The Kids Have Spoken

The voting is finished, the ballots have been cast, and the kids have spoken.
Mish is pleased to announce the winner of this year's Halloween favorites.
Without further ado, the overwhelming favorite for the second year in a row is (drum roll please)......Tootsie Roll Pops.

No, for the record I do not get anything out of this endorsement (other than I have been eating them all day myself too).

This Halloween we offered a basket of candy including, Snickers, M&Ms, Butterfingers, Milky Ways, and Tootsie Roll Pops. When holding out the basket the first choice was (by guesstimate) Tootsie Roll Pops more than 65% of the time.

One "Little Princess" selected a red Tootsie Roll Pop put it down, picked it up and put it down again. Wondering what was on her mind, I offered "It's OK you can take two". She promptly picked up the Cherry Tootsie Roll Pop and then without hesitation selected a Grape Tootsie Roll Pop as her second choice. The original dilemma was not what candy to choose but what flavor to choose.

Boys on the other hand reacted differently. Originally taking one, when told they could have two, just grabbed a handful of everything. Perhaps this means girls are really better at math or perhaps this means boys are better at seizing opportunity when presented. I will leave this debate to Mish readers.

Then again, the latter was not uniform. One "Little Devil" selected a Chocolate Tootsie Roll Pop and that was all he wanted it seems. I had to ask "Are you sure you don't want another one?" He just stood there so I handed him another selection for his bag.

There you have it folks.
By popular demand "The Kids Have Spoken".
Mish is pleased to recommend that next Halloween parents everywhere stock up on Tootsie Roll Pops.

PS. Please buy an extra bag for yourself. Save some for the kids and if there are still some leftover please send them to me.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

3rd Quarter GDP

Here is how the 3rd quarter GDP was actually reported:

Economy Grows at an Energetic Rate in 3Q - Despite Hurricanes

WASHINGTON (AP) -- Economic activity expanded at an energetic 3.8 percent annual rate in the third quarter, providing vivid evidence of the economy's stamina even as it coped with the destructive forces of hurricanes Katrina and Rita. The latest snapshot of the country's economic performance, released by the Commerce Department on Friday, even marked an improvement from the solid 3.3 percent pace of growth registered in the second quarter. Growth in the third quarter was broad-based, reflecting brisk spending by consumers, businesses and government.

The expansion in gross domestic product in the July-to-September quarter, the strongest since the beginning of the year, also exceeded many analysts' expectations. Before the report was released, they were forecasting the economy to clock in at a 3.6 percent annual rate.

Despite the sting of high energy bills, consumers continued to spend, doing their part to keep the economy rolling in the third quarter. Consumers' boosted spending at a brisk 3.9 percent rate, the strongest pace since the end of last year.

Here is one possible alternative:

Economy Grows at an Energetic Rate in 3Q - Because of the Hurricanes

WASHINGTON (AP) -- Economic activity expanded at an energetic 3.8 percent annual rate in the third quarter, providing vivid evidence of dollars flooding the economy in the wake of the hurricanes. Washington flooded the economy with close to $100 billion in relief efforts. The boost is expected to be temporary as is widely known by economists as "The broken window fallacy".

Benefiting most from these relief efforts were roofers charging the US government as much to temporarily patch roofs with plastic as an entire new roof should cost. Also benefiting from this disaster were truckers hauling ice to nowhere. That ice was never used and either melted or returned to the place of origin. Insurance companies paid out billions of dollars worth of claims and that money was spent as well. Food vendors in Houston benefited by charging extravagant prices to supply food to the refugees.

Gasoline prices skyrocketed, accounting for much of the increase in consumer sales. Despite the string of high energy bills, consumers continued to spend simply because that had to if they wanted to heat or air condition their homes or drive anywhere.

Add it all up and the rise in 3rd quarter GDP was a mirage.

Let's consider all of the likely alternatives and see how they stack up:

1. GDP really did rise. It's a good thing. God bless consumers.
2. No one really knows what the GDP did as it is so grossly distorted already and hurricane relief made it even more so. For a look at some of those distortions please consider Grossly Distorted Procedures. Besides, GDP is backward looking and the housing slump to which we can look forward to is just starting. The fallout will be immense.
3. GDP rose because consumers foolishly went deeper debt spending driving savings rates further into negative territory. This can hardly be a good thing.
4. GDP rose because of a rapid rise of government spending in the wake of the hurricanes. This is not a good thing and is part of the reason for recently rising interest rates.

Which of those are likely?
For anyone that wants to party now and is not concerned about the hangover later, (which is almost everyone, especially the economic cheerleeders on CNBC), the answer is number 1. To those folks, the answer is always "rah rah siscooom bah, gooooooo consumer" and no possible chance to portray things as being better than they really are is ever passed up. If the GDP was down they would be looking ahead to the "recovery" after blaming the weather. The thinking person on the other hand knows full well the answer is a combination of 2, 3, and 4.

