Saturday, June 25, 2011

For what it's worth....Part 2

Nobody does music better than Jetboy.  Plus, there is just
something special about New Orleans.  Quite the combination.
 Try this version of Buffalo Springfield's classic:

The problem with averages............................or, A story about a Kool-Aid hangover....

"In an average year, the US economy starts around
1.5 million houses...................."

Once upon a time the economy of the United States was all about
housing starts.  Maybe it still is.  Richard Green offers a post on
the topic here.  Telling chart here:

For those who prefer raw numbers to charts, go here for a
legible copy, or try to read this (double clicking may enlarge):

Professor Green notices the Catch-22 in the housing construction

"We are left with a quandary. For the economy to be
restored to health, housing construction needs to return to
normal--but there is no reason for it to return to normal. The
alternative--waiting--doesn't seem very appealing either."

He points to the decline of household formation as one of the
causes of the problem.  Maybe so, but this blog subscribes to the
binge-hangover explanation.

If the average year brings us 1.5 million new homes, what are we
to make of this:  during the nine year period from 1998 to 2007
the average number of new housing starts was 1,757,777 (if I am
doing my sums correctly).  It is important to remember that this
nine year period was preceded not by a trough in housing starts,
but by four years in which the average number of starts was
1,440,000.  That would make for a thirteen year surge in new
construction without a downturn. These sorts of numbers were
unprecedented.  Simply put, way too many houses got built.

The surge has many causes.  The Great Wizard Alan Greenspan,
federal policies that favored both housing and the expansion of
"home ownership", and Wall Street's creation of financing for all
are usually mentioned as the prime suspects for the surge and
subsequent bursting bubble. 

There is usually a search for villains after a bubble bursts.  This
blogger believes that while there were some, the search is really
sort of pointless - because.............

........lest we forget. 

Here is a partial list of people who benefited from the frothy
housing and finance markets of the early 2000's:
     Home owners
     Home buyers
     Home sellers
     Mortgage brokers
     Title Companies
     Home Builders
     Land owners
     Retailers and makers of durable goods
     Retailers and makers of fancy electronic stuff
     Retailers and makers of expensive toys
     Construction companies and workers
     Governmental offices (Recorder, Engineer, Auditor, Code
            and Zoning Enforcement, Planners, et. al.)
      Civil Engineers
      Heavy equipment companies

The list could probably continue, but you get the idea.  It is
pretty much all of us.  The guess here is that fully 75% of our
country had a vested financial interest in the twin beliefs that, not
only had the really smart people finally figured out how to make
the dreaded "business cycle" a thing of the past, but that we had
also arrived at the happy time when real estate values only went
up, and rapidly at that.

Fueled by, or more realistically drunk on, those twin beliefs, the
housing industry (and the country at large) ignored the fact that
they ran out of real customers for new homes sometime around
2003.  Rather than following the time honored path of slowing
down the number of  housing starts (remember by 2003 we had
all drunk the Kool Aid) we all kept the housing machine running
by expanding the pool of home buyers to include people who
could not afford the product. 

Following the patterns on the chart, we should have expected a
mild downturn in new construction - say  from 1,847,000 starts
in  2003 to 1,400,000 starts in 2004.

With all of our economic eggs in the housing market however,
such a slow down was not in the cards.  Instead, fueled by
relaxed lending standards, governmental support, and media
cheer leading, housing starts increased to 1,955,000 starts in
2004.  Turns out there were an awful lot of people, who given
access to credit, were willing to buy new homes they couldn't
afford. After all, real estate prices always increase - don't they?

The years 2004-2007 were a time of binging on debt and for
building houses for which there was no true market.  We now
have the hangover.  Unfortunately, the only sure cure for a
hangover is time.  It was  long and serious binge, recovery will
take a lot of waiting (and paying off debt and houses selling at
1998 pricing).  It is folly to expect another way out.

Patience is not usually a character trait ascribed to my
generation, or our society.  We are now getting a lesson in


Friday, June 24, 2011

For what it's worth.........

Be Happy...............

Happiness is not an accident.  Nor is it something you wish
for.  Happiness is something you design.

Happiness is the art of learning how to get joy from your

Happiness is not something you postpone for the future;
it is something you design for the present.

Learn how to be happy with what you have while you
pursue all that you want.

The greatest source of unhappiness comes from within.

How sad to see a father with money and no joy.  The
man studied economics, but never studied happiness.

- a few quotes from Jim Rohn's Treasury of Quotes

So honey, what would you like to do tonight?

You might have seen this photo last week.  It was all over the
intertunnel, including this blog - with a question mark on how
real was it.  Question answered.  Here is real for you............

Ahhh, Grasshopper...................

