Saturday, December 15, 2012

Where does the interest lie in Canadian universities?

If the Internet searches conducting in Canada are an indicator, it appears that Brock University and Ryerson University are leading the number of searches conducted in Canada in comparison with other institutions namely Waterloo University, McGill University, and Concordia University.

These trends suggest that a large interest has developed in the newer institutions of higher learning in Canada, i.e., Brock and Ryerson, while the more established institutions may face some competition in attracting talent.


Saturday, October 13, 2012

Taliban attack a 14-year old in Pakistan

It is hard to believe that men armed with sophisticated weapons would be afraid of a 14-year old. The 14-year old Malala was shot in the head by the Taliban on her way back from school. Malala Yousafzai has been the most vocal supporter of equal education rights for girls in Pakistan.

I spoke with Steve Paikin in Toronto, Canada, about what the attack on Malala meant for Pakistan. The interview can be watched here.


More about Malala is available at:

Monday, September 3, 2012

Research support specialist position at Ryerson University

The Ted Rogers School of Management at Ryerson University in Toronto has an opening for a research support specialist to assist with monitoring current research projects and to provide assistance with econometric/statistical analysis and training.

Required qualifications:
  • Completion of a Bachelor in economics, statistics, economic geography, or quantitative psychology with experience in programming and data analysis. Master degree in the mentioned areas is a very strong asset.
  • Extensive coursework in econometrics and statistical analysis is preferred.
  • 3+ years work experience in applied analytics involving econometrics and statistical analysis.
  • Experience in research monitoring and budget management.
  • Knowledge of advanced statistical analysis, such as SAS, Stata, Eviews, R, SPSS, or LimDep is required. Proficiency with advanced statistical and econometrics techniques required.
Further details are available at:

Monday, July 30, 2012

Big data, big analytics, big opportunity

Data, data, every where
Nor any byte to think

The world today is awash with data. Corporations, governments, and individuals are busy generating petabytes of data on culture, economy, environment, religion, and society.  While data has become abundant and ubiquitous, data analysts needed to turn raw data into knowledge are in fact in short supply.

With big data comes big opportunity for the educated middle class in the developing world where an army of data scientists can be trained to support the offshoring of analytics from the western countries where such needs are unlikely to be filled from the locally available talent.

In a 2011 report, McKinsey Global Institute revealed that the United States alone faces a shortage of almost 200,000 data analysts. The American economy requires an additional 1.5 million managers proficient in decision-making based on insights gained from the analysis of large data sets. And even when Hal Varian, Google’s famed chief economist, profoundly proclaimed that “the real sexy job in 2010s is to be a statistician,” there were not many takers for the opportunity in the West where students pursuing degrees in statistics, engineering, and other empirical fields are small in number and are often visa students from abroad.

A recent report by Statistics Canada revealed that two-thirds of those who graduated with a PhD in engineering from a Canadian University in 2005 spoke neither English nor French as mother tongue. Similarly, four out of 10 PhD graduates in computers, mathematics, and physical sciences did not speak a western language as mother tongue. Also, more than 60 per cent of engineering graduates were visible minorities, suggesting that the supply chain of highly qualified professional talent in Canada, and to a large extent in North America, is already linked to the talent emigrating from China, Egypt, India, Iran, and Pakistan.

The abundance of data and the scarcity of analysts present a unique opportunity for developing countries, which have an abundant supply of highly numerate youth who could be trained and mobilized en masse to write a new chapter in offshoring. This would require a serious rethink for thought leaders in developing countries who have not taxed their imaginations beyond thinking of policies to create sweat shops where youth would undersell their skills and see their potential wilt away while creating undergarments for consumers in the west. The fate of the youth in developing countries need not be restricted to stitching underwear or making cold calls from offshored call-centers in order for them to be part of the global value chains. Instead, they can be trained as skilled number-crunchers who would add value to otherwise worthless data for businesses, big and small.

A multi-billion dollar industry

The past decade has witnessed a major change in the sectorial evolution of some very large manufacturing firms known in the past for mostly hardware engineering and now evolving into firms delivering services, such as business analytics. Take IBM for example, which specialized as a computer hardware company producing servers, desktop computers, laptops, and other supporting infrastructure. That was IBM’s past. Today, IBM is focused on analytics. It is spending hundreds of millions of dollars in advertising, trying to rebrand itself as a leader in business analytics. In fact, it has divested from several hardware initiatives, such as manufacturing laptops, and has instead spent billions in acquisitions to build its analytic credentials. For instance, IBM has acquired SPSS for over a billion dollars to capture the retail side of the Business analytics market. For large commercial ventures, IBM acquired Cognos to offer full service analytics.

In 2011 alone, the business analytics software market was worth over $30 billion. Oracle ($6.1bn), SAP ($4.6 bn), IBM ($4.4 bn), and Microsoft and SAS each with $3.3 bn in sales led the market. It is estimated that the sale of business analytics software alone will hit $50 billion by 2016.  Dan Vesset of IDC, a company specializing in watching industry trends, aptly noted that business analytics had “crossed the chasm into the mainstream mass market” and the “demand for business analytics solutions is exposing the previously minor issue of the shortage of highly skilled IT and analytics staff.”

In addition to the bundled software and service sales offered by the likes of Oracle and IBM, business analytics services in the consulting domain generated several billion dollars more worldwide. While the large firms command the lion’s share in the analytics market, the billions left at the bottom are still a large enough prize to take the analytics plunge.

Several billion reasons to hop on the analytics bandwagon

While the IBMs of the world are focused largely on large corporations, the analytics needs for small and medium-sized enterprises (SMEs) are unlikely to be met by IBM, Oracle, or other large players. Cost is the most important determinant. SMEs prefer to have analytics done on the cheap while the overheads of the large analytics firms run into millions of dollars thus pricing them out of the SME market. With offshoring comes the access to affordable talent in developing countries who can bid for smaller contracts and beat the competition in the West on price, and over time on quality as well.

The trick therefore, is to beat the IBMs of the world in the analytics game by not competing against them. Realizing that business analytics is not a market, but an amalgamation of several types of markets focused on delivering value-added services involving data capture, data warehousing, data cleaning, data mining, and data analysis, developing countries can carve out a niche for themselves by focusing exclusively on contracts that large firms will not bid for because of their intrinsic large overheads.

Leaving the fight for top dollars in analytics to top dogs, a cottage industry in analytics could be developed in the developing countries that may strive to serve the analytics need of SMEs. Take the example of the Toronto Transit Commission (TTC), Canada’s largest public transit agency with annual revenues exceeding a billion dollars. When TTC needed to have a large database of almost a half million commuter complaints analyzed, it turned to Ryerson University, rather than a large analytics firm. TTC’s decision to work with Ryerson University was motivated by two considerations. First the cost; as a public sector university, Ryerson believes strongly in serving the community and thus offered the services for gratis. The second reason is quality. Ryerson University, like most similar institutions of higher learning, excels in analytics where several faculty members work at the cutting edge of analytics and are more than willing to apply their skills to real life problems.

Why now?

The timing had never been better to undertake such an endeavor on a very large scale. The innovations in Information and Communication Technology (ICT) and the ready availability of the most advanced analytics software as freeware allows entrepreneurs in developing countries to compete worldwide. The Internet makes it possible to be part of global marketplaces with negligible costs. With cyber marketplaces such as Kijiji and Craigslist individuals can become proprietors offering services worldwide.

Using the freely available Google Sites, one can have a business website online immediately at no cost.Google Docs, another free service from Google, allows one to have a web server for free to share documents with collaborators or the rest of the world for free. Other free services, such as Google Trends, allow individual researchers to generate data on business and social trends without needing subscriptions for services that cost millions. The graph below is generated using Google trends showing daily visits to the websites of leading analytics firms. Without free access to such services, access to the data used to generate the same graph would carry a huge price tag.

Similarly, another free service from Google allows one to determine, for instance, which cities registered the highest number of search requests for ‘business analytics’. It appears that four of the top six cities where analytics are most popular are located in India, which is evident from the following graph where search intensity is mapped on a normalized index of 0 to 100.

The other big development of recent times is freeware that is leveling the playing field between haves and have-nots. In analytics, one of the most sophisticated computing platforms is R, which is available for free. Developers worldwide are busy developing the R platform, which now offers over 3,000 packages for free for analyzing data. From econometrics to operations research, R is fast becoming the lingua franca for computing. R has evolved from being popular just amongst computing geeks to having its praise sung by the New York Times.

R has also made some new friends, especially Paul Butler, a Canadian student who became a worldwide sensation by mapping the geography of Facebook. While being an intern at Facebook, Paul analyzed gigabytes of data to plot how Facebook’s friends were linked globally. His map (see the image below) became an instant hit worldwide and has been reproduced in publications thousands of times. If you are wondering what software Paul used to generate the map, wonder no more, the answer is R.

R is fast becoming the preferred computing platform for data scientists worldwide. For decades the data analysis market was ruled by the likes of SAS, SPSS, Stata and other similar players. R has taken over the imagination of data analysts as of late who are fast converging to R, especially after R’s ability to interact with Hadoop (another open source platform) for analyzing big data . In fact, most innovations in statistics are first coded in R so that the algorithms become available to all immediately and for free.


