patrick.net

Peter P Says:
December 4th, 2007 at 3:23 pm
"Let the market solve our energy problems."

It's a larger challenge than just saying the market will take care of it. Markets have been slow to react for numerous reasons. The first being that profits actually increase as scarcity increases. Even though I don't believe it is a crisis it is a basic tendency, like rhino horns, to not consider the future social costs to a transaction today.
There is also the catch 22 horse and cart dilema. It will take government infusion in the areas of infrastructure and standards. Say you invent a new fuel; that's great but it won't automatically become a standard or even compatible in the mass market until fuel operators and manufacturers accept it as the new standard. That is why I like the Prius plug in hybrid concept. If that technology catches on, not only will it be environmentally sound, ethanol or other biodeiesels could be its fuel for the 20% of the driving that would be outside of the battery range. Like I said earlier, new Li Ion batteries are coming soon and already the Tesla company is making a $100,000 sports car with a 200 mile range. It is not a huge leap of the imagination to realize this will soon be available in a $20,000 economy car with even greater range.

Peter P Says:
December 4th, 2007 at 3:24 pm
"If we find a way to burn whale blubber in a car, and get nothing but water in the exhaust, and get 180mpg per pound (about 7 gallons), will the lefty’s allow whale farms?
Whale meat tastes like rubber."

I believe the larger goal is energy independence and environmental balance. I think it would speak poorly of our society if we actually chose a solution like that if presented with the dilema. Maybe we could make a car engine which runs off of dead African children, then we would never have a shortage of fuel although it would still be foreign energy.

Malcolm,

>Maybe we could make a car engine which runs off of dead African children, then we >would never have a shortage of fuel although it would still be foreign energy.

With tongue firmly planted in cheek: "uh, let the market decide".

I've discovered that, in Idaho, people make gin and vodka from grain and potatoes www.bardenay.com , beer and ale from grain and hops www.tablerockbrewpub.com , and wine from grapes www.sawtoothwinery.com . I'm not sure if we have figured out whether we should be making auto fuel from our huge production of sugar beets.

We've got two nuke plants in the exploratory state. There's a private capital plant under study in southeast Owyhee county, and just today a consortium headed by Warren Buffet announced investigating a plant in Payette county.

Maybe we could make a car engine which runs off of dead African children

A modest proposal. Make a car engine which runs off Papist babies. ;)

The first being that profits actually increase as scarcity increases.

Two things will happen:

1. Demand goes down
2. Supply increases

See, it self-balances. :)

Too often, market "fails" to react quick enough only because policy makers employ anti-market tactics for populist reasons.

Like I said earlier, new Li Ion batteries are coming soon and already the Tesla company is making a $100,000 sports car with a 200 mile range.

What is the environmental impact of disposing large quantities of li-ion batteries after their useful lives?

With tongue firmly planted in cheek: “uh, let the market decide”.

If developed nations offset their CO2 usage by paying people in underdeveloped countries not to reproduce, can't we solve "global warming" and overpopulation in one shot?

Any breathing person produces CO2.

DennisN those are interesting sites, I'll have to check 'em out.

I think it's not legal to produce "hard" spirits, only wine and beer, without being a licensed distillery? Not that that would slow down a lot of people, just sayin'....

The point with ethanol is, it looks feasable with our modern "green revolution" farming that uses tons of petroleum derived fertilizers. Peak Oil means we're heading back towards farming organically. No more huge bags of ammonium nitrate or whatever. Back to cow poo, horse poo, done right, your poo....

This means there won't be our present huge excesses of grain, corn, etc. No more corn stoves, corn will be for people. Or our work animals. What this means is, the ethanol is more likely to be enjoyed by a person than an engine - trust me alcohol makes great bicyclist fuel, ask any bike messenger.

Sure, we'll have engines, but they won't be the way of life they are now.

www.energybulletin.net is another good source site.

http://www.mrp3.com/bobf/global_warming.html

Actually Bardenay is the first fully-licensed distillary/restaurant in the nation. Think of it as a brew-pub that serves cocktails made from spirits produced on-site. There are now two locations around Boise, the original being downtown in the Basque district.

Bap33,

>hey ….. aint petro animal based ??

Some small amount of it is, hence inefficiently made.

However, some people think petro is synthesized deep down under the earth's crust and then just percolates up for the benefit of mankind :-).

ex-sunny,

>>Sort of upsets the soccer moms if their betting skills in the RE casino were not what they thought they were, and they and their kids end up hacking ‘cane for the rest of their lives…..

Now there's an image I like. A herd of the species "soccermommus paloaltus" out herding their children in the 'cane fields, all because their nasty RE exploitations went sour. All the while, I sit on the porch of the plantation sipping a home-made Mohito. Keep on rocking in the free market.

