Saturday, July 31, 2010

"..throw a stone and watch the ripples flow.." David Gray

Problems?.........What problems?

"There is no such thing as a problem without a gift for you in
its hands."
-Richard Bach

"If you want to solve hard problems, have hard problems."
-Brewster Kahle

"The greatest and most important problems of life are all
fundamentally insoluble. They can never be solved but
only outgrown."
-Carl Jung

"The problems of victory are more agreeable than those
of defeat, but they are no less difficult."
-Winston Churchill

"My mind rebels at stagnation. Give me problems, give me
work, give me the most abstruse cryptogram, or the most
intricate analysis, and I am in my own proper atmosphere.
But I abhor the dull routine of existence. I crave for mental
-Arthur Conan Doyle via Holmes

"Engineers like to solve problems. If there are no problems
handily available, they will create their own problems."
-Scott Adams

"The chief cause of problems is solutions."
-Eric Sevareid

Another fable from Aesop.......

The Ant and the Grasshopper

In a field one summer's day a Grasshopper was hopping about,
chirping and singing to its heart's content. An Ant passed by,
bearing along with great toil an ear of corn he was taking to the

"Why not come and chat with me," said the Grasshopper,
"instead of toiling and moiling in that way?"

"I am helping to lay up food for the winter," said the Ant,
"and recommend you to do the same."

"Why bother about winter?" said the Grasshopper; we have got
plenty of food at present." But the Ant went on its way and
continued its toil. When the winter came the Grasshopper had no
food and found itself dying of hunger, while it saw the ants
distributing every day corn and grain from the stores they had
collected in the summer. Then the Grasshopper knew:

It is best to prepare for the days of necessity.

Friday, July 30, 2010

Tim Wheater's Alto Flute is always something special.....

Wow!.....All hubris aside, don't you think it would have been better to wait a few more months before bragging about this.............

How We Ended the Great Recession

The good folks at Washington's Blog let me borrow this.

I'd like to tell you that I read the whole thing, but when I read the
following, I sort of lost my enthusiasm for it:

"From the perspective of early 2009, this rapid snap-back was
a surprise.  Maybe the country and the world were just lucky.
But we take another view:  The Great Recession gave way to
recovery as quickly as it did largely because of the unprecedented
responses by monetary and fiscal policy makers."

"While the effectiveness of any individual element certainly can
be debated, there is little doubt that in total, the policy response
was highly effective."

This blog (and this blogger) is optimistic by nature.  I really,
really, really want to think warm and fuzzy thoughts about our
economy.  I really want it to be "all better" now.  However....
Maybe there are a few square miles in Manhattan that have
had a "rapid snap-back", but I haven't noticed such a thing in
Ohio.   Of course, I could have just missed it.

While I'm bitching, is it possible that the Great Real Estate
Bubble occurred "largely because of the unprecedented
responses by monetary and fiscal policy makers"?

Just wondering.

Wisdom for the Ages........................

Buy low, sell high.

Mass hysteria is usually a confusing time, and the wisdom of
the ages often gets forgotten, or ignored.  When much of the
market place believes that prices only, and always, go up, then
the meanings of "low" and "high" can get confused.  Witness

The re-education class is in full swing.

The following quote is from Matt Valley's essay in the May issue
of  National Real Estate Investor:

"Matthew McManus, chairman of Philadelphia-based NAI
Bluestone Real Estate Capital, says that after a lengthy hiatus a
growing number of lenders are starting to heed the advice that
a down economy is the best time to make loans.
"Lenders and investors have been playing defense for the past
12 to 36 months,” says McManus. “A lot of the defensive  tactics
have played themselves out. It's time to get money deployed
because if not now, when? When values go back up  again?
You want to invest while asset values are low and try to sell

Now all we need to do is figure out what "low" really is.

Po Bronson asks the question.............

......."What should I do with my life?"

I was recently led to Bronson's essay by that title in
Fast Company.


"I'm convinced that business success in the future starts with the
question, What should I do with my life? ................................
People don't succeed by migrating to a "hot" industry (one word:
dotcom) or by adopting a particular career-guiding mantra
(remember "horizontal careers"?). They thrive by focusing on the
question of who they really are -- and connecting that to work
that they truly love (and, in so doing, unleashing a productive
and creative power that they never imagined). Companies
don't grow because they represent a particular sector or adopt
the latest management approach. They win because they
engage the hearts and minds of individuals who are
dedicated to answering that life question.

