RE MARKET TRENDS

copyright 2008

Finding a Fix for the Housing Crisis Finding a Fix for the Housing Crisis

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Finding a Fix for the Housing MarketRobert Shiller, Real Estate Connect, January 7, 2008

Robert J. ShillerRobert J. ShillerChief Economist & CoChief Economist & Co--Founder of MacroMarkets LLCFounder of MacroMarkets LLC

Arthur M. Arthur M. OkunOkun Professor of Economics, Cowles FoundationProfessor of Economics, Cowles FoundationProfessor of Finance, Yale UniversityProfessor of Finance, Yale University

Research Associate, National Bureau of Economic ResearchResearch Associate, National Bureau of Economic Research

Copyright 2009 | MacroMarkets LLC

copyright 2008


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The information contained herein does not constitute either an offer to sell or the solicitation of an offer to buy any security referred to herein. Offers to sell and solicitations to buy securities described herein will be made only pursuant to an offering circular registered with the Securities Exchange Commission or pursuant to private offering memorandum, that is, in each case, delivered to the offeree. Information contained herein does not purport to be complete and is subject to various qualifications and based on various assumptions, not all of which may be set forth fully herein. The information contained herein is subject to change without notice, its accuracy is not guaranteed and it may be incomplete or abbreviated. The MACRO® securities, or other securities referenced herein, will be more fully described in an offering memorandum or prospectus prepared by the issuers of such MACRO securities or other securities when such securities are being offered. The MACRO securities will be offered and sold only pursuant to such an offering document, which will be delivered to any prospective investors and which must be reviewed by them prior to making a purchase of any securities therein offered. Any information set forth herein is subject to change without notice and will be superseded by any amendments to or subsequent versions of these web pages, and any offering document for the MACRO securities or other securities referenced herein. These materials may contain "forward-looking statements," including projections, forecasts and estimates. These forward-looking statements are based upon certain assumptions. Actual events are difficult to predict and may differ from those assumed herein. Accordingly, there can be no assurance that the estimated returns or outcomes described herein can berealized, that the factual assumptions upon which forward-looking statements are based will materialize or that actual results will not be materially different than those presented herein. “Standard & Poor’s” and “S&P” are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by MacroMarkets LLC. None of the financial products described herein that are based upon oneor more S&P/Case-Shiller Home Price Indices are sponsored, endorsed, sold or promoted by S&P, and S&P makes no representation regarding the advisability of investing in such products.

Disclaimers

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“This is another Fine Mess, Stanley”

• Rare events• Complacency• Conventional Wisdom• Respect for sophisticated

methods rather than substantial evidence

• Herd behavior and self censorship

• Irving Janis, Groupthink, 1972

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Real S&P Composite Stock Price Index and Real Earnings

(Jan 1871-Dec 2008)

0200400600800

100012001400160018002000

1870 1890 1910 1930 1950 1970 1990 2010Year

0

50100

150200

250300

350400

450

Price

Earnings

-51% from 2000 peak

Rea

l S&

P 5

00 S

tock

Pric

e In

dex

Rea

l S&

P C

ompo

site

Ear

ning

s

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Price Earnings Ratio (10-Year Avg Earnings)

Jan 1881 – Dec 2008

0

5

10

15

20

25

30

35

40

45

50

1860 1880 1900 1920 1940 1960 1980 2000 2020Year

0

2

4

6

8

10

12

14

16

18

20

1901

15.2

1966

2000

Price-Earnings Ratio

Long-Term Interest Rates

1981

1921

Lon

g T

erm

Inte

rest

Rat

es

Pric

e E

arni

ngs R

atio

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Volatility 1928-2008Stock Market Volatility Daily Jan 13 1928 to Oct 29, 2008

Daily Lagging 30-Day Stdev of One-Day S&P Composite Percent Changes

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

01/1

3/28

08/1

3/30

02/2

5/33

09/1

9/35

04/0

4/38

10/0

9/40

04/2

1/43

11/1

9/45

07/2

7/48

04/0

4/51

02/1

6/54

02/2

1/57

02/2

9/60

03/0

7/63

03/1

4/66

04/3

0/69

05/0

1/72

05/0

7/75

05/1

0/78

05/1

3/81

05/1

4/84

05/1

8/87

05/1

8/90

05/2

0/93

05/2

2/96

05/2

7/99

06/0

7/02

06/1

4/05

06/2

0/08

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US Home Prices 1890 to 2008 Q3With Annual Building Costs,

