Hedonic Regression

[MichaelB]

ERD, that onion and bacon recipe sounds enticing, and I love a good IPA. Thanks!

[NW-Bound]

Oh boy! Right now, having survived painful surgeries last year and getting a new lease on life, I am having very selfish and more direct thoughts of enjoying the current moment.

I am not thinking too hard about the future, because I may not be in it. And if I am, I will worry about it at that point.

[Senator]

Quote:

Originally Posted by imoldernu For me, a difficult subject, given the concept of globalization and free trade. How can we, with an external debt of 100% to GDP, deal with Russia @ 33%, China @6%, England @466% and Ireland @ 1,000+%. How does printing money become an infinite solution? In the same vein, within the US, balancing unfunded liabilities such as pensions and SS without dealing with tax increases? Using a 10 year outlook, how do we stay in the game, and not be subject to massive inflation. More important than the hypotheticals, what practical actions to take if Senator's time frame is shorter than expected?

You are assuming that China and Russia are accurately reporting the debt. And assuming their economic systems will not collapse. Do you think China does anything legitimate? Look at their issues with baby formula, tooth paste, Sheetrock, dog treats, child toys, etc.

We stay in the game by continually loaning money to China or ourselves. When we buy goods, the Chinese have US Dollars. They can spend them, or invest them. They choose to buy government bonds rather than spend the money in the USA.

So, perhaps their bonds become worth less, over time. That is the risk the Chinese take. They should have invested in the USA instead, or bought more goods from us.

The USA could pay off all the bonds, owned by all parties, just by returning the cash. The treasury would borrow enough from the Federal Reserve to pay them off. And then default, or print money to pay back the Federal Reserve.

It is a game played out over time, throughout time. I am more worried that crime goes unpunished, and hard working people give up due to high taxes and lack of incentives. Once Chaos reigns, monetary policy is moot.

[donheff]

I can't get excited about any of this. I am about as well prepared to ER as is reasonable and figure that fretting over what might lead the world to crash down around me won't make a difference and will miss the black swan that gets me in any event.

[marko]

Many years ago, I was in a meeting and someone brought up "hedonic regression"...our boss, who was sooooooo much smarter than any of us idiots thought we were talking about "hedonism" and asked that we stay on topic.

A true Dilbert moment!

[Jager]

I'm not terribly concerned about hedonics as a policy tool. I think it is oftentimes misused, but in the grand scheme of things is a relatively minor factor.

I do think governmental economic policies around the world will end in tears. We often on this board emphasize, at a personal level, the need to LBYM. Yet we observe virtually every 'modern' society on earth living vastly beyond its means. That can work in the short run. In the long run the math becomes inexorable. We are, I believe, in the early stages of that state change.

Deflationary forces are enormous and growing.

Central bank balance sheets are a disaster, pretty much everywhere.

Monetary velocity has all but disappeared.

Price discovery has been perverted because of ZIRP policies everywhere. Asset valuations are seen through a false prism.

Currency crises await. Japan will probably be first up of the major economies. There will be others. The dollar is what I call "the prettiest whore." It will be seen, early on, as the world's safe haven. The bull run in bonds is not yet over. Yet, the dollar, too, will endure its own crisis down the road.

The strong dollar is having enormous implications on the carry trade. Emerging markets are in peril.

Deflation will continue to crush commodities.

Equity markets are set up to fall. Probably precipitously. When they do, millions of investors who have bought into the conventional theories of finance will be heavily impacted. Retirements, near and dear to all of us on this board, will be interrupted for many; indefinitely delayed for others.

Very few people will be unaffected by what is coming. It will be an inflection point in history.

Hedonics, indeed!

[Closet_Gamer]

Quote:

Originally Posted by Amethyst Will all but the wealthiest have to settle for poor or no services/being neglected/giving up our homes and becoming institutionalized? Or will technology (robots, etc.) take up the slack? Amethyst

Capitalism is the greatest force in the history of the planet for solving these problems because it auto-corrects for demand and if demand exceeds capacity bright minds go to work on productivity improvements. Just as we'll never actually run out of oil because the growing marginal cost of extraction will fuel the creation of alternative energy sources that ultimately become cheaper than the extracting the last drop of oil, any other market will flex to meet demand.