..........who am I to withhold a blanket and a bowl of rice....?

A change of consciousness......

Leon Aron at the Foreign Policy blog takes a look at the collapse
of the USSR twenty years ago.  Thinking the traditional answers
may not tell the whole story, he draws some new lessons; lessons
that may be applicable to the surprising developments of late in
the Middle East.

Full essay here.   A handful of excerpts here:

 From the Founding Fathers to the Jacobins and Bolsheviks, revolutionaries have fought under essentially the same banner: advancement of human dignity.

The fruit-seller Mohamed Bouazizi, whose self-immolation set off the Tunisian uprising that began the Arab Spring of 2011, did so "not because he was jobless," a demonstrator in Tunis told an American reporter, but "because he … went to talk to the [local authorities] responsible for his problem and he was beaten -- it was about the government." In Benghazi, the Libyan revolt started with the crowd chanting, "The people want an end to corruption!" In Egypt, the crowds were "all about the self-empowerment of a long-repressed people no longer willing to be afraid, no longer willing to be deprived of their freedom, and no longer willing to be humiliated by their own leaders," New York Times columnist Thomas Friedman reported from Cairo this February. He could have been reporting from Moscow in 1991.

......economic progress is not a substitute for the pride and self-respect of citizenship. Unless we remember this well, we will continue to be surprised -- by the "color revolutions" in the post-Soviet world, the Arab Spring, and, sooner or later, an inevitable democratic upheaval in China -- just as we were in Soviet Russia. "The Almighty provided us with such a powerful sense of dignity that we cannot tolerate the denial of our inalienable rights and freedoms, no matter what real or supposed benefits are provided by 'stable' authoritarian regimes," the president of Kyrgyzstan, Roza Otunbayeva, wrote this March. "It is the magic of people, young and old, men and women of different religions and political beliefs, who come together in city squares and announce that enough is enough."

One needs only to spend a few days in Moscow talking to the intelligentsia or, better yet, to take a quick look at the blogs on LiveJournal (Zhivoy Zhurnal), Russia's most popular Internet platform, or at the sites of the top independent and opposition groups to see that the motto of the 1980s -- "We cannot live like this any longer!" -- is becoming an article of faith again. The moral imperative of freedom is reasserting itself, and not just among the limited circles of pro-democracy activists and intellectuals. This February, the Institute of Contemporary Development, a liberal think tank chaired by President Dmitry Medvedev, published what looked like a platform for the 2012 Russian presidential election:

In the past Russia needed liberty to live [better]; it must now have it in order to survive.… The challenge of our times is an overhaul of the system of values, the forging of new consciousness. We cannot build a new country with the old thinking.… The best investment [the state can make in man] is Liberty and the Rule of Law. And respect for man's Dignity.

It was the same intellectual and moral quest for self-respect and pride that, beginning with a merciless moral scrutiny of the country's past and present, within a few short years hollowed out the mighty Soviet state, deprived it of legitimacy, and turned it into a burned-out shell that crumbled in August 1991. The tale of this intellectual and moral journey is an absolutely central story of the 20th century's last great revolution.

4 minutes and 8 seconds with the Kinks............

A parental dream come true...........

From the wide world of Sippican Cottage comes a happy tale:

"No matter what happened, they kept going, and used their
heads to solve their problems."

Full post here.  Cool home movie here:

  Thanks Greg

Thursday, June 23, 2011

A fitting and proper tribute..........

to a really, really good guy, here.  Well said, Kurt.

Unsettled Science........

".....all decisive events in the history of scientific thought
can be described in terms of mental cross-fertilization
between different disciplines."

-Arthur Koestler, The Act of Creation as channeled by Steven
Johnson in Where Good Ideas Come From

Real estate investment cycles..........

Tom Barrack has some interesting things to say about the cyclical
nature of real estate investing, and our economy at large, here.

Fun drawing of his risk/reward continuum here:

Thanks Joe

Ahhh, Grasshopper............. like the sun, and warm the earth.

Does this surprise anyone?

The Nanny State is annoying enough when they get things right,
though that doesn't seem to be their chief concern right now.

Full post on the "diet police" at work here.  Excerpt here:

“it now seems that the U.S. dietary guidelines recommending fat restriction might have worsened rather than helped the obesity epidemic and, by so doing, possibly laid the groundwork for a future increase in CVD,” cardiovascular disease.

Johannes Gutenberg, born this day in 1400 (maybe, we think......)

