's not like I don't sympathize--Lord knows, I know how tough it is to parent children. I have two kids under the age of three. But I somehow manage to hold down a job, have a life, and spend 5-6 hours a day with my kids without an army of nannies.

My secret: I just repeat this mantra. "Billions of people have been parents. Many of them were probably idiots. Yet somehow, their billions of children managed to survive, grow up, and become useful members of society instead of serial killers."

It ain't rocket science, people. Love your kids, spend time with them, and try not to spoil them or act like a martinet. Things will work themselves out.

The Meta-Bubble Bubble

The Meta-Bubble Bubble

We have reached the point of absurdity, where not only do we have a housing bubble, and a bubble in commentators discussing the housing bubble, we now have a bubble in commentators discussing the bubble in commentators discussing the housing bubble.

For the last word on this subject, Justin Khoo over at Advenix points out this article by disgraced high tech analyst Henry Blodget on the bubble in New York real estate.

Blodget does a good job of providing some historical context for today's frenzy, as well as some thoughts on what might happen. He also provides some age advice: "The bubble debate is academic: You can afford what you can afford, and no one knows what the market is going to do. As Keynes observed, prices can stay irrational longer than you can stay solvent."

I have placed extensive excerpts below for RSS readers who abhor clicking on links:

"In the past ten years, New York real estate has been a superb investment. According to the appraisal firm Miller Samuel, the median price of a Manhattan co-op has tripled since 1995, vastly exceeding the performance of, say, the S&P 500, which has merely doubled. If one takes a longer view, however, the picture changes. Miller Samuel says that the median Manhattan co-op cost the same in 1999 as it did in 1981, eighteen years earlier. Over this period, meanwhile, the S&P 500 rose tenfold (before dividends!).

Nor is it true that “real-estate prices never go down.” On the contrary, from 1986 to 1995, after the stock market crashed and the government eliminated some real-estate tax shelters, the price of the median co-op dropped by nearly half, from about $360,000 to about $200,000. Those who bought new pads in the mid-eighties were underwater for more than a decade (and weren’t talking about what a great investment real estate was)."

"The most compelling evidence that house prices are, if not a bubble, at least way ahead of themselves is the diverging relationship between prices and rents and incomes. Most people prefer to own rather than rent, but when prices get too far out of line, renting becomes irresistibly attractive. Similarly, bigger salaries allow you to afford more house, but if prices grow faster than incomes, eventually people get priced out.

Nationally, over the last few decades, house prices have grown slightly faster than the rate of inflation and in line with the growth of rents and incomes. In the past ten years, however, real-estate prices have shot way ahead of all three. Smaller divergences in the seventies and eighties were followed by corrections, in which home prices fell in real terms. So, nationally we’re probably headed for trouble."

"On a macro level, what all this boils down to is that despite record-low interest rates and surging house prices, we are spending more of our incomes on mortgage payments and owning less equity in our houses than ever before. We are richer than ever, but most of our wealth is the result of stock and real-estate appreciation, not savings, and, therefore, is exposed to declines in these assets. And for the first time since the forties, we are also spending more than we earn.
What’s more, our financial system is now highly dependent on us making good on our debts. According to Paul Kasriel of Northern Trust, mortgage-related assets now make up nearly 60 percent of all commercial-bank assets, versus about 15 percent in the sixties and 40 percent in the late eighties. As long as we can keep making our payments, we’ll be okay. If we can’t, we may take the banking system down with us.

So what might Chicken Little expect to see in the near future? Barring a terrorist attack, you’re not likely to wake up tomorrow to find your apartment worth half of what it is today. Real-estate markets don’t tend to crash as violently as stock markets. Instead, one day, prices just stop going up and properties sit on the market. Low offers come in, but sellers hold out or wait to sell until prices recover, which they don’t. Eventually, those who have to sell—because of payment shock, relocation, or job loss—take what they can get and prices recalibrate.

