Sunday, August 30, 2009

Today's Backyard

Rainbow over the ocean after a rainstorm.

Great crested flycatcher in live oak after rain.

Friday, August 28, 2009

Don't Squeeze The Charmin

I've been watching the recent series of Charmin commercials, the one's featuring a family of bears, with increasing distress. For the past decade television has broken down barriers of discretion. We have Trojan man pushing condom use, the Pepto-Bismol diarrhea dance, and cartoon toenail fungus monsters. Charmin has used the family of bears as avatars for human beings. I am so cynical these days about TV advertising that I'm not positive the choice of a bear was random--we all know the age-old question concerning what bears do in the woods.

The first commercial featured papa bear taking a newspaper and squatting near a tree, where a roll of TP was at the ready on a low-hanging limb. The next commercial showed family bear members rubbing their posteriors against a tree trunk, apparently to relieve the irritation caused by that particular brand of tissue made from remnants at a sandpaper factory and distributed to hotels and public bathrooms the world over. The latest commercial shows a bear butt full of little toilet paper balls, a jab at the structural integrity of their competitors product. Enough already! I don't want to see a linty butt on anyone, including a cartoon bear.

In fact, the mere presence of this commercial begs the question--"How did Charmin discover this flaw in the competition's product"? Was it their research staff, and if so, how was the experiment conducted.... "Jim, take a roll of Brand X, go observe Joe's butt after he's done his business and report back on the size, quantity, and shape of any leftover particles."

Or maybe some senior exec reported a personal epiphany to the CEO. I imagine the conversation went something like this: "Hey boss, I was using that Cottonelle stuff the other night and it left....stuff....back there". The CEO would respond "That's great news, we'll get it to marketing. By the way, why were you using Cottonelle in the first place? Mr. Whipple would be ashamed of you. Clean out your desk after work."

After further research, it struck me that they perhaps learned this from reading comments on their competitor's website. Don't believe me? When I went to Charmin's web site to steal the graphic above, I noted they had a bulletin board where people post reviews of their product. And, apparently folks feel very strongly about their paper. Charmin must have recently changed the composition of their paper with Aloe added, and the public is outraged. Here are some actual comments from the web site:

"Useless. Why would you change a great product? We've been using Charmin Plus for years...and now you've lost a customer. Cheap, falls apart, doesn't flush and not a hint of lotion". Anon from Austin, TX

"We have been using Charmin Plus for years and the replacement does not live up to the original. It does not feel "right" and it FLOATS. If you can, please bring back our Charmin Plus". Sailor-Tulsa, OK

"I came to the website to see if I could report my unhappiness with the change in your product. I was a loyal customer and do not like the new version" melreg-Wilmington, NC

"....[Even though the label was different] I went ahead and bought [the new] product anyway. I have to because of sensitivity issues. It felt nothing like I was used to." Xinstar-Nashville, TN

And you thought your life was empty! These reponses cover twenty full web pages!

Sunday, August 23, 2009

Outer Banks Economy--How The Lights Went Out

There are three books, two of recent vintage I'd recommend everyone involved in real estate and housing read. The first is by Richard Posner, a Federal judge on the 7th Circuit U.S. Court of Appeals. When not adjudicating, Posner writes often on political and economic issues. His latest, A Failure of Capitalism was part of my summer Econ 6000 class at ECU. It was published this year and thus covers recent economic policy, including TARP and various Obama policies that were floated at the time of publication. It runs 300 pages, but its a small book and easy to read.

The second tome is Getting Off Track by John B Taylor, a conservative economist most often associated with the Hoover Institution. This book was also released in 2009. It's only 85 pages, but does contain some hefty graphs and economic measurements for the reader to digest.

The final book is Against the Gods, by Peter Bernstein. Last revised in 1998, this book is actually a history of the concept of risk and risk projection--commencing from games of odds in Roman and Greek culture, the introduction of advanced math brought from the Arabic world (the concept of zero was a major advance) and the nascent practice of using past history to predict future probability. Eventually industries such as modern insurance, and even the hedge and derivative funds evolved as mathematical models became more complex. Ironically, the book ends with a commentary on derivatives and their potential risks and upsides.

What has all this to do with our sand bar? Let's start with Taylor. In his book he points a finger at two concurrent events: artificially low interest rates from the Federal Reserve, coupled with loose lending policies in the mortgage industry. Taylor "invented" the formula by which the Fed should set interest rates, and it is now called the Taylor Rule. In short, the Fed rate should be:

1.5 x the Inflation Rate + 1/2 times the GDP gap (the measurement of where GDP deviates from its normal trend line) plus 1. Thus, if inflation is 5%, the GDP gap 3%, the Fed rate would be 10%; 5 x 1.5=7.5; 3% x .5 = 1.5; plus 1. 7.5 + 1.5 +1 = 10.

