P. Kalven

The Benefits of This Recession

After careful study of the matter I have drawn the following conclusions from reading the commentary in SA over current events with regard to the business cycle the consensus is:

Recovery: FDR was right
Growth: Greenspan was right
Boom: P.T Barnum was right
Bust: Nostradamus wad right

Good article John thank you for a sound perspective.

A Government Hit to Housing

I can appreciate that the cost of mortgage interest on a $1.6 million dollar New York apartment style condo could be considerable and your neighbor with the one that is listed for $62 Million will also be upset at the loss of 5% of his deduction on interest.

The family that is struggling to pay their mortgage in Iowa, or California on their average home that is now valued at $170,000 and declining greatly appreciates your sacrifice for the little guy and generosity of spirit.

Will Canada's Housing Slump Play Out Like America's?

Sales volumes are down and the markets are stagnant, but prices are in a slow decline by comparison to US market; primary reason Canada's housing market will fair different from US is that less than 5% of Canadian Mortgages would be classified as "Sub Prime". As well the Canadian Housing and Mortgage Corporation provides insurance to the banks on consumer premium basis for any property with less than 25% equity and CMHC is the only entity that can pursue the consumer after the fact in the case of default. So the process of foreclosure follows a slower linear path, with the home owner having a period to sell the property, then the bank, then the CMHC.

It would be fair to say that the delay in the speed of the process helps to minimize the impact of the foreclosed property value on its surroundings.

There is anticipation in the market of an increase of foreclosures, but it is expected to be in commercial and those residential properties bought at the height of the housing bubble; bear in mind in most Canadian markets the significant gains in housing took place in less than a 18 month period at volumes just above area normal, so the exposure of the entire market is more limited than in the US where the gains covered a number of years.

It is worthy to note that New Home Builders in Alberta in Western Canada are sitting on large inventories and have adjusted New Construction to a prescribed level due to depletion of absorption in an effort t to reduce overall inventory to sustainable levels. As well there is still a considerable price gap between the cost of New Housing over Resale Housing.

Disclosure: Licensed in the Trade of Real Estate in Alberta

Buffett Takes Advantage of the Wall Street Addicts

Thank you Jason for a point of view that reflects thought and even a little common sense.

As for the argument surrounding FDR, WWII and the Depression; least we forget it also took 40 Million lives; a little more than half the projected unemployment of the current event; no matter what the cost of the current recovery I suspect none of us wish to revisit that metric.

Existing Home Sales Look for a New Bottom

It is at this stage of events important to keep an eye on the volume of sales, as price will be driven by regional concern and as important as it is to the individual home owner, irrelevant to what the industry as a whole is doing.

The other metric to watch is the absorption projection at the current level of consumption.

As these two numbers expand and contract in respect to one another it will indicate the direction and "health" of the market of the day.

Why Obama Can Cut the Deficit in Half

A study of Presidential History will show that a President with strong popular support can get things done because he has the most powerful tool in the arsenal of democracy, contrary to the general tenor of remarks I read in SA. Furthermore Obama has chosen to put himself on the line by laying out his objectives and taking responsibility.

Will he get all of his objectives done? Have any of us?

What I observe is an effort to take on leadership in the situation.

What is lacking in the tone of the remarks I see here throughout SA is an understanding of the energy behind this situation and where that energy is directed. Reality has pushed the partisan perspective aside on both sides of the aisle and as this situation plays itself out I envision significant change in the economic landscape and a people motivated to turn their energy towards recovery.


On Feb 26 08:21 AM ED K wrote:

> The reason I don't believe he can do it ,is he does'nt have control
> of the government and not even his own party.I believe he's actually
> given control to Pelosi and Reid.
>
> To support my contention consider this,in the proposed 2009 budget
> there are 9000 pork projects, was'nt it the president that pledged
> he would eliminate pork?In addition there is a $400 billion budget
> supplement up for a vote,Harry Reid has $100 million in pork for
> his district.
>
> Combine these facts with the continued downward spiral of the economy
> and I think you will come to a different opinion than the one the
> government has presented.

Nobel Laureate Penzias: U.S. Needs a $1 a Gallon Gas Tax

Don't worry oil and gas prices will rise without further taxes long before any feasible energy alternatives kick into the economic equation as the world's conventional oil reserves diminish in the next few years.

It strikes me that a Carbon Cap is trading in thin air, but then given the current economic melt down, show me the difference.

It makes good sense to invest in the development of alternative energy; but it also makes sense to support the existing available structure of energy within North America. Consider what happens when the OPEC countries run out of conventional oil and the impact on the economy on that day in the near future.

It appears prudent to consider developing the power grid and improving the infrastructure of energy delivery on all fronts, not just power, but natural gas and oil as well. Energy is a cornerstone of the economy and I am mystified at how the industry is made to look like a villain, I’m sure like peanut factories there are those that skirt the regulations, but the many folks I know in the energy industry are focused on the efficient, safe and cost effective ways of exploring, developing and delivering the resources and take the environment impact into serious consideration, often in a proactive manner not noted by the media or casual observer.

