A State Transition in Interest Rates?

Just recently we have experienced what might possibly be the start of the reversal in a 30 year trend. For over 30 years, interest rates within the United States have been slowly but continuously dropping. From a cyclical high of a 15.8% yield on the 10 Year Treasury reached in 1981 to the incredible low yield of 1.63% reached earlier this year. While it was not a straight line and there were many counter-trends up, during the life of a 10 year bond you were guaranteed to not only earn a yield in interest, but to also earn a yield in principle. The constant and inexorable motion of the lowering of interest rates meant that it was always going to be easier in the future to pay of one’s debts- even if the only choice was to refinance the operation. Coupled with a constant and always positive rate of inflation, it made sense during the last 30 years to always try and leverage any activity as much as possible, continue operations until interest rates and inflation reduced the debt burden, and finally reap a return due to the equity growth in the balance sheet. The only issue that limited incredible rates of leverage was the ability to handle a short term reversal (remember Long Term Capital Management?).

30 yea10 Year Treasury Interest rate graph

That may have all changed earlier this year. The interest rate on the 10 year bond started rising from a low of 1.63% to just under 3%. And it seems that the positive change in interest rates, while large and quick, isn’t going to be stopping anytime soon.  In fact, this change might be the harbinger of a long 30 year counter trend where rates inexorably rise and there is a constant and continued reduction in operational viability due to ever increasing financing costs. (Note: The wording in the earlier sentences intone a strong sense of conditionality; this isn’t meant to imply that the result or effect is in question, but that right now no one knows if this is actually the start of a counter-trend or just a false uptick to lower overall interest rates. While people may say that there’s very little room left for rates to fall, a valid counter example is Japan where rates have fallen to well below 1%.)

 

Paper Optimus

Ravi and Mom recently found out about paper fold-up transformers. A site named Cubee Art has a compilation of different fold-up dolls that you can print out, cut out, and fold-up into a transformer. When Mom showed Ravi, he was super excited and immediately wanted one created. Since it involved some pretty fine cutting with an x-acto knife, I took over and put together a couple for him. They have found a home on our mantlepiece ever since.

Enjoy Ravi and remember to not let your brother get a hold of them!

Love,

 

Dad

 

Ravi's 'Ninja' Paper Optimus (cuz it's black...)

Ravi’s ‘Ninja’ Paper Optimus (cuz it’s black…)

 

Bumblebee and Optimus Prime

Bumblebee and Optimus Prime

 

Housing Affordability Index

One should always look for metrics that help to quantitatively assess the value one gets for the price one pays. Intuitively we all do this when we look for the next big ‘deal’ or when we employ a coupon to save money. The problem with financial purchases, as opposed to typical consumer purchases, is the time frame involved. Most food is good for a month and clothes are good for a couple years. Since people also tend to cycle in and out and make multiple purchases annually, the deals have to be acted upon quickly and no single purchase is detrimental to the long term value of the product being purchased. This isn’t the case with stocks, bonds, or real estate. One good purchase can disproportionately pay dividends for future years for as long as the asset is held.

The hardest financial purchase to get right is also the largest a family makes; the decision to purchase their family home. Research shows that the average length of stay at any one purchased property is 7 years. This means that the cost you pay is fixed for a fairly long time. So it behooves everyone to make sure that when they make this purchase they are getting the best possible deal that they could possibly get. So we’re back to the original need for a strong metric to help make this decision easier. One of the most common aphorisms in finance is that a ‘rising tide lifts all boats.’ The point being made (and hopefully remembered) is that when the market goes through periods of over-valuation and under-valuation relative to average all of the individual securities are influenced to some degree. Even crappy stocks get bid up and they become more pricey than when the market was undervalued.

