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Thursday, December 13, 2007

Podcast: Is the Fed too slow on cutting interest rates?

We take a look at the broader economy in this timely interview and podcast with The Wharton School's Jeremy Siegel, on Tuesday's .25% discount rate cut. Professor Siegel questions if the Federal Reserve is possibly not being aggressive enough on lowering interest rates; plus commentary on Ben Bernanke's performance, Wall Street's reactions and the Presidential candidates.

Jeremy Siegel on the Interest Rate Cut: The Fed May Be 'Behind the Curve'

rate_drop.jpgeconomyFor the third time in the past few months, the Federal Reserve's Open Market Committee has chosen to cut short-term interest rates by a quarter percent or 25 basis points. The Fed cut its main short-term rate target to 4.25% and the "discount rate" charged on direct Fed loans to commercial banks to 4.75%. In its statement justifying the decision, the Fed noted, "Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks. Today's action, combined with the policy actions taken earlier, should help promote moderate growth over time." Will the Fed's decision help promote "moderate growth?" Knowledge@Wharton asked Jeremy Siegel, a professor of finance at Wharton and author of The Future for Investors, to analyze the Fed's decision and its impact on the markets. An edited version of the transcript follows.


Tuesday, December 11, 2007

The New York City economy

"Manhattan’s condo market continues to be robust"

11/2007 Housing chartmarket reportEach month, the Mayor's office publishes the Monthly Report on Economic Conditions (230kb pdf)— providing a snapshot of the macro economic environment and a very local take on it. It has been a while since we've taken a look at one here, but you can subscribe to this report and get past issues at The NYC Economic Development Corporation site. On the city's residential market, the outlook sounds mixed; "Manhattan’s condo market continues to be robust. Demand for recently completed condos has outpaced supply, resulting in a decline in inventory. In fact, according to Miller Samuel data, the combined condo and co-op inventory dropped 31.7 percent in Q3 2007 from a year ago. In addition, the average sales price rose 6.3 percent over the past 12 months to a staggering $1.37 million. The market for 1-3 family homes (largely outside of Manhattan) however, is behaving much more like the rest of the nation, as has been the case in past market cycles (see chart)."

The relationship between real estate markets in Manhattan, the rest of the five boroughs, and the nation are not clear. The mortgage market is national, and its upheaval is touching everywhere; however the real estate market is affected by more than that. There is no national housing market. There are many smaller, local ones. High rates of owner occupancy, a low level of exposure to sub-prime loans, and population growth, have all contributed to the conditions which have fueled the local Manhattan market's continued growth. How will the volatile year on Wall Street affect bonuses which often are spent on real estate? How might rising unemployment affect us? Are these long or short term considerations? It is hard to predict how next year will look, but I'm inclined to see the glass as at least half-full. Where do you think we are headed?


Wednesday, December 5, 2007

Video: Alex Steffen on Bright Green Cities

green cityIn his July 2005 TED talk, "Inspired ideas for a sustainable future", founder Alex Steffen offers a still relevant, lightning round of answers, to some of our planet's greatest sustainability challenges. Its a wide perspective on topics which range from real estate development (green cities and buildings), to digital collaboration tools, to ingenious tools for the developing world. At his site, which he calls a "news service for the unimaginable future", Mr. Stefen states that "plenty of people are working on tools for change, but the fields in which they work remain unconnected. That the motive, means and opportunity for profound positive change are already present." It is a showcase for inspired ideas that can contribute to a greener future and a more stable planet.

related links:
TED Web site

Monday, December 3, 2007

Podcast: The Subprime Drama Continues, but for How Long?

Here is an interview with professor Richard Herring, co-director of Wharton's Financial Institutions Center about the subprime mortgage crisis. I'm not sure that the question is definitively answered, but its a detailed explanation about what happened. He questions at one point, the metrics that have been widely publicized from the Case-Schiller Index on the national housing market. Right now in Manhattan, I still see a healthy amount of property trading, with year to date numbers showing growth and relative stability. Its a market in which subprime loans are practically non-existent. Our local interest is in evaluating the drag that the subprime effect might have on the overall U.S. economy.

glass half fulleconomy
The headlines refuse to go away. Almost every day, a new twist seems to appear in the subprime crisis drama. This week, the investment arm of the government of Abu Dhabi announced an infusion of $7.5 billion to acquire a 4.9% stake in Citigroup, which has been slammed by enormous losses in the credit market. The announcement came on the heels of a report from Bank of America that the subprime mess is about to get messier as interest rates "reset"— or rise— on more than $360 billion worth of adjustable rate subprime mortgages. Has the crisis run its course? Knowledge@Wharton asked that question and several more to Richard Herring, a professor of finance at Wharton and co-director of the Wharton Financial Institutions Center. Herring spoke recently at a meeting in Rome about "the darker side of securitization."


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