Full essay here

Henry Ford (July 30, 1863 - April 7, 1947)

Henry Ford, being the creator of one of this country's great
corporations, was also the father of the modern assembly line,
the holder of 161 U.S. patents, an innovator of franchising
and vertical integration, and a tireless proponent of all things
automobile.  His thinking on employee relations may have
helped launch the "middle class". He was a major proponent
of the forty hour work week and the $5 per day wage (think

A more complicated and accomplished man would be
difficult to find.

Focusing on delivering inexpensive transportation to the
masses, Ford is widely quoted as saying, ""Any customer
can have a car painted any colour that he wants so long
as it is black".   That quote seems out of character with
his other business beliefs until you learn that black paint
dried faster than any other color.  It was the demands of
the assembly line that decreed the black paint, not Ford

Here is a collection of other Henry Ford quotes:

A business absolutely devoted to service will have only one
worry about profits. They will be embarrassingly large.

A business that makes nothing but money is a poor business.

An idealist is a person who helps other people to be prosperous.

Anyone who stops learning is old, whether at twenty or eighty.
Anyone who keeps learning stays young. The greatest thing in
life is to keep your mind young.

Before everything else, getting ready is the secret of success.

Business is never so healthy as when, like a chicken, it must do
a certain amount of scratching around for what it gets.

Coming together is a beginning; keeping together is progress;
working together is success.

Don't find fault, find a remedy.

Enthusiasm is the yeast that makes your hopes shine to the
stars. Enthusiasm is the sparkle in your eyes, the swing in
your gait. The grip of your hand, the irresistible surge of will
and energy to execute your ideas.

Even a mistake may turn out to be the one thing necessary to
a worthwhile achievement.

Failure is simply the opportunity to begin again, this time more

I am looking for a lot of men who have an infinite capacity to
not know what can't be done.
If money is your hope for independence you will never have
it. The only real security that a man will have in this world is
a reserve of knowledge, experience, and ability.

If there is any one secret of success, it lies in the ability to
get the other person's point of view and see things from
that person's angle as well as from your own.

If you think you can do a thing or think you can't do a
thing, you're right.

It has been my observation that most people get ahead
during the time that others waste.

It is not the employer who pays the wages. Employers only
handle the money. It is the customer who pays the wages.

It is well enough that people of the nation do not understand
our banking and monetary system, for if they did, I believe
there would be a revolution before tomorrow morning.

Most people spend more time and energy going around
problems than in trying to solve them.

My best friend is the one who brings out the best in me.

Nothing is particularly hard if you divide it into small jobs.

Obstacles are those frightful things you see when you take
your eyes off your goal.

 One of the greatest discoveries a man makes, one of his
great surprises, is to find he can do what he was afraid he
couldn't do.

Quality means doing it right when no one is looking.

There is no man living that can not do more than he thinks
he can.

There is one rule for the industrialist and that is: Make the
best quality of goods possible at the lowest cost possible,
paying the highest wages possible.

Thinking is the hardest work there is, which is probably the
reason why so few engage in it.

What's right about America is that although we have a mess of
problems, we have great capacity - intellect and resources - to
do some thing about them.

Thursday, July 29, 2010

An All Star team with the Dirt Band.....................

Bonus track.............................

Now that we are over leveraged.....................

The Deal Junkie posted an interesting video, here. Much of the
discussion is about banks not having to "mark to market" the
value of all the loans on their books, allowing both the banks
and their borrowers time to try to solve the problems and
"muddle through" the crisis. As discussed before, this blogger
thinks that is an OK thing.

They also discussed Commercial Mortgage Backed Securities
(CMBS), noted the steep drop off in originations after 2007,
and pondered the question of whether the commercial real
estate market can bounce back without securitization of

A graph, similar to the one below, appears on the screen
of the video several times (but in a pretty shade of orange).

The interviewee, Scott Rechler of RXR Realty, noted that
current originations are "a small fraction of what is was
historically".   It is not clear to me what  the historical  market
was.  The true bubble years were 2005-2007. Lots of
speculative investments and capitalization rates between 5%
and 7%.  Those were the years that the CMBS market really
took off.  The CMBS market may not have caused the bubble,
but it sure aided and  abetted it.

