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Archive for May 2005

Short the real estate bubble!

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Blogger Mark Kleiman, who lives in LA, did. What if you don’t have a house in a bubble market? Well, now you can buy and sell derivative contracts based on median sales prices of existing single-family homes, as released each quarter by the National Association of Realtors (NAR). Available markets include NYC, Chicago, SF, LA, SD and Miami.

The problem is, it’s the smart money (short interest) looking at these new derivatives. The dumb money is out there flipping houses with no-interest mortgages! In addition, it may take a few years or more for this bubble to deflate…

Written by infoproc

May 31, 2005 at 4:31 pm

Posted in Uncategorized

Price to rent ratios II

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This San Francisco Federal Reserve report shows data going back to 1982. The current period is clearly anomalous (it recalls P/E ratios during the tech bubble 1995-2000). I expect to see a repeat of the bump seen earlier in the late 1980s to early 1990s; note the inevitable reversion to the mean. It won’t be pretty given new phenomena like zero-interest and sub-prime mortgages, and home equity loans. (Compare to Japan’s 20 year housing bubble, discussed in an earlier post. Ours may take another decade to unwind as well.)

Below is some data recently published in the Times. Note the nationwide uniformity of price-rent ratios in 2000, as opposed to today. The bay area leads the nation with a ratio that has almost tripled in the last 5 years.

It is possible that replacing home price by monthly mortgage payment in the numerator would account for most of the 2000-2005 increase in national average price-rent (from 11.6 to 17.1), but this doesn’t come close to explaining the frothier regions on the coasts.

Written by infoproc

May 30, 2005 at 4:46 pm

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"Three billion new surfers on the wave of globalization"

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Clyde Prestowitz’s new book Three Billion New Capitalists: The Great Shift of Wealth and Power to the East is a more thoughtful, less breathless, version of Tom Friedman’s The World is Flat.

Prestowitz discusses at length the advantages and disadvantages of globalization and free trade. His is the first popular book I know of to cite the work of Baumol and Gomory on problems with the usual Ricardian arguments of comparative advantage (see also this article by Samuelson). Prestowitz draws on his background as a trade negotiator in the Reagan administration to find real world examples which deviate drastically from the usual efficient market assumptions, including cases involving Japanese companies dumping their products in the US, and later raising prices once American competitors are eliminated.

Prestowitz advocates government support of R&D, as well as occasional intervention in markets. However, he doesn’t seem to understand that while government intervention can lead to better outcomes, it may not on average do better than the market left to its own devices. See Samuelson for a nice discussion of this point.

Written by infoproc

May 26, 2005 at 8:20 pm

Posted in globalization

Wormholes, NEC and all that

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The BBC and New Scientist articles seem to have generated a lot of interest in this topic. Odd how my colleagues can hear me loudly discussing this stuff for six months with my postdoc and grad student, but only after the BBC decides to write about it do they want to know more 🙂

The original papers are listed below. Both have been revised since posting on – if you want a more up to date version please contact me. (wormholes) (instability and NEC)

There is a longer version of the instability analysis forthcoming, by Buniy, Hsu and Murray.

Let me make some comments here for physics readers:

1) Our original interest was in dark energy. The observational data suggest (although not strongly – see comments) that w = p/rho < -1, which violates various energy conditions. We wanted to understand how easy or hard it is to build models with w < -1. With some collaborators at Caltech, I had obtained a result in classical scalar models that w < -1 implies instability. We wanted to generalize this result.

2) Our strongest results are in the contexts of classical field theory (including both gauge and scalar fields) and perfect fluids. There is a quantum loophole involving renormalization that allows for small violations of the NEC (well-known examples are the Casimir effect and black hole spacetimes).

3) When applying this to wormholes, we are considering the exotic (NEC-violating) matter necessary to stabilize the wormhole. This matter must have large energy-momentum tensor T_mn. We focus on wormholes which have nearly-classical spacetimes (the other type is less useful for Sci Fi). We show that this condition is strong enough to require that the exotic matter evolves semi-classically – i.e., it is subject to our results in classical field theory.

4) Some readers (esp. from the relativity community) have misinterpreted our results as claiming that the Casimir or black hole vacuum is unstable, but this is not the case (see point (2) above). In the wormhole case, the key point is that semi-classical wormholes cannot result from exotic matter which violates the NEC via quantum effects.

Written by infoproc

May 24, 2005 at 5:26 pm

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BBC on wormholes

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We get a mention in this nice BBC article. Here is the latest version (PDF) of the talk Roman Buniy will give on Tuesday at a conference at Vanderbilt.

Wormhole ‘no use’ for time travel
By Paul Rincon
BBC News science reporter

Artist’s impression of a wormhole Image: SPL
Wormholes contort the fabric of the Universe
For budding time travellers, the future (or should that be the past?) is starting to look bleak.