The same process applies to real estate. As everyone now knows we just had a bubble in real estate with both good AND bad properties being priced at the higher range of the valuation spectrum. But how to know when is a good time and when is a bad time to buy real estate? Well the National Association of Realtors (bless their black little hearts…) actually do put together and track a housing affordability metric. It’s called the Housing Affordability Index and it’s actually very very useful. The metric is based on the median single family home’s monthly PI (Principle and Interest) cost as a percentage of the median family income. As a metric it gives you the actual monthly cost basis of real estate from a national perspective. This is a very valuable metric and can help anyone determine a good time (from a bad time) to buy real estate.

Zerohedge had an article that illustrated the thirty year affordability graph and is reprinted below. The zerohedge article talks about how housing affordability (due to the interest move on the 10 Year Treasury note) has starting plunging rather drastically. While it doesn’t mean that you shouldn’t buy real estate (as its price is always, first and foremost, a local phenomena) based on the housing affordability index alone, it does serve to highlight the broad trend and helps simplify the initial decision tremendously. And the signal coming from the market right now is, if you’re in the market to buy a house, to buy quickly; prices are going up.

 

Mario.

Housing Affordability

30 Year Housing Affordability Trend

 

One month in Ravi’s Shoes…

Ravi is a little boy. As a little boy he has a very active life and does a lot of fun things. Recently we had to buy him a spare pair of shoes while on vacation. They were average shoes and not one of his regular Stride Rite light up shoes he was used to getting. Nevertheless, Ravi liked the shoes and wore them fairly regularly for about a month.

After that month we had to get him new shoes because they looked like this-

One month in Ravi's Shoes...

One month in Ravi’s Shoes…

…Sigh…

I don’t know what he had been doing to them, but they obviously were falling apart due to him kicking stuff. The funny thing is we never really saw him excessively kicking walls or fences or anything. I even asked his teachers and they didn’t see him continuously  or repeatedly kicking things. My other kid has a habit of repeatably kicking the garage door in the morning when we’re getting ready to go, but not Ravi.

Oh well, it probably doesn’t matter much as we have to replace his shoes every three to four months at this age, but it was annoying. I’m sure I’ll get over it. Especially when Ravi gets older and I make him have to buy his shoes with his own allowance money!

Hehehe!

(Though I think he’ll get around this the same way one of my high school friends did; they duct-taped the front of the shoe to  avoid having to buy a new one until their parents relented. Parents are always so much more uptight about things like that than kids ever are.)

 

Love,

Dad.

 

Legoland

Our family has been searching for great weekend family activities for a while. We have had a couple of staple choices such as the Aquarium, the Los Angeles Zoo, and the Natural History Museum, but none of these really truly capture our boys’ hearts. Flo would complain that when we went to the Aquarium the boys would spend more time running around and playing in the outdoor water area than actually looking at the fish.

Not that this is a big issue, but we needed to have a change of venue/change of activity so that we were engaging the boys in what they wanted to do as opposed to something we thought they’d be ready for. Unfortunately when we thought of theme parks we ran into two issues. Firstly, admission is expensive to theme parks. Even if you do an annual pass so that you can go multiple times, it still ends up being fairly expensive when compared to other attractions. Due to the cost we decided that we’d only really consider one theme park per year and get an annual pass for the one we liked. Secondly, most theme parks are actually geared to older kids. I think the perfect age for theme parks is the 6-13 year range. At this age kids have the durability to hang out for more than a couple of hours, they can probably walk a mile or two within the day, and they can actually start to go on rides by themselves. Unfortunately for us, Ravi and Max are still only 4 and 2 years old. That means we still have to deal with diapers and naps and the kids aren’t really interested in walking long distances. It also means that we really wanted an activity that was geared for about a half day (5 – 7 hours) at the most. And whatever we chose should not have an incredibly long drive as that tends to upset Max and he can end up crying on the trip. He’s good for about an hour if he’s well rested, but nearly every trip past two hours he has cried.

We did some research on theme parks and thought about giving Legoland a try. It’s a fairly inexpensive theme park compared to others and it’s geared to younger kids. They have a very handy height restriction map that helps you decide if your kids will enjoy the park. Ravi is about 37 inches and Max is barely 34 inches.