Population, Ten-Year Treasury Yield

0

50

100

150

200

250

1880 1900 1920 1940 1960 1980 2000 2020

Year

Inde

x or

Inte

rest

Rat

e

0

100

200

300

400

500

600

700

800

900

1000

Popu

latio

n in

Mill

ions

Home Prices

Building CostsPopulation

Interest Rates

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San Francisco Real Home Prices Jan 1987-Oct 2008 (S&P/Case-Shiller)

0

20

40

60

80

100

120

140

160

180

200

1985 1990 1995 2000 2005 2010

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San Francisco Real Home Prices For Low, Middle and High-Priced Homes Jan 1987-Oct 2008 (S&P/Case-Shiller)

0

50

100

150

200

250

1985 1990 1995 2000 2005 2010

Low

MiddleHigh

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New York Commuter Real Home Prices For Low, Middle and High-Priced Homes Jan 1987-Oct 2008 (S&P/Case-Shiller)

0

50

100

150

200

250

1985 1990 1995 2000 2005 2010

Low

Middle

High

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Miami Real Home Prices For Low, Middle and High-Priced Homes Jan 1987-Oct 2008 (S&P/Case-Shiller)

0

50

100

150

200

250

300

1985 1990 1995 2000 2005 2010

Low

Middle

High

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Inflation Adjusted Japanese Real Estate Performance

0

20

40

60

80

100

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

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Real Home Prices in London and Greater Boston1983-2008

(Halifax & S&P/Case-Shiller with Inflation Correction)

0

100

200

300

400

1980 2000 2020

Date

Rea

l Pric

e In

dex

Boston

London

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Sources of the Bubbles (R. Shiller Irrational Exuberance 2000, 2005)

• Precipitating factors• Amplification mechanisms• Cultural factors• Psychological factors

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Short-Run Solutions

• Need to stabilize the economy with twin targets: a fiscal target and a credit target– Expansionary fiscal policy of at least the $775 billion envisioned

by the Obama team– Continuation of Term Auction facility (TAF, Dec 2007), Term

Securities Lending Facility (TSLF, March 2008), Primary Dealers Credit Facility (PDCF, March 2008), Commercial Paper Funding Facility (Oct 2008) Term Asset Backed Securities Loan Facility (TALF, Nov, 2008) at even higher levels

– Possible further government conservatorships like those given Fannie and Freddie

• Reduce the foreclosure problem with plans like that of John Geanakoplos or Sheila Bair

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Long-Run Solutions

• New information infrastructure

• Comprehensive financial advice

• New financial watchdog

• Default-option financial planning

• Improved financial disclosure

• Improved financial databases

• New system of economic units of measurement

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Private Sector Solutions • Fundamentally expanding financial markets to cover more risks that

really matter

• Create products that provide the opportunity to hedge or invest in large, important asset classes

• Level the playing field so that both institutions and retail investors alike can participate

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Jan 6, 2009 Housing Futures Market East Cities(Tradition Financial Services)

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January 6, 2009 Housing Futures Market West Cities

(Tradition Financial Services)

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MacroSharesMacroShares were developed to provide hedging or investment opportunities for individuals and institutions for important economic risks (housing, oil, inflation, etc)

MacroShares Currently Trading – $100 Oil Up – $100 Oil Down – (NYSE: UOY and DOY)

MacroShares Recently Filed– Housing – Medical Inflation

Transparent– NYSE listed, allowing for

continuous buying and selling throughout the trading day

No Credit risk– fully backed by U.S. Treasuries

and Cash

copyright 2008


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Accolades

• MacroShares were recently named one of the best inventions of 2008 by Time Magazine

• MacroShares have recently been featured in – US News and World

Report– Bloomberg Magazine

copyright 2008


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Long-Run Solutions-Retail Products

• Continuous Workout Mortgages• Home Equity Insurance• Livelihood Insurance

copyright 2008


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Continuous Workout Mortgages

• Workout of mortgage conditioned on economic events is written into initial mortgage contract

• Workout is continuous, happens every month as economic indicators change

• In response to changes in home prices and to changes in income and employment

• Index-based, reduces moral hazard

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Why Does Innovation Take So Long?Why Does Innovation Take So Long?• Wheeled toys (Mexico Late Classic Period, between 650

and 950 A.D.) but no wheeled vehicles in pre-Columbian Americas

• Wheeled suitcases, Bernard Sadow, 1972, Robert Plath 1991

• Movie subtitles invented in 1920 (Abraham Schomer, The Chamber Mystery) but virtually never used again in silent movies

• Desks over exercise bikes—still not done (Mayo Clinic)(from New Financial Order, 2003)

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For Additional InformationFor Additional Information

14 Main StreetMadison, NJ 07940United States

1 (888) MACROS-1

www.MacroMarkets.com

RE MARKET TRENDS

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