From 2001 until mid 2005, the Fed deviated from the Taylor Rule significantly. In 2003 and 2004 the Fed rate was 1%, while the Taylor Rule would have gradually increased the rate from a low of 2% to 4%. By 2006, the Fed and the Taylor rule were in synch at 5.2%, but only after the Fed increased rates sharply over a very short period of time. This created the "door slamming" effect I mentioned in the previous post.

Many liberal economists blame a worldwide savings glut on the low rates (the more people are willing to save money, the lower the interest rates offered by banks). While the rest of the world did indeed experience a savings glut, the US did not, and our savings rate more than offset the rest of the world. In short, there was no aggregate savings glut.

Typically, very low Fed rates would fuel inflation, and are thus historically rare.

So, how did interest rates stay low and not fuel inflation? The primary answer lies in cheap imports, especially from China, which offset domestic price increases, and the necessity of both Chinese and Middle Eastern governments to recycle and stash excess cash--which they chose to do in US Treasury holdings rather than their own currencies. This demand for US dollar holdings brought down the interest rate on government bonds.

The major European central banks followed suit, and rates became low worldwide. The next problem involved the derivatives used to insure mortgage backed securities. No one agency, national or domestic kept track of these. When the global economy began to contract, central banks misread the problem and tried to unfreeze credit markets by pumping more money into the system. But, liquidity was not the issue as it turns out. It was fear of "counterparty risk"; if my bank is holding one side of a hedge and my bet turns out correct, would the other bank (which bet the opposite way) have the funds to pay me off? Once mortgages began to default worldwide, the bank-to-bank distrust of whether their counterparts in derivatives were solvent began a rush to cash in those policies, and at the same time, dried up the market for new offerings.
The funding mechanism for mortgages disappeared rapidly.

Using empirical methods, Taylor created a model that demonstrates in the United States, housing starts from 2003 to 2005 would have peaked at 1.7 million annual units in 2003, dropping to 1.5 million in 2005. Instead, housing starts ran from 1.8 million 2003 all the way up to 2 million in 2005. By 2006, starts were 2.1 million when the Taylor Rule would have created only 1.5 million. In short, low interest rates created about 500,000 more housing starts per year over a period of 4 years, giving us our current inventory overhang of more than a million units.

Enter Posner. He also attributes the problems exactly as Taylor---low Fed rates, a misreading in 2007 of a liquidity crisis when it was actually a "counterparty risk" aversion, loose lending policies by banks (spurred by demand for housing and some political pressure), and finally, no central oversight of the "big picture"--how loan products, rising home prices, derivatives, mortgage backed securities and other factors were independently driving us over a cliff.

Posner takes a rational approach, and as I mentioned yesterday, joins me in discounting the effects of "greed". Instead, he takes a market psychology approach which says "Everyone acted rational as individual entities, but their collective actions were irrational". The problem? No single government entity was in charge of watching the entire situation. Authority was spread between the Federal Reserve, the FDIC, state banking regulators, insurance regulators, and the Securities & Exchange Commission. In some cases, such as derivative markets, no regulatory agency had oversight.

How does he discount greed? Let's work from the bottom up.

-As an individual home buyer, is it irrational, or even greedy to "take a chance" on buying a new house if no down payment is required and rates are low? The answer is no. People were able to own a home, move to better neighborhoods, and do so without risking much money. If the decision turned out badly, they would walk away from the chance with no potential economic loss.

-Banks knew there was a bubble early on, but how to react? Past bubbles saw corrections in price of 20% or less, so past history predicted most mortgage loans were safe bets based upon collateral values. Even the 100% loans were backed by insurance the banks assumed were solvent and reliable. If a bank got scared and scaled back lending, what would shareholders demand of management when other banks were making record profits? Money would have either left the "conservative" bank to those banks recording record profits, driving down the stock price of the "safe" bank, and management would have been replaced by shareholders for more aggressive leadership. Thus, most banks stayed on the train and held on for dear life. In short, management acted rationally in their own interest, and none of them could conceive of a system-wide bank failure since none had occurred in any of their life times. The downside was that their bank might fail, but with FDIC insurance and pre-arranged mergers, depositors and shareholders would likely fare well even in failure.

--A mortgage lender or broker is being offered loan products by the likes of Countrywide and others where clients do not have to verify income if the loan to value is below 70%. Why did mortgage lenders offer those products? Because past history indicated very few borrowers default on loans where there is considerable equity to lose. And, if the mortgage lenders were not requiring income verification, why would a broker turn a loan down if someone claimed too little non-verifiable income to qualify? If the lender stuck to the denial, which by law would reveal the reason for denial was "insufficient income", the borrower would simply move on down the road to the next broker and state a higher income in order to qualify.