Hey, why am in in moderation now. I'm guessing because the words "nasty exploitation" (oops, I did it again) triggered the sensitive spam filter?

@SP

There is another elephant in the interest rate freeze room. When it passes, even if no contractual obligations were broken and it is merely implementing optional clauses that pre-existed on the contracts, it would only take a first-year finance grad student a moment to work out the imputed mark to market of all the securitized tranches directly and indirectly impacted by the freeze. A more orderly signal to investors in these securitized mortgages to not only mark down their holdings, but to reduce or even halt their market activity in these instruments, I cannot imagine.

Because the real estate industry is mostly a volume and velocity-based business in its current shape, this will drastically reduce their credit supply. I predict the next step after everyone thinks the freeze has fixed the implosion is to increase the jumbo limit and then unload the worst of these properties onto the GSEs as fast as they can. The brokers don't know this yet, but the banking (who handles most of the servicing) and finance (who handles most of the investment accounts) industries just made an end run around all the various kinds of brokers in the real estate industry by taking dibs on a future taxpayer-funded bailout with this interest rate freeze. The brokers have been handed to the wolves while they were playing checkers, and the banking and finance sectors will get out of this pretty much unscathed by comparison, by playing Go.

The brokers are playing a short-term game. They're focused upon growing their commission amounts by keeping prices up when they should be preserving their volume. It's like the hapless investor who is taking up growth positions when instead the game has changed and he should congratulate himself for simply preserving wealth and staying still in real terms at the end of the day. And just like novice investors who double-down on a sliding position ("it's cheaper!"), the brokers are going to resist downward price movements with each leg down while the volume ebbs away from them. If the brokers were smart, they would be jawboning to push down prices as quickly as they can to pump up volume.

The banks and finance companies are playing a smarter, rougher, longer-term game. They're positioning to preserve the core of these assets, by drawing out the income stream as much as they can, instead of trying to continuing to do business as usual. If the brokers aren't careful, they will find themselves turned into low-rent subcontractors to the banks and finance companies at the end of this ugly economics and investment history lesson that is unfolding before our very eyes.

apostasy,

yours is the best post I have seen here in a long time. Thanks.

I wish some brokers would actually read that advice.

Peter P Says:
December 4th, 2007 at 5:07 pm
"What is the environmental impact of disposing large quantities of li-ion batteries after their useful lives?"

A couple of things first, start thinking sustainability, ideally they would be recyclable. - remember your car currently has a lead acid battery which is recycled - 2nd, there is a benefit to single pollution sources, therefore it makes more sense to have a disposal site for something like that type of component as well as single pollution sources for the generation of electricity. We would have much cleaner air, and end oil dependence which in itself will have massive impacts on our economy and world politics.
Peter, this is why I have abonded the strict free market point of view, because there is never a collective plan for solutions to problems. This failed ideology is the reason this country is on the verge of collapsing. When we don't set boundaries for a free market to operate in you wake up one day realizing China has overtaken you and now has its own space program, 40 million people are uninsured, we live like drug addicts burning money in our gas tanks while we empower our enemies. I've always though you are a nice guy but I am really starting to resent this view of the planet as a plantation, anything goes, and anyone who questions components of the free market bears the soc1al1st scarlet letter.

apostasy Says:
December 4th, 2007 at 7:57 pm
@SP
"The brokers are playing a short-term game. They’re focused upon growing their commission amounts by keeping prices up when they should be preserving their volume. It’s like the hapless investor who is taking up growth positions when instead the game has changed and he should congratulate himself for simply preserving wealth and staying still in real terms at the end of the day. And just like novice investors who double-down on a sliding position (”it’s cheaper!”), the brokers are going to resist downward price movements with each leg down while the volume ebbs away from them. If the brokers were smart, they would be jawboning to push down prices as quickly as they can to pump up volume."

No, it is the right thing to do. You can't go to a volume strategy in a shrinking market. Credit is getting tighter and there are more brokers chasing fewer deals. They will be forced to drop their fees through competition, but in general lower sales volume will force greater margins or the industry will bust which it will for different reasons. Among them are the fact that more lenders will move to a direct model since the internet has made it so easy for them to do so. I have a broker friend who disagrees and says there will always be a need for external brokers because they generate business and provide service at the very individual level. I don't buy it though, my last deals were so much easier just going through Priceline or Ditech, the notary even showed up at my home to get the signatures.

BTW Peter, I've never said I believe cars are causing global warming. Just for the record.
They do contribute to smog, acid rain, and probably lung diseases. It should be a national priority to eliminate this urban pollution source for these reasons alone.

Very astute Dennis, I was thinking of Jonathan Swift as I wrote it.