Rechler calls the market today "over leveraged".  He undoubtedly
is correct.  While part of that over leverage was caused by minimal
cash outlays by the investors, in my opinion, most of the problem
came from overpaying.  Too much money -cheap money- chasing
too few properties.   I'm not sure anyone will ever be able to
explain to me why smart investors think they can make money by
buying investment real estate at cap rates between 5% and 7%. 

Only the sellers and brokers win in that range.

Communication and creativity 'interfect'.........

I was reading "Searching as a way of life"  on Kevin Kelly's blog
this morning and came across the following sentence:

"Innovations increasingly interfect from other domains."

The post, at least my take of it, was about the need to take one's
blinders off and explore the wider world.  His contention is that
change way over there may impact one's world way over here.
Ergo, in a 'networked' world too narrow of a focus may be
a dangerous thing.

As to the above sentence: besides the alliteration, the word
"interfect" caught my eye.  At first I thought it was a typo, but
the then- I knew - he did it on purpose.  Interfect is what
happens when change in one place first intersects with, then
infects, another place.  Brilliant.

Webster's and better get with it.  Our language

Sour grapes.........................

A fable from Aesop (ca. 620-564 BC):

The Fox and the Grapes

"One hot summer's day a Fox was strolling through an orchard
till he came to a bunch of Grapes just ripening on a vine which
had been trained over a lofty branch. 'Just the thing to quench
my thirst,' quoth he. Drawing back a few paces, he took a run
and a jump, and just missed the bunch. Turning round again
with a One, Two, Three, he jumped up, but with no greater
success. Again and again he tried after the tempting morsel, but
at last had to give it up, and walked away with his nose in the
air, saying: 'I am sure they are sour.'

It is easy to despise what you cannot get."

Wednesday, July 28, 2010

Mike and Michael go nightswimming......

Calvin and Hobbes and the meanings of life........

click on the cartoon to enlarge

Thanks to Bill Watterson for hours upon hours of
entertainment and moments of illumination.

Can we hear an 'Amen' to this?

Thomas J. Barrack, Jr., a pretty smart guy in the world of
investment real estate,  paints a pretty clear picture of where
we have been, where we are, and where maybe we may be
going- here

A few excerpts here:

"Real estate investing is a complex, cyclical business made up of
trillions of dollars of disparate non-homogeneous assets. The
industry today does not lend itself to speculative trading based
upon cheap and plentiful debt and euphoric future rental growth

"The fast money, high velocity, handsomely leveraged, quickly
appreciating days of real estate investment are not in the near-
term tea leaves. Real estate has returned to the hands of real
estate professionals, not financial arbitrageurs, and most real
estate opportunities in the US involve hand-to-hand combat on
restructurings or intensive value-added implementation. In
either of those two circumstances, the process is slow and low.
It is anera of what real estate is supposed to be - singles and
doubles. Home runs will be few and far between, while the
World Series is still a bit in the future and only after a very
long season of individual games, made up of individual innings,
made up of individual at-bats."

"In summary, solid risk-adjusted returns will be made by true real
estate professionals with the tools and the teams to plow and
hoe... The business is not about inventing the next iPad or
launching the largest leverage buyout. It is about showing up,
doing a good job, harvesting reasonable returns for our investors"

"If my rendition of the above has been a bit tiring and boring, then
I have effectively conveyed my message. Thankfully, the business
has finally returned to the real real estate business."

This seems a bit counter-intuitive........

Headline reads:  "Supply of Homes Set to Grow".

First paragraph reads:

"Sales of new homes are near 47-year lows, yet the supply of new
and existing homes is expected to grow in the months ahead as
construction ramps up and a wave of foreclosed homes hits the

Full WSJ news story here

Some artistry from the sunrise............

Tuesday, July 27, 2010

Guitar hero...........................Carlos Santana

Good night moon...............

The moon sets in the western sky..............

I wish I knew how to zoom my phone's camera..

A few deer wander into the picture frame.....

Would he prefer they get fat instead?

"What's worrisome is that American business has gotten used
to being a lot leaner, and it could take a while before they
start hiring again."

- ROBERT C. POZEN, a senior lecturer at Harvard Business
School, on companies that are increasing profits by cutting back.

