Tuesday, December 21, 2010

Bernanke Stimulus Plan Fails

As I have been predicting in this blog for more than a month now, Fed Chair Ben Bernanke's new stimulus plan, dubbed QEII, has failed to lower interest rates.  In fact, interest rates have RISEN, not fallen as Bernanke expected.

The reason is simple.  Devaluing the dollar raises inflation fears.  The increase in yield is the additional risk premium.

Even the lamestream media has begun reporting on Bernanke's missteps.  Read this apologetic gem from the Atlantic.

So let's see.  If the Fed buys bonds with newly printed money and interest rates rise, what will happen to interest rates if the Fed buys more bonds?  Ask a second grader this question and you will likely get the right answer.  Ask the Fed and they will have a novel theory that avoids reality, empiricism, common sense, and the truth.

The U.S. and world economy are not out of the woods yet.  The foundations of growth are more firm than they were in 2007.  But not by much.  The world economy including China is going to limp along for years, maybe even a decade.  Look at Japan and its now TWENTY YEAR deflationary cycle as an example.  Real estate values have fallen in Japan for NINETEEN straight years.  Read about their Lost Decade for an example of what will happen in the United States, just not as severe or as long.  There are many, many parallels.

Bernanke recently appeared on the CBS News program 60 Minutes and gave a nervous, sweaty, and tense performance that has lit up the blogosphere.  Here is one view of how poorly he did in front of the cameras answering questions about his actions at the Fed from 2005 to the present day.

Representative Ron Paul and his new chairmanship over the Fed is going to cause Mr. Bernanke many sleepless nights.  While I do not share all of Mr. Paul's views, he is more right than he is wrong about the Fed and its obscure and hidden accounting, its misconceived easy money policies (called the Greenspan and now Bernanke "puts") and the bizarre statements and laughable predictions made by Bernanke and his predecessors.  I welcome Mr. Paul's inquiries and suggestions for reform.

The Fed needs to end its pointless stimulus plans.

Tuesday, December 14, 2010

Metrodome Collapse

The footage of the roof collapse at the Hubert H. Humphrey Metrodome in Minneapolis is not just fun to watch but educational from a structural engineering and design perspective.  I see many academic case studies being written around this failure for years.

To get some background on the stadium itself, the Metrodome has an excellent website, including a comprehensive history of the building.

What happens next for this old stadium, the ninth oldest in the National Football League, is up in the air.  Maybe some stimulus money can be found to begin construction on a new facility?

Saturday, December 11, 2010

Seattle Signage Debate

The debate currently developing over signs on buildings, or more precisely VERY LARGE SIGNS on VERY LARGE BUILDINGS, is quite fascinating from a economics case study perspective because it cleanly splits the interests of the public at large from private owners in particular.  Both sides in this debate make compelling arguments on their side and against the other, making any public policy decisions in the legislature, the city council, or the courtroom extremely difficult.

Seattle is in the midst of such a debate now.  Should the city council allow developers and building owners to lease space to tenants and permit the names (but not the logos) of the lessees to be placed on their buildings?  And, once again, both sides are making great points.

A skyline of a city free of huge building topping signs and logos is more naturally beautiful than one filled with signage.  I will admit there are some classic big building signage, like the Citgo sign in Kenmore Square in Boston or the old PanAm sign that gave 200 Park Avenue in New York its name, that is memorable and historic.  Let's not forget the Hollywood sign in Los Angeles, originally an advertisement for a real estate development called Hollywoodland.  These cities would not be the same without these treasures.

But most signage is not attractive.  Some of it is downright ugly.  And too much signage makes a city look like a set in the movie BLADE RUNNER, blaring colors and visual noise, a futuristic nightmare for the eyes.

It is true, legally and morally, that the general public has an interest in a clean and uncluttered skyline.  It can certainly regulate the number of signs and the conditions of their use, exactly as a city controls the number of buildings that go up and how high they rise in the first place.  But can a city ban all signage, or so restrict its use there is an effective ban?