The big "banks" buying these loans felt the collateral value predicted few defaults, and the brokers matching the loans to the lenders were not required to vet or verify the income. Now we bandy about the word "mortgage fraud" when applied to brokers and others, but in reality, it was the lenders offering the products that led people to lie on a loan application. Unethical on the part of the borrower? Yes. Fraud? How so, if income wasn't verified and everyone knew that. And how did the loan to value become 70% with no money down? Because the value of homes was rising so fast, a home costing $500,000 to build was actually appraising at $700,000 or more. Thus, we had a 70% loan with little or no money invested by the borrower.

--Builders were definitely not irrational. Spec homes (those built without being pre-sold) were being snapped up before the homes were finished, and this trend had held from 2001 until 2006. Appraisals indicated the value of the home would be higher at completion than it was projected to be when the house was started. Loan rates were still cheap and creative, down payments were minimal. And, the government assured all of us, time and again, that there was no bubble. Greenspan spoke often on housing, and each and every time he dismissed the housing bubble as a danger. So, builders reacted to the market in a very rational manner.

--Investors in mortgage backed securities took the word of bond rating agencies (which had always been accurate during the previous 70 years) and invested heavily in the MBS market. This included pension funds and even foreign governments. How is it greedy for an investment entity to seek out the best return, especially if said return is rated safe by heretofore respectable bond rating agencies?

As Duke Geraghty said on my Facebook page yesterday, it really wasn't greed, it was ignorance of the facts and dangers.

Finally, Bernstein is good from a historical perspective. It explains how the evolution of risk assessment led to our thinking that our mathematical models were error-free, and led us to continue economic activities that our guts were telling us didn't make sense. If it seems too good to be true, it probably is.

Sorry for the long post, but do read these books. I think it will help us all going forward....until all of us in this generation are gone like those from the Depression era, and a new generation will make the same mistakes again.

Friday, August 21, 2009

OBX Economy-The Day The Lights Went Out

Before we start, one major housekeeping note: If you click on the graphs, they will enlarge for significantly easier reading.

If I told you one could almost pick the exact day the Outer Banks economy entered into a free fall, would you believe it? When you hear a comment such as "It was as if someone turned off a light switch", is this a true statement? Didn't we all learn in college that except for 1929, the economy never jumps off a cliff and commits suicide in the matter of a day. Behold the chart below, and be sure to enlarge it:

This data and graph were compiled by David Watson at Southern Shores Realty, whom I thank for allowing me to use it here. What we see is a chart that begins in 2003 and every two months picks up three data points: houses under contract (the bottom line), active listing (the middle line), and total listings (the top line). Note the data excludes Hatteras Island, but includes the rest of Dare, Currituck's beaches, and the southern part of mainland Currituck. I shudder to think what a chart with Hatteras would resemble.

While an official recession was not declared until the end of 2008, Dare County's primary local industry (relative to wages and the number of jobs provided) of real estate/construction and associated support services totally shut down around June 1, 2005. It was this point in time where the raw number of listings and sales began to diverge. Note this didn't happen slowly, there is no gentle slope in either the listings or the sales--both data sets move sharply up or down and then settle in with an enormous gap that has persisted almost four years.

Why? The most common knee-jerk reaction is to credit the entire mess, both locally and nationally to "greed". It is a favorite phrase slung like hash by the media, the left, populists, and almost anyone with an axe to grind against the free market. I've probably been guilty of using the term myself.

In truth, I attribute very little of our current dilemma to greed, with the possible exception of the bond rating agencies and the folks at the major lending organizations who developed the loan products that allowed even my pet cats to qualify for a rental home.

And, while the Clinton-Bush focus on "affordable housing" may have forced Freddie, Fannie and some banks to offer risky sub prime loans, this most certainly was not the case in Dare County. Sub prime loans were not a major factor locally, nor are our foreclosures falling heavily into that category.

So what else could have precipitated the crisis? On a national scale, I'd credit 20% to Congress, including prominent members of both political parties for shoving sub prime down the throat of the banking system. Locally, 0% to sub prime.

But I'd award a large.....say 50%, of the blame to Alan Greenspan and the monetary policy of the Federal Reserve. Here is a chart showing the Fed rate over the 2003-2008 time period: (Enlarge by clicking)

Note the really flat area of interest rates between 2003 & 2005? Now, let's look back at the previous chart, shown below for convenience.

Ah ha! The healthy sales numbers dovetail perfectly with the trough in interest rates from 2003-2005. Now look at the time frame where sales dropped and listings climbed; it also dovetails perfectly with the Fed's rapid increase in the cost of money, i.e., in the summer of '05. In short, the Fed kept rates artificially low for far too long, and then slammed on the brakes far too fast in order to cool down an overheated housing economy they had created. The OBX economy seemed to react immediately, like someone allergic to bees when stung on the golf course.

Boy, I sure wish I had access to Watson's charts back in the day. I would have avoided a bad decision or two about keeping the construction pipeline open. Data, data everywhere but not a drop to drink!