The fact that R is freely available should not be taken lightly. A commercial license of a similarly equipped version of SPSS may cost up to US$7,500. The other big advantage of using R is the fact that thousands of training documents on the Internet and videos on YouTube are also available for free by volunteers.

Where to next

The private sector has to take the lead for business analytics to take root in developing countries. The governments could also have a small role in regulation. However, the analytics revolution has to take place not because of the public sector, but in spite of it. Even public sector universities in developing countries cannot be entrusted with the task where senior university administers do not warm up to innovative ideas unless they involve a junket in Europe or North America. At the same time the faculty in public sector universities in developing countries is often unwilling to try new technologies.

The private sector in developing countries may want to launch first an industry group that takes upon the task of certifying firms and individuals interested in analytics for quality, reliability, and ethical and professional competencies. This will help build confidence around national brands. Without such certification, foreign clients will be apprehensive to share their proprietary data with individuals hidden behind computer monitors thousands of miles away.

The private sector will also have to take the lead in training a professional workforce in analytics. Several companies train their employees in the latest technology and then market their skills to clients. The training houses would therefore also double as consulting practices where the best graduates may be retained as consultants.

Small virtual marketplaces could be setup in large cities where clients can put requests for proposals and pre-screened, qualified bidders can compete for the contract. The national self-regulating body will be responsible for screening qualified bidders from its vendor-of-record database, which it would make available to clients globally through the Internet.

The IBMs of the world see the analytics market to hit hundreds of billions in revenue in the next decade. The abundant talent in developing countries can be polished into a skilled workforce to tap into the analytics market to channel some revenue to developing countries while creating gainful employment opportunities for the educated youth who have been reduced to making cold calls from offshored call centers.

Saturday, June 30, 2012

Reverse brain drain: Chinese MBA programs lure Western students, faculty

It use to be, and continues to be to a large extent, that Chinese students will land in North America or Europe pursuing higher education. The trends ar fast changing. China is now attracting students and faculty from North America.

This makes sense to a large extent. The professors in North America are delaying retirement resulting in a large number of unemployed PhDs searching for openings. Chinese universities could be the prefect launching pad for such faculty. At the same time, privatized MBAs have become prohibitively expensive without offering any real differentiation or competitive advantage. Chinese MBAs could be good place to learn about doing business in China than paying $100,000 to a North American university for similar course contents!

Chinese MBA programs lure Western students, faculty - The Globe and Mail

Tuesday, June 26, 2012

Workshop on Structural Equation Models

The Ted Rogers School of Management at Ryerson University is offering a one-day, hands–on workshop on Structural Equation Modelling. The workshop focuses on SEM theory and applications using R and Amos.

Instructors: Professor Richard Michon and Christine Buske

When: July 11, 2012 (8:30 to 3:30 pm)

Where: TRS 3-099 (55 Dundas Street West, 9th floor)

RSVP: Christine Buske (

Friday, May 25, 2012

Why Indian immigrants earn higher than others in America?

Immigrants born in India outdo others in achieving economic success in the Untied States. At the same time, Pakistan-born immigrants, while trailing behind Indians, do better than the native-born Americans. While both immigrant groups originate in South Asia, huge disparities in their economic success exist in the US that needs further exploration.

The estimates reported in the 2010 American Community Survey revealed that the median salaried household income of India-born immigrants was around $94,700. In comparison, the median household income of native-born Americans was estimated at $51,750. Unlike the Pakistan-born immigrants in Canada, who lagged behind others in economic prosperity, Pakistanis in America are relatively thriving where the median household income of Pakistan-born immigrants is 18% higher than that of the native-born Americans.

The American Community Survey for 2010 (latest data available from the US Census Bureau) reveal that amongst South Asians living in the US, India-born immigrants are far ahead of Pakistanis, Bangladeshis, and Afghanis. Even when compared with immigrants from Egypt, a country known for supplying highly educated immigrants to the US, Indians report exceptionally higher indicators of economic progress.


Source: American Community Survey, 2010

Indian-born immigrants also reported one of the lowest poverty rates at 4%. Afghanistan-born immigrants reported the highest poverty rate where one in five Afghan immigrants was deemed below the poverty line in the US. While Pakistan-born immigrants reported higher median household incomes than the native-born Americans, surprisingly 14% of the Pakistan-born immigrants were below the poverty line compared to only 9.4% of the native-born Americans.

Another indicator of financial distress amongst households in North America is the percentage of household income spent on gross rent. Households spending 30 percent or more of household income on rent are considered financially distressed. Amongst households who live in rental units, 57% of the immigrants from Pakistan, Bangladesh, and Egypt spent more than 30% of the household income on rent compared to only 24% of immigrants from India.


Source: American Community Survey, 2010

These poverty statistics raise several questions. For instance, despite having similar South Asian heritage, Pakistan-born immigrants report a 2.4-times higher rate of poverty than their Indian counterparts. Furthermore, poverty among younger cohorts (18 years old or younger) is even worse amongst immigrants from Pakistan than from India. At the same time almost 50% of under-18 Afghan immigrants are reportedly below the poverty line in the US. These statistics necessitate the need to explore the reasons behind disparities amongst immigrants from South Asia.

I am presenting here a socio-economic comparison of South Asians in the US. I have restricted the reporting to immigrants from India, Pakistan, Bangladesh, and Afghanistan. This is done because India, Pakistan, Bangladesh, and to some extent Afghanistan have more in common in culture and recent history than other countries in South Asia. I have thrown in Egypt for good measure to serve as a control for immigrants from another Muslim country with a different cultural background.

The purpose of this comparative review is to determine what are the reasons behind the success of India-born immigrants in the US. Could it be that the immigrants from India had luck on their side, or could it be that Indian immigrants possessed the necessary ingredients to succeed in the highly competitive labour market in the United States. More importantly, one needs to explore why immigrants from Pakistan and Bangladesh lag behind those from India in achieving the same levels of economic success.

The immigrant wage gaps have been a focus of several studies in the past. A whole host of theories have been forwarded to explain why such gaps exist. For instance, Nielsen and others (2001) suggest that such gaps exist because of lack of adequate qualifications and assimilation of immigrants in the mainstream. They believe that a “large fraction of that gap would disappear if only immigrants could find employment and thus accumulate work experience.” Aldashev and others (2008) found that the immigrant wage gap in Germany was lower for those who studied in Germany suggesting that improving education in Germany improves immigrants’ income prospects.

Sizing the South Asians

With approximately 1.8 million individuals, India- born immigrants form the largest cohort amongst South Asians in the US. The American Community Survey (ACS) in 2010 estimated Pakistan-born immigrants at 300,000, Bangladesh-born immigrants at 153,000, and Afghanistan-born immigrants at 60,000. Egypt-born immigrants totalled 133,000. Immigrants from India were approximately six-times the size of Pakistan-born immigrants. The relatively large size of Indian immigrants leads to larger social networks, which help with searching for better employment prospects.

Despite their large size, most India-born immigrants in the US are recent arrivals. Whereas 47% of the India-born immigrants arrived in the US after 2000, only 36% of the Pakistan-born immigrants arrived after 2000. This suggests that the economic success of immigrants from India is driven by the recent arrivals. Relatively speaking, immigrants from Afghanistan have enjoyed the longest tenure in the US of all South Asian countries discussed here. Notice that while 42% of immigrants from Afghanistan arrived in the US before 1980, only 25% of the Indian immigrants accomplished the same.


Source: American Community Survey, 2010

Pakistanis have larger families

With 4.3 persons per households, immigrants from Pakistan and Afghanistan reported significantly larger family sizes. In comparison, the native-born population reported a household size of 2.6 persons whereas the size of India-born immigrant households was around 3.5 persons. The difference between immigrants from India and other South Asians is more pronounced when one looks at the per capita earnings. Owing to their smaller household size, immigrants from India reported significantly higher per capita incomes than the rest. For instance, Bangladesh-born immigrants reported 50% less in median per capita income than those from India. And while immigrants from Pakistan reported higher household incomes than the immigrants from Egypt, the larger household size of Pakistan-born immigrants brought their per capita incomes lower than that of Egyptians.

Larger household size results in overcrowding, especially amongst low-income households, who often live in rental units. The average household size of rental households from Pakistan was found to be 33% larger than the same from immigrants from India. 15% of households from Pakistan were found to have more than one occupant on average per room compared to only 6% of those from India.

Women in the Labour Force

A key source of distinction between the immigrants from India and other South Asians is the higher participation of Indian women in the labour force. A much higher integration of women in the labour force is one of the reasons why immigrants from India have fared much better than others in the United States. Consider that only 42% of the women from Pakistan were active in the labour force in the US compared to 57% women from India. In fact women from Pakistan reported the lowest participation in the labour force in the US falling behind women from Egypt, Afghanistan , and Bangladesh.

Education Matters the Most

It should come as no surprise that immigrants from India are one of the most educated cohort in the United States. Almost 42% of immigrants from India over the age of 25 reported having a graduate (Masters) or a professional degree. In comparison, only 10% of the native-born adults reported having a graduate or professional degree. Approximately 23% of adult immigrants from Egypt and Pakistan reported having a graduate or professional degree.