Much of the pollution problem does exist with outdated methods of consumption, so again the effort to spur cost effective alternatives to reduce consumption by gleaning higher output makes sense.

This summer while you are driving behind the car of the unemployed fellow who just lost his house, that is spewing burning oil in thick black clouds, I do hope you enjoy the benefits of your Hybrid that can go all of 40 miles on a battery.

Again I am struck by the need to focus on building the recovery from the bottom through supply and demand; the movement of goods, services and capital. Any program that does that will be beneficial, any that cannot trace a path to doing that is more risk rather than benefit. Big Government, Small Government, Taxes, Tax Cuts, Deficits and Debt debates will prove themselves only in the arena of the market, and the market is stalled, capital and energy are pent up and I suspect Dr. Penzia understands what happens next; the question is will it be a positive explosion or destructive implosion?

Obama's Speech Struck the Right Tone

Well one thing I concluded from all this is it would be hard to sell peanuts to this peanut gallery.

Too bad think of what it could do for the economy.

On that note consider the dichotomy of America George Washington Carver and Peanut Corporation of America makes it apparent there are several ways to skin a cat and still call it a cat, but cat calling is not one of them.

What is interesting is thoughtful discussion of the merits and problems, no one is interested in the meaningless political wonk of those who choose not to inform themselves before they spew.

Why Obama's Deficit-Spending Plan Will (Probably) Work

Yes I remember that recession too; protectionism has led the way to several wars through history, so I'll pass on this line of thought.


On Feb 24 09:37 AM Trane250 wrote:

> Back in the early 80's, we still manufactured most of the products
> that we consumed. Last year, we had a $440 billion trade deficit
> in manufactured goods. The people (aside from those in the educational
> establishment)likely to be helped by all of the deficit spending
> reside in foreign lands.

Fiscal Responsibility: Obama Takes the Reins

It goes to show how much close attention is paid when one only spews from one direction; he is the President; has been for 34 days now. Perhaps you can give the office the respect it is due in your tirade.

I found reason to support Bush, Clinton, Bush, Reagan, Carter, Ford and even Nixon and LBJ. I also found reason to disagree with them, but I always chose to respect them for the office they hold and the complexity of the job. Obama deserves no less from any of us.


On Feb 24 10:14 AM ED K wrote:

> The President elect saying ,he will cut the deficit in half in four
> years, only exposes his economic inexperience.With each proposal
> he makes and new commitment my giving him the benefit of the doubt
> dwindles further.Iam starting to believe his administration is going
> to be a disaster for the country.
>
> If his cutting the deficit in half has anything to do with altering
> social security,raising taxes or modifying medicare he will quickly
> become a lame duck president.This proposal could turn out to be his
> swan song.

Why Banks Write Down but Don't Sell Subprime Loans

The basic problem is defining what the subprime in a given mortgage was; was it equity on a debt to equity basis? Was it interest rate? Was it a combination of both? Was it extended amortization 50 years rather than 25 or 30? All those things determine the book value of the mortgage before discounting.

All those factors play into the value of the mortgage. However assuming the mortgage was current for part of its life, even at $0.55 on a 6% $250,000 mortgage in a sale today, if that mortgage is in its fourth year and defaulted within the past 12 months, the bank still has made $0.77 recovery before cost of sale when you take into account the three years principal and interest for the none default period of the mortgage.

If there is in fact even the smallest of owner equity left in the $0.55 equation, the bank does better. The point is the bank will do better than $0.55 before expenses, which I suspect are also part of the $0.55 book value calculation on the part of the bank in determining the value of the mortgage before sale.

Today's Market: Irrationality at Its Best

Thank you for your perspective one and all.

I look forward to reading it all again tomorrow after tonight's speech.

Would that you are correct David, because those of us who are in trouble could use the relief of some stability returning to economy.

As for the pessimistic "I told you so's", could you please just go across the street and help the economy, buy something, coffee, hot dog; the vendor will thank you. Telling the Captain of the Titanic the ship is sinking is overstating the obvious; turn your anger and fear into something constructive and we might all fair a wee bit better.

The truth is the economy will have to rebuild from the bottom up, go buy something that creates demand in the supply chain.
.

Recession, Not Depression

"A proposed definition for depression is a sustained recessionary period in which the population is forced to dispose of tangible assets to fund every day living" en.wikipedia.org/wiki/...)

"is a decline in real GDP exceeding 10%, and the other is a recession lasting 3 or more years" en.wikipedia.org/wiki/...)

"You can't build and economy on debt." Seems to be antecedent.

"By any traditional measure we are already in a depression." An inaccurate assumption in this comment from your critics, unless we're referring to state of mind. There I might agree given the vitriol I read everyday.

There is no doubt we're in hot water and I for one am happy to have you throw a little cool water into the bath Lok Sang Ho

Tar Sands: How Much Is Out There and Can Nuclear Help?

OK, enough; I live in Alberta and although there are some statements here that are true, there is much misconception.

