Tuesday, July 31, 2018

Income Disparity is at an All-time High. What should we do about it? (1 of 2)

                                   At the Country Level

Economic Opportunity! Economic Opportunity! Economic Opportunity!

  1. Develop Basic Infrastructure with Private Cooperation – A country with well-developed infrastructure can attract more high quality foreign and domestic investments than their counterparts who are struggling to ramp up their infrastructure. Therefore, the poorer 3rd world and developing countries should intensify the development and expansion of the basic infrastructure – instead of selling out their natural resources – by enticing private companies (well-known local and foreign) to provide the leadership in that sector. For example, those companies could be encouraged to build new toll highways and bridges, railroads, metro/light rail, ports, airports, rural electrification, tele-communications, etc. shouldering all costs in return for all revenues (at pre-negotiated resell rates) from those projects for the first 15 to 20 years. It would be win-win. With the rapid growth of infrastructure, the credit ratings of those governments would improve. On the other hand, companies investing in infrastructure would get a steady and predictable revenue stream (revenue for 12 to 18 years post completion).

  2. Let the Revenue Cycle Continue – When the ownership returns to the government, they can once again auction off those projects (revenue rights/maintenance obligations) generating significant upfront revenue to reinvest in derivative infrastructure, e.g., schools, hospitals, national/state parks, etc. In order to maintain the tempo of growth, governments must not get into the business of “running” any basic infrastructural services. Of course, they should be in the front-end (deciding on the location, type, extent, etc.) and back-end (audit and oversight), but not in the mid-end (actual “running” of the services). At that point, the toll, utility and transportation rates would be much lower (considering they would be paid for) benefitting all consumers, including the new arrival of businesses needing better and faster transportation and communication services.    

  3. Avoid Bridges to nowhere – The participation of the private sector will help avoid building non-productive bridges to nowhere as they will conduct their own feasibility studies with rigorous cost-benefit projections. With the expansion and renewal of the basic infrastructure, those countries will become more attractive for foreign investments. Of course, they are inherently foreign exchange poor so enticing foreign investments with more competitive infrastructure will be the path forward. As the multi-national companies find out the growth of investment-friendly infrastructure in those countries vis-à-vis their surrounding peers, they will be more eager to explore direct and joint venture investments there. Needless to say, they are also constantly looking for new markets to explore and penetrate!
  4. Entice Neighbors to Follow the Successful Example – Of course, with the rising prosperity comes the border issue. A good leader sets examples others are enticed to follow. Today, we live in a world of economic cooperation and free trade so building a Chinese wall around the country’s border does not lead to lasting economic prosperity; rather, successful countries must encourage the poorer neighbors to follow the successful example and shore up their own basic infrastructure, thus paving the way for a concerted regional revitalization and growth. This is how the refugee problem (from the neighboring countries) is best avoided.

  5. Develop Regional Economic Zones – As the regional renewal gains momentum, countries must work together on creating their own economic zones, letting goods and services flow freely across borders without the costly and unnecessary taxes, tariffs and barriers. With economic zones in place, it would be easier to convince corporations to build toll-ways, bridges, waterways, etc. across borders, offering better scalability and enhanced economy of scale. Countries must experiment with and use (economic) growth models that are sustainable. In fact, G-7 down to BRICS must aid and cooperate with the countries that become signatories to an economic model emphasizing regional growth, renewal, cooperation and development of economic zones.   

  6. Create Tax-free Enterprise Zones – With the rapid growth and expansion of the basic infrastructure, countries will need to set up tax-free/tax-abated enterprise zones around the country. It does not make sense to build all infrastructures around a handful of big cities, making them even more overcrowded. It must be a distributed and decentralized economic model, with the emphasis on enterprise zones, including affordable housing. 10-15 year tax abatement is a good incentive to attract an array of big and diverse group of companies from around the world, vertically integrated with the growing infrastructures. A decentralized model would help people live close to their roots – an ideal way to keep employee turnover and absenteeism low and morale always high. New payroll taxes along with the derivative revenue taxes would initially compensate for the lost corporate taxes. Upon expiration of the tax abatement period, the corporate tax revenue would start to kick in, enriching the exchequer by leaps and bounds.