Full story from the New York Times  here

Since we recently had a brief lesson on Immanuel Kant..............

Here are a few things Kant is reported to have said:

"Two things fill my mind with ever-increasing wonder and awe: 
the starry heavens above me and the moral law within me."

"Freedom is independence of the compulsory will of another;
and in so far as it can co-exist with the freedom of all
according to an universal law, it is the one sole, original
inborn right belonging to every man in virtue of his humanity."

"Supreme Being is, therefore, for the speculative reason, a
mere ideal, though a faultless one,....the objective reality
of which can neither be proved or disproved by pure reason."

"By a lie a man throws away and, as it were, annihilates his
dignity as a man."

"A free will and a will subject to moral laws are one and the

"There is...only a single categorical imperative and it is this:
Act only on the maxim through which you can at the
same time will that it should become a universal law."

"With men, the state of nature is not a state of peace, but war."

"War itself, provided it is conducted with order and a sacred
respect for the rights of civilians, has something sublime about
it.....On the other hand, a prolonged peace favors the pre-
dominance of a more commercial spirit, and with it a debasing
self-interest, cowardice, and effeminacy and tends to degrade
the character of the nation."

Kant lived from 1724-1804.  I wonder if he ever went to war.

People respond to disincentives too.............

"If you do not believe that tax policy impacts private sector
decision making, look no further than the dreaded New York
State capital gains tax (the 'Cuomo Tax') increase  implemented
in the Empire State in the 1980’s. This tax was an  additional
10% tax on top of the existing capital gains tax on any property
sale over $1,000,000. Then Governor, Mario Cuomo,  felt that
this tax on 'rich real estate investors' would raise needed
revenue for the state. Transaction volume slowed to a crawl
during this period. Ironically, when the tax was eliminated, the
tax dollars collected actually increased as transaction volume
-Robert Knakal 

Full essay, about increasing investment real estate transaction
volume in New York City,  here.

Monday, July 26, 2010

A little piano from one of my father's favorites.............George Shearing

I recently followed a meandering path to Bill McBride's blog
Calculated RiskI've been returning.

Last week he posted the following chart (also here
where it may be easier to read):

I  took only one economics class in college (boring stuff
and they were scheduled for 8:00 am), so I am not an
expert at this subject.  However................

It seems that this chart supports the contention that one of
the primary causes of the current recession was the drastic
overbuilding that occurred 2000-2006.

Nowhere else on the chart is there another example of
such a sustained upward trend line at such a high volume
of housing starts as between January 2002 and January 2006.
One should note that the 2002-2006 acceleration followed
a ten year period where the trend line was also significantly
upward.  At some point you just run out of buyers.

Preceding every recession shown on the chart, the pace of
housing starts plummeted, until the mini-recession of 2001.
In that case, against all odds, and against common sense one
might add, housing starts experienced only a slight blip and then
took off again. Coincidentally, that "take off" happened about the
time that mortgage interest rates for 15 and 30 year fixed rate
notes began to really go low, no-document loans and sub-prime
mortgages were unveiled, and lending standards were forgotten. 
Hmmmmm. Selling houses to people who really could not
afford them doesn't seem like such a good idea in hindsight.

We are now paying the price for the unwillingness of policy
makers to actually let us feel the recession of 2001. 

If we had suffered a little bit more pain then, maybe we might
be feeling a lot less pain now.

Wondering if he is talking about blogging........

Thanks Hugh

The maturing of happiness.......

from Delivering Happiness: A Path to Profits, Passion, and Purpose

A Poem for Monday.................


So early it's still almost dark out.
I'm near the window with coffee,
and the usual early morning stuff
that passes for thought.
When I see the boy and his friend
walking up the road
to deliver the newspaper.
They wear caps and sweaters,
and one boy has a bag over his shoulder.
They are so happy
they aren't saying anything, these boys.
I think if they could, they would take
each other's arm.
It's early in the morning,
and they are doing this thing together.
They come on, slowly.
The sky is taking on light,
though the moon still hangs pale over the water.
Such beauty that for a minute
death and ambition, even love,
doesn't enter into this.
Happiness.  It comes on
unexpectedly.  And goes beyond, really,
any early morning talk about it.

-Raymond Carver

Sunday, July 25, 2010

One of the twelve dreams of Dr. Sardonicus....................

More from Tony Hsieh...........