And, thanks to Sue Carroll and the great folks at the Outer Banks Chamber of Commerce, here is a graph of housing starts during the run up to the crisis--from 2000 to 2005:

One can easily see that over 5,000 units were built in that time frame, including 1900 in 2002 and 2003 alone. Add to that the fact that it takes about a year to build a large rental house, we have an explanation for 2004. Work was already underway before the Fed shut off the money supply. And 2005? The national recession wasn't apparent until 2008, and the supply of money for high end vacation homes didn't disappear until late 2007. The government and the banking industry were actively denying that there were problems looming on the horizon. So, hardy souls and optimists continued to build in 2005 and even 2006.

The rest of the blame, about 20% I assign to the bond rating agencies (Moody's and Standard & Poor's) who had no business, much less enough historical data, to give A+ ratings to Mortgage Backed Securities and the derivative products that insured the MBS's based upon those credit ratings. I also assign blame to the senior managers at national mortgage companies such as Countrywide, Citibank, Lehman Brothers, and Washington Mutual who invented what become known as "Alt-A" loans. "Alt-A" was essentially a no-doc, no-income verification loan based upon credit score, loan to value, and little else. Mostly wealthy borrowers used this program to finance 100% loans on rental homes.

Why was Dare affected two years before the rest of the nation? I believe in this one instance, Dare was a bellwether for the rest of the nation. Our homes are not primarily domiciles or necessities; they are luxury items owned by wealthy borrowers. It is my opinion that these people, being around money themselves, sensed a slowing in the economy before the rest of us became aware. Perhaps they were already in the industry (real estate agents, mortgage lenders). Or, maybe the companies they managed started realizing a slight increase in receivables and problems collecting money from their own clients. Or maybe they all realized they were riding a huge bubble and panicked at the exact same time. The latter explanation makes the most sense; interest rates skyrocket, sales slow, owners panic-sell, and the bubble bursts.

I'd love to know why listings increased so dramatically between May 2005 and May 2006, where they finally settled in around 2800. Were they housing starts in progress that finally came on line--after the Fed slammed the credit doors shut? Or did flippers and investors panic after noticing "days on market" for a listing went from 3o to 100 and on to 180 days. Perhaps it was both.

In any event, as my buddy Duke requested, the "No Spin Zone" from this ex-banker sez low interest rates from the Fed created an abnormally high demand for housing. As a luxury market, we were hit first. And, given the demise of the secondary mortgage market and the focus by Obama and Bush on primary residences, jumbo loans on investment homes have all but dried up. And no one in Washington cares if there is a market for $1 million homes or even a market for true residential homes when our lot prices are stilling kissing $100,000 on the west side of the "Big Road". In short, we'll be the last area to emerge from this recession also.

Next post I will wrap up with a shorter post on some great books to read and some closing remarks. About those books, by the way. You didn't really think I was smart enough to think this stuff up myself did you?

Tuesday, August 18, 2009

Fits and Starts

I still have one or two more technical blogs on the local economy left in me, but my laptop is temporarily at the hospital, so I don't have access to the last bit of data I wanted to plot. In the interim, I'll trash talk Citibank.

Today, I received a notice in the mail from Citibank, which now handles the ubiquitous Sears credit card. I hardly ever use the card except to get an in-store discount when they offer one for its use. I've never carried a balance longer than 25 days in over 30 years as a cardholder. My notice today, blamed on "unprecedented market conditions" raises the interest rate on the card from its current paltry rate of 21.99% APR to a new, more reasonable APR of 25.24%. Citibank received $45 billion in TARP funds, and they reward middle America by taking an already usurious interest rate and increasing it that rate 15%. Wow!

As Mr. Roger's used to say, can you say "pttthhhhh"?

Sunday, August 16, 2009

Lobbing Softballs at Team Obama

As I've mentioned before, the tech world appears absolutely smitten with our new president. Several reasons probably account for their fascination with Obama, including the fact he not only knows what a Blackberry is, but appears to be as addicted to his phone as many of us are. But, a recent interview in the July '09 issue of Wired magazine reveals the danger of too much affection for powerful political figures. Wired's Nicolas Thompson interviewed Vivek Kundra, the U.S. Government's first-ever "Chief Technology Officer". Kundra's job is not only to convert the current mass of government web pages and data into common formats and easy-to-find locations, but also to bring forth any and all government data not subject to classified status. No one disagrees with transparency, so in the aggregate, I like the new direction Kundra is proposing. But then this exchange between Wired and Kunda bothered me:

Wired: Where do you start?

Kundra: One, we're going to look at which feeds are most popular and which the public are demanding. Two, we want to advance the president's agenda around health care, around energy, around education. (Emphasis mine).