  7. Invite For-profit to Build Institutes of Higher Technical Education – As those countries start to develop the service sector (atop the manufacturing sector), a steady flow of qualified employees with higher technical education would be needed. Again, instead of the local governments getting involved and controlling this layer of education, the private for-profit companies might be invited to build and run the institutes, with initial concentration in enterprise zones, as an added enticement. While the acceptance must always be merit-based, governments must significantly subsidize all economically disadvantaged students, to avoid having to implement a quota system down the road. Furthermore, the interested students must have equal access to all competing schools across the economic zone. Again, a steady flow of technically qualified local employees is critical in enticing companies to invest in the service sector.

   8. While governments should stay away from running all non-essential services, they must be involved in properly managing their natural resources along with all essential services like military, law and order, taxes, basic education, healthcare, clean water, etc. Countries that are built on moral (not religious) high grounds are more attractive to investors. For example, in many 3rd world countries in Africa, Asia and Latin America, young women do not have equal access to education (a crime against humanity!). “Equal access to education” must be a primary metric all foreign companies must use in evaluating the investment climate of a country, thus forcing those evil regimes to return to the basic decency and morality we must all follow and promote. While evaluating direct foreign aids, foreign governments must also use this as one of the primary “humane” metrics.

  9. Negotiating Trade Deals – When a rich country borders with poorer countries, it is prudent to consider the collective economic interests while negotiating trade deals. Case in point: Whether we build a wall on the southern border or not, while re-negotiating trade deals with Canada, Europe, Japan, China and the rest of BRICS, etc., the US must wrap around the economic interests of the Central American countries. Their growth and upliftment is in our best interest. For example, many successful companies from around the world would be interested in the US market but they might not be able to initially meet our wage levels. If a common trade deal is in place, those companies would set up their initial shops – manufacturing, processing, assembly, IT, research, etc. – in one of the Central American countries with lower wage levels, with unrestricted access to the US market. No doubt, given time, they would be setting up shops here, hiring locally and paying our prevailing wages. Meanwhile, we have to consider Central America as our enterprise zone, enticing and redirecting vast amounts of second tier economic activities (we are losing those businesses, anyway!) from around the world to them. Let Central America be our nurturing ground. It will be win-win. Once we have a level playing field, they will be our full world partners, not just our enterprise zone. In not too distant future, we will have fast-track lanes at the border for them. No human crisis is ever solved by building walls; they are solved by creating meaningful and cooperative economic opportunities. And, it’s never too late!      

- Sid Som, MBA, MIM
President, Homequant, Inc.

Friday, July 27, 2018

Wednesday, July 25, 2018

While Analyzing Age-centric Benefits, Pay Close Attention to Marginal Growth Rates

(Click on the image to enlarge)

-- Intended for Start-up Analysts and Researchers --

"I'm Paula Smith, SVP, Research. Dave is VP, Market Research and Maya is VP, Quantitative Trading. Can we call you Sheena?"


"Sheena, take a look at the graph and tell us what kind of trend you see."

"First off, thanks for displaying the actual Y values, instead of a generic Y axis. Makes it easier. Though it starts off as a linear trend, it becomes slightly backward-bending after age 64, thus making it an exponential trend."

"Sheena, is there a way to prove that - quickly? This graph is set up on that corner laptop. We'll return in five minutes."

"Okay, Sheena, ready for us? Show us what you did."

"Yes. I've added two trendlines - linear and exponential with respective r-squared. You can see the r-squared associated with the exponential trend is significantly higher (in basis points / not shown here) than its linear counterpart."

"Dave, do you have any questions for Sheena?"

"Thanks Paula. Sheena, if we reverse the trend to encourage early activation of benefits (leading to early retirements), will the trend change?"

"Yes. The trend will be forward tilting, so I will fit a logarithmic trendline."

"Maya, any questions for Sheena?"

 "Yes. Thanks Paula. Sheena, if you are advising a group of seniors evaluating activation, what would your two best pieces of advice be?"

"First advice: Instead of activating at age 64, I will advise them to activate it at 65 (the first inflection point when the curve tilts up, i.e. the marginal growth rate exceeding 8% for the first time). Second advice: Instead of activating at age 67, I will ask them to activate it at 68 (the second inflection when the mrginal growth rate re-hits 8%).

"When can you join, Sheena? You will be an excellent addition to our Research Team!" 