The correlation between higher education attainment and higher median household incomes is explicitly presented in the graph below. India-born immigrants with professional degrees also reported significantly higher incomes than the rest. In comparison, immigrants from Afghanistan with one of the lowest incidence of professional degrees reportedly the lowest median household incomes.


Source: American Community Survey, 2010

The gender divide is again instrumental between immigrants from India and the rest. Whereas 70% of the India-born female adults reported having a Bachelors degree or higher, only 46% of adult females born in Pakistan reported the same in the US. At the same time only 28% of the native-born female adults in the US reported completing university education.

Better Education Better Careers

The education attainment levels amongst adult immigrants determine, to a large extent, their career choices. University education resulting in professional or graduate degrees allows immigrants to qualify for well-paying jobs in the US. Immigrants from India have been able to use their high-quality education to make inroads in the high-paying employment market. One is therefore hardly surprised to see that of the adult employed population, 70% immigrants from India are working in occupations focussing on management, business, science, and arts. In comparison, only 44% of immigrants from Pakistan ad 33% immigrants from Bangladesh are employed in similar occupations.

What Have We Learnt

"Give me your tired, your poor,

Your huddled masses yearning to breathe free,

The wretched refuse of your teeming shore.

Send these, the homeless, tempest-tost to me,

I lift my lamp beside the golden door!"

In 1883, Emma Lazarus asked for the tired, the poor, and the wretched refuse. India instead sent its very best to the United States. Instead of the huddled masses, graduates from Indian Institutes of Technology and Management arrived in hundreds of thousands at the American shores. These immigrants were products of a sophisticated higher education system whose foundations were laid by Pandit Nehru in early fifties.

In the rest of South Asia, especially in Pakistan and Bangladesh, education has never been a national priority. The results of such conflicting priorities are obvious. Graduates from Indian universities are outdoing others in competitive labour markets at home and abroad.

If education is not made a national priority, the gap between Indians and other South Asians will grow at home and in diaspora.


Helena Skyt Nielsen & Michael Rosholm & Nina Smith & Leif Husted, 2004. "Qualifications, discrimination, or assimilation? An extended framework for analysing immigrant wage gaps," Empirical Economics, Springer, vol. 29(4), pages 855-883, December.

Alisher Aldashev & Johannes Gernandt & Stephan L. Thomsen, 2008. "The Immigrant Wage Gap in Germany," FEMM Working Papers 08019, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.

Wednesday, May 16, 2012

Pakistani-Canadians: Falling below the poverty line

Pakistan-born immigrants are the new face of poverty in urban Canada. The Canadian census revealed that 44% of the Pakistan-born immigrants fell below the poverty line making them the second most poverty prone group of immigrants in Canada.

While they may project an aura of opulence during their visits back home, their life in Canada however is often full of struggle and frustration. Thousands of Pakistani trained engineers, doctors, and PhDs are driving taxis or are working as security guards in large cities. In fact, one in three taxi-drivers in Canada was born in either India or Pakistan. Several others are unemployed thus becoming a burden on Canadian taxpayers.

Majority of Pakistan-born immigrants (63%) live in and around Toronto, whereas another 22% live in Montreal, Calgary, Vancouver and Edmonton.

The latest Census data for income are available for 2005, which revealed that Pakistan-born immigrants reported the second highest incidence for the low-income cut-off, a proxy for poverty line in Canada. In comparison, only 18% of India-born immigrants in Canada reported being a low-income person or belonging to a low-income economic family. Immigrants born in the United Kingdom, Portugal, Italy, and Germany reported the lowest incidence of poverty in Canada.


Source: 2006 Public Use Microdata File, Statistics Canada

Research on Canadian immigrants has shown that recent immigrants, i.e., those who have arrived in the past two years, are the ones earning significantly less than the Canadian average (Pico, Hou, and Coulombe, 2007). The authors speculated that the “downturn in the technology sector after 2000 might be a partial explanation, as the share of entering immigrants in information technology (IT) and engineering occupations rose dramatically over the 1990s.” Immigrant earnings improve over time as immigrants assimilate and develop social networks that help them broaden their job searches (Xu, 2002). However, this has happened at a much smaller rate for Pakistan-born immigrants.

Unlike in the Middle East where the Arab governments do not allow assimilation of migrant workers, the Canadian government and the society to a large extent does not create systematic barriers that may limit immigrants’ ability to succeed and assimilate in Canada. This is not to suggest that immigrants face no barriers at all in Canada. They in fact do. For instance, Pakistan-trained doctors cannot practice medicine without completing further training in Canada. The shorter duration of medical training in Pakistan necessitates the additional certification for doctors. Engineering graduates from Pakistan, however, face no such barrier because the engineering curriculum and the duration of training in Pakistan is similar to that in Canada.

Despite the opportunities (and constraints), Pakistani-Canadians did not prosper as much as immigrants from other countries did. In 2005, wages earned by Pakistan-born immigrants were on average 70% of the wages earned by those born in Canada. In comparison, wages earned by the India-born immigrants were 86% of the wages earned by Canadians. At the same time, immigrants born in America earned 20% more in wages than those born in Canada. Similarly, UK-born immigrants also reported on average higher wages than that of Canadian-born.


Source: 2006 Public Use Microdata File, Statistics Canada

Because of lower wages, Pakistan-born immigrants reported one of the lowest home-ownership rates. Only 55% of the Pakistan-born immigrants reported owning their homes. In comparison, 75% of the India-born immigrants owned their homes. At the same time, while only 12% of the India- and Philippines-born immigrants had never worked in the past, 22% of the Pakistan-born immigrants in Canada reported never being in the workforce.

The difference in wages, homeownership rates, and employment rates between immigrants from India and Pakistan extend beyond the economic spheres. For instance, Pakistani-born immigrants live in large-sized families. Whereas only 13% of India-born immigrants live in households of five persons or more, 44% of the Pakistan-born immigrants live in households with five or more people. Given the lower wages, high unemployment rates, and rental units, Pakistan-born immigrants experience severe crowding at homes where number of residents per room is perhaps the highest owing to the large family sizes. Furthermore, larger family size of Pakistan-born immigrants does not necessarily result in higher family income than India-born immigrants, as is evident from the graph below.


Source: 2006 Public Use Microdata File, Statistics Canada

Given similar cultural endowments, education, and language skills, it is important to explore why Pakistan-born immigrants in Canada have lagged behind their Indian counterparts. The Indian diaspora is much larger in size and has been established in Canada for over a longer period, which has allowed immigrants from India to benefit from the social networks required to establish oneself in employment markets.

While immigrants from Pakistan lack the social networks necessary for success with employment, I would also argue that they suffer from a self-imposed identity crisis. After arriving from Pakistan, many male immigrants feel threatened by the Canadian liberal values, which empower their children and women. Suddenly the head of the household cannot dictate the way he did in Pakistan. Instead of embracing the change that empowers their families, several male immigrants end up in a hostile standoff with their families that sometimes lasts for decades. At the same time, religious leaders, which are almost always imported from back home to serve in mosques in Canada, preach orthodoxy to the parish, further confusing the struggling males.

With turmoil at home and bleak employment prospects outside, Pakistan-born male immigrants struggle with the decision to stay in Canada or return to Pakistan. Children and wives are often shipped back to Pakistan for prolonged periods while the males continue struggling in the job market. While their children see themselves as Canadians, the Pakistan-born male immigrants spent decades figuring out how to cope with their hyphenated identity, i.e., Pakistani-Canadian.

The limited success of (mostly Asian and African) immigrants in the economic spheres and their modest assimilation in the mainstream Canadian culture has prompted the right-wing groups to launch campaigns against immigration to Canada. While opponents of immigration are mostly naïve and their recommendations to reduce immigration border on lunacy, the fact remains that huge changes in the Canadian immigration policies are already taking place. In Saskatchewan, for instance, the provincial government on May 2 has changed the law that now prohibits immigrants from sponsoring their extended family members unless they secure a “high skill” job offer before arrival.

Since 2001, Pakistan has lost the most in its share of supplying immigrants to Canada. Pakistan was the third largest source of immigrants to Canada in 2001 supplying 6.1% of the total immigrants. However, by 2010 Pakistan’s share of immigrants declined by 71%. Pakistan is no longer even in the top 10 sources of immigrants to Canada. At the same time, the Philippines experienced a 153% increase in its share of immigrants making it the biggest source of immigrants to Canada in 2010.


Source: Citizenship and Immigration Canada

While there is no shortage of applicants in Pakistan, it is hard to establish the precise reason for the declining number of immigrants. It could be that the dismal performance of Pakistan-based immigrants may have prompted the government to reduce the intake from Pakistan. It may also be true that the exponential increase in violence and militancy in Pakistan may have made the task of verifying credentials and identifying future citizens much more difficult.

Over the next 50 years Canada will need millions more immigrants. The current and expected fertility rates in Canada suggest that immigration is the only possible way of ensuring enough workers needed for economic growth and to keep solvent Canada’s security net. Pakistan-born immigrants had the chance to excel in Canada and pave the way for future generations of enterprising immigrants. Instead, Pakistan-born immigrants became the face of Canada’s urban poverty. Their dismal performance in Canada and the spread of religious fanaticism back home will most likely result in even a greater decline in immigration to Canada from Pakistan.


