Correct way to measure Average Returns

Normally people like to use a simple arithmetic method of calculating their returns or the returns of an average, stock or asset. Though this method has its advantages of being quick it doesnot provide a true reflection of how to asset is doing, becuase the person does not buy and sell the asset every year but instead holds on to the asset throughout. Thus the geomtric average calculates the compounded return.

A simple example would be; you purchase a stock for $200, then in the first year it declines by $100, the following year it does much better and returns 100%. What is your average return. Well -50%+100%/2, gives you a average return of 25%. This seems wrong. Your return was not 25% but 0%. The 0% is the geometric return.

To calculate a geometric return(GAR), we have a formula.

GAR={ [(1+R1)x(1+R2)x...x(1+Rt)]^(1/T)}-1

Where R is the return, and T is the years the return is over.

In our simple example above we see that a first year return of -0.5 and the second year return of 1 multiplied together in the formula after adding 1 to each we have 1. Then taking the square root, because there is only two years, we have 1, and then subtracting 1 from that we end with 0. We made a zero percent return on the investment.

This is a much more accurate way to measure real returns on assets and should be used to in measuring performance more often than it is.

Gas Tax and Why Eliminating it is a Bad Idea

In the United States, there is talk of eliminating the federal tax on gasoline at the pump. First things first, this is a really bad idea and removing the tax will not lower the price for consumers at the pump as well as it will reduce the revenues of the federal government that would have been used to maintain dilapidated infrastructure across the United States. Why? In the theory of taxation, an economist would state and show how that in the implementation of a tax not only does the consumer pay for the tax but also the seller too pays part of the tax. This then creates a deadweight loss, for that product. Because the deadweight loss exists, we can then look at the supply and demand theory to explain why both parties pay for the tax.

Looking at this diagram, we see that the quantity and price starts at Q1 and P1. If a tax is passed, we see that the price increases, while the quantity decreases. However, we see in the highlighted section, the deadweight loss, this is the area that represents the burden the tax places on the consumer and supplier. The Loss to the consumer is such that they must pay a higher price, and the burden to the supplier is such that it sells less of the item, but collects a lower price in the process. So both would pay some of the tax.
This is the starting point of the question why. First the tax is paid on both parties, so removing the tax would lower the price for consumers, but it would also increase the quantity demanded, which would help the supplier. Meaning that because the quantity demanded would increase the price would not lower to a price that would be just the current price minus the current tax rate, it would be above this price. Second and probably the most important reason that this will be a bad or unsuccessful idea is that while in theory it seems the price should drop it won’t because at the pump prices will remain at a price that resembles having the tax. Gasoline is an inelastic product. Meaning consumers will continue consuming it even if the prices rises. It would take a long period or an extreme price change to adjust the amount of gasoline that would be consumed. Thus if at the pump we are already accepting a price of, let’s say a $1.30, then the gas stations would not lower the price, but the prices would remain where they are, because they know that the consumer is already willing to pay that price. They would be the only ones profiting from the tax elimination, not the consumer. Thus, it means that the end to the policy is not quite, where the policy aimed. The policy was to help the middle class, gasoline-consuming citizen, but it does nothing of the sort. The solution that then presents itself is for the government to fund the alternative energy sources, but not ethanol. They could also fund projects to increase the supply of oil and refining capacity. These are where the solution exist, though this solution is not a quick fix, which politicians need to get votes.

Oil, it won't go up much further

Oil is setting new records, but the magic number that we must hit before it goes down is $134, according to folks at UBS. This seems to hold on its own. If looking at the past has any bearing on the future then the $134 per barrel level seems like a good stopping point for the price of oil. The Economist is the first to report on this and should be checked out for further information. I would post a like but a subscriptions is required... Which everyone should have anyway, it being the best publication ever.

Edmonton, Alberta Canada Housing Market

The housing market in Edmonton, Alberta Canada is suffering a significant slow down. The market is currently over supplied. There are still too many builders wanting to capture profits from the past booming market. The condo market is especially over supplied. Currently in Edmonton there are numerous high rise condos being built. With 50 units per condo, estimate, and 20 high rises being built, we can assume that the supply is only going to further saturate the market.

Lets look at some numbers, thanks to comfree.ca we have some data. Current prices have dropped 11% since there peak in September to December. Current supply; is from last December to this December up 234%.

What we can see from supply is that it has come off of its highs, but if we look at the average from the above data we see that it is 1591, homes in inventory. This average is substantially lower than where we are currently. Some pundits have argued that although the inventory's are high, the sales remain in a positive correlation with inventory.

We see that this is not true. Sales have dropped. We also see that the above data has a negative correlation of -0.733768101.

It seems from my view point that the supply surplus is due to heavy speculation within the market. Now that prices are in a dive those with weak stomachs are selling in fear. Only adding to the surplus.

Where does this leave us?

If you are currently looking to enter the housing market in Edmonton, I suggest stay out for now. Allow prices to continue falling, with the possibilities of a larger number of bankruptcies further lowering the price.

If you are currently in the market. Looking for the best price to sell. Determining your goals is of utmost importance. If you can wait until prices correct, 5 years, hold on to it. Keeping our house off of the market will insure the supply does not increase more.
If you can not wait. Get out, claim your losses. It would be better than foreclosing on it...

World Domination

To start things off...

http://www.foreignpolicy.com/story/cms.php?story_id=4038
A great article refering to tolerance. The subject, or act, is a difficult idealogy for me to comprehend. It requires abstract and expanded thinking. To allow someone to carry on in their life, while not agreeing with it. I hope that this article could challenge and influence, you the reader. The problem lies in the the consiquence of their life. Ostesibly knowing that they have made a mistake yet not correcting them because if you do, the relationship is destroyed. A subject that many conservative "Christians" should look upon their lives to see where their level of tolerance lies.

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