Developers and building owners obviously say no, and they also have a point.  It's THEIR building.  Leasing with signage rights makes attracting tenants easier.  Signs are advertising.  Why can't big corporations and major firms advertise their location like all other businesses?  Don't pizza parlors, used car dealers, and barber shops all put signs out front to attract business?

With real estate vacancy high, especially on Class A commercial properties, the very real estate that would attract Fortune 500 type tenants, restricting or banning signage makes some properties financially uncompetitive relative to those communities that are more liberal towards large signs.  No leases, no jobs.  Does a city really want to lose a major commercial tenant and hundreds of jobs over a sign?

Seattle needs to strike a balance and ultimately the city council will, in some fashion or another, after lots of angry and loud debate, which is part of our local tradition.  Lots of smoke from a relatively small fire.

I expect more signs on the Seattle skyline in the future but probably not as many as there should be.  Remember all those signs I listed above from Boston to LA only got to be famous historic landmarks because someone was first allowed many years ago to install them.

Thursday, December 9, 2010

Home Prices Fall $1.7 Trillion in 2010

U.S. home prices fell yet again in 2010, falling another $1.7 trillion in value.

Since the peak of the U.S. market in 2006, U.S. home prices have fallen a whopping $9 billion.

So, who is to blame for this debacle?

Wall Street, the greedy mortgage lenders, the insatiable real estate sales industry, even the get-rich-quick real estate gurus who promised instant wealth and long-term retirement security through real estate and Federal Reserve who made all that borrowing and leverage so easy and cheap.  What about the Federal and state governments that let all those abusives above happen?

Take your pick.  Or picks.

One person that can never be blamed for this mess is me.  I warned my readers for years that real estate prices were high, way too high.  I ranted and raved about the deteriorating mortgage underwriting process that was sweeping the nation, eroding the relationship between what a home costs and what it is REALLY worth.  I explained many many times that real estate prices, just like trees, cannot grow into the sky, not just with reason and rhetoric but numbers and examples before my eyes and in the press.

I'm not bragging, well maybe I am slightly, but I feel sad for my country, just like a failed Paul Revere.  I wasn't the only person who said that the real estate market was in a bubble about to pop, but it happened anyway.  I feel like I fell off my horse.

For the future going forward, there are few real catalysts stopping the real estate price slide anytime soon.  A stabilization or slow slide is more likely than more harsh shocks of the 2007-2008 era, but anything is possible because the United States and the world is now in uncharted waters, the so-called undiscovered country of economics and finance.  Never has the world been so broke before.  Every village, city, county, state, and Federal government are broke, crushed with debt and out of control costs.  For a great analysis on this point read this interview with Jim Rogers.  Most of Western Europe is already technically insolvent.  California looks like Greece.

$9 trillion is not just some numbers on a spreadsheet.  Most of that number is the wealth and savings of the American middle class, decades of investment gone in a flash, and the sad truth is that almost all of that money is never coming back.  Most of the jobs that were lost in the last recession are gone forever.  Life in American has and will profoundly change over the next generation, for better or worse, and right now I am not a betting man.

Sunday, December 5, 2010

China's Skyscrapers

Today, I have an assignment for you.

China is building skyscrapers, lots of them, including the world's tallest building.  Read this article before going on the next paragraph.

Then compare and contrast the above article with this classic essay, The Tall Office Building Artistically Considered, written in March 1896 by Louis H. Sullivan, the architect and creator of the modern skyscraper.

This is some of the most brilliant prose ever written, let alone on real estate development.

The implications for China, the United States, and the rest of the world are beyond comprehension.

Thursday, December 2, 2010

Major Get-Rich-Quick Creative Real Estate Guru Faces Mail Fraud Charges

According to law enforcement sources, a "serious" (their word) real estate guru will be facing a Federal mail fraud complant in the days ahead.

I am aware of multiple investigations against a number of creative real estate get-rich-quick gurus but want to confirm who is the target before I name them here.

More to follow.