Picot, Garnett; Hou, Feng; Coulombe, Simon, 2007. "Chronic Low Income and Low-income Dynamics Among Recent Immigrants," Analytical Studies Branch Research Paper Series 2007294e, Statistics Canada, Analytical Studies Branch.

Kuan Xu, 2002. "Converging at the Bottom of the Income Distribution? Assimilation of Immigrant Cohorts over Time," Department of Economics at Dalhousie University working papers archive, Dalhousie, Department of Economics.

Thursday, May 10, 2012

Online learning in law schools

This is indeed a first: a completely online masters degree in Law. The North American schools are way behind on capitalizing the true potential of online education. There are hundreds of thousands of students waiting to enlist in Asia, Latin America, and Africa.It does not look like Canada is ready to embrace the potential ...

Law School Plans to Offer Web Courses for Master’s By

The law school of Washington University announced Tuesday that it would offer, entirely online, a master’s degree in United States law intended for lawyers practicing overseas, in partnership with 2tor, an education technology company.

Legal education has been slow to move to online classes, and the new master’s program is perhaps the earliest partnership between a top-tier law school and a commercial enterprise.

“We don’t know where the students are going to come from exactly, but we believe there is demand abroad for an online program with the same quality that we deliver in St. Louis, accessible to people who can’t uproot their lives to come to the United States,” said Kent D. Syverud, the dean of the law school, which currently offers students on campus a Master of Law degree, or LL.M., in United States law for foreign lawyers. “It’s not designed to prepare students for the bar exam.”

Law School Plans to Offer Web Courses for Master’s -

Wednesday, May 2, 2012

The futile politics Osama and Islamist parties

A year after his assassination in Abbottabad, Osama bin Laden is as irrelevant today to the welfare of millions of starving and suffering Muslims as he was when alive. The same holds true for almost all Islamist political movements who are singularly concerned with enforcing their ideologies on the often unwilling Muslim populace while these movements having no plans for alleviating poverty, hunger, and disease.

Last year when I learnt of Mr. bin Laden's assassination, I headed straight to the Parliament in Islamabad to report on the mass protests that many had predicted would erupt in case of such an eventuality. I walked up and down the Constitution Avenue but did not spot a single protester. I visited the Lal Masjid, the fundamentalist hotbed in the centre of Islamabad, hoping to capture some action there. Again, there was nothing to report. After walking through the Capital for hours I realized that there may not be any mass demonstrations to protest against Mr. bin Laden's sudden demise.

In the weeks following Mr. Bin Laden's death hardly any protests were witnessed anywhere in the Muslim majority countries. Unbeknown to most political pundits (especially in the west), Mr. bin Laden had gradually become a nonentity to the ordinary Muslims who have been busy fighting a losing battle against food price inflation, violence, and hunger. Whereas the majority of Indonesians and Pakistanis held a favourable view of Mr. bin Laden during 2002-2005, his popularity declined significantly in most Muslim majority countries by 2011.


Source: Pew Global Attitudes Project

In the recent past religious (Islamist) parties active in the political arena have advocated using force to impose their ideologies on the populace and have evoked religion to mobilize the society against the ‘heretics’ within and the infidels elsewhere. Osama bin Laden followed the same approach. He evoked Islam to mobilize the Pashtun and Arab youths to fight first against the Soviet Union and later against America and its allies. His protégés, including the Afghan Taliban, followed the same ideology while brutally enforcing their puritan version of Islam where armed men entrusted themselves to hold sway over matters regarding vice and virtue. The Islamists projected public executions and flogging of men, women, and children as the ‘true’ face of Islam.

Similar to the Taliban, the Islamists, regardless of being in Pakistan or elsewhere, are almost always busy creating mass hysteria about the ‘infidels’ killing and pillaging through the Muslim lands. Hence the Islamists are found campaigning for pan-Islamic movements to raise Muslim armies for the doomsday Armageddon between the Muslims and the rest. Islamists not active in the electoral politics propagate this through sermons delivered from the pulpit whereas those active in the electoral politics propagate the same on the floor of the House.

The Islamists' political philosophy almost always is focused on first wrestling the control of governments and militaries from the ‘heretic secularists’ before the Islamists would be able to offer any relief to the populace. Their political manifestos therefore seldom list any policies about what is needed by the masses in the short run. One therefore knows a lot about where the Islamist parties, such as Jamaat-I-Islami, Jamiat-i-Ulama-e-Islam (JUI) and others stand on Kashmir, Israel, and President Obama, but one knows almost nothing about how these parties would address the immediate challenges, such as dengue fever, power shortages, poor water supply and sanitation, and generating employment opportunities for millions of unemployed youth.

For decades Mr. bin Laden lived in countries where poverty, hunger, and disease were the biggest concerns of the poor and disenfranchised. However, despite having access to millions of dollars of his own money and billions more that others would have readily donated, he did not initiate any mentionable projects to address poverty, hunger or disease in Afghanistan, Pakistan, or Yemen. He could have founded hospitals, schools, and vocational training institutes. Instead he sponsored military academies in the most deprived parts of Afghanistan and Pakistan.

If one were to look back at the communities today where Mr. bin Laden had lived in the past 25-odd years, would one see a transformed people with improved access to health and education facilities, or would one see more hunger, disease, and hardship. Had Mr. bin Laden used his celebrity to address poverty, hunger, and disease, he could have transformed the very communities, which hosted him for years.

This lack of imagination also ails most Pakistan-based Islamist parties. Consider JUI, which is an astute Islamist party that has often outsmarted non-religious parties in political manoeuvring. JUI does not have a policy for sanitation, water supply, or primary healthcare. Apart from claims that if elected JUI will fix all of the above, it offers no blueprints or hosts expert panels to debate the same. JUI's central leadership comprising the Rahman brothers could be seen active in Parliament’s standing committees for foreign affairs (Mr. Fazl-ur-Rahman is a member) and Kashmir/religious affairs (Mr. Atta-ur-Rahman is a member) thus conforming to the ideological bend of the most Islamist parties that see all threats being exogenous and the only internal concerns are reserved for vice and virtue.

Jamaat-i-Islami also champions issues that fail to address the immediate challenges faced by the poor in Pakistan. Jamaat’s recent drive against obscenity is one such example of using a red herring to demonstrate street power, command airtime, control political discourse, yet offer no relief to the masses on poor job prospects, or inadequate healthcare and education opportunities.

Jamaat is also a smart political enterprise whose leadership is intimately aware of its limited vote bank in Pakistan that is not sufficient to put the Jamaat in control of the federal government either by itself or in a coalition. The Jamaat uses this almost certain lack of a possibility of a Jamaat-led government to its advantage and spoils the governance for others by promising the world to the electorate. Jamaat's manifesto is therefore filled with promises that other parties with a shot at forming the government cannot match. Since the Jamaat knows it will never have to deliver on its promises, its electoral commitments include an unsustainably high minimum wage in a welfare state that will provide for the basic needs of all. Nowhere in Jamaat’s manifesto is any mention of how these projects, requiring hundreds of billions of dollars, will be financed.

Even the most celebrated Islamists became irrelevant to the masses soon after their death. Who can forget the hundreds of thousands of mourners at the funeral of late General Zia-ul-Haq in August 1988, which suggested to some that his legacy would last well beyond his death. While General Zia’s legacy is alive in Pakistan in the form of religious violence and intolerance, however within a couple of years after his demise his family and a few close friends were the only ones observing his death anniversary.

On the other hand, political, social, and religious reformers in the subcontinent have remained relevant to the masses even decades after their death. Zulfiqar Ali Bhutto’s final resting place in Garhi Khuda Bakhsh is always alive with visitors who shared Bhutto’s political philosophy. The mausoleum of Bulleh Shah in Kasur and Data Darbar in Lahore are evidence of lasting legacies of the reformers who have remained relevant to their followers.

A few decades from today few will remember, if at all, that on May 2, 2011, Osama bin Laden was assassinated in Abbottabad. However, most will remember the several thousand victims of religious extremists who followed in Mr. bin Laden’s footsteps.

Tuesday, April 24, 2012

Does time series econometrics predict anything?

Does time series econometrics predict anything? Not much if you ask Nassim Nicholas Taleb. He is of the view that one should throw away the past five decades of probability based models. More from Taleb is reproduced below:

"Throw Out the Probability Models

Nassim Nicholas Taleb, a former derivatives trader, is a distinguished professor of risk engineering at Polytechnic Institute of New York University. He is the author of "The Black Swan: The Impact of the Highly Improbable."

After the events that started in 2007 and the subsequent reactions by economists, anyone who takes the current economics establishment seriously needs to spend time in a sanatorium.