      "Sometime around the year 1440, a young Rhineland entrepreneur began tinkering with the design of the wine press. He was fresh from a disastrous business venture manufacturing small mirrors with supposedly magical healing powers, which he intended to sell to religious pilgrims. (The scheme got derailed, in part by bubonic plague, which dramatically curtailed the number of pilgrims.)  The failure of the trinket business proved fortuitous, however, as it sent the entrepreneur down a much more ambitious path.  He had immersed himself in the technology of Rhineland vintners, but Johannes Gutenberg was not interested in wine,  He was interested in words.

     "As many scholars have noted, Gutenberg's printing press was a classic combinatorial innovation, more bricolage than breakthrough.  Each of the key elements that made it such a transformative machine - the movable type, the ink, the paper, and the press itself - had been developed separately well before Gutenberg printed his first Bible.  Movable type, for instance, had been independently conceived by a Chinese blacksmith named Pi Sheng four centuries before.  But the Chinese failed to adapt the technology for the mass production of texts...........Thanks to his training as a goldsmith, Gutenberg made some brilliant modifications tot he metallurgy behind the movable type system, but without the press itself, his meticulous lead fonts would have been useless for creating mass-produced Bibles.

     "An important part of Gutenberg's genius, then, lay not in conceiving an entirely new technology from scratch, but instead in borrowing a mature technology from an entirely different field, and putting it to work to solve an unrelated problem...........But it is clear that Gutenberg had no formal experience pressing grapes.  His radical breakthrough relied, instead, on the ubiquity of the screw press in Rhineland wine making culture, and on his ability to reach out beyond his specific field of expertise and concoct new uses for an older technology.  He took a machine designed to get people drunk and turned it into an engine for mass communication."

Where Good Ideas Come From,  Steven Johnson

It's by your side I'll stay..................

Wednesday, June 22, 2011

Systems failure......................

After a three month hiatus, Alan Webber returns to the
blogosphere with a post suggesting.................

"..........American business has lost track of the real point of
the game.

We've substituted pure financial return for the larger purpose
of business--to create and grow a sustainable organization
capable of making and keeping customers, developing a
strong group of committed employees, and contributing to
the larger benefit of society. And make a profit.

But not just to make a profit.

And not to maximize shareholder value.

Not to make a profit at the expense of sound business practices.

Not to make a few people as wealthy as possible."

The "Rich" playing poorly with others................

From the always interesting Coyote Blog:

..................because of too much government.....?

"Rich people have more power today to abuse their relationship with government for the simple fact that the government has a lot more power to be commanded.

"As I tell people all the time, if you want to limit the special powers the rich wield by influencing politics, the only solution is to limit the power of the government."

................because of too little government....?
Today's zoning laws would not allow one to build a four story
"spite" wall on three sides of a neighbor who refused to sell
his home to you, ala Charles Crocker in San Francisco in the
late 1800's.  Nice touch that.


Exactly when were those "good old days"...?

Mathew Ferrara has a post discussing the changing psychology -
and reality- of residential real estate today.  Here.

An excerpt or two:

The housing market is experiencing a transformation of generational proportions. If these five headlines tell us anything, it’s that housing will never “go back” to the old days. Are you prepared

People’s view of housing has been irrevocably altered, even if most still desire to own their own home, as surveys say. A deep skepticism may settle into Gen X and Y about industry claims about housing as an “investment.”

This blog has long opined that those who long for a return to
the market place of 2005-06 will have to wait for a very long
time. If we are lucky, it will never return.

I always wonder what folks mean when they discuss the "old
days" and housing markets.  This notion of housing as an
"investment" is fairly new. While no scholarly work is being
done here, I suspect this idea is a product of the baby boom
generation - both its head count and its prosperity.

My parents did not buy a house as investment, they bought
a home to grow two children, a garden, and a life together.
The fact that their home appreciated in value about twenty
times over their 50 years of ownership was just a happy
accident.  They had no clue, or desire, that it would happen.

The sooner we return to that philosophy of home ownership
the saner we will all be.

Now and then.......................

Note to self...........

Thanks Hugh

Tuesday, June 21, 2011

Sell high.........Buy low.....

This is what a good sized  bubble will do for you:

Shrewd investments enable farmers to live off the land
they sold, then bought

Full post here.  Fun excerpt here:

"On a recent warm afternoon, the brothers stood behind a weathered, vacant white-frame home and barn north of Black Road in Shorewood, on 246 acres that, at their peak, sold for $65,000 an acre and in 2005 were annexed by the village and zoned for more than 400 single-family detached homes.

"The Baltz brothers paid $3.6 million, or about $14,500 an acre, for land that already has subdivision utilities brought to the property line. This year, though, the only thing rising out of the dirt will be the corn that Bob Baltz planted last month."