Granted, it's never that easy to land a great job, but you get the point.

Good Luck!

- Sid Som, MBA, MIM
President, Homequant, Inc.

Monday, July 23, 2018

When Confronted with Limited Number of Variables, Use Them Prudently in the Model

-- Intended for Start-up Analysts and Researchers --

(Click on the image to enlarge)

Table-1 shows that the low predictive relationship between the Adjusted Sale Price (“ASP”) and Land_SF, as well as Bldg_Age have forced the model to a single stage multiplicative one, encompassing all of the continuous and descriptive variables. Both Land_SF and Bldg_Age coefficients would have been insignificant, thus pushing the linear regression step to be skipped altogether; for example, free land (improvement carries all value) is as absurd as the positive $19 depreciation annually.

Table-2 is the resulting correlation matrix of all of the available variables in the log form (for use in a non-linear multiplicative regression model). The high predictive relationship between ASP and Living_SF, as well as Town foretells that these independent variables would be the two most valuable contributors in the equation.

Table-3 is the output from the multiplicative regression model. As expected, the Living Area SF variable (Living_SF) is most important variable (highest t Stat) in this model, followed by the Town variable (Town). Land_SF remains non-contributing (low t stat and high P-value) as the vast majority of residential lots in this county tend to be predictably similar (violates the multiple regression assumption, hence being rejected by the model). The R-square of 0.8828 – without any residual analysis and outlier removal – points to the growing efficiency of the model.

Since one multiple regression equation has been resorted to, the three continuous variables – Land_SF, Living_SF and Bldg_Age – have not been converted into categorical variables; instead they remain in their original format, though log-transformed for the multiplicative use. Pool and Garage are the two binaries while Town is a categorical variable with categorical linear values.

- Sid Som, MBA, MIM
President, Homequant, Inc.

Saturday, July 21, 2018

How Five Contiguous Zip Codes May Have Vastly Different Location Values

(Click on the image on enlarge)
Housing market is primarily about "location, location, location." Most first-time homebuyers do not understand the impact of location on home values; instead, they tend to get carried away by the size, age, grade and condition, ignoring the biggest contributor to the value, i.e., location.

The above spatial graphic shows how the five contiguous Zip Codes have vastly different residential location values, ranging in value between 0.50 and 2.0 -- a whopping factor of four. In other words, a $500K house in Zip 32808 would jump to $1.68M in 32804 and to $2M in 32789 and so forth.

One of the easiest and quickest ways to understand the residential location value is to study the published median home values by the Zip Code. Of course, another step is required to derive (a simplistic form of) location value for the Zip. The Zip-wise median home value needs to be normalized (divided by) by the median heated area (square feet) so the location value comparison becomes apples-to-apples.

I picked the above graphic from LocValu.com as I own and operate it, to avoid having to deal with any unintended copyright issues. My LocValu site is totally self-directed (no modeled values), totally free (no strings), and requires no registration/log-ins whatsoever. Please use the site/system that works best for you.

Friday, July 20, 2018

Why Single-Variable Trend Analysis – despite being Industry Standard – must be Challenged

(Click on the image to enlarge)

- Intended for Start-up Analysts and Researchers -

Since "Trend Analysis" is one of the most common top-line univariate analysis new analysts are often tasked with, I am going to use this example to demonstrate why such Champions ("Champ Analysis") must be challenged with “Challenger Analysis" or “Challenger Modeling.” I have devoted this post to the Champ and Challenger Analysis, deferring the Challenger Modeling to a future post.

Champ Analysis: Many trade/research organizations and government agencies publish the Monthly Median Sale Prices for pre-owned and new homes. As a result, these Monthly Median Analyses have become the industry standard, prompting analysts to put together graphs, etc. to show the market trend. If they are not seasonally adjusted (generally they aren't, except Case-Shiller), M-O-M is less meaningful. If the series is extended, Y-O-Y (Jan-17 vs. Jan-18 or Q1-17 vs. Q1-18) is more meaningful as they are (sort of) seasonally adjusted. If you have to show such unchallenged trend(s), at least make it emphatically clear to your bosses that the latter is more meaningful. In any case, no data-savvy boss will ever use an unchallenged study to take important business decisions.