Growing a business is fraught with risk.  Perhaps the greatest
risk is running out of cash.  Zappos came close to running out
of cash in 2003.  In June of 2003, Wells Fargo, after
performing significant "due diligence", provided Zappos with
a $6 million line of credit.  After signing the loan documents
Hsieh wrote an e-mail to "employees, vendors and friends of
Zappos".  If you read the letter, it becomes easier to under-
stand how Zappos went from non-existent in 1999 to selling
itself to Amazon for $1.2 billion in 2009.

A few more excerpts, taken from Delivering Happiness: A
Path to Profits, Passion, and Purpose:

"......we now have 200,000 pairs of shoes in our warehouse.
....The plan is to have over 600,000 pairs of shoes in our
warehouse by the end of next year, so that we can offer a
truly amazing selection for all of our customers."

"If we spend our money carefully and continue to constantly
improve the customer experience, we will reach over
$1 billion in shoe sales a year in the not to distant future."

"If we continue to be the leader in our space because of our
relentless focus on improving the customer experience...."

"Already, we've done a lot of revolutionary things that our
customers love.  We have the best in-stock shoe selection
anywhere, offline or online.  We provide free shipping and
free return shipping...for all of our customers as a standard
part of our service.  And although we promise our
customers they will receive their shoes within 4-5 days, we
upgrade the service for almost all of our customers....It's not
something we have to do and it's not something that will
increase our profits in the short term.  But because it's
something that creates a great customer experience...."

I've been looking for a great customer experience.  I've
been buying my shoes (mostly penny loafers) from a
teeny tiny independent shoe store in downtown Newark
for as long as I have lived in town.  Lately however, he
has been having trouble acquiring the shoes I want to buy.

I like being loyal, but I need some new shoes.  Ergo,
after I post this, I'm going to and buy a pair
of size ten cordovan loafers.  I'll let you know how it

Ice Age III - Buyer Distress and the Great Freeze.............

Fred Cordova, blogging at The New Nexus, offers a fairly
bleak outlook for our economy and investment real estate,

He does offer a path to success despite market conditions:

"Our thoughts for survival in Ice Age III:

1. Small is the new big. Look for the best opportunities to be
in smaller properties. Except for a few unique situations where
value recovery is limited or doubtful for at least 3 to 5 years,
few large assets will be sold at less than par by servicers and
lenders. They will more readily clear smaller properties (under
$10,000,000) due to volume.

2. There's opportunity in secondary markets. The flight to
quality in capital markets is pushing values in primary markets to
levels and cap rates reminiscent of 2006/2007. When offers on
boutique office buildings with 30% vacancy at 5% cap rates in
primary markets are turned down because it is still 12% below
par on the debt, it's a pretty sure sign that quality is getting a
very high "scarcity premium".

3. Ugly is beautiful. The worse the product is the more likely
the lender or servicers will foreclose or sell it through a receiver.

4. Pick your sandbox. There is money to be made in almost
any market, but you have to become an expert at understanding
and valuing the risk in that product and submarket."
A few thoughts:

I suspect Fred would think of Newark, Ohio as a tertiary
market at best, but there are investment opportunities here

I'm glad that small is the new big.  On a good day our entire
market may have four properties worth more than  $10,000,000.

"...offers on boutique office buildings with 30% vacancy at 5%
cap rates..." tells me that the insanity of the 2003-2006 years
is still a part of the market psychology.  It does not bode well.

“Why sell it, when listing it is so much more fun?”

Mathew Ferrara offers priceless advice for those of us who
have taken overpriced listings from time to time.  Here

A Prayer for Sunday.............

Lord, make me a channel of thy peace;

that where there is hatred, I may bring love;

that where there is wrong, I may bring the spirit of forgiveness;

that where there is discord, I may bring harmony;

that where there is error, I may bring truth;

that where there is doubt, I may bring faith;

that where there is despair, I may bring hope;

that where there are shadows, I may bring light;

that where there is sadness, I may bring joy.

Lord, grant that I may seek rather to comfort than to be comforted;

to understand, than to be understood;

to love, than to be loved.

For it is by self-forgetting that one finds.

It is by forgiving that one is forgiven.

It is by dying that one awakens to eternal life.


-An alternative form of St. Francis's prayer found in
"Twelve Steps and Twelve Traditions"