We would have great jumps in knowledge if we avoided teaching these models, and replaced them with anything, even gardening classes.
This does not mean we should write off the entire body of knowledge. By now, we can see what works and what does not work. Simply, a certain class of consequential rare events, what I’ve called “black swans,” are not predictable and their probabilities unmeasurable, so anything that relies on a computation of the probability of these events should go out of the window. Now. Such models induce fragilities and bring harm. We're better off with no model than with a defective model, something people understand intuitively, but they tend to forget when they don’t have “skin in the game.” If you are a passenger on a plane and the pilot tells you he has a faulty map, you get off the plane; you don’t stay and say “well, there is nothing better.” But in economics, particularly finance, they keep teaching these models on grounds that “there is nothing better,” causing harmful risk-taking. Why? Because the professors don’t bear the harm of the models.

The good news is that those models that miss rare events also break down when one introduces a higher layer of uncertainty into them, called “parameter uncertainty”. This gives us a fault detection mechanism. What goes out of the window? The entire discipline of modern finance and portfolio theory (the theories named after Harry Markowitz, William Sharpe, Merton Miller), the model-based methods of Paul Samuelson, much of time series econometrics (which don’t appear to predict anything), along with papers and theories that are based on “optimization.” These bring fragility into the system. So, simply, we would have great jumps in knowledge if we avoided teaching these models, and replaced them with anything, even gardening classes.

But the broad principles of economics survive such expurgation. We should just ignore much of what has happened in the past half-century of trying to be too sophisticated with quantitative and probability-based models, ending up in dangerous pseudo-science."

UBC Sauder revamps MBA curriculum

Experiential learning comes full-force to UBC's Sauder school of Business. In a completely revamped curriculum, MBA students will engage in "hands-on learning, global immersion and integration of business disciplines for a “360-degree” management perspective." More on the revamped curriculum is available HERE.

Sunday, April 22, 2012

An MBA in urban management by TERI University

After hundreds of specializations ranging from finance to not profit, finally a University in India is launching an MBA in urban management. TERI University, with a long term interest in environmental management, has decided to launch an MBA in urban management. Read more HERE.

Tuesday, April 17, 2012

New York City’s Poverty Rate Reaches Highest Level Since 2005 -

The number of New Yorkers classified as poor in 2010 increased by nearly 100,000 from the year before, raising the poverty rate by 1.3 percentage points to 21 percent — the highest level and the largest year-to-year increase since the city adopted a more detailed definition of poverty in 2005. 
New York City’s Poverty Rate Reaches Highest Level Since 2005 -

Saturday, March 24, 2012

BRICS bank could change the money game

"Moscow, Russia - India's proposal to set up a bank of the BRICS nations (Brazil, Russia, India, China and South Africa) will top the agenda at the group's summit on March 28.

India believes a joint bank would be in line with the growing economic power of the five-nation group. The bank could firm up the BRICS position as a powerful player in global decision-making."

BRICS bank could change the money game - Features - Al Jazeera English

Monday, March 19, 2012

Top employers reveal the skills they value most -

Top employers reveal the skills they value most - The Globe and Mail


Top employers reveal the skills they value most
The job market has improved, but is still very tight and highly competitive. Because of this, it is imperative that you do all you can to set yourself above and apart from the competition, by honing and highlighting your skills that are in high demand by employers. To help you on this path, we covered the six skills and qualities most desired by employers.
In their Job Outlook 2012 report, the U.S. National Association of Colleges and Employers (NACE) included the results of a 2011 survey in which it asked employers which of the skills and qualities they value most in candidates. The following are six of the most important, listed in the order of importance based on the results of the survey.
Ability to work in a team structure
More often than not, your job will require you to work with others in order to get tasks and projects completed. This means that potential employers will want to be sure that you take kindly to sharing ideas, that you are open to ideas and input from others and that you are willing to put the team and the company’s interests ahead of your own.
Ability to verbally communicate
In order to get work done, you may need to communicate with multiple departments in the organization. This can come in handy when you need to get something expedited for a customer, or if you need to understand how a function or process works. You will also need to effectively communicate with customers and vendors. An effective communicator is often a good motivator, which means you can get others to do their jobs.
Ability to make decisions and solve problems
Problems will eventually arise in every organization, but how you respond to these problems will determine how much damage they will cause. Making decisions that are in the best interest of the company, and solving problems with the most efficiency and limiting damage are traits of a good candidate.
Ability to obtain and process information
As a new employee, you will have a steep learning curve. How quickly you are able to understand the requirements of your job, will depend on your ability to understand or process the information that you receive. In some case, you will not be left on your own until the company is sure that you can do the job well. Someone who is unable to process information easily may become a liability to the company. In addition, you will need to demonstrate that you can take initiative and obtain information that is necessary to perform your job, instead of waiting for someone else to provide you with that information.
Ability to plan, organize and prioritize work
Employees are often assigned multiple tasks and projects. An effective and efficient employee should be able to categorize these assignments by due dates and level of priority, which is usually based on guidelines established by the company. Completing a task perfectly may mean nothing if it is late, or if it adversely affected another assignment.
Ability to analyze quantitative data
Every company measures its success based on numbers. The numbers that apply to you may depend on the department in which you work. For example, if you are in customer service, you may need to understand why more customers call during a certain period. Your ability to understand the statistics as they relate to the company can help you to implement plans that help improve efficiency and help the company to make more money.
The bottom line
You should never forget that your résumé is what will get you the interview, therefore it is up to you to sell yourself well enough so that when a potential employer sees it, they know right away that you are a good candidate for them. Make sure that your résumé is up to date and showcases all of your skills and qualities.
When applying for a job, do your research so that you know the skills required by that employer. The importance of skills may vary among different employers and will also depend on the job for which you are applying. Be sure to highlight the skills for the job you want on your résumé."

Saturday, March 10, 2012

Creative ways around the US sanctions

India seeks way around Iran sanctions - Asia - Al Jazeera English

The Indian businessmen found creative ways around the American and European sanctions. At the same time former Indian diplomats advise the government not just to resist, but reject the American pressure on India.

Sunday, March 4, 2012

How to be an effective leader, lessons from Harvard’s Dean of Business

The Dean of Harvard business school, Professor Nitin Nohria, recently shared his insights in an interview on how to be an effective leader.  In the brief video posted below one could see four important lessons. I report the four points in a revised order of importance.

Family matters

While Professor Nohria does not articulate this point, but there are two very important anecdotes in his remarks that illustrate the importance of family for him. The first anecdote is about his father telling him to be himself, and don’t try to imitate others. Listening to elders is a key trait of South Asians, regardless of which continent they end up living on. The other remark is about him living closer to the school that allows him to see his daughters even when he has to attend social events in the evening.

The commitment to family in both generational directions, i.e., parents and children, is key to being a balanced human being.

Be close to the action

Professor Nohria moved in to the Dean’s residence on campus, which had not seen a dean living there in the past three decades. Being near the factory floor (i.e., Harvard Business School) opened many opportunities for the Dean to interact with students and the staff. Efficient managers should always be hands on and accessible, not just online but also accessible in person. Managers need to be felt and seen.

Manage your time well

Dean Nohria every three months evaluates his appointments and determines if he is indeed spending at least 50% of his time in advancing the priorities he has set for his school. It is easy to get bogged down in meetings that are tangential to the core business of the organization. His advice: revaluate how your time has been spent routinely to determine if you are focussed on the core and not on the periphery.

Act now

If you have an agenda, implement it. Don’t wait for the right moment. The moment you act is the right moment. Many have waited for the right moment to implement their agenda, President Barack Obama comes to mind. As the time passes by one realizes the increasing opposition to the very change the manager wants to implement. Dean’s advice: if you have an agenda, don’t wait, implement it now

Will the iPad3 by the World's Greatest Remote Control -- for the Apple TV? - Forbes

"I was struck by that phrase “something truly innovative about how the two can be used together.” You only have to look at the VooMoteZapper, a hardware doo-hicky that you can slot into your iOS device to turn it into a highly interactive universal remote to see the possibilities. Here is a list of the capabilities of an iPad3 TV remote if Apple incorporated VooMote’s current and projected features:"

Will the iPad3 by the World's Greatest Remote Control -- for the Apple TV? - Forbes

Poverty, inequality and redistribution | The Economist

Governments can reduce poverty and inequality through taxes and cash transfers.

Focus: Poverty, inequality and redistribution | The Economist
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Sunday, February 26, 2012

A. Gary Shilling's cogent analysis of the US Housing Market

A. Gary Shilling has recently contributed a three-part series offering the most cogent analysis of the challenges facing the US housing market. A must read for any one who wants to know where we are in the housing cycle in the US.

(BN) Why Renters Rule U.S. Housing Market (Part 1): A. Gary Shilling

Bloomberg News

The collapse in housing and the 33 percent plunge in house prices since 2006 are favoring renting over homeownership. This trend will dominate the housing market for the next four or five years, and put additional pressure on a weak economy.

Policy makers in Washington continue to have a soft spot for homeownership. Many recent government actions can be viewed as attempts to keep people in their homes, even owners who clearly can’t afford them. In addition to specific plans such as the Home Affordable Modification Program, or HAMP, and the Home Affordable Refinance Program, or HARP, the Obama administration is trying to revive the moribund housing sector by encouraging mortgage lenders and servicers to refinance loans at lower rates.