Map of Legoland Park with Height Restrictions for Rides included.

Map of Legoland Park with Height Restrictions for Rides included.

As you can see on the map above by 40 inches or taller you can do nearly the whole theme park and by 34 inches you can do at least half of the park. This means that both Ravi and Max can participate.

We went to Legoland for the first time about 2 months ago and the boys have been having a blast. They love a number of the rides (especially Captain Cranky’s Challenge and the Coastersaurus) and Ravi loves getting a Lego toy at the end of the day. Since we have annual passes, it has become one of the ‘de facto’ top weekend choices for our family. In fact, we’ve had so much fun going to Legoland as a family that we’ve invited some of our close friends (and their young boys) to go with us this weekend. We’ll see how well we do when there are 5 young boys running around all at once!

 

 

Mario.

 

Posing with the Lego X-wing Fighter and Maxie doing his 'action' pose

Posing with the Lego X-wing Pilot and Maxie doing his ‘action’ pose

 

While Mommy and Daddy wait in line little kids can play with Legos at multiple Lego stands. Win-win for everyone.

While Mommy and Daddy wait in line the little ones can play with legos at multiple Lego stands. Win-win for everyone.

 

 

Daddy and Ravi on 'Sky Patrol!' Having fun and making the world a safer place for everyone.

Daddy and Ravi on ‘Sky Patrol!’ Having fun and making the world a safer place for everyone.

 

Legoland is partnered with Star Wars and includes a bunch of Star Wars themed Lego dioramas. Here's one of the arena on Geonosis from Episode 2.

Legoland is partnered with Star Wars and includes a bunch of Star Wars themed Lego dioramas. Here’s one of the arena on Geonosis from Episode 2.

 

Max You Are Nine Months Old Today!

My dear Max,

It is amazing what one month can make. For myself, I don’t think anything changed at all. I still work at the same job I did last month, weigh about the same, and I don’t think I learned anything new. In fact, I might have forgotten a bit of stuff that I learned over the years. But for you, this was a very momentous month. Lots has happened and lots has changed.

You now have five teeth! In one month four teeth popped out! That is simply amazing. It must have been a pretty painful month for you. What is more amazing is you haven’t been very cranky. With four teeth coming out, we expected you to put up a pretty big fuss, but that hasn’t happened. You haven’t been your incredibly cheery self, but you’ve handled the four teeth with aplomb. You have a very sunny disposition and this trying month showed both Mommy and myself how nice of a baby you are.

The side effect of having all those new teeth is an insatiable urge for you to chew anything that you can get your hands on.  Particularly, you have fund some of wooden toys very “taste.”  Sometimes when we finally pull these toys away from your mouth, we would find part of the paint missing.  This has cause great concern from me and your mommy, but this doesn’t not seem to effect you at all.  When our heads turned to a different direction, you often make a get away toward the wooden toy  bin for more of those tasty treats!

You can now pull yourself up! This walking thing seems to be happening pretty fast. Last month you were barely able to crawl; now you can easily crawl all over the place and you’re getting pretty good at standing. Within the next couple of months I definitely see a lot of falling, but also the possibility of cruising. Then Mommy will have to be extra vigilant as you start getting yourself into trouble. As it stands we don’t have to worry much, but that will change pretty soon. You’ve also started to climb stairs. First it was just one or two at grandpa’s house, but we’ve also seen you make it up five at a time. We usually stop you at that point because while you can get up you can’t get down! And we’ve got some pretty tall staircases at our house. It’s probably safe to say we won’t let you on them for quite a while.

You have started eating adult food. The last couple of months has been mostly fruit puree and cereal, but you’ve started to want to try grown up food. You’ve had radish, bread, fruit shake, and other small stuff. What is really funny is the face you make when you try something new. It’s this scrunched up sour puss face that looks like your truly disgusted with whatever we’re offering you, but you always ask for more so we’ve come to ignore it. The face usually doesn’t last long (maybe two or three bites), but it’s always there with something new.

