Friday, January 28, 2011

Inflation Returns

Check out the disconnect between the people who actually invest money and those that don't.

The financial markets are concerned about inflation.

But Treasury Secretary Geither is not, calling inflation "not high on our list of concerns."

The bond market sees inflation creeping into the U.S. economy.  Interest rates are rising.

But Fed Chair Bernanke doesn't see any inflation and voted this week to continue his $600 bond repurchase program.

Oil, food, and energy prices have risen sharply, as any buyer of gasoline or cornflakes has noticed.

But the U.S. government does not count those items, coincidently the most common purchases of the average American, part of the core inflation number.  By the way, the head of the European Central Bank disagrees with this practice and thinks the use of a core inflation rate fails to predict real inflation.

I have been predicting inflation in this blog for YEARS and YEARS.  In fact, the second ever post in this blog dating back to April 2009 was about inflation.

I'm very happy the world, the financial markets, the American consumer, and the European, Chinese, British, Australian, and virtually every other central banker in the world sees not only the current inflation but the future danger it poses.

Except, of course, Mr. Geither and Mr. Bernanke.

Go figure.

Thursday, January 20, 2011

Gas Prices and Development

The relationship between high gasoline prices and the decline of traditional suburban real estate development has long been established.  I've written about this problem for homebuilders and developers wedded to the classic subdivision business model for years.

As I write this, $4.00 per gallon gasoline is likely this coming summer, coincidently, the peak of the real estate residential sales season.

The ripples of this simple fact are dramatic.  For example, the homebuilders, many of them working in the suburbs, are still suffering, and badly.  2010 was the SECOND WORST year for new home construction in the last FIFTY YEARS.

High gas prices are only going to make matters much worse for suburban developers and especially those home owners attempting to sell suburban properties without access to public transportation as a realistic alternative to driving to work.

I have recently written about the deteriorating social and economic conditions in many American suburbs.  The lure of cheap homes, big backyards, great schools, and none of the street crime and urban decay of the big cities that lured homebuyers to suburbia from 1950-1980 is long gone.  Suburban white flight back to the cities is a reality which makes current investments in cookie cutter, "every house looks exactly the same" suburban subdivision properties at any cost a risky investment over the long term.

The above analysis has profound implications for investors and homebuyers everywhere.

Saturday, January 15, 2011

The Final Forest by William Dietrich

Forks, Washington is known today as the place where vampires and werewolves fight to protect the life of Bela Swan in the Twilight movies.

But another battle has been raging in and around Forks for years, equally as harsh, violent, and bitter.

The Final Forest: The Battle for the Last Great Trees of the Pacific Northwest by author William Dietrich tells the story of the debate over logging the last remaining ancient forest on the Olympic Peninsula in Washington State.  The struggle between environmentalists who want to protect a rich historic natural preserve versus the logging industry that for a century was the dominant industry in the area is played out against the needs of those caught in the middle, the men and women who need jobs to support their families and customers for their shops.

I enjoyed this book much more than I anticipated.  I expected a biased account of the land use and natural resource debate, a "green" truth if you will.  But I was wrong, dead wrong, and happy to admit it.  The author has a flair for tellings stories and it shows.  Whether he is discussing industry numbers or the struggle of some average person worried about their future now that their company and their job are gone, The Final Forest is always compelling, a real achievement given the subject matter and its frequent density.

This book is a MUST READ for anyone who believes the environmental or historic debates when land use is concerned is a simple issue, just about numbers and profits and little else.  It is the residents of the area who bear the brunt and pay the price for many public decisions, unfairly sometimes, wrong in others.

I can't recommend this book more highly.  Kudos to Mr. Dietrich.

For the record, I do not know the author but I am now a fan and can't wait to read more.

Tuesday, January 11, 2011

iPhone and China Trade

I often bash government and industry statistics as sometimes, on occasion, and lately more often than not, being intentionally inaccurate, or put another way, wrong on purpose.

The way the Bureau of Labor Statistics, for example, calculates the U.S. inflation rate is beyond reason.  It's silly in a charming sort of way but nevertheless highly inaccurate on purpose.

The Wall Street Journal had a great article today on the iPhone and how each one sold anywhere to anyone in the world adds to the U.S. trade deficit with China.

What?  Wait a second.

If Apple, an American company, sells iPhones by the millions all around the world why does this increase the U.S. trade deficit instead of reducing it?  Isn't the whole point of international trade from an American point of view is for AMERICAN companies to sell goods and services the rest of the world wants to buy?

Good question, eh?  Read the Journal piece.  EXCELLENT.

Friday, January 7, 2011

Double Dip Housing Recession is Here

It's official.

The U.S. residential housing market is now in a double dip recession, something I predicted would happen in June 2009 in this blog.

Not June 2010.

But June 2009, or nineteen months ago.

What took the lamestream media so long to read all the obvious economic signs?  Simple.  They cheerlead markets.  I forecast them.  They wear rose colored glasses.  Mine are crystal clear.  They are trying to sell you something, like books, home study courses, houses, REIT shares, apartment buildings, whatever real estate has to offer.  I have nothing to sell to you.  Ask yourself who has the financial bias when reporting the news?

Here's an excellent article explaining what a double dip recession in housing looks like, especially the consequences of continued falling housing prices on economic growth.

All the real estate action in 2011 will take place over Class A commercial properties.  The REITs and private equity buyers have lots of cheap money courtesy of Ben Bernanke and this is genuinely an opportunity to pick up some world class trophy properties on the cheap.  Here is one example concerning Blackstone and a London property.

But the U.S. residential market is a falling knife through 2013 and even beyond.  Don't try to catch it.  The idea of buying houses to rent them out for a retirement plan is so obsolete and quaint the notion would be charming if it hadn't ruined so many people's financial lives.