This reduces interest income for banks, which are now compelled by the Dodd-Frank law to retain 5 percent of the credit risk on lower-quality residential mortgages that are securitized and sold to others. Furthermore, banks are reluctant to refinance loans that Fannie Mae and Freddie Mac (NMCMFUS) then guarantee and put back to the lenders if they find any defects. The White House plan is a tough sell.

Refinancing Woes

As banks deleverage and mortgage activities increasingly involve unwanted loans, the ability to deal with refinancing has diminished. Four banks now control more than 60 percent of the mortgage market, and many mortgage servicers have reduced staff or been slow to gear up to handle delinquent mortgages and refinancings. Except for those who qualify for HARP, refinancing is highly unlikely for 8 million owners who are underwater -- owing more than the value of their homes -- because new terms are treated as new loans. Those who have positive home equity face dramatically tightened lending standards, a clogged refinancing system and new fees that can wipe out the savings from refinancing.

Almost 90 percent of mortgages today are only originated because of guarantees from Freddie Mac, Fannie Mae and the Federal Housing Authority, and all three have raised their fees substantially. As a result, many of the 20 million borrowers who could cut their mortgage rates by more than one percentage point through refinancing are unable to benefit.

-- Second Mortgages: Refinancing underwater borrowers is tough when they have second mortgages that also have to be renegotiated, or if mortgage insurers have to agree to the new loans. Many borrowers can’t qualify for refinancing because of tightened lending standards. Fannie, Freddie and the FHA have strengthened their requirements because of pressure from the administration to avoid more losses on bad mortgages. High credit scores are needed to refinance outside HARP, along with two years of tax returns, proof of income and recent evidence of assets such as retirement and brokerage accounts.

During the housing boom, appraisals for house purchases were generous. (And why not? Everyone was certain that house prices would rise indefinitely.) Cooperating appraisers were often recommended by real-estate brokers and mortgage lenders who wanted the deals to go through. After the house-price collapse, however, appraisals became very conservative, as lenders pressured appraisers to make low estimates.

-- Postponed Foreclosures: Foreclosures (HOMFCLOS) have been curtailed for several years, mainly because the administration essentially told lenders and servicers to hold off while they attempted mortgage modifications. Those efforts largely failed. Then the industry voluntarily imposed a moratorium while it was caught in the robo-signing flap, in which documents were approved without proper examination. More recently, lenders and servicers have been trying to avoid throwing people out of their homes as the industry worked out the recently announced restitution with the federal government and state attorneys general for troubled mortgages. As a result, foreclosures in 2011 fell significantly from 2010, and in the third quarter were the lowest since 2007.

Sadly, these efforts to keep people in houses they can’t afford are simply prolonging the process of repairing the housing mess and getting rid of excess inventories.

These measures are the opposite of the successful program led by the Resolution Trust Corp. to clean up the savings-and- loan mess two decades ago, when loans, other assets and whole financial institutions were sold off quickly to private buyers, at very low prices. As we discovered then, large inventories of distressed assets overhang the market and depress prices. To rejuvenate markets, initial sales at low prices are needed to attract buyers and lead to higher prices.

-- Sagging Homeownership: Despite all the efforts to keep people in their houses, homeownership is falling. It dropped to 66 percent in the fourth quarter of 2011, compared with a peak of 69.2 percent in the fourth quarter of 2004. Meanwhile, the 33.5 percent drop in median single-family house prices is the first nationwide decline since 1930s.

Growing Delinquencies

Foreclosures, high unemployment, tight lending standards and lack of money for down payments are playing a role. In the second quarter of 2011, at least 3.6 million mortgages were delinquent and at risk of foreclosure; that could climb to 5 million with further house-price declines and if the recession I forecast for this year takes hold.

The FHA reported that 711,082 single-family loans it insured were seriously delinquent in December 2011, up 3.2 percent from November, and up 18.9 percent compared with December 2010. That pushed the seriously delinquent rate to 9.59 percent in December from 9.34 percent in November and 8.65 percent in December 2010.

Many people who are technically homeowners are really renters. They put little if anything down. In many cases, the equity is negative when, for example, home-improvement loans piggybacked on first mortgages and brought total indebtedness to more than 100 percent of the house value. Many also planned to refinance their mortgages with cash-outs due to appreciation before their mortgage rates reset upward or, in some cases, even before they skipped enough monthly payments to be foreclosed.

-- Rent-Free Renters: Since 2006, 3.1 million people are essentially living rent-free by not paying their monthly mortgage payments. Assuming a monthly mortgage bill equivalent to the national average of $1,721 per person, these nonpayers have increased their purchasing power for other items by $65 billion at annual rates, or the equivalent of 5.6 percent of after-tax income.

That is a big number, but then 12.5 percent of residential mortgages are past due or in foreclosure. This may be an important reason that consumer spending has held up as well as it has in this recovery, despite all the pressure to increase the saving rate and reduce debt. Nevertheless, as heavy foreclosures resume and ex-homeowners are forced to pay rent, this free money will evaporate.

-- Ripple Effect: When house prices were rising, Americans were eager to keep their houses. So the mortgage was the first bill they paid each month, even if that meant they postponed payment on credit cards, cars and student loans. Now, with house prices falling, mortgages are paid last or not at all, especially by the mortgage-holders who are underwater and may be strategically defaulting.

If historical trends hold, the total homeownership rate will return to its earlier base level of 64 percent by the fourth quarter of 2016. Continuing the average annual growth in households over the last decade of 891,000 would increase the total number by 4.5 million by the fourth quarter of 2016. This is enough to increase the number of new homeowners by 550,000 even with that further drop in the homeownership rate.

But it also means the addition of 3.9 million new renters, or 780,000 per year. This doesn’t suggest that we are becoming a nation of renters. Instead, it reflects the elimination of the widely held belief that house prices always rise and the end of loose lending practices that drove the homeownership rate to its 2004 peak. In fact, the reversal to falling prices and the extraordinarily tight lending standards may push the homeownership rate below that 64 percent norm; it would now be 60.9 percent if all those with mortgages that are delinquent or in foreclosure become ex-homeowners.

-- Affordability (AFFD): There are many, including the always bullish National Association of Realtors, who believe that homeownership is bound to rise because houses are now so affordable. In calculating its housing affordability index, the association assumes that a family with median income buys a median-priced single-family house with 20 percent down and finances at the current 30-year fixed mortgage rate. The collapse in house prices and decline in mortgage rates in recent years have more than offset the weakness in median family income, which, according to the Realtors’ group, dropped from $63,366 in 2008 to a $60,824 average for the first 11 months of 2011.

Nevertheless, it is impossible to compare the current attractiveness of buying a home and the conditions in the 1990s and early 2000s. Unemployment rates were much lower then, and house prices were rising as they had been since the 1930s. Financing a mortgage was easy with little or nothing down and spotty credit. Then, huge house-price declines and widespread foreclosures were unthinkable.

-- Weak Earnings: Furthermore, real weekly earnings are falling in what is supposed to be an economic recovery, even as payroll employment growth has been modest. Long-term unemployment is now becoming common, with 43 percent of the unemployed out of work 27 weeks or more and the average length of joblessness at 40 weeks. Job openings have been rising, but hiring is little changed because many of the long-term unemployed, and the newcomers to the job market, don’t have the required skills. Manufacturing output has revived, but it has been accompanied by the resumption of rapid growth in output per employee, which means production advances have arrested but not reversed the long-term downtrend in manufacturing employment.

Realistic housing affordability is also subdued by the 10.7 million underwater homeowners who cannot move to different, perhaps more expensive houses and thereby free up starter houses for new homebuyers. A recent study reveals that underwater borrowers are 30 percent less likely to move than renters or those with positive home equity.

-- Expensive Houses: Despite the collapse in prices, homeownership is still expensive relative to rentals, even as apartment rental rates rise and vacancies decline. Moody’s Analytics Inc. calculates a ratio of home prices to yearly rents at 11.3, down from the bubble peak of 18.5, but still higher than the 1989-2003 average of 10. You’d expect house prices to be lower than average in relation to rents, not higher, now that prices are falling.

Rents have to be higher for landlords to offset the eroding value of their properties. The decline in a rental house’s price is just another cost like taxes and maintenance. In any case, the house price-to-rent ratio is only relevant to the few who can qualify to buy.

In past decades, houses have sold for about 15 times rental income. That was true of the post-World War II years, when owners of rental properties expected inflation to enhance their 6.7 percent return, not including maintenance costs and property taxes. If I’m right about the outlook for slow economic growth and falling house prices, houses and apartments are more likely to sell below 10 times rental income.

The consumer retrenchment and recession I foresee for this year will only add to the lack of affordability of owning houses and to the attractiveness of renting. With it, unemployment will rise, while incomes will fall further. As employment drops, the duration of unemployment will rise, labor force participation will fall and median single-family house prices will decline an additional 20 percent. That will definitely make ownership less attractive even if it raises the Realtors’ housing affordability index.

(A. Gary Shilling is president of A. Gary Shilling & Co. and author of “The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation.” The opinions expressed are his own. This is the first of a three-part series.)

Read more opinion online from Bloomberg View.

To contact the writer of this article: A. Gary Shilling at


(BN) Why Renters Rule U.S. Housing Market (Part 2): A. Gary Shilling

Bloomberg News, sent from my iPad.