20 Factors affecting commercial real estate value

Duke Long has a guest post up on his very excellent blog, here.
Jim Baker, a CCIM, offers his "19 Factors Affecting Value In
Commercial Real Estate."   To save you from following a link,
here are his factors:

1. Location: Location most always is one of, if not the main,
factor to value.

2. Highest and best use: The current use is not always the
best use.

3. Cyclical demand: Retail, office, industrial, residential;
depends on the economy.

4. Marketing time: How motivated are you to quickly sell
or lease?

5. Market driven value: Buyer/Tenant’s best offer vs.
Seller/Landlord’s bottom-line.

6. Site vs. Improvements: Improvements: add to or subtract
from the market value

7. Lease value: What is the property’s net lease value?

8. Financing: Affects value; cash, bank, or owner; down
payment; interest rate.

9. Vehicle impact: driving times; ingress/egress; traffic
counts; traffic lights.

10. Demographics: Population; income, age, educational
levels; family stats, etc.

11. Competition: From other properties or from other name
brands in the market.

12. Taxation issues: Effect taxes for the seller/landlord
and/or buyer/tenant.

13. Zoning: What is the current permissible use or what can
it be changed to?

14. Creative sales/leasing methods: Auctions;
trades/exchanges; sale/leaseback; etc.

15. Multipliers and “rules of thumb”: What do you use to
judge value?

16. Income (appraisal) approach to value: Net income
divided by return desired.

17. Market (appraisal) approach to value: Comparison to
similar sold properties.

18. Cost (appraisal) approach to value: Cost of site + cost
to build – depreciation.

19. Net lease value: Determined by competition in the
market and demand factors

The last five don't really affect commercial real estate value as
much as they measure it.  Well......maybe I need to reconsider
that.  We, along with most of the rest of the industry, have of
late been adversely impacted by what we consider negative, or
low-ball, appraisals.  These matter only when your mortgage
lender say they matter.  At that point, they matter a great deal. 
So, I guess in the 2008-2011 era, appraisals do affect values.

It is a pretty fair list.  I would add at least one more, though.

20. Adaptive Re-Use: A building that can be affordably
adapted to many uses other than its current one, has
more value than a "single purpose use" building.

We've made a fun, interesting, and profitable (so far) career
out of adapting older and unloved buildings to new uses.

On political pragmatism............

Andrew Sullivan weighs in:

"Pragmatism means cutting the Grand Bargain of the 21st Century: tax reform, revenue increases, and entitlement and defense cuts. You cannot take away one of these three legs and hope the stool will stay upright."

Los Bravos......Black is black 1966

On the need for clear thinking............

Thanks Jessica

Monday, June 20, 2011

A Poem for Monday

No man is an island,
Entire of itself.
Each is a piece of the continent,
A part of the main.
If a clod be washed away by the sea,
Europe is the less.
As well as if a promontory were.
As well as if a manor of thine own
Or of thine friend's were.
Each man's death diminishes me,
For I am involved in mankind.
Therefore, send not to know
For whom the bell tolls,
It tolls for thee.

-John Donne
Or, if you prefer the original prose.......................

"No man is an iland, intire of it selfe; every man is a peece of the Continent, a part of the maine; if a clod bee washed away by the Sea, Europe is the lesse, as well as if a Promontorie were, as well as if a Mannor of thy friends or of thine owne were; any mans death diminishes me, because I am involved in Mankinde; And therefore never send to know for whom the bell tolls; It tolls for thee...."

-John Donne
Meditation 17
Devotions upon Emergent Occasions

All about attitudes............

Thanks Nicole

Walker Brothers talking about the sun -1965

Sunday, June 19, 2011


Clarence Clemons dies...........

Miss you Dad...............

Happy Father's Day kids..............

Happy Fathers Day

Sunday's Verse

13  Ye are the salt of the earth: but if the salt have lost his savour, wherewith shall it be salted? it is thenceforth good for nothing, but to be cast out, and to be trodden under foot of men.

14  Ye are the light of the world. A city that is set on an hill cannot be hid.

15  Neither do men light a candle, and put it under a bushel, but on a candlestick; and it giveth light unto all that are in the house.

16  Let your light so shine before men, that they may see your good works, and glorify your Father which is in heaven.

Mathew 5:13-16
The Holy Bible, King James Version

It is not so much an answer to........

Feynman's quest from yesterday as it is a whole shift of paradigm.

"Sometimes we think that Christianity will be communicated when we become really intelligent or really articulate. But Christianity is communicated the same way diseases are — it’s communicated through touch, through breath, through life, not through information. And Christian vitality does not come from having a great head, but it comes from being connected to a great God who really is life..."

Thanks Nicole

Vonnegut: On how to craft a tale.........

"People love that story.............they never get sick of it."