Now wait a minute. Is this guy the government's CTO, or is he an extension of the Obama campaign now hiding under cover as a bureaucrat? Not to worry though, for the intrepid Wired reporter caught this also and hit back hard. Kinda sorta.

Wired: But won't people say you're releasing one feed because it makes Obama look good but not another that includes something embarrassing to the Administration?

Good question. And Kundra's response:

Kundra: Well, look at health care. As the president said, it's one of the most urgent problems affecting our economic future. So it makes sense to get the most innovation in that area.

Huh? Kundra didn't even attempt address the issue of Obama manipulating data in the name of U.S. Government. Instead, he made a lame appeal to the health care issue, as if that alone creates an "ends justifies the means" scenario.

And how did Wired follow up this dodgy response? By asking Kundra this:

Wired: Give me an example.

And so Kundra now goes on to tell us that not only will the next U.S. Census collect all that invasive data they wanted ten years ago, but Census-takers will now be equipped with GPS's to record all of our address coordinates so epidemics and the like can be tracked. Ouch.

I know I beat this subject to death, and my regular readers know I am not a fan of George W Bush in either his policies or his intellectual abilities to manage the country. But, if Bush had said he was going to use what is supposed to be a neutral bureaucracy to manipulate information and advance his agenda through the Internet, the NY Times and the Washington Post would be howling. And the ACLU would be screaming about recording the GPS coordinates of every residence and placing it in a government database.

Finally, the Wired writer completely let Kundra off the hook on one of the most important and troubling questions in the entire article--is Obama going to manipulate government data in order to advance his own agenda? And should the government CTO be using the Internet to advance Obama's agenda in the first place? The lack of a promise from Kundra and the evasiveness of the answer should bother all civil libertarians, including Obama's most ardent supporters, and especially a technology magazine that has trumpeted privacy rights in the electronic world since its founding. We heard endless complaints about Bush and privacy concerns in the war on terror, and we all know what happened when Bush apparently manipulated government data to build a case for the Iraq war. Where are those media screamers now at MSNBC, Colbert, The Daily Show and the Big Three newspapers?

Saturday, August 15, 2009

Boxed Wines & More

Chenin Blanc is an often overlooked white wine. Folks tend to stick with the varietals with which they are most familiar, and for white wines that typically means chardonnay, sauvignon blanc and riesling. The grape hails from the Loire Valley of France, where it can run from super sweet dessert wine quality to a bracing, off dry character. Often, the French add sugar to hide a poor crop, much the way California winemakers attempt to mask crappy chards with tons of oak.

South Africa is the other major producer of this grape, where it was called Steen. It is the most widely planted grape in S.A., although sauvignon blanc is catching up quickly. The above wine, the 2008 Ken Forrester Chenin Blanc Stellenbosch runs about $9-$12 and is only very slightly off-dry. However, it has a firm backbone with nice acidity and hints of citrus/orange. It went surprisingly well with the spicy beach & California sushi rolls from Taiko. It would also make an excellent sipping white for a summer party. Well worth the effort.

The next entry is Andes Peaks Select Chardonnay, another boxed-wine adventure. I found this one for about $21 at the Harris Teeter in Kitty Hawk, but did not see it at the KDH H-T on my last visit there. This is a 3 liter box, so once again, you're getting the equivalent of 4 bottles of wine for a very low price. Hailing from Chile's Central Valley, this is another place where non-oaky and acidic chards are making headway and producing quality wines. This wine was steely, which I like, although it seemed to impart just a hint of metallic taste. The color is pale straw, and there is a hint of bread smell, just like sparkling wines with heavy chard concentrations. If you like well balanced Chardonnay without heavy-handed oak, I would give this wine a try. Since its designed for fridge storage, you might want to let it warm up a tad after pouring. Andes Peaks won't knock your socks off, but it is better than many bottled chards that sell for twice the price.

Wednesday, August 12, 2009

Outer Banks Economy--Back to the Topic

After taking a break from the somewhat boring topic of economics, I'm back with something a little less data-laden and more opinionated.

I was prompted by watching a news conference last week on television where President Obama emphatically stated (and bragged) that his Administration had succeeded in unfreezing the credit markets and money was now flowing into the economy.

It is interesting that when Bush and Obama were vying for election, newspapers often carried stories about some small business experiencing a situation whereby the bank had called in or cut off their credit line. Now, those stories, as well as the obligatory tear-jerker--- families losing their homes, have disappeared. The problem is, the President is wrong. Credit has not begun to flow and both small business and homeowners are being further stressed by a lack of liquidity and access to funding.