Why Renters Rule U.S. Housing Market (Part 2): A. Gary Shilling

In making my case for continued housing weakness, I’ve emphasized the negative effect of excess inventories on house sales, prices, new construction and just about every other aspect of residential real estate.

In housing, as in every goods-producing sector, excess inventories are the mortal enemy of prices. Lower prices are needed to unload surplus inventory, yet they also lead to the creation of more inventory by anxious sellers. The plight of house sellers and the reluctance of buyers are made worse by the realization that house prices can fall, and are falling for the first time in 70 years.

There are about 2 million excess housing units in the U.S., over and above normal inventory working levels. Before the housing collapse began in 2006, housing starts and completions were volatile but averaged about 1.5 million per year. So a 2 million excess is much more than the previous annual average build.

Furthermore, that excess is rising as homeownership declines as a result of foreclosures, unemployment, inability to meet mortgage standards or reluctance to own a depreciating asset.

Inventory Count

Many people think that house inventories are coming under control. They point to the declines in inventories in relation to sales for new and existing homes, yet that calculus doesn’t include the 5 million or so housing units with delinquent mortgages or those in foreclosure, much less the additional troubled loans that are probable in years ahead.

They also don’t include foreclosed vacant houses that haven’t been listed for sale and vacant units that owners pulled off the market. These vacancies are included in the Census Bureau category called “Held off the market for other reasons,” and they now number 3.6 million, up 1 million from 2006. Falling house prices are associated with declining residential listings as disappointed sellers retreat in hopes of higher prices later.

-- Foreclosures Down: New foreclosures have dropped considerably in the last two years, but for temporary reasons. RealtyTrac Inc. estimates that there were 804,000 bank repossessions in 2011, down from 1.05 million in 2010. Nevertheless, the Federal Housing Administration’s seriously delinquent mortgages, often foreclosures in waiting, jumped from 8.2 percent of the loans it guaranteed in June 2011 to 9.6 percent in December.

The federal government encouraged lenders and mortgage servicers to delay foreclosures as modifications were attempted. There was also the voluntary moratorium on foreclosures during the robo-signing flap. This pause continued while the five largest mortgage servicers -- Ally Financial Inc., Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. -- worked on the recent settlement with the federal government and state attorneys general that called for $25 billion in mortgage writedowns and other aid to homeowners.

-- The Logjam Breaks: With that settlement completed, mortgage servicers and lenders will probably step up foreclosures. When they do, the so-called real estate owned -- the properties owned by lenders -- will be dumped on the market with all deliberate speed.

The effect on prices will be dramatic. The National Association of Realtors’ survey for December 2011 found that foreclosure sales were at an average price discount of 22 percent, compared with 20 percent in December 2010. Short sales, in which the lender forgives the difference between the sale price and the mortgage principal, closed 13 percent below market value. As of the second quarter of 2011, RealtyTrac found that real-estate-owned sales were at a huge 40 percent discount while short sale discounts averaged 12 percent.

These discounts tend to drag down the prices of other existing houses and force homebuilders to sell properties below cost in order to compete.

The trigger of renewed foreclosures will probably initiate another big drop in house prices, returning them to the long- term trend identified by Robert Shiller of Yale University. This measure of median single-family-house prices is adjusted for general inflation and for the tendency of houses to get bigger over time and therefore more expensive.

With these two corrections, prices in 1990 were about the same as they were a century earlier. Then came the bubble, followed by collapse, but it still will take a 22 percent decline to return prices to the flat long-term trend that prevailed between 1890 and 2000. Because corrections often overshoot on the downside, our forecast of a further 20 percent decline may be conservative. That would bring the total peak-to- trough decline to 46 percent.

-- Spreading Effects: That further drop would have devastating effects. The equity of the average homeowner with a mortgage has already dropped to 17 percent, from almost 50 percent in the early 1980s, due to home-equity withdrawal and falling prices. An additional 20 percent price decline would push homeowner equity into single digits with few borrowers having any appreciable equity left. It would also boost the percentage of mortgages that are underwater to 40 percent, from the current 22 percent, according to my calculations. The existing underwater loans have already created a $750 billion gap between mortgage principals and house values, according to CoreLogic Inc. The negative effects on consumer spending as well as mortgages and mortgage-backed derivatives would be substantial.

-- How Long?: A principal reason that median single-family- home prices are likely to fall an additional 20 percent is that it will take years to work through the excess house inventory, giving plenty of time for surplus units to depress values. I expect housing starts and completions, now about 650,000 at annual rates, to average 700,000 annually in future years. About 300,000 of those will replace housing units that are torn down or converted to other uses. So the net supply is about 400,000.

The demand side is determined by net household formation. Contrary to popular belief, household formation isn’t closely correlated with population, at least not in a cyclical time frame. By definition, a household is one or more people occupying a separate dwelling unit. So all the forces that make people want to rent or buy -- house prices, unemployment and mortgage standards -- play a role.

Household formation is about as volatile as housing starts and homeownership rates. It surged a decade ago when owning houses was the route to quick wealth; it dropped as prices collapsed. In the boom days when house prices increased 10 percent a year, a homeowner with a 5 percent down payment made a cool 200 percent on his investment each year, neglecting mortgage interest, maintenance and taxes. And, as a bonus, that person had a place to live rent-free.

-- Annual Absorption: Household formation in the fourth quarter of 2011 was 659,000 at annual rates. Over the last decade, it has averaged about 900,000, a number that seems reasonable in years ahead. Note, however, that this number may be on the high side if significant doubling up reduces household formation. Demand of 900,000 and net supply of 400,000 per year, as discussed earlier, will absorb 500,000 of the excess inventory annually. So the 2 million surplus of housing units I’ve identified will take four years to work off.

That would extend the bear market in housing to 2015, a full 10 years after it started.

One of the biggest contributors to this lengthy resolution is that Americans, armed with first-hand experience of falling prices, are beginning to separate their abodes and their investments. In the days when owners thought house values never fell, they bought the biggest homes they could finance. They now know otherwise. Further weakness in the prices of single-family houses and condos due to the depressing effects of excess inventories will add fuel to the fire.

Contrary to general belief, a single-family house, excluding the effects of increasing size and general inflation, has been a flat investment for more than a century. Such properties provide a place to live, but that value is offset, at least in part, by maintenance, taxes, utilities, real estate commissions and other costs. Furthermore, even with the tax deductibility of mortgage interest, renting a single-family house or apartment is cheaper than owning, absent price appreciation. This trend will accelerate in the years of deflation I foresee, when nominal house prices will probably fall on average.

The separation of abodes from investments should work to the advantage of rentals in future years, as it has since the housing bubble burst in 2006.

I’m not suggesting that Americans will give up on single- family owner-occupied housing. That ambition is too deeply embedded in our culture. But many will be more inclined to rent, including empty-nesters who decide to unload their suburban money pits, especially because their homes are falling in price.

Young couples may decide that because houses are no longer a great investment, there’s no reason to strain their financial, physical and emotional resources to buy big, expensive ones as soon as possible. They’ll stay in rental apartments a bit longer and wait until their children are of the age that a single- family house makes sense.

Retiring postwar baby boomers -- those who aren’t locked into underwater mortgages -- are also likely to rent as they separate their investments from their abodes.

-- Single or Multifamily?: I’ve made the case for about 4 million new renters in the next five years or so. But will they rent apartments or single-family houses?

Investors are buying foreclosed and other housing units, most of them single-family. Some did so in 2010, when the new homeowner tax credit briefly raised prices. They expected to flip them promptly, but instead became landlords as prices resumed their decline. Nevertheless, the interest of investors, who are often all-cash buyers, persists. The Realtors’ association reported that in December 2011, 31 percent of all existing house sales were for cash, 21 percent went to investors and 31 percent to first-time homebuyers.

For investors, however, managing single-family houses is challenging. An apartment usually has one or two walls exposed to the weather, but a single-family house has four plus a yard to maintain and a roof that can leak.

-- Apartment Building: Even as investors are buying single- family foreclosed houses, rising apartment rents and declining vacancies have spawned a miniboom in multifamily housing starts, albeit from close to a zero base. Furthermore, some of the growth may be in anticipation of demand from new retirees. Multifamily completions have yet to reflect this trend because it takes about 12 to 18 months to finish an apartment building.

Supply will probably continue to be augmented by conversions of unsold condos to rental apartments. Will multifamily housing soon become more overbuilt and end the increase in rentals and decrease in vacancy rates?

Those in the industry say that until recently, multifamily developers have been cautious. Tight financing has been one reason, with lenders providing 50 percent to 60 percent of the financing, compared with 80 percent in the salad days of 2006. Also, developers, accustomed to 8 percent to 10 percent capitalization rates, are reluctant to accept today’s returns of 4 percent to 5 percent. And banks are hesitant to lend to developers with bad records and favor borrowers with fortresslike balance sheets.

In addition. Fannie Mae (FNM) and Freddie Mac (NMCMFUS) have shied away from multifamily housing after getting stuck with bad apartment loans they bought in 2007 and 2008 as private lenders withdrew. The agencies’ share of multifamily loan purchases leaped to 85 percent in 2009, from 29 percent two years earlier. By 2009, they owned or guaranteed 40 percent of the $325 billion multifamily mortgage market.