Challenger Analysis: Alternatively, if you have access to the Sale Price and Net Bldg SF (Living Area or Heated Area), build a Challenger analysis to produce a normalized trend. Remember, it has to be organic, meaning the monthly stats must come from the variable SPSF (Sale Price divided by Bldg SF). Do not just divide the Monthly Median Sale Price by Monthly Median Bldg SF as they are mutually exclusive. Now, use this trend to challenge the Champ. 

Caution: before running the stats on SPSF, make sure there is no structural shift in the monthly median Bldg SFs. They must be well within a normal margin of error (say 5%) of the overall median. For instance, if the overall median is 2,000 SF, all monthly medians must be within that +/- 5% range. If you notice the tail end of the curve has been steadily shrinking (say around 1,650 SFs), make adjustments for the variances before challenging and highlight the point in your write-up, proving that you are well aware of the on-going change in the demand pattern.

Now, take a look at the Broward County graphs. While the Champ (top chart) shows a bearish double top, the normalized Challenger trend (bottom chart) is almost diametrically opposite. Instead of a bearish double top, it shows an extremely bullish upsloping double bottom, even eclipsing the prior high of $180/SF. Read my prior "Broward County" post for an in-depth analysis (see the link below). This analysis proves why a superficial top-line univariate trending – despite being the industry standard – is inadequate, particularly in taking informed business decisions. 

Better yet, present the Champ-Challenger Analysis with an expanded percentile curve, preferably between the 5th and 95th percentiles, thus ignoring the outliers (to having to manually validate the sales for this project). As you stack up the monthly percentile curves, any shift in the demand pattern will also stand out (the median alone won't show that). 

If you submit these two analyses side by side to your bosses, you will become a highly sought-after analyst - in no time!

Good Luck!

- Sid Som, MBA, MIM

President, Homequant, Inc.

Thursday, July 19, 2018

Homequant Offers Excel Pivot Table Service

(Click on the image to enlarge)

A Ratio-based Spatial Graphic is a Good Starting Point to Analyze Assessment Equity

(Click on the image to enlarge)

Since the Median Countywide Sales Ratio points to a ratio of .80, all Towns in this County must be valued close to this ratio (assuming, of course, a countywide uniform assessment statute) so that the Assessment Roll becomes fair and equitable.

While one would expect to see all Blue and Green balloons (legends on top right) on the spatial chart above, many Red and Yellow ones - even side by side - exist, indicating the presence of some seemingly serious under and over-assessed parcels. This scenario is quite normal as - more often than not - similar properties in the same neighborhood do not necessarily sell for the same price, which, in turn, introduces (visual) conflicts amongst individual ratios.

That is why Town-wise statistical summaries are always better front-line indicators. Of course, if an arms-length subject sale significantly deviates from its Town's, it may require a re-examination.    

Obviously, sales must be individually validated and the outliers removed from the sales universe. Better yet, those sales should then be modeled (AVM applied) and the resulting model-defined outliers removed as well, thus paving the way for a more scientific universe of ratio-eligible sales.

I picked the above graphic from TownAnalyst.com as I own and operate it, to avoid having to deal with any copyright issues. My TownAnalyst site is totally free (no strings) and requires no login or registration whatsoever. Please use the assessment evaluation system that works best for you.


Disclaimer: This analysis is strictly illustrative. Any commercial or legal use of it is totally prohibited. Always consult a Tax Attorney on statutory requirements.