You now love and look for Mommy. It used to be anyone could hold you, and when Mommy got tired we would take turns. Not so much now. Now it’s Mommy or no one. Which is wonderful in one sense (you really want Mommy), but also scary in another sense. Now Mommy has nowhere to hide!

You’ve started saying words. They’re still the basic ma, da, ba sounds, but you have expanded your vocabulary past just goo goo sounds. We’ll see how you do over the next months, but Daddy can’t wait until you start calling for me. Actually, neither can Mommy!

It was indeed an amazing month!  It is like you saved up all these wonderful surprises and give them to mommy and me all at once!  That was the best holiday gifts for us, and with you, our lives are happier than ever.

Love,

 

Daddy

 

Max, You Are 8 Months Old Today!

Dear Max,

You are 8 months old today! The last month has been a whirlwind of activity from you. We’ve seen you go through a lot of changes and your personality has started to blossom also.

You were able to sit! You’ve been trying and trying now for almost two months, but you always had to slouch before. Now you can sit by yourself. The last three weeks we’d see you get into a pull-up position and that was it. Now you  tuck a leg under your body and crawl yourself up into the sitting position with ease. Now that you can sit, we can all play together; even if it’s only for five minutes. But it gets better than you just sitting and playing with Ravi and me.

You can now crawl! It seems that sitting and crawling were very close in terms of capability. Once you got one motion down the other happened within the week. You’re still not fast, but we’ve seen you chase your brother down to see what he’s playing with. And, I’m a bit ashamed to say, fight for the same toy. Your older brother is still very good as he’s been sharing with you on a regular basis. We can see that you two will get along greatly. You both like playing together and when we were playing with the blocks both of you had tons of fun! I can see that the three of us are going to have tons of fun together. Ravi and I are just going to have to teach you Candyland right away! But that’s not the last thing to happen this month.

You now have a tooth! We saw the white heads under the gums for awhile, but two days ago we finally felt your first tooth. It must hurt a little bit because you like to bite on my finger away from it. I think you’re getting a second one right by the first. I hope you know what having teeth means? It means you get to start eating really great food! I know your older brother is stuck on milk and chocolate, but there’s a lot of other things that he eats and I’m sure Mom can’t wait to share them with you. You’ll get the chance to find out how great of a chef your Grandma is. We eat great Chinese food every day and soon you will too! Unfortunately it will take a couple of more teeth than you have now, but at least you can eat the yogurt bites we got today. Keep working on it, Max!

Max you’re growing up to be a truly wonderful little toddler. Even with the teeth coming out  and the crawling you’ve been trying this last month, your attitude hasn’t changed. You hardly ever cry and it’s almost always with good reason (like when you bump your head). I am truly surprised at how nice of a baby you are. We are able to leave you in your seat for minutes at a time and you let us get stuff ready for the morning. It always seems that you’re not interested in just being held, but you just want to be part of the family and included. Trust me Max. We will include you at every opportunity we get. The whole family is looking for the chance to include you in our games. Even Ravi is looking forward to a mobile brother that can go play and get in trouble with him on a regular basis. Don’t worry, I’ll make sure the three of us are always having fun and getting into trouble together!

 

Love,

 

Daddy.

Time

Dear Ravi,

Lately your father has been very very busy with school, work, and your baby brother Max that we haven’t spent as much time as I would like. My personal lack of time has made me realize that the most important gift I can give to you (and your baby brother) is my time. These days I hate and dread assignments from school that are time hogs. You’ll come to know the ones I’m talking about, where effort and quantity are the direct measures of your grade and not the quality or ability you bring. The reason I hate them so much is because they take time away from you. Even still, I have noticed how you’ve grown and developed in the last couple of months and I thought I’d put my thoughts to paper to help capture your childhood.