Charles Mackay, writing for the WallStreetExaminer touched upon this line of thinking in The Secret Recession. Let's have a look.

Hidden behind the "strong" GDP figures is an ongoing consumer recession. Buried beneath the mass of heavily manipulated economic statistics, the Bureau of Economic Analysis notes that real* disposable income fell at an annual rate 0.9% in the third quarter. It went from a $8,128.7 billion annual rate in the second quarter to $8,110.5 billion in the third quarter. Already heavily indebted, consumers resorted to draining cash from their bank accounts to maintain prior spending levels. The BEA says the amount of negative savings reached an annual rate of $100 billion in the quarter � or put another way, -1.1% of income. This is duly confirmed by the continuing drawdown in the M1 money supply we have seen for a number of weeks now.

The BEA also issued a stern note of caution about reliability of their GDP figures:

The Bureau emphasized that the third-quarter "advance" estimates are based on source data that are incomplete or subject to further revision by the source agency. The third-quarter "preliminary" estimates, based on more comprehensive data, will be released on November 30, 2005.

Government spending rapidly accelerated to a 7.7% rate in the third quarter. This spending may further add to the misconceptions about just how strong the economy really is.

"May add to the misconceptions" or "Did add to the misconceptions"?
I think the latter. At any rate, thanks for the numbers Mr. Mackay, it helped me put the finishing touches this weekend on a piece I started soon after I heard the noise and saw all the pom-poms waving. As always, it was a sight to behold.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

US. misses softwood deadline

The U.S. missed a deadline to resolve its softwood lumber dispute with Canada.
Is anyone surprised?

US. misses softwood deadline

Foot-dragging comes days after PM called for proof Washington respects NAFTA

The United States missed a key deadline yesterday for complying with a NAFTA ruling that should have dramatically cut duties in the bitter softwood dispute, denying Canada the gesture of good faith it's been requesting before it would resume talks to settle the conflict.

Yesterday's foot-dragging especially angered Ottawa because it was only on Monday that Prime Minister Paul Martin called on U.S. Secretary of State Condoleezza Rice to provide proof that Washington still respects the North American free-trade agreement.

Canadian-U.S. relations concerning the $8-billion softwood dispute have been in a downward spiral since August, when Washington spurned a different NAFTA ruling that should have ended the conflict.

In this separate case, a NAFTA panel of trade adjudicators has ruled five times -- most recently Oct. 5 -- that the United States's calculation of part of its softwood duties was illegal under U.S. law and it has five times urged Washington to bring its results into line.

NAFTA ruled five times that the US is wrong?
Does the US care?
If so how?

At 5 p.m. Eastern time, the U.S. government announced it had some questions about the panel's ruling and that softwood duties would stay in place. It requested "clarification" of the NAFTA decision and asked for more time to comply. Yesterday was the last possible day for Washington to respond to the NAFTA ruling.

After 5 rulings that the US is in violation of NAFTA, the US wants "clarification" at the 11th hour. What can possibly need to be clarified at this point?

"This seems to be another example of the lengths they will go to avoid offending, at least in the short term, special interest groups like the [U.S. Coalition for Fair Lumber Imports]," an official said.

"I hardly think this can be construed as the signal of good faith that the Canadian government was looking for," said Carl Grenier, executive vice-president of the Free Trade Lumber Council, which represents about 40 per cent of lumber exports to the U.S. market.

The B.C. Lumber Trade Council, representing half of U.S.-bound lumber exports, accused Washington of employing "delay tactics."

The U.S. government, which this week asked Canada to tone down its "apocalyptic language" on softwood, insisted it's playing fair.

"This administration is fully committed to NAFTA and to coming to a lasting agreement with Canada to resolve this dispute," Commerce Secretary Carlos Gutierrez said.

International Trade Minister Jim Peterson called on Washington to respond promptly. "It is up to the United States to show that the institution of the NAFTA means something," he said. "Rules are rules, you can't just pick and choose."

In a nutshell, that is the mistake that Canada and other keep making: The US has proven, time and time again that it can and will pick and choose the rules it will abide by. Waiting for Washington to respond promptly to trade disputes when the US is at fault has proven to be futile.

By now it should be point blank obvious that the word of the US (at least the word of this administration) is totally worthless. Therefore, it most assuredly is not up to the US "to show that the institution of the NAFTA means something". Rather it is up to everyone else to make it extremely painful for the US to not honor its trade agreements.

Hardball is the only thing this administration understands.
It is up to Canada to prove it is willing to play hardball.
That is the bottom line. No more, no less.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Moving House

For the next few days it's moving time. Posts will resume early-mid next week.