One of today’s optimistic arguments is that hordes of buyers will jump in when prices dip—an argument common in the 1999 stock market, as well. What this ignores is how quickly psychology changes when prices begin to fall. People are desperate to buy today, in part, because they fear that prices will be higher tomorrow. In a declining market, the reverse is true: Buyers have an incentive to wait. Furthermore, when guaranteed gains disappear, Johnny-come-lately speculators rush off to the next hot market, further dampening demand. Owners whose equity has been depleted feel poorer and start saving instead of spending, weakening the local economy. Real-estate brokers, mortgage brokers, appraisers, inspectors, architects, engineers, movers, contractors, appliance vendors, and other industry participants make less, and their reduced incomes and buying power further lessen demand. And so on. In the stock market, the saying goes, you don’t want to try to “catch a falling knife.”

For homeowners who haven’t taken on high payments or exposed themselves to rate shocks, a real-estate crash should be tolerable: You can just live in your bad investment and avoid taking a loss. However, if you have banked on further price appreciation to offset a lack of savings, or rapid salary growth to take the sting out of payments, then you may get screwed.

If so, in your misery, you’ll have company. American homeowners have grown so accustomed to raiding their home-equity piggy banks that many have already factored gains and cash-outs into their spending and retirement plans. This, combined with negligible savings and huge debts, could lead to a truly nasty scenario. If home-equity wealth and income drop, the financial squeeze might curtail other spending. This, in turn, would slow the economy, kneecapping the other American wealth repository—the stock market. Although stock performance has stunk for five years, the market is still expensive: It could fall by half and not reach the level at which other bear markets have bottomed. If real estate and stocks collapse, rising unemployment could trigger more defaults and, ultimately, another S&L-style bailout.

Even if a change in the price trend doesn’t result in disaster, it will likely reverberate through the local and national economies. In New York, real-estate taxes represent about a quarter of the city’s revenue. A decline in prices would not dent revenue immediately, but it would slow future growth. And with the city’s budget forecast already in deficit, this might force spending cuts, increased taxes, or both."

"For practical purposes, the bubble debate is academic: You can afford what you can afford, and no one knows what the market is going to do. As Keynes observed, prices can stay irrational longer than you can stay solvent.

The great error made in the nineties was not the failure to recognize that the stock boom might be a bubble: By 1999, in fact, most professionals thought that it might be a bubble but kept buying anyway, because they didn’t know when it would end. The great error was the belief that before the bubble burst, something would change that would tell everyone to get out—that somewhere, a light would turn from green to red.

Having lived through that bubble, and looked hard for the signal, I would respectfully suggest that this is wishful thinking. Lights were flashing yellow, of course—and had been for years—but conditions just kept getting better. Eventually, by the end of the decade, life had been so good for so long that almost no analyst or strategist on Wall Street saw anything that would bring the party to a halt. And in New York real estate, life has been good for quite a while."

Good Lord, McClintock Actually Wrote Something Intelligent!

Good Lord, McClintock Actually Wrote Something Intelligent!

California State Senator Tom McClintock recently wrote a thought-provoking and effective piece of agitprop.

Looking at the issue of the educational system, McClintock conducts a clever thought experiment to determine whether our schools are spending our money wisely.

He creates a hypothetical 180 child school, and gives it the Governator's proposed budget of $1.2 million.

Then he proceeds to show how you can lease luxury office space to house the school, hire associate professors from the Cal State University system to teach the students, pay for all their books, pay for gym memberships to replace PE, and add in an $80K administrator and $40K secretary to boot. The annual cost (including benefits)? A tick over $1 million.

Since I hate to give either major political party an unfair amount of space in this blog, I would love for one of my faithful readers to locate a more progressive take on education spending that refutes this simplistic, but seemingly effective thought experiment.

Otherwise, I might be forced to admit that, at least in this one small matter, I agree with McClintock, which is a pretty frightening thought!