Since I left commercial banking, business people come to me each and every day with these kind of stories. In most of these cases, lines of credit, which are crucial to small businesses are being withdrawn by banks. What has happened is that while the business has continued to make timely payments on the line, they were not able to pay the balance down enough to please the bank. Also, most credit lines are not secured by real estate, but rather inventory and equipment, which carries a higher risk rating in the eyes of a regulator. I haven't heard this story once or twice; its more like a dozen or more times. In two specific cases, the company I reviewed actually did better in 2008 and 2009 than years prior, yet the bank has still elected to throw them under the bus. And rates? In some cases, if loans are renewed, the banks are raising rates to record levels even as the Fed rate hovers near zero and they offer us a whopping 2% on a 12-month CD. If the banking industry does end up being nationalized, they will have deserved it in my opinion.

I have seen communications from bankers in forms I won't describe, directed to clients attempting as hard as they can to work out a bad situation. The tone of these communications are arrogant, threatening and abusive. Apparently, if you give some people a Sr. Vice President title, its a license to abuse. Perhaps bankers need to be 50 years old before they are allowed to communicate with distressed and stressed clients. The mortgage side is the worst offender, but I've seen some disappointing contacts from commercial and consumer lenders based locally. The issue with mortgages is that while the secondary market provided tremendous capital flows to finance home-buying, in the process we lost the local contact aspect, once your bank sold your loan, you no longer had a person to work with on problems.

Much the same is occurring on the residential front. Right now, one can barely obtain a mortgage loan on a condo of any kind, even a primary residence. "Investment" homes are equally difficult to finance, including those with 25 or 30% cash down payments. Appraisers, tired I assume, of being sued or harassed over appraisals conducted at the peak of the market have now swung the pendulum in the other direction--often appraising the value of proposed new construction lower than the actual cost to build.

How can a house be worth less than what it costs to build? Easy. Banks are dumping properties on the market that are being sold for less than the cost to build, but this inventory isn't exactly flying off the shelf. However, with nothing else selling, (thanks to the bank's markdowns and CNBC's analysts telling us daily that the bottom isn't here yet), all it takes is one or two distressed sales in the last six months to create the aforementioned situation.

Bush, Obama, and Congress have paid far too much attention to the woes of large companies and remain ignorant of the primary economic drivers in this country (small business and real estate/construction). Fannie and Freddie maintain ridiculous policies that exclude properties for financing based upon their type (condo, investment, even a log cabin-style) instead of the borrowers ability to repay. We have willing buyers here for several of the above-type dwellings, but finding them a loan is nigh impossible. Their income, credit history, and down payment are irrelevant; what matters is one thing and one thing only--the type of property being financed. If its not a plain-vanilla primary residential home selling for less than $417,000 its likely to be on someone's "taboo" list.

I promise at some point to provide a brighter picture, but I was asked by several not to "spin" the column locally, and I am not doing so. Of course, others will disagree, and in this situation, I'll be happy to be proven wrong.

But the lesson for today is that the credit crisis is far from fixed, money is not flowing, and if banks in eastern North Carolina and mortgage lenders on a national scale continue to hoard funds in fear of further losses and and an extended recession, they will unknowingly trigger and prolong just such an outcome.

As is common in these situations, regulations tighten up to "control" the situation when, in reality, regulations caused many of the problems in the first place.

Sunday, August 9, 2009

Two More Box Wines

The above Cab-Syrah blend is a French import. At Harris-Teeter it runs about $20 for 3L. Dark with some mocha and perhaps a bit of spice, but the wine didn't overwhelm. You might get away with serving it at a casual party however. I would not recommend this over the Black Box Merlot when choosing a red boxed wine.

Speaking of Black Box, while I found the Merlot to be an excellent buy, I was less impressed with the Pinot Grigio. There's no good way to chill a white boxed wine to the proper temperature, so most of us tend to keep it in the fridge. Served that cold, this wine is mostly flavorless. As it warms, there is a slight hint of green apple, but little backbone. At times, I felt the wine was watery, which is typical of many Pinot Grigio's. I'd pass on this one.

Saturday, August 8, 2009

Bacu2Go--I Second VFTR's Motion

A break from politics and real estate (where I will return next week) and on to one of my other fave subjects--food!

Bob Muller in his excellent blog (which, as a major hint I must remind him is updated not near enough these days!) goes through the history of Bacu and I can add little more except the original Bacu had a great little wine & cigar store attached. You could also rent a locker there to keep your cigars whilst visiting the bar.

The Bacu is revived, sans bar and waitresses and a sit down place to eat. But the food is back, including the excellent Cuban theme. This is one eatery I hope makes a big splash, and stays open all year. I'm adding it to Slice Pizza and Island Deli as my three top new entries that the OBX locals and tourists should support and nourish!

Here's the Cuban press. It's every bit as good as it looks. Also lasagna and Caribbean delights. And, as a bonus, cigars in a humidor and wine to purchase. On the Beach Road around MP 10 in KDH, a tad north of the Ramada.