@apostasy
Excellent point. As Malcolm pointed out, the brokers have very litle room to maneuver in either direction.

Unfortunately for most of us, you are right that this is moving towards a taxpayer funded bailout via the GSE's.

SP

Last paragraph of a post over at Ben's, purportedly from our very own DinOR.

Ahem, who in Vegas isn't "stated". No strippers I know! Ooops. (Not that I'd no any)

Should I take this to mean you 'yes' them then?? ;)

ozajh,

Imagine my surprise!? Of late it seems Ben's been having tech. issues and the longer you take to proof read a post, the more likely it won't. I suppose I "could" have corrected it but when I looked back I kind of got a kick out of it so I let it slide. (Keeps 'em guessing) :)

That aside, it's another nail in the coffin for Sin City RE. Since nearly everyone there is reliant on tips as a sustantial part of their income, the new law throws a sizeable wrench in the Stated Income loan machine. What a shame.

DennisN,

That model is receiving NATIONAL attention! We're not in the habit of using this form to dispense any form of investment advice but... if you are offered in any way to provide seed capital for some these start-ups... "I" would give it serious consideration.

Most are shoe-string operations and get funding, well, where they can. It's not big enough (yet) to attract larger players so we may look back on this as a genuine opportunity. Even if it's structured as an LLC etc.

apostasy,

I had thought much the same, except that the limits were reaffirmed at 417K with talk supporting why they were not, in fact lowered. Big Ben's $1m is not going to happen.
The GSEs are now raising capital through preferred stock sales and they are cutting dividends. They are hurting already and I think the ship of Fannie and Freddie being forced to suck up the bad loans has sailed.
What I see really amounts to a lot of window dressing. The 'freeze' affects so few people that it is just media hype to buy time for the regulation arms of the Fed and the Treasury to step in. Those regulations are a must becuase America has seriously comprimised the trust of the international community and any added cost to our debt servicing is harsh for such a debt-based nation.
Even with the governement moving to restore confidence, the theory that 'inflation was slain by globalization' will be sorely tested. It is my contention that the stock market asset bubble will be pricked (or has been pricked) and as the unleveraging and contraction proceeds we will see inflation again. Strikes in France and Germany and strong inflation pressures in Italy and England all seem to point to even the European Union facing significant problems.
As you say, we need to know when the game changes from growth to hunker-in-for-the-bad-times. Well, start a-hunkering.

OT,

Just curious, has anyone else ever rifled through C/L for say... Baja Cal? It just struck me that while still greatly inflated in price you would be getting about 4 to 5 times the house than a similarly priced home virtually anywhere in the U.S?

Why!? (It's the SAME labor!) Were illegal laborers in THIS country paid THAT much better? What does the avg. tile guy get paid down there? Overall, the materials look (and claim) to be authentic vice the faux stuff used here? Why is it that million dollar homes there LOOK like million dollar homes yet $1 mil. homes HERE look like.... 400k homes?

The quality of the post articles at Patrick's site are very good. That ETrade article is eye openeing. It suggests that even prime borrowers may walk away from homes when they realize they are worth 60cents on the dollar.

Lets get back to some housing numbers:
Take a Mountain View home bought near peak for $1,000,000. Suppose 20% was brought in, so the note was $800k. Using Etrade model of 60% we wipe out $200k in equity and are still upside down by $200k.
That home selling for $600k would mean you need $120k down, and for the $480k note and 30%gross pay rule you need $140k annual income. Which is sustainable at about single earner techie ioncome. However, even $600k is sustainable only so long as job markets are willing to pay workers a 100% premium to stay in the bay area.

What does everyone here think? Mountain view returning to median of $600k seem likely or reasonable?

Duke Says:
That home selling for $600k would mean you need $120k down, and for the $480k note and 30%gross pay rule you need $140k annual income. Which is sustainable at about single earner techie income. ... What does everyone here think? Mountain view returning to median of $600k seem likely or reasonable?

The only thing you fail to take into account in your example is this - while the 140K annual gross income requirement _can_ be met by a single tech worker income, that schlub will be competing with a bunch of 200K dual income couples who will be willing to bid just that little bit more. And there is (still) enough stupidity going around for that to happen.

That is the main reason why I believe that a slow job market is the key. You first need to shake the belief that both incomes are secure in the near-term.

In the last real recession (back in the 90's, not the kid-stuff in 2003), even dual income families lived in fear of losing both incomes. If we get even half-way to that point, you will have a quick reversion to price levels that are consistent with single income.

Yeah the early 90s was a recession, but I'm old enough to remember the 70s, that was a Recession.

We're heading back towards that, at least. I think worse.

Duke,

So true. One "could" argue that ETrade really was out of their depth tinkering with mortgages but the bottom line is that Citadel bought the portfolio for 27 cents on the dollar.