Hypothetical tunnels called wormholes once looked like the best bet for constructing a real time machine.

These cosmic shortcuts, which link one point in the Universe to another, are favoured by science fiction writers as a means both of explaining time travel and of circumventing the limitations imposed by the speed of light.

The concept of wormholes will be familiar to anyone who has watched the TV programmes Farscape, Stargate SG1 and Star Trek: Deep Space Nine.

The opening sequence of the BBC’s new Doctor Who series shows the Tardis hurtling through a “vortex” that suspiciously resembles a wormhole – although the Doctor’s preferred method of travel is not explained in detail.

But the idea of building these so-called traversable wormholes is looking increasingly shaky, according to two new scientific analyses.

Remote connection

A common analogy used to visualise these phenomena involves marking two holes at opposite ends of a sheet of paper, to represent distant points in the Universe. One can then bend the paper over so that the two remote points are positioned on top of each other.

[The wormholes] you would like to build – the predictable ones where you can say Mr Spock will land in New York at 2pm on this day – those look like they will fall apart
Stephen Hsu, University of Oregon
If it were possible to contort space-time in this way, a person might step through a wormhole and emerge at a remote time or distant location.

The person would pass through a region of the wormhole called the throat, which flares out on either side.

According to one idea, a wormhole could be kept open by filling its throat, or the region around it, with an ingredient called exotic matter.

This is strange stuff indeed, and explaining it requires scientists to look beyond the laws of classical physics to the world of quantum mechanics.

Exotic matter is repelled, rather than attracted, by gravity and is said to have negative energy – meaning it has even less than empty space.

Law breaker

But according to a new study by Stephen Hsu and Roman Buniy, of the University of Oregon, US, this method of building a traversable wormhole may be fatally flawed. In a paper published on the arXiv pre-print server, the authors looked at a kind of wormhole in which the space-time “tube” shows only weak deviations from the laws of classical physics.

These “semi-classical” wormholes are the most desirable type for time travel because they potentially allow travellers to predict where and when they would emerge.

The Tardis (BBC)
The concept is a favourite of science fiction writers
Wormholes entirely governed by the laws of quantum mechanics, on the other hand, would likely transport their payloads to an undesired time and place.

Calculations by the Oregon researchers show a wormhole that combines exotic matter with semi-classical space-time would be fundamentally unstable.

This result relies in part on a previous paper in which Hsu and Buniy argued that systems which violate a physical principle known as the null energy condition become unstable.

“We aren’t saying you can’t build a wormhole. But the ones you would like to build – the predictable ones where you can say Mr Spock will land in New York at 2pm on this day – those look like they will fall apart,” Dr Hsu said.

Tight squeeze

A separate study by Chris Fewster, of the University of York, UK, and Thomas Roman, of Central Connecticut State University, US, takes a different approach to tackling the question of wormholes.

Amongst other things, their analysis deals with the proposal that wormhole throats could be kept open using arbitrarily small amounts of exotic matter.

Fewster and Roman calculated that, even if it were possible to build such a wormhole, its throat would probably be too small for time travel.

It might – in theory – be possible to carefully fine-tune the geometry of the wormhole so that the wormhole throat became big enough for a person to fit through, says Fewster.

But building a wormhole with a throat radius big enough to just fit a proton would require fine-tuning to within one part in 10 to the power of 30. A human-sized wormhole would require fine-tuning to within one part in 10 to the power of 60.

“Frankly no engineer is going to be able to do that,” said the York researcher.

The authors are currently preparing a manuscript for publication.

Supporting view

However, there is still support for the idea of traversable wormholes in the scientific community. One physicist told BBC News they could see problems with Hsu’s and Buniy’s conclusions.

“Violations of the null energy condition are known to occur in a number of situations. And their argument would prohibit any violation of it,” they commented.

“If that’s true, then don’t worry about Hawking radiation from a black hole; the entire black hole vacuum becomes unstable.”

The underlying physics was not in doubt, the researcher argued. The real challenge was in explaining how to engineer wormholes big enough to be of practical use.

Cambridge astrophysicist Stephen Hawking is amongst those researchers who have pondered the question of wormholes.

In the 1980s, he argued that something fundamental in the laws of physics would prevent wormholes being used for time travel. This idea forms the basis of Hawking’s Chronology Protection Conjecture.

Written by infoproc

May 23, 2005 at 8:54 pm

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PIMCO bullish on long bonds?

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In his latest commentary, Bill Gross of PIMCO (perhaps the most influential bond trader in the world) comes very close to sounding bullish on long bonds. This is a rather amazing turnaround, since over the last couple of years he has been warning repeatedly about an interest rate meltdown.

Gross now seems convinced that our Bretton Woods II currency regime will survive another 3-5 years, and that the dominant trend is deflation exported from China. He reasons that several years of nearly zero (real) interest rates have failed to produce significant inflation in the US economy. Thus, once the stimulative effect of low interest rates goes away, we are in for a period of deflation, which will be kind to bonds – he is bold enough to predict 10 year yield as low as 3%!