-- Slow Start: According to Reis Inc., a New York-based commercial real estate research company, less than 40,000 new multifamily units were finished in 2011, the lowest number in 30 years. In 2012, Reis expects 72,000 to 85,000 new units. Even with robust apartment demand, net absorption -- the surplus of demand over new supply -- fell to 153,000 units in 2011 from 225,000 in 2010. In October of last year, the National Multi- Family Housing Council, a trade group, reported that its National Tightness Index was 56, down from 82 in July and a peak of 90 in April. A reading above 50 indicates that markets are tightening.

My industry contact indicates that conditions justify apartment-building in some markets, such as Los Angeles, San Francisco, New York, Boston, Chicago and Washington, where capitalization rates of about 5 percent for Class A buildings prevail. In many other areas -- such as Detroit and Cleveland -- rents don’t justify new construction and capitalization rates of 6 percent to 7 percent for existing apartment buildings are the rule.

On balance, lender caution will probably curtail any developer zeal to overbuild rental-apartment buildings for a number of years, at least in most cities.

-- Single-Family/Apartment Split: It’s difficult to estimate exactly how the 3.9 million net new renters I forecast through 2016 will be split between rental apartment dwellers and renters of surplus single-family homes, but I will venture some projections. The return of the rental vacancy rate to its earlier norm of 7.6 percent would provide about 750,000 units. An additional 1.5 million would result from an increase of multifamily starts and completions to the earlier norm of 300,000 per year, from the recent annual rates of 200,000. That would leave 1.7 million to be supplied from single-family rentals.

These projections are in line with my estimate that the 2 million excess inventories would be eliminated over the next four years. This consistency suggests that in four or five years, the housing market will return to normal, with the ownership rate back to its 64 percent norm and 3.9 million new rentals supplied by the elimination of excess inventories as well as the return of multifamily starts and completions to the earlier 300,000 annual rate.

Single-family starts and completions in this scenario would continue at current depressed levels of about 400,000 per year, but the elimination of 1.7 million single-family units in excess inventory by converting them to rentals would relieve the downward pressure on prices.

-- Only Projections: These numbers, however, reflect plausible but uncertain assumptions. A lower homeownership rate than the 64 percent average is possible now that Americans know house prices can and do fall. If so, more single-family houses would probably be converted to rentals and apartment construction could be stronger. If more people double up, household formation will be weaker and it will take longer to work off excess inventories, unless weaker new residential construction provides an offset.

In any event, excess house inventory, over and above normal working levels, will be gradually worked off over the next four or five years by new household formation. But about 4 million of the 4.5 million increase in households will be renters of apartments or rental single-family houses.

(A. Gary Shilling is president of A. Gary Shilling & Co. and author of “The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation.” The opinions expressed are his own. Read Part 1 of the series.)

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(BN) Why Renters Rule U.S. Housing Market (Part 3):

Bloomberg News,

Why Renters Rule U.S. Housing Market (Part 3): A. Gary Shilling

Think of all the recent federal programs to keep people who can’t afford them in their four- bedroom houses.

There are the Home Affordable Modification Program, the Home Affordable Refinancing Program and the Emergency Homeowners’ Loan Program. In addition, there are Hope Now, Hope for Homeowners, the Hardest Hit Funds and, most recently, the proposal to expand HARP to distressed mortgages not covered by Fannie Mae and Freddie Mac.

-- Hopeless HAMP: The administration initially said this program would relieve 3 million to 4 million distressed homeowners, but it’s been a miserable failure. That was to be expected because loose-lending practices put many people in houses so unaffordable that, short of canceling their monthly mortgage payments completely, no modification would return them to financial health. About the only thing HAMP has done is delay foreclosures while lenders, under federal government edict, attempt to modify home loans to reduce total monthly payments on mortgage, credit-card and other debt to 31 percent of income.

Through December 2011, 1.8 million HAMP trial modifications had been initiated, but the monthly pace of new modifications continues to drop. Only 43 percent of the HAMP trials -- 762,839 -- made it to permanent status. Nevertheless, the administration still has hope for the program and has extended it through December 2012.

-- HARP and EHLP: HARP was initiated in June 2009 by the White House to aid 4 million to 5 million homeowners by allowing those with mortgages guaranteed by Fannie Mae and Freddie Mac (NMCMFUS) -- which back almost half the $10.4 trillion of outstanding home loans and 87 percent of recent originations -- to refinance their loans even if they exceed the property’s value by 25 percent. Yet only 894,000 mortgages were subsequently refinanced. And even though Fannie and Freddie (FRE) guarantee about 5 million underwater mortgages, just 70,000 of those refinancings were loans that significantly exceeded the value of the home. Undaunted, the administration liberalized HARP in November and extended it through 2013.

EHLP was set up by the 2010 Dodd-Frank financial reform law to help 30,000 homeowners by providing zero-interest loans of as much as $50,000, which could be forgiven after five years if borrowers stayed current on their mortgage payments. Despite the attractiveness of this offer, of the 100,000 troubled homeowners who applied for EHLP by the Sept. 30, 2011 deadline, only 10,000 to 15,000 are expected to qualify, meaning the program will dispense $330 million to $500 million of the $1 billion it was allocated.

Most recently, the Federal Housing Finance Agency extended HARP to the one-third of all mortgages not covered by Fannie and Freddie and that are instead owned by banks or grouped in mortgage-backed securities sold to investors. The new loans, refinanced at lower interest rates, would be guaranteed by the Federal Housing Administration.

The administration says the program could benefit 3.5 million homeowners in addition to the 11 million who could be helped by programs for borrowers with loans backed by Fannie Mae and Freddie Mac. But as with those efforts, this measure transfers money from mortgage holders to homeowners. The new program will cost $5 billion to $10 billion, which the administration wants to pay for by taxing large banks. Because this would require congressional approval, Republican opposition makes enactment highly unlikely.

-- Try, Try Again: And don’t forget the tax credit for new homeowners that was in effect from 2009 to April 2010, and resulted in a temporary increase in house prices. Many speculators were encouraged to conclude that the price collapse was over and bought foreclosed houses for a quick flip and lots of profit. But as prices fell again and turned expected gains into losses, those investors became landlords and rented their properties hoping that rents and appreciation would bail them out at some point.

Also recall the Fed’s attempts to aid housing by pushing down interest rates. When it cut short-term interest rates to 0 percent, not much happened: Banks were too scared and too restricted to lend, and creditworthy borrowers had plenty of cash and little interest in spending and investing in a very uncertain economic climate.

So the Fed moved to quantitative easing, buying huge quantities of securities. Those purchases provided money to investors in stocks and commodities in late 2010 and early 2011, but there was no multiplier effect. Banks didn’t want to lend the $1.5 trillion in excess reserves created in the process to any but the most reliable creditworthy borrowers, who didn’t want or need to borrow.

With the second round of quantitative easing, initiated in November 2010, the Fed also hoped to push down 10-year Treasury note yields, which would then push lower 30-year fixed-rate mortgage rates, to the benefit of homeowners. This moved the Fed beyond monetary policy and into the realm of fiscal policy, but maybe dire circumstances justified the resulting potential loss of the central bank’s independence.

Nevertheless, the Fed’s second round of purchases didn’t do much to revive house sales or prices. Mortgage rates are only one factor influencing housing activity, and their decline continues to be offset by fear of further drops in prices, high unemployment, strict lending standards, higher loan fees and underwater mortgages.

Yet just as the administration hasn’t given up on its failed attempts to aid housing, lack of success hasn’t deterred the Fed. It subsequently embarked on Operation Twist, selling short-term Treasuries and buying longer issues to push long rates lower without further bloating its balance sheet. And the Fed has hinted at further action if the economy falters this year, as I’m forecasting, perhaps by buying more mortgage- related securities.

-- The Courts: The third branch of government is also trying to keep homeowners in their abodes, especially those who can’t afford them. The Massachusetts Supreme Judicial Court recently voided foreclosure sales on two houses because owners of the loans couldn’t prove that the mortgages had been assigned to them before they were securitized. The frequent change of ownership in the securitization process led to sloppy paperwork with the names of the owners left blank.

In some so-called judicial states, such as Florida, New York and New Jersey, lenders have to go to court to be able to foreclose. This greatly increases the foreclosure time, to 986 days in New York as of the third quarter of 2011 and 749 days in Florida.

Washington’s efforts to reverse the trend away from homeownership and toward rentals will probably continue to be futile, even though the National Association of Realtors reported this week that sales of existing homes increased 4.3 percent in January, to a 4.57 million annual rate, the highest level since May 2010.

Rental apartments should continue to be an interesting investment area for years, as rising rents provide attractive returns. Single-family rentals may also be fruitful if the problems related to large-scale management of houses can be resolved.

(A. Gary Shilling is president of A. Gary Shilling & Co. and author of “The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation.” The opinions expressed are his own. Read Part 1 and Part 2 of the series.)

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To contact the writer of this article: A. Gary Shilling at

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