We can further assert (b/c ETFC operates on such narrow margins) they simply didn't have the luxury of carrying toxic paper hence the fire sale? Whatever the case it's clear there is little appetite for these securities.

ex-sunnyvale-renter Says:
Yeah the early 90s was a recession, but I’m old enough to remember the 70s, that was a Recession.

Ha, the 70's? That was a joke compared to AD66, I was in Rome at the time. I first heard about the revolt in Judea when I was having a cup of fine Persian mead with my old friend Antonius... now THAT was a recession.

Anyways, I didn't mean to start a pissing contest about which recession was worse. I was just referring to the last time there was widespread anxiety about jobs in the Bay Area.

SP,

Yea - another of the articles today points to 15-20% drop in home prices, unless we get a recession. Coupled with job loss we could get the 30-40%.

I wonder how many are now weighing the vulnerability of their jobs?

SP,

I took your observation to mean that it was very sector specific. More to the point, dot com start-ups. Unless you were at a "pink-slip party" who cared?

Bap33,

Peter P's link about CO2 emission by humans (the human body) contains
lots of bogus calculations based on rectally extracted numbers. It is
too much work to dig out the errors from the flurry of undocumented
constants and equations, so I will present instead a simple argument to
prove my point. Feel free to dig into said web site yourself and find
out where the error is.

Here goes:

The quick and easy way to look at the CO2 emitted by cars versus humans
is to consider the power consumption of the two. CO2 emission is generally
proportional to the power (energy/time) consumption of the two systems
(car and human). Now,

human = 100W (watts)
car = 200kW (kilowatts)

That means there is a ratio of 2000 (200k/100=2000) between consumption
of cars and humans. If the average human burns oil corresponding to
30min/24hrs of driving per day, that is a factor of 48, or 50 for
simplicity. Hence the car uses 2000/50=40 times the energy/day of a
human. So the CO2 generated by human+car=41 and by human=1.
This means CO2 emissions are now 41X the amount of just the human!
I repeat, 41X! This not a small number!

The analysisis somewhat simplistic, but the point here is to see through all
the mumbo-jumbo and pseudo-science. It should be quite clear that a
statement that burning of fossile fuels is comparable to CO2 produced by
human bodies living and breathing is is just plain nonsense.

The upshot: CO2 emissions is all about the level consumption of fossile
energy.

IMHO I think the 70's recession was about a lot more than just economics? WE... were the 1st gen. slated to not do as well as our parents and it created a TREMENDOUS amount of apathy! (This is when everyone tried to get into the forest service but wound up at the post office).

There was a lot of resentment that (unlike our parents) we *wouldn't have a "job for life" and all of the bennies that went along w/ that. We can look at Japan's "outcasts" and more recent generations but "I" think the kids of the 70's were the first to engage in basically an economic boycott. I'm willing to bet a lot more "communes" were started in the 70's than the 60's "when only Jazz musicians were smoking marijuana"*

"Pencil-thin Mustache" (Jimmy Buffet, recorded IN.. the 70's actually)

What does everyone here think? Mountain view returning to median of $600k seem likely or reasonable?

Most people I know make at least $100k - and thus married couples are at least in the $150k+ range. (I honestly don't know anyone who doesn't work in tech.)

This is definitely going to keep Mountain View high. But South San Jose... hm.

I agree with SP. But, for the job market to come down, the Apple and Google share prices have to come down.

A whole bunch of the new web2.0 startups have to join the deadpool.

VC money will have to dry up. All corporate spending will have to freeze and reduce.

I remember how horrible the job market was in 2001-02. Seems like a very distant memory now.

I wonder if people will still talk about "global warming" in the coming recession.

Hmm, should I offset the CO2 produced by my hummer or should I put milk on the table?

I think most people in the 150 -200k income group probably have already bought a house - the question is did they over extend themselves to get into the most expensive house possible adn did they use no doc or arms? Also, South San Jose is falling already - I have seen a lot of price reductions and indications of short sales in the MLS for that area - I originally thought about buying in the Blossom Valley area - but seeing what is going on - boy am I glad that we didn't!

Peter P,

Now I know you didn't mean to imply any of the rampant fraud of the last few years could cause a recession...

Go ahead, take it back.

Right! That's something I often wonder about? I understand people being concerned about major issues but you know the Weatlh/ATM Effect has gotten out of control when people are "creating" issues. In the late 90's in PDX we pondered making 3rd sex bathroom facilities mandatory!

After the dot com bust it suddenly... ceased to be a burning issue.

There's a spike up in Freddie Mac (FRE) right now, presumably because the word is out that Bush will speak about his new it-is-not-a-housing-bailout-program tomorrow.