Ravi, you’ve learned how to lie. You don’t do the full blown lie yet, because you can’t actually construct sentences, but the limitations of language hasn’t stopped the fun. You are now capable of taking toys and either hiding them behind you, under the pillow, or in a pocket and then asking “where is it?” You wait to get a response from you Dad or Mom and then feign ignorance about where it is only to bring it out later and show yes Mom, yes Dad I did have it and knew where it was all the time. You’ve also got a new game with your Dad and colors. We have a book that talks about four colors in it (red, blue, green, and yellow). There are individual pages with the four colors and then a four color butterfly at the end repeating all of the colors. You dutifully go through the four colors repeating and accurately stating them each in turn until you come to the butterfly. Then every color becomes pink and when I say the right color you just say pink louder. Only until I acknowledge the color as pink do you smile happily. You’ve been able to change (or lie) about the color and made me agree with your lie. Sometimes when I start by saying pink you also say no and state the correct color. You’re getting to be tricky!!!

We also have some very cool visualization and imagination games these days. We have a small book based on a ice cream truck (it consists about 7 pictures) that you’ve been absolutely fascinated with. Not because of the content, but because the last page depicts seven kids eating different colored ice cream. You make me read that book just for the last page (which we can spend minutes on). What we now do is imagine taking the kids ice cream, munching on it, saying yummm, and then rubbing our tummy. We’ll do this multiple times imagining eating ice cream and mimicking the motions. This has been a lot of fun, but next time can daddy have the blue ice cream and you have the yellow? I haven’t tasted the blue one in ages. =)

Ravi,

I know I spend too much time in school (and honestly if I had a bad GPA like I did in undergrad it would be so much easier to stop caring), but it will be over soon and then we’ll be able to spend a lot more time together. I can’t wait to see what your imagination comes up with next (or how you’re going to lie to me next).

Love,

Dad.

Ravi- You’ve Turned Two!!

Dear Ravi,

Last weekend was a very special time for both of us. Unfortunately I had to spend all of Saturday and Sunday at UCLA attending class. Mom and I made it a point that we still wanted to celebrate your birthday (and mine a little bit) so we decided to take Friday off from work and spend time together as a family. We decided to finally go to the zoo! I know that you absolutely loved the day and spend so much time exploring on your own. I thought we would never get past the initial flights of stairs and actually see animals, but see animals we did. We spend time seeing monkeys, visiting the birds, and seeing sea lions, seals, and giant otters that you called fish. We spent a lot of time just walking forwards and backwards and forwards and backwards again that, I admit, I did get tense with you a couple of times. I guess that I still don’t realize that the simple things like walking and climbing stairs are just as fun as actually seeing animals. Actually, from your actions Friday, they held your attention longer than the animals.

After the zoo, we went out and got you balloons at the local Party City store. Inside the store everything held your attention and you spent at least an hour just wandering amongst the aisles looking at stuff, picking up stuff, and generally exploring! Near the end you found balls (three of them to be exact) that you wouldn’t let go at any costs. You realized that we weren’t interested in buying them and the only way you were going to get them is to hold onto them at all costs. After fifteen minutes of fighting we gave up and decided to get you one ball. I was amazed that you understood this and even was willing to give the ball to the clerk (but not to Daddy or Mommy) to have it scanned. You’ve realized that having an item scanned is essential to getting it and that was the only way we could pry them from your hands!! We got you over a dozen helium filled balloons and included two of your favorite characters- Curious George and Spongebob Squarepants. They haven’t lasted long, but they were pretty for the day.

We then went home and spent a wonderful evening together playing with your balloons and toy ball, while relaxing to a home-made meal prepared by your Mommy. Actually, I relaxed and enjoyed a home-made meal. You just fought with Mommy and ended up eating nearly nothing. Sometimes I wonder where you get your energy from, because it sure doesn’t seem to come from food! After that you ended up getting cranky around 8pm and actually fell asleep on Daddy’s shoulder. I have to admit that when you fell asleep in my arms and I felt special. Normally Mommy is the one you run to for attention and love and I’m always the second choice. But on my birthday, you chose to fall asleep on me and I held you close for nearly two hours. That was the best birthday present you could give a Daddy and I will always treasure those close intimate moments with you. I know that my end goal is to make you a man and to help you learn to handle life, but quiet tender moments like that are still very enjoyable. Thank you so much.