Image found here

2 Openings

Two buildings have opened their doors, as reported by World Architecture News:


Coop Himmelb(l)au's Munich Academy of Fine Arts.


Norman Foster's Leslie L. Dan Building for the Faculty of Pharmacy at the University of Toronto.

A National Mortgage Broker Chimes in on Boston

The following is from Dave Donhoff, a national mortgage banker/broker:

Hi Mish,
Regarding: The The party is over in Boston
Snip...
No buyers? Fancy that. On a $70,000 price cut no less. Let's see, is that a 15% price reduction? Yep. Does that include a 6% fee to the real estate agent/broker? Nope.
EndSnip...

Anecdotally I'm seeing increased inquiries in foreclosure bailouts and distressed requests for cashout refis (to fund reserves because payments can't be met... which, of course, we do not do) from Greater Boston, and the California Bay Area.

FURTHER, nationwide the rental levels are breaking from stagnant to a creep to a LEAP in some markets...

If there was EVER a time to get buttoned up as a real estate investor... the markets' about go go on deep-discount sale. Probably "once in a lifetime" buying opportunities will begin opening up to the diligent who are cash & credit strong.

Cheers,
Dave Donhoff
National Mortgage Banker/Broker

Instride on the Motley FOOL replied with:

I am not a realtor and do not play one on the internet. I am a podiatrist who happens to treat a realtor every now and then in my office. The following is scuttlebutt and fungusamentals obtained while extracting fungus while trying not to go mental.

In Weymouth, MA a second generation local family run realtor says that commissions dried up by the end of last year. There were 81 houses listed for sale in town, last year. Sales were very very good. This year, there are 244 listings but sales are dead. Nothing is moving. Three other realtors covering areas Boston south to the Cape and Islands confirm that sales have "dropped off the table this years." To quote one of them, "the glory days of 6 figure salaries are gone." Another said, "Condos are what is moving best right now, but it does not even come close to making up for the lost home sales."

I am also starting to see a phenomenon I have not seen before: for rent signs out in front of homes with for sale signs.

I also saw on the ABC News that a contractor is resorting to E-bay to sell a house he built in Ashland, MA after it did not sell for 3.3 million. He is reducing the 5 bedroom house on 2.6 acres to a "bargain" 2.8 million. I bought a 4 bedroom house on 10.2 acres ubutting a national park in Nova Scotia for 27,000 US dollars just 3 years ago. Now there is value for you.

It seems as if we have similar observations as to the Boston area market that have been arrived at in an independent fashion.

Instride
A proud member of the Boston real-Tea party

Mish reply:

Thanks Dave and Instride.
We need to stress patience on that buy side, and that can vary widely market to market. This housing bubble (and yes it is a national bubble) can crash now or it can take years to play out. I suspect local conditions will vary widely. But I sure agree with you that the best opportunities will be for "the diligent who are cash and credit strong". I would also add opportunities will be for those that understand value and local conditions and how fast they can can turn, as well as how extreme both of them can get. We have seen the extremes on the high side. It sure remains to be seen what extremes on the low side will look like. Condos in bubble areas are particularly likely to be smashed.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Yes we are

Don't know where or when this originated, but I couldn't resist passing it along (text version here). Thanks to Scott P. for sending me this.

The party is over in Boston

Turn out the lights. The party is over in Boston.

Greater Boston's once-sizzling home sales have cooled so much this fall that realtors are reverting to a description not heard in a decade: "Buyer's market." From the South End to the South Shore to Cape Ann, the list of unsold properties is growing, and so are reductions in asking prices. Attractive houses in good locations with seemingly appropriate pricetags are getting scant interest. Real estate agents, who six months ago played host to streams of buyers, are now presiding over open houses that draw few if any lookers.

In Jamaica Plain, even a $70,000 price cut -- to $399,000 -- hasn't generated much interest in a two-bedroom, bi-level condo in a 19th century mansion that has been on the market for about a month. Sunday, only four people, including two curious neighbors, came to an open house.

"My seller is willing" to consider a lower price, said the broker, Anne Connolly, "but there's no buyers to deal with." The fall slowdown not only represents a sea change for sellers, who for years have enjoyed multiple offers and higher prices, but also indicates the region's bull housing market is at an end. Real estate agents say a long-predicted market correction appears underway as the gap between the price of housing and peoples' incomes -- now even wider than at peak of the 1980s housing boom -- has become too great to sustain the recent pace of sales and appreciation.

No buyers? Fancy that. On a $70,000 price cut no less. Let's see, is that a 15% price reduction? Yep. Does that include a 6% fee to the real estate agent/broker? Nope. Now bear in mind we do not know how much that house was purchased for or how much the price was jacked up to being listed originally at $469,000 but we do know that a year ago or so there was panic buying of such properties. No buyers left? All tapped out? Perhaps $399,000 is more than a tad expensive for a two bedroom condo.