Friday, August 7, 2009

When Good Business Magazines Go Bad

I love Fast Company magazine for many reasons, but mostly because it covers the "new" economy quite well, especially technology and alternative modes of management. Along with all of this hipness comes a bit of touchy-feely stuff, such as an obsession with any business story with a "green" angle, a few too many articles on companies dedicated to "social good" (you know, like the Peace Corps, except for the profit-making part), as well as an adoration for "new" Democrats, in particular President Obama, Mother Teresa, and Bill Gates.

The April 2009 issue, which I am just now getting 'round to reading takes this "cooler-than-Business Week" cred a tad too far for a magazine that, when all is said and done, is about the free market, capitalism and profit-making.

On the cover appeared the headline "10 High-Octane Ways to Rev Up the Car Business". Cool. We need some new blood in this moribund industry.

The very first High- Octane idea? --"Let President Obama Take the Wheel". If that's not enough to scare you (at least it doesn't allow "Letting Ted Kennedy Take the Wheel"), here are four policy proposals from Obama supporters they wish him to implement...

a.) Make $4 a gallon for gasoline the floor price. You know, so we'll drive less and everyone will have the same, fuel-efficient car with little selection, and car manufacturers "can know what to expect" to produce. It's Brave New World except the Deltas are running the private sector and the Alphas are getting drunk. I hope. It's more fun than reading this tripe. This from an MIT professor. Surprised? I didn't think so.

b.) Nationalize health care. How might this create better cars, one might ask? Detroit will no longer be burdened with their absurdly luxurious health benefits anymore. We will. As soon as they jettison their health care costs on the taxpayers, suddenly they will be designing cars that look and drive and handle like Audi's. Apparently, just the thought of paying those premiums causes the designers in Detroit to churn out Fiesta's and Vega's instead of sleek Nissans and BMW's. I totally get that.

Perhaps if we also take over their pension obligations, where a guy who fastened bumpers onto a Jeep now earns $80,000 a year in retirement pay, they'll be turning out Bentley's and Jags for the same price we currently pay for Saturn's.

c.) Cash for Clunkers--Oh yeah, that program has worked really well so far.

And, wasn't Obama the guy who wanted to bring jobs back home to the good old USA? Well, here's some of the NEW cars eligible for that tax credit when you trade in your old gas guzzlin' American piece of crap... Acura, Audi, BMW, Honda, Hyundai, Infiniti, Kia, Lexus, Mazda, Mercedes, Mini Cooper, Mitsubishi, Nissan, Subaru, Suzuki, Toyota, VW, and Volvo. I can see why Detroit is salivating.

But not to worry, as such energy efficient American cars as the Hummer H3T, Ford F-150, Ford F-250 Super Duty, GMC Yukon XL, Dodge Ram 2500, and the Chevy Suburban are considered "energy saving", at least compared to their previous incarnations. And where the hell is the Sierra Club beating Obama to death on this $3 billion (used up in two weeks) program that let's one obtain a tax credit for purchasing a Yukon? Oh, I remember-- Obama isn't a Republican.

I wonder what this magazine and the media might have said if Bush had proposed tax subsidies for people to purchase German cars, Japanese cars, giant SUV's and pick up trucks. Perish the thought.

d.) Change the way car insurance premiums are computed by having premiums tied directly to miles driven. Because, hey, insurance companies are the most honest folks in the world, and if I have to actually pay them more just to drive to the mall, I'll stimulate the economy by shopping at Amazon. To hell with those mall workers and their excessively high salaries, driving to work each day and increasing their car insurance premiums. Great idea. Mr. Rogers' says, "Can you say unintended consequences?". I didn't think so.

Now to the non-Obama ideas....

#3 was "Get Sexy". The advice here? It came from the host of MTV's "Pimp My Ride" (whose street name is Xzibit) and consists of the following "...the bailout money should go [to] making cheap, efficient, hybrid cars that look good. Give me $1 billion. I'll turn that shit around". I'll take that into consideration, but I'm not really sure I want Detroit's sh*t to turn around, at least not in my direction.

#4 came from the CEO of Zipcar, that cute little car-sharing company where one picks up a two cylinder car parked nearby, drives it somewhere and leaves it, where it is picked up by a nearby Zipcar member.

Robin Chase is the genius CEO in question, and her big idea is " If I ran a Big Three Auto Company, I'm going to ask Congress to raise the price of gasoline". Why? If our gas prices suck as bad as the rest of world, the Big Three will be forced to make circus clown-sized cars that we can sell overseas, because they would now be fuel efficient and therefore. moew competitive. I would also propose we go back to the European model of having Kings, deferring to the Pope in Rome, and allowing Germany to invade us every 20 years or so.

Mr. Rogers' says. "Can you say self-serving capitalist hypocrite?" as in "If gas gets so expensive I can't afford my own vehicle, I guess I'll have to share a car with my Zipcar buddies". Me thinks Ms. Chase had some of Xzibit's sh*t turn around on her, and now she's full of crap.