Gross: “Future finance-based consumption, however, is limited by our ability to keep pumping lower and lower yields, which in the past have led to higher and higher TIPS, home, stock, and associated asset prices. Let me do the TIPS math for you and then you can draw the implications for other asset classes. The 14% 5-year TIPS capital gain over the past few years that Alan Greenspan has been able to manufacture probably can only go up by 5 more points, because a 0% real yield for a 5-year maturity TIPS serves as a practical limit that investors will tolerate during deflationary, and most low inflationary environments. A 5-year TIPS moving lower in yield from 1% to 0% goes up 5 points. Even if the Fed continues to “Pump,” then, we are ¾ of the way complete in terms of the Fed’s ability to continue to stimulate asset prices, because its 21st century journey started at 4%, we are now at 1%, and 0% is the practical limit. That doesn’t mean that the housing “bubble” can’t keep going because it likely will if the Fed “Pumps” real yields closer to 0%. But there are limits, and we are heading down the home stretch of this U.S. race towards prosperity based on asset price appreciation.

Our point on the “Pump” then, is to suggest that in combination with a globalized free trade-based economy exhibiting a surfeit of cheap Asian labor, it will be difficult to generate U.S. inflation higher than our current 3% even if interest rates fall further. If 3% inflation is all we can get from the past 5-years’ asset inflation, it’s hard to believe that we get more from what’s left. The potential to reflate via interest rates is nearly over. We draw the same conclusion for Euroland and Japan. Japan, of course, is the primary example of how 0% nominal yields can fail to generate any inflation whatsoever, is it not? Continued disinflation not reflation, then, will rule our fragile future kingdom, with the potential for 1-2% CPI prints in most years between 2006 and 2010 throughout much of the global economy. Readers may remember our past few years’ Secular Forum descriptions of the tug-of-war between disinflation and reflationary forces. We have proclaimed a winner based on our observation of massive fiscal and monetary global stimulation described above, the limited inflationary response, and the lack of further ammunition. Long live our disinflationary King.

If we had to forecast (and we do), we believe a range of 3 – 4½% for 10-year nominal Treasuries will prevail during most of our secular timeframe…”

Written by infoproc

May 21, 2005 at 12:33 am

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Cloning has arrived…

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While the US sleeps, leading-edge stem cell research is being done at Seoul National University. (Well, at least California has woken up and is trying to counter the Bush administration’s lack of support for stem cell research by using state funds.)

The Korean lab can produce one clone per 17 donor eggs. That means the cost per clone is similar to that of an IVF cycle – or less than $5k. I imagine in a decade wealthy people (perhaps everyone?) will have access to a supply of their own stem cells. Also, women who are past reproductive age could choose to have a clone child, using their own or a relative or friend’s genetic material.

Of course, some US religious fundamentalists (like our president) will fight these developments. Are we ready for the coming clone war?

NYT: “In what scientists say is a stunning leap forward, a team of South Korean researchers has developed a highly efficient recipe for producing human embryos by cloning and then extracting their stem cells.

Writing today in the journal Science, they report that they used their method to produce 11 human stem cells lines that are genetic matches of 11 patients aged 2 to 56.

Previously, the same group, led by Dr. Woo Suk Hwang and Dr. Shin Yong Moon of Seoul National University, produced a single stem cell line from a cloned embryo, but the process was so onerous that scientists said it was not worth trying to repeat it, and some doubted the South Koreans’ report was even correct.

Now things have changed.

“It is a tremendous advance,” said Dr. Leonard Zon, a stem cell researcher at Harvard Medical School and president of the International Society for Stem Cell Research, who was not involved in the research.

The method, called therapeutic cloning, is one of the great hopes of the stem cell field. It produces stem cells, universal cells that are extracted from embryos, killing the embryos in the process, and, in theory, can be directed to grow into any of the body’s cell types. And since the stem cells come from embryos that are clones of individuals, they should be exact genetic matches. Scientists want to obtain such stem cells from patients to study the origin of diseases and to develop replacement cells that would be identical to ones a patient has lost.

…But this time, with a handful of technical improvements that mostly involved such things as methods for growing cells and breaking open embryos, they used an average of 17 eggs per stem cell line and could almost guarantee success with a single woman’s eggs obtained in a single month. And it did not matter if the patient whose cells were being cloned was young or middle aged, male or female, sick or well – the process worked.

“You almost have no reason not to do it,” said Dr. Davor Solter, the director of the Max Planck Institute for Immunobiology in Freiberg, Germany.

In fact, Dr. Solter added, it now looks like it is much more efficient to clone and obtain human stem cells than it is to do the same experiment in animals.”

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May 19, 2005 at 6:35 pm

Posted in Uncategorized