Wednesday, July 18, 2018

ChefQuant Offers Restaurant Data Analytics and Modeling

How to Bail out the Ailing Local Governments

Bailing out the Ailing Local Governments

Need a total re-invention of the Local Governments, in line with the private sector.
1. Replace the existing Pension system with a 403 Matching System (match up to 6%), thereby preventing any unfunded liability. Unfunded liability poses serious financial threats to many state and local governments.
2. ​All Paid Time (Vacation, Sick, Personal days, etc.) must be reset each year (use it or lose it). No carry over! Though sounds trivial, this causes a serious problem to many large municipalities, especially when the exit door gets crowded.
3. All Overtime and Comp Time must also carry the same annual reset, with no cash conversion whatsoever! This adds more fuel to the regulation (#3) fire. At least, the carryover needs to be nipped in the bud. 
4. Introduce Mandatory Retirement at age 67 (when Social Security and Medicare come into effect), with an incentive to retire early at age 62 (as the first SS qualification). Make cheaper forms of healthcare (e.g., HMO) free for the retirees, upping the ante (retiree contributions) for the non-HMO healthcare insurances. Unions must co-share retiree (who contributed to the unions for a period of time) premiums with the government. 
5. Minimize Civil Service hiring. Use "Temps" to fill seasonal requirements and "Leased" employees to cater to the long-term requirements.
6. Outsource! Outsource! Outsource! Start outsourcing all non-essential services including analytics/modeling, research, assessment, appeals review, data collection, etc. (those private vendors face true competition in the marketplace so they are forced to hire the best and the brightest, hence much better value to the taxpayers!).
7. Take away all decision-making powers from the senior Government employees (pertaining to high value projects, outsourcing, etc.), minimizing fraud, nepotism and post-retirement revolving door options. Establish and empower public-private committees to vet and award such projects and contracts. 
8. All Civil Service Interviews must be conducted by a duly elected/selected external body (Professors, CEOs, EVPs, SVPs, Trade Association Chiefs, etc.), with right to reject ALL (needed!).
9. All Civil Service jobs requiring a college degree must have two-part tests: Part-1: College level Math & English, leading to Part-2: Regulation. Even re-qualification exams (say every five years) could be considered (Civil Service must not be a lifetime entitlement). 
Of course, the counter case could be equally compelling. As long as these governments have unrestricted access to the "eternal" cash cow called homeowners, none of this might matter. Yet, the local governments must fight to institute these changes. For too many, it's already a race against time!  

-- Sid Som, MBA, MIM
President, Homequant, Inc.

Link to the Book

Tuesday, July 17, 2018

How to Turn LinkedIn into an Effective B2B Marketing Tool

How to Turn LinkedIn into an Effective B2B Marketing Tool

1. Choose contacts very carefully (no family and friends here), zeroing in on the decision-makers. For example, if you offer financial services to banks and other financial institutions, constrain your re/search to the decision-making vertical, i.e., VP-SVP-EVP

    2. Expect 20-30% effectiveness. Could be higher or lower depending on the mutual interest and compatibility. Regardless, try to align with the decision-makers. 

3. Contribute frequently, preferably daily. Content is king so do not waste time on unrelated issues/themes (stick to your business and competition). Instead of sharing articles from various news agencies, place your own articles and commentaries so your business stands out. Originality is greatly rewarded. 

 4. Unless specifically requested, avoid all direct marketing. Do not spam your contacts with unsolicitated literature. It's a serious turn-off for the busy business people.  

 5. Define the target population you would like to achieve within a specified timeframe. High-water mark is critical. Quality is more important than quantity; for instance, 1,000 vertical-level decision-makers (quality) are more valuable than 2,000 random bankers (just quantity), most of whom are non-decision makers. Set a timeframe, say within 6 months, to achieve this goal. Spend an hour each night – religiously – reviewing candidate profiles and sending out invites.

 6. As liquidity increases, intensify your marketing efforts. At the end of the day, it's a numbers game. 1-2% effectiveness becomes significant when the underlying population is large and impactful. In other words, if you have a contact population of 3,000 decision-makers, 1% response rate (or 30 leads per day) is significant – initially!

 7. Considering it's a "100% targeted" environment, minimize the use of automated or impersonal campaigns. Instead of placing a marketing flyer in front of your contacts, write a meaningful introductory piece, followed by a set of links to your flyers. When leads are self-enticed (after having read your piece), they are already half-sold.     
          8. Just the way you would grow your business, keep your LinkedIn base growing as well. The growth pattern must be collinear, meaning they must grow in tandem (as they complement each other). As your base grows, you will receive more requests. Remember, it’s your business so do not unnecessarily relax your acceptance rules. On the contrary, now that your base is liquid, try to tighten it a bit. For example, roll up your original VP-SVP-EVP vertical to SVP-EVP now.

 9. Finally, here is an optional consideration – an exception (to the stringent acceptance rule) I personally follow. Now and then, when I receive requests from certain rule-breaking yet deserving candidates like the mothers trying to return to work, new STEM graduates looking for jobs, etc., I wholeheartedly welcome them into the network.

    Good Luck!

    Sid Som, MBA, MIM
    President, Homequant, Inc.