And so it goes. There is little doubt Fast Company, like most of the media, is in love with Obama. I'm getting used to that. But when a business magazine begins to endorse government mandated pricing of commodities, raising the price of gas artificially to force eco-friendlier cars, giving business props to guys named Xzibit and so-called CEO's like Robin Chase, it may be time to head on back to Business Week.

Monday, August 3, 2009

Young Guys Keep Letting Me Down

One of the few joys of growing older is learning to live vicariously through the young. I'm not sure if members of the female persuasion engage in such activity, but men have always done so. We expect the young bucks to regale us with their tales of drinking bouts, encounters with the opposite sex and their participation in sports.

So, I was looking forward to the visit of my 20-year old nephew (who is heading to USMC boot camp at Paris Island in October) and his two 20-year old friends (one a college student at Longwood, the other a USMC reservist currently attending college online).

When I was 20, we came here to drink beer (which was legal then) and meet tourist girls that we knew we'd never see again. So I was fully expecting this dynamic trio to hit "The Pit", which has an under-21 night with band, and to NOT be in our house. Ever. Instead, after dark, they didn't leave the house. Ever. They advised me that the 16-year old Miranda Cosgrove,star of "I Carly" on Nickelodeon, was "hot". How could this be? I Carly?? And they were waiting for Miley Cyrus (A/k/a "Hannah Montana") to turn 18, since they had it on "good authority" she had already signed a contract with Playboy.

And, you guys are excited about waiting for this???


My dream girls at that age were Grace Slick, Carly Simon, Maria Muldaur, Ann & Nancy Wilson, Linda Rondstat, and almost any woman between 25 and 36 years old. If you were gonna go down in flames, you might as well waste the proposition on a real woman. I even liked Jane Fonda, but as President of the Young Republicans, I had to keep this quiet.

And instead of going to The Pit? They wanted us to teach them to play Pinochle. At 11 PM on a Saturday night. Pinochle. At 11 PM. Did I say Pinochle??

The reason? Even though they live at home and have jobs, they spend all their money on fast food, Wii games, and iTunes. When I was at the Institution of Higher Learning, we all had jobs and lived off campus and paid our own rent, while gong to school full time. And we made damned sure we had enough money to buy beer and go out and meet girls. Given that 21st century kids can't buy beer when they are 20, that should leave scads of dinero for the pursuit of the fairer sex. I didn't have to walk to school six miles in the snow, but these 21st century kids are kinda soft and squishy.

I decided it was time to have "the talk" with my nephew. The conversation went like this:

Uncle Russ: You're going to Paris Island boot camp in the summer. You'll be a Marine.

Nephew: Yeah.

UR: Chicks dig that stuff. Marines. Hard bodies. Tough stuff. OohRah!

Nephew: Do you have to trump in Pinochle if you are out of the lead suit?

UR: Danger. Your new job will be dangerous. Sympathy sex awaits. Tell them you're heading off to Iraq or Afghanistan after boot camp. Chicks love danger . Now get out there and bring your old Uncle back some war stories!

Nephew: I don't get it. Why would girls like that? By the way, do I have to throw my highest trump?

UR: No, you can take the trick with the lowest trump that will win the hand. Speaking of tricks...Oh, never mind. Your mom would kill me..

But, fear not. We were heading to Baltimore, where at the nightspot Howl at the Moon, I knew I could watch the eternal mating dance amongst older, more experienced young adults. And, it didn't take long. A table of two young girls soon were surrounded by a gang of four guys hovering nearby. Immediately, one of the guys broke off from his posse and sat at the girl's table, obviously making "the moves" judging by the hand gestures and eye contact.

Bold move. I was encouraged. And, two girls is always better than one. Unless your're married, in which case it costs 50% of your net worth. Plus attorney fees.

And then it happened.

Every time the "band" played a song (actually dueling pianos, which is the theme of Howl at the Moon), this 30-something kept getting out of his chair and dancing by himself. You know, the way girls do when they're standing in a bar deciding which guy to shoot down when he comes to ask them if they wish to dance. He first did it to a Coldplay song. Weird, but not fatal. Then he did it to a Billy Joel slow song. Not cool.

And then, and then, I can hardly describe this--he got up and danced by himself to.....get ready....."Afternoon Delight" by the Starlight Vocal Band. He even mouthed the words "Skyyyyy--rockets in flight....Afternoon Delight. Ahhh ahhh afternoon delight". My guess is they knew pretty quickly he wasn't in town for the Raven's pre-season training.

I couldn't take it anymore. Rose and I went out and danced to a Poison song, upon which one of the two girls being courted by "Tiny Dancer" high-fived the two of us. And then they left, as soon as the guy got up from their table. "They" being the two girls. Sans "Tiny Dancer" or any of his compadres.

Nickelodeon and Video Games. It's ruining this generation of young men.