Love,

Daddy.

Skill vs. Talent

My wife earlier posted an article about intrinsic and extrinsic ability (genetics vs. environment) and how the understanding of the two different factors influence child-rearing methodologies. If you favor the intrinsic/genetic effects, your methodology will be more laid back and prone to assisting a child reach his full potential, while making sure you don’t commit any gross actions that destroy or impair his natural ability. If you favor the extrinsic/environmental model, then you’re more inclined to take an active (very active bordering on dominating) role in your child’s life dictating the correct course of actions to help them be successful. As my wife and I are very compatible, I’m sure everyone already knows what I’m inclined to favor. Instead of spouting more (personal) feelings on the subject, I’ve decided to talk about potential options for development in children; whether a parent should focus on developing their children’s skills or talents.

In my mind, I tend to think of the final result in any pursuit as ability, with skill and talent helping to shape the end result. If you were to look at world class basketball players and rate how well each player is at the game, you would be judging the basketball players on their ability to play basketball. Their ability would largely be determined by the input of two different variables – skill and talent. Skill is basically how much time they’ve spent training and developing a deep understanding of basketball. Talent would be how well their inherent strengths help them achieve a high level of basketball ability. A “talent” for basketball may include such factors as being tall, weight-lifting, cardiovascular development, and exceptional balance. All of these traits help the basketball player be a better basketball player, but they don’t involve specific training in basketball playing. If these talents are developed (or strengthened) they can be applied to a variety of options, just not basketball. A strong cardiovascular system is a benefit in swimming, cycling, and track, while being tall is also an advantage in football and management careers!

The point of differentiating options into skill and talent is that when one considers what to do, one needs to understand whether the end result will help develop skill or help develop talent. Let’s take math as an example. (I’m picking math for two reasons; firstly I’m fairly good at it and I’ve been doing it a very long time so I have a lot of experience in options for mathematically inclined people. Secondly,  the diversity of options you can take make math a natural example for talents).

We can consider math as not only a skill or a talent, but also as a career. Being a mathematician is a very viable career opportunity. Yet one can also apply math to a number of other career options from engineering to business so it is definitely also a talent. Learning a specific form of math, like calculus or quantum electronics, takes time and one can classify it also as a skill. So what exactly is math? And what do you want to get from it? Math is an example of a subject that is all of the above, but most importantly being good at math is a very strong long-term talent. As a parent who is talented at math, this is a strong area of expertise I hope to pass onto my son. I’m not particularly concerned with what area or type of math he learns, just so long as he develops a talent for math. Whether he wants to be a physicist, an engineer, a businessman, or an investor, math will be valuable in any of those career options. Being comfortable with math and being good at general math is much more important than being very good at any specific form or type of math.

In fact, I’m quite happy if he isn’t good at any one specific type of math; just so long as he is comfortable in dealing with math in its many forms. I’m not interested in how skillful he is in calculus or convex optimization; rather I’m more interested in my son being able to be comfortable in picking up an introductory textbook on a mathematical subject and teach himself. I feel that being talented at math allows a person to retrain themselves in different mathematical pursuits whenever it’s necessary. That makes being talented at math more important than being skillful at math. Just as certain athletes can easily retrain themselves for different sports (like Herschel Walker in Football/MMA, or Bo Jackson and Deion Sanders in Baseball/Football) by being talented in sports, so to can humans be talented enough in subjects that they can pursue different careers. While I tend to focus on math and opportunities for people for mathematical talent, that doesn’t mean that is the only possible area of developing a talent.

As a parent I will focus my effort on developing my child’s talents not specific skills. What will you choose?

Mario.