Wednesday, June 15, 2005

Good Enough Isn't

Good Enough Isn't

One of my greatest failings is that I'm too flexible.

I can adjust to pretty much anything, and I have low expectations.

Seth Godin points out that sometimes it's better to make something as good as it can be, rather than just being good enough. Only by pushing past "good enough" can you reach remarkable.

The trick is figuring out which things to hone to perfection.

You Are What You Charge

You Are What You Charge

Tom Evslin posted a terrific story about his experiences as a consultant. The punchline is that sometimes it's better to charge a ridiculous sum of money because it gives you more credibility.

"I won an argument with an IBM SE on the very good grounds that I was more expensive than him...."

Yay Capitalism

Yay Capitalism

Here's today's capitalism quote of the day, from TheAgitator by way of Coyote Blog.

"Critics of capitalism once predicted that free markets would wreak mass starvation, depletion of resources, pollution, and death.

They're now reduced to bitching about too many flavors of toothpaste.

We've won the debate."

Now both are responding to this seemingly innocent editorial from the New York Times on the ridiculous number of different toothpaste variants in your average drugstore.

After reading the editorial, I do think that my libertarian friends are being a bit oversensitive. I don't think that saying that there are too many flavors of toothpaste is the same as being against individual choice.

Indeed, one can argue that we don't need 99 varieties of toothpaste when a single variety of Crest would do.

However, once you cross the line and start mandating fewer or no choices (as with the public educational system), that's a very different story.

Yes Virginia, There Is A Housing Bubble

Yes Virginia, There Is A Housing Bubble

It's been over a week since my latest Cassandra-like post on the housing bubble, so it was quite fortuitous when I ran across this post on Always-On.

In it, Eric Janszen paints a gloomy picture of just how out of control today's real estate bubble is.

A few key tidbits:

"Since the beginning of the economic recovery in November 2001, employment in housing and housing-related industries has accounted for 43% of the increase in private-sector payrolls, according to Asha Bangalore, an economist for Northern Trust Corp"

"What is not debatable is whether the rate of home equity extraction will revert to the mean rate of about zero, from the current rate of more than $250 billion annually. It will."

What's most disturbing is his chart of home equity extraction, obtained from Northern Trust. It shows that today's bubble is about 10 times bigger than the last bubble in the mid-1980s.

Tuesday, June 14, 2005

Bob Geldof Is A Jurassic Dumbass

Bob Geldof Is A Jurassic Dumbass

Techdirt has an excellent piece on how Bob Geldof, irked by the fact that folks who won free tickets to his charity concert were selling them on eBay, called upon the world to boycott eBay.

While Sir Bob has certainly done a lot of good for the world, his friends should really take him aside and explain that this latest crusade is *NOT* a good idea.

Monday, June 13, 2005

People, Passion, Purpose

People, Passion, Purpose
I read recently (I can't remember where, though I suspect it was in the HBS Alumni Bulletin) about a book which argues that the old corporate mantras of strategy, market share, etc., are now less important than the three Ps: People, Passion, and Purpose.

This fits in perfectly with this NYTimes article on Dave Duffield of PeopleSoft fame.

Dave is the legendary founder of PeopleSoft, renowned for his generosity and respect for his employees. After selling out to Larry Ellison and Oracle (the right move for the shareholders), Dave backed up his talk by endowing a $10 million fund to make cash grants to PeopleSoft employees who were laid off because of the merger, and couldn't find work.

In a world where people, passion, and purpose are all-important, Dave and whatever he does next are going to do well.

Sunday, June 12, 2005

Scratching A Niche

Scratching A Niche

One of the amazing things about the networked world is how big niches can be. Niche e-tailer Home Decor Products, Inc. generated $50 million in sales in 2004 based on its four niche Web sites, Barbecues.com, KnobsandThings.com, HomeClick.com, and AbsoluteHome.com.

Seth Godin has said that small is the new big--$50 million here, $50 million there, pretty soon it adds up to some real money!