We wind up with systemic scarcity when the government decides it needs to "help." I'm reminded of one of my favorite Churchhill quotes (at least close):

"England is an island made out of coal and surrounded by fish, yet our government policies have managed to create shortages of both coal and fish."

[Independent]

Quote:

Originally Posted by imoldernu For discussion purposes, I see hedonics as one of the major factors in planning for the longer term retirement. In particular, decisions on housing, but also to establish a DEW line for major shifts in the economy. A good example of this, the current policy movement among the international Central Banks. Understanding long term interest rates as a precipitating factor for growth, decline, deflation, inflation or hyperinflation is a step beyond market movement and the stability of the market itself. Subjects such as housing as a percentage of GDP, and (in another thread) the aging population, the effects of medicine, and climate change are just a some of the factors what will be rebalancing in a "Globalized" world. We, as a nation, have been through a very long period of relatively stable economy broken by relatively small recessions, and mostly affecting stock market losses. Long forgotten and misunderstood are the periods of real hardship from 1929 to the of recovery in 1941. There are current arguments that the CPI (before chained CPI) has created a gap between stated and real inflation. (Shadow Statistics). Whether that is true or not, the basis behind the establishment of the value of goods and services is only as good as the basis of the currency underlying the calculations. I am reminded of the saying: "A rising tide lifts all boats". By the same token the corollary that receding tide could earlier strand and damage those boats with greater draft, with a loss of much cargo. Therein lies the thought that early recognition and preparation could avoid running aground. So... what? Where to live? What to pay? Rent v. own? Corporations stability and outlook relative to the economy. Bond v. Stocks v. other Material investments. Timing? Widening understanding of alternate investment strategies. Gold? Emerging nations? Commodities? Population explosion related factors Environmental concerns. And the rest of the litany of risk reward factors. .................................................. .................................................. ..... Down to the basics: How is value established? Will the Michael Jordan Fleers Bubble Gum card be worth $20K in 2024? Will an extended drought in the West drive up food prices? Why did property values in Detroit and Las Vegas change? Where else could this happen in ten years? What could happen with a collapse of the Euro? Can copyright laws be enforced? What has value today? What will have value tomorrow? Think Pensions, Social Security, Education, Welfare, and especially TAXES. As food for thought, three minutes spent on this page World Debt Clocks to look at DEBT, should give a picture of the inequality between nations. For a quick comparison, look at public debt to GDP and outside debt to GDP. Note where the percentage decimal place is! Check US UK India China Russia So... a wider definition of hedonic... the value we place on what makes up the security part of our lives.... and regression... the actual on-balance measure of what the future may bring.

I'll admit to being lost here. I tried the Wikipedia page on "hedonic regression", but it doesn't seem to relate to this post.

Are you simply saying that you think median, real, US consumption is going down?

[sengsational]

Quote:

Originally Posted by Independent I'll admit to being lost here. I tried the Wikipedia page on "hedonic regression", but it doesn't seem to relate to this post.

I think it's just a fancy way to model the value of things. One "thing" is the basket of goods in the CPI, so that gets some people to grind their teeth.

But I'll admit to not having made the connections between some of the longer posts, so the best I can do is say "MMM, Bacon!" and "MMM, IPA!"

[imoldernu]

Two numbers:
Since March 2009, inflation (CPI) has gone up by 11%
The DJIA during the same time frame has risen by 235%


Is the real value then or now?

[Hamlet]

Remember that the DJIA plummeted in the year or so before March 2009. The majority of that 235% rise was just gaining back the drop that was caused because we thought that the world might actually be ending.

The Dow is only up about 25% from the peak in 2007. Given that corporate earnings are higher than they were then, it isn't all that far out of whack.

Note that over the long-term, the Dow is going to outpace CPI because companies retain earnings and re-invest them. The productivity of our companies also continues to grow pretty steadily over the long-term.

The CPI isn't perfect, but the Shadowstats guy is in tinfoil hat territory. If you question CPI, I think it would make more send to track your own personal inflation rate, and then do some thinking about how that varies for different people across the country. It is really useful to look at all of the different ways that the BLS calculates inflation for different groups and areas of the country as well. The inflation rates vary pretty dramatically from say the CPI-W in Michigan to the CPI-U in parts of California.

