Postcards from the Future

Highland Park Police Station

The United Artists Theater

Woodward Avenue Presbyterian Church

Dentist's office, Broderick Tower

The ballroom at the Lee Plaza Hotel

Welcome to the future. These pictures are from an American city whose population has fallen from 1,849,568 in 1950 to 910,920 in 2009 as its industrial base has eroded, and government policies have destroyed the incentive to work along with missteps and mismanagement by its largest companies.  I'm sure many of you can guess the name of this town.  More pictures of the abandoned buildings in this city can be found here.

Quote of the Day: Vint Cerf

We don't believe governments should be allowed to grant themselves a monopoly on Internet governance. The current bottoms-up, open approach works -- protecting users from vested interests and enabling rapid innovation. Let's fight to keep it that way.

~ Vint Cerf, one of the inventors of the Internet (sorry Al Gore), on hearing the FCC and the UN both have designs on controlling the flow of information on the Internet

Bubble Burst: Housing Prices Approach Their Historical Trend Line

The 2000's saw a perfect storm of political meddling in free markets (George Bush's "ownership society" and the financial genius of Dodd and Frank in dumbing down lending standards at Fannie and Freddie) and artificially low interest rates via the Federal Reserve following the economic blow of 9/11.  These factors served to create an unsustainable level of demand for housing as well as an artificial boom in building throughout the early and mid-part of this decade only to see the bubble burst in 2008 - 2009.  As housing prices work their way down to an equilibrium point, it should be noted that historically the price of housing has roughly followed the rate of inflation.  In my opinion this means there still may be some slight downside in the housing market, but the serious blood-letting is over.  Those purchasing houses at the current time are not getting raging bargains that will recover back to pre-bubble levels anytime soon.  They are buying houses at close to historical "fair value."  Given the market's expectation of low inflation and low economic growth, significant price appreciation will be years away.  The days of "flip this house" are over for the foreseeable future.  Time to be a long-term landlords.

It is also interesting to see how the housing bubble was concentrated in a few large states known for booms and busts.

In a side note, former Treasury Secretary Hank Paulson took a bath on his Washington, D.C. home, bought in August of 2006 for $4.3M.  Seems that he was no better at timing the housing market than anyone else.  The house sold December 21st for $3.25M, for a loss of over $1M.  I do find this mildly surprising since the DC metro area has one of the strongest housing markets in the country thanks to presence of the federal government.  But what's $1M to an ex-Goldman exec?  It's like lunch money to you and I.

Quote of the Day: Christopher Snowdon

Apologists for Marxism have made myriad excuses for their ideology’s failure to provide the same standard of living and liberty as was enjoyed in capitalist nations. Until recently, few have been so brazen as to claim that lowering living standards and curtailing freedom were the intended consequences, let alone that people would be happier with less of either. In that sense, books like The Spirit Level represent a departure for the left. Limiting choice, reducing wealth and lowering aspirations are now openly advocated as desirable ends in themselves.

~ Christopher Snowdon, The Spirit Level Delusion

Picture of the Day: It's a Miracle!

Creative Destruction: Bye bye, Kodachrome!

Digital photograph has finally put an end to the 75-year run of Kodachrome film.  Kodak stopped making any new rolls of film in 2009, but Kodachrome buff always had Dwayne's Photo in Kansas to process their film, and people from all continents would ship their rolls to Kansas to be developed. This Thursday Dwayne will be scrapping his last Kodachrome processing machine, marking an end to one of the most successful product runs in photographic history.  Long live the new king of photography!

Sunday Verse: Joan Kane

Anchorage

How rapidly the tide turned, turns.
Still, turning now, gray wash and silt
Pivots on a finger of foam.

One could count time in its long
Trough, or lose it altogether:

Winter may thicken the air
Earlier than expected. Or,

An inflection in the shadow
Of the long crest is an increment,
And a small variation.

With it, we are joined, and continue.
A sharp-shinned hawk now wheels

Overhead, as each spring tends,
And shows its white underbelly.

~ Joan Kane

2010 Yearly Investment Returns

Fund Name	Symbol	Allocation	Return
Vanguard Total Stock Market ETF	VTI	6.75%	17.42%
Vanguard Value ETF	VTV	6.75%	14.57%
Vanguard Small-Cap ETF	VB	6.75%	28.11%
Vanguard Small-Cap Value ETF	VBR	25.10%	12.02%
Vanguard REIT ETF	VNQ	3.00%	28.44%
Vanguard FTSE All-World ex-US ETF	VEU	5.40%	11.82%
iShares MSCI EAFE Value ETF	EFV	5.40%	4.59%
Vanguard FTSE All-World ex-US Small Cap ETF	VSS	5.40%	25.61%
WisdomTree International Small Cap Dividend ETF	DLS	5.40%	19.43%
Vanguard Emerging Markets ETF	VWO	5.40%	19.43%
iShares S&P Dev ex-US Property ETF	WPS	3.00%	18.13%
----
Vanguard Total Bond Market ETF	BND	20.00%	5.73%
iShares S&P National AMT-Free Municipal Bond ETF	MUB	5.00%	-0.21%
SPDR Barclays Capital High Yield Bond ETF	JNK	5.00%	11.65%
iShares S&P U.S. Preferred Stock Index ETF	PFF	5.00%	13.19%
iShares JPMorgan USD Emerging Markets Bond ETF	EMB	5.00%	10.39%
-----
2010 Yearly Portfolio Return			14.41%

For 2010, the sample balanced passive portfolio (60% stocks, 40% income) returned a healthy 14.41%, in spite of a large bond market sell-off in the 4th quarter. Munis were absolutely crushed in the past several weeks after 60 Minutes ran a segment on the financial problems of states and municipalities, featuring Meridith Whitney and Chris Christie (see State Budgets: Day of Reckoning and Meridith Whitney: Wave of Muni Defaults to Spur Layoffs and Social Unrest). This portfolio relies on no star managers, and has much lower fees than the average mutual fund, and few if any capital gains distributions. I'm especially proud it beat perennial mutual fund all-stars such as Dodge and Cox Balanced (12.22%) and Oakmark Equity & Income (9.50%), and just edged out T. Rowe Price Capital Appreciation (14.07%). All performance figures were taken from Morningstar.