At present using the method of determining the current stock available through current economically feasible technology it is 173 billion barrels, however that figure grows to 315 billion barrels when estimating the reserve.

The total stock is estimated at 1.7 to 2.5 trillion barrels.

True the world consumes 84 M bbl/day; the US represents 15 M bbl/day using the lower total stock figure would provide the US with its current demand for 310 years and the world for 55.

The pulp and paper industry in Alberta is harvesting some of the trees planted as part of their land reclamation requirements along the foothills of the Rocky Mountains. Farmers are harvesting grains off of lands reclaimed by the soft coal strip mining operations of the power companies west of Edmonton. I have watched this reclamation project for forty years, and although the scar of the strip mine is ugly it moves at a gradual pace and reclamation follows close behind. It is possible to have economically feasible environmental reclamation. The Boreal Forrest ranges from the beautiful landscapes along the river valleys to scrub forest and covers the northern half of Canada; the Alberta Boreal Forest is large, but pales in size against that of Ontario or Quebec. Huge forest fires along the magnitude of those recent bush fires in Australia are not uncommon.

The Mackenzie Natural Gas Pipeline has been on the books for over 25 years and has yet to overcome all the regional native and environmental concerns.

They are "Oil Sands" not Tar Sands. If you take a spade and scratch the surface of the bank by the Athabasca River, you will find it leeching. It is a misconception to believe this material is not producing its own environmental impact as part of nature.

The current in-situ method of extracting the bitumen does create waste, however the water used in the process is recycled and consumed to an efficiency of 90%; the 500 ducks that drowned in the tailings pond in May 08 did land in some pretty ugly evaporation pools used to recover the last 10% of water as it evaporates. This accident was the result of a failed zone alarm system and not a systemic environmental malaise.

The current decline in oil prices has slowed production in Alberta, it was expected to reach a capacity of 5 million barrels a day in ten years; at present US consumption of 15 million barrels a day that is one third of US consumption.

The economic stimulus package combined with TARP is in excess of $1.5 trillion, or $4,300 per capita; the December 2008 Inventory of Major Alberta Projects is $270 billion over ten years or $9,200 per capita; this is private investment for the most part.

To give you a visual idea of what the current volume of extractable reserves is look at:
www.energy.gov.ab.ca/L... each square is six square miles; it takes fifteen hours to drive from Edmonton to the northern border of Alberta via Peace River and High Level.

The government has provided an informative document for you to review:
www.albertacanada.com/...

As stated above Canada is a stable democracy, with public health care and banks still in the black. I am an American living here, but I can tell you the quiet Canadian is a pretty bright person and loves their environment more than most Americans; there has been a distinct failure on the part of the oil companies, the government and those of us living here to demonstrate and show that considerable effort and money is going into making the extraction of bitumen both economically and environmentally feasible.

Any realist will recognize it is facile to discount this source of energy in the future variegated supply of our growing demand; it will be the foundation upon which the time needed to develop alternatives will hinge.

So as one who will benefit from some return to economic stability in the oil markets I suggest you invest the time in learning the facts from the source and use common sense in evaluating the cost benefit/environmental risk.

Details of Obama Housing Plan: Not So Bad After All

Fair points all D_Virginia, but the foreclosures will pass through the NAR numbers too; the counter point to you comments about the bell curve can be turned onto the arguments that housing is losing 50% of its value. Just as you point out in certain markets this is true; in others not; that is the nature of real estate; ergo the 'Location mantra'.

Of course there is a serious problem and it appears if one states the largest percentage of loss that they have heard without verifying the number and determining what that number represents; e.g. prior to 2006 what was the increase of value in these homes? from what level? is it a 50% loss on a 40% gain, therefore perhaps only a 10% loss on market value? or is it a 50% loss on true value? What a home asks on the market and what it sells for, which is the true value of the home?

It is easy on both sides of the equations to manipulate the numbers; but the fact is over 50% of US homes that were mortgaged were mortgaged with subprime vehicles in 2006; in one news item just on CNN this evening a community in Florida had over 60% of the foreclosed properties had been held by speculators who walked from their obligations; I expect that a number of these same speculators will be back buying these same homes after they’re foreclosed. For the other 40% it is their home. Who would you like to help?

> PK -
>
> National prices may have had a curve-shaped housing bubble, but there
> are a number of areas that had a steep spike.
>
> In high-end areas near DC, inside the beltway, housing prices haven't
> suffered that much -- they have leveled off and slumped as many predicted.
>
>
> The suburbs, however, have suffered tremendously, seeing very steep
> rises as they built up in the early 2000's, and equally steep drops
> in 06/07/08. In those areas, many homes are selling for late-90's
> prices. It's scary.
>
> Sure, it's a nonstandard foreclosure trend that's driving it, and
> a lack of lending, and unemployment, etc, but those trends are maintaining
> or increasing, and are rapidly becoming standard, at least for the
> next few years.
>
> Also, don't let the reported numbers fool you, with all the foreclosure
> moratoriums, it's much worse than the NAR would like anyone to think.
>