Quote:

Originally Posted by imoldernu Two numbers: Since March 2009, inflation (CPI) has gone up by 11% The DJIA during the same time frame has risen by 235% Is the real value then or now?

[Hamlet]

Here's my basic take--

We printed a lot of money in the downturn to counteract massive deflationary forces. It has not caused any meaningful inflation because the economy still has plenty of slack in it.

You generally don't get much inflation unless wages are rising, and you don't get rising wages until you have a tight job market.

When/if the job market gets tight again, we'll start seeing rising wages and inflation will be a concern again. When that happens, the Fed should start selling off the bonds on its balance sheet and remove the money it gets from circulation. Short term interest rates will normalize, and we'll all look back and laugh at how worried we were about "debasing the currency".

The "unfunded liabilities" concern is a little overdone, in my mind. Is rent in 2020 an unfunded liability for most people because they haven't set aside money to pay for it yet? You might as well say that every 18 year old has a six-figure unfunded liability because they haven't set aside rent/mortgage money for the next 40 years.

That's not to say we want to make promises with no regard for how we will pay for them down the road, but we're going to have pretty substantial revenues coming into the Federal coffers down the road. How many trillions in GDP will our economy be generating over the next 40 years?

That's a pretty big number too.

Quote:

Originally Posted by imoldernu How does printing money become an infinite solution? In the same vein, within the US, balancing unfunded liabilities such as pensions and SS without dealing with tax increases? Using a 10 year outlook, how do we stay in the game, and not be subject to massive inflation.

[JoeWras]

Am I the only one who read: "Hedonistic Regression"?

I thought this was a topic about throwing away LBYM and starting to live up in a life of hedonism. Then I started reading it, my head hurt, and I stopped reading.

[ls99]

Quote:

Originally Posted by imoldernu Two numbers: Since March 2009, inflation (CPI) has gone up by 11% The DJIA during the same time frame has risen by 235% Is the real value then or now?

Just to throw in another monkey wrench
"
What Reversion To The Mean Means


At the start of 2009 we said that markets would start to revert to their historic averages, meaning that after suffering through a decade of underperformance stocks could have a very good 2009, positing double digit gains. (See Stocks Will Revert To The Mean.) "

What Reversion To The Mean Means - Forbes

[CaliforniaMan]

Quote:

Originally Posted by CaliforniaMan Somehow I read this as hedonistics, and was thinking, wow, what a great retirement idea.

Quote:

Originally Posted by JoeWras Am I the only one who read: "Hedonistic Regression"? I thought this was a topic about throwing away LBYM and starting to live up in a life of hedonism. Then I started reading it, my head hurt, and I stopped reading.

No, you are not the only one. Unfortunately this thread was not about that, just some statistical thing. Still I keep thinking about some black death like end of the world plague that would send us all into either hedonism or pietism. If I had to choose, for me it would undoubtedly be the former rather than the latter. Maybe we need to start a new poll on which way we would all choose to spend our catastrophic final days.

[sengsational]

Quote:

Originally Posted by imoldernu Two numbers: Since March 2009, inflation (CPI) has gone up by 11% The DJIA during the same time frame has risen by 235% Is the real value then or now?

I can't say that the DJIA means anything at all with respect to this discussion. It's just what investors think 30 specific companies are worth. Inflation at least has a market basket with more than thirty items, and they are all "real" in that people buy them.

[harley]

I'm concerned about imoldernu. This entire thread to me indicates a possible incipient case of reverse Alzheimer's. Remembering too much and trying to make sense of it. I think we need an intervention.

imoldernu, just remember. The gov't has Top Men working on this. Relax.

[REWahoo]

Quote:

Originally Posted by harley I'm concerned about imoldernu. This entire thread to me indicates a possible incipient case of reverse Alzheimer's.

You think he's suffering from S'remiehzla?

[donheff]

Quote:

Originally Posted by harley I'm concerned about imoldernu. This entire thread to me indicates a possible incipient case of reverse Alzheimer's.

He does seem to be getting deeper as he ages. Lets hope it happens to us.

[harley]

Quote:

Originally Posted by REWahoo You think he's suffering from S'remiehzla?

dude.