Certainly, few expect an "80s-style collapse, when home values plunged 25 percent or more". Today, the economy and lenders are far stronger, and mortgage rates, which topped 10 percent when the last boom went bust, are far lower -- currently about 6 percent. In the 1980s, overbuilding, unsound lending practices, and intense speculation by investors, along with higher interest rates, sparked a real-estate crash.

Perhaps more people should expect an "80s-style collapse". Why shouldn't there be one. Today's economy is "far stonger" only because of spiraling home prices supporting consumption. Take away real estate and what have you got? Nothing, that�s what, other than boated home prices to show for Greenspan�s folly at trying to prevent deflation. "In the 1980s, overbuilding, unsound lending practices, and intense speculation by investors, along with higher interest rates, sparked a real-estate crash." Exactly what is different now, other than rampant speculation by the masses orders of magnitude higher. In fact unsound lending practices have probably never been more unsound.

While this may be good news for buyers, a slowing housing market will add a drag to Massachusetts' already sluggish economy. Real estate has been one of the state's few bright spots, generating not only jobs when most other sectors declined, but also wealth, in the form of rapidly appreciating home equity.

Actually it's not good news for anyone, at least anyone leveraged in debt. By itself it will slow the economy far more than any of the talking head economists seem to think.

Last Sunday, Globe reporters visited about a dozen open houses in different Boston neighborhoods and suburban communities. In Rockport, only four potential buyers visited a three-bedroom Cape, on the market since July despite three price reductions to $369,000 from $384,000.

At an open house in Braintree last Sunday, Jeff Brown, a 30-year-old health care professional, said he and his wife, Julie, have a price in their head, and they plan to stick to it as they shop. Last spring, Brown added, they were outbid on five homes, all sold above asking price.

Recently, after viewing a home in Norwell, listed at $645,000, Brown was told as he walked out, "We'll take $535,000."

"We'll take $535,000" huh? Why is it listed at $645,000 then? $645,000 seems a bit unreasonable to me if $535,000 is the proper value. Will anyone even offer $535,000? If so, $535,000 is a whopping 17% reduction right off the bat. Once again, that does not count agent fees. And once again we do not know what this seller paid or how high the ask price was initially jacked up. What we do see however, are signs of a few possibly panicked sellers. There will be more of them as this bubble popping progresses from locale to locale.

I want to add one other comment here. If agents are listing houses 17% too high, how quickly might a general distrust or suspicion of listing prices set in? One or two cases in Boston does not make a national reality, but one has to wonder about what might happen if "buyer suspicion" does set in. I hazard a guess those listing agents did the sellers no good at all if the real value of that house is closer to $535,000 than $645,000.

The party is clearly over in Boston. Those party lights seem to be flickering in other areas as well. I suggest that based on skyrocketing inventories everywhere I look. It is likely those flickering lights will soon be going out all over the place with a FED hell bent on containing inflation, inflation they created with reckless monetary policy. That is the sad bottom line of this mess, and there is going to be hell to pay for it too. At this point I think there are two possibilities as to how this housing bubble plays out: a complete sudden collapse in the bubble areas, or a slow prolonged torture like Japan went through. As I see it, those are the only options and neither is pretty.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Sprawl-orama

Above is a section of a suburban sprawl panorama by Matt Jalbert. More photos at his web page, Exuberance.

(via RUT)

Playing Hardball With Softwood (Part II)

I did not envision part II coming so quickly. In fact I did not plan one at all. Yet, here it is. Perhaps I had a hunch went I went back and added this finish to my previous post: "Just to make sure people do not mistake this for USA bashing, the EU is equally guilty with their protectionist farm subsidies. The difference being (for now), no one has either the political will or a bat big enough to force changes in the EU. Canada does, and they should use it."

Mish is now wondering: Is it possible to play hardball with mushheads?

Chirac says EU must never become 'mere free-trade area'.

French president Jacques Chirac said ahead of a summit on the future of Europe that the EU must never become "a mere free-trade area" In a piece in the Financial Times, Chirac also refloated his idea of "pioneering groups" to forge ahead with various EU initiatives following the rejection by French and Dutch voters of Europe's constitution.

But the French president made no mention of the contentious issue of the British rebate, which UK prime minister Tony Blair wants to avoid during tomorrow's summit at Hampton Court, outside London. The EU would be betraying its heritage if it gave up its model of the social market economy "France will therefore never let Europe become a mere free-trade area," he said. "We want a political and social Europe rooted in solidarity," he said. Chirac also said that while the EU should respect each of its members, "states wishing to act together in addition to the common policies should be allowed to form pioneering groups." He added: "Such groups must remain open to those wanting to join them. We did so with the euro."

Following is a simple translation of what Chirac is saying:
France must never give up farm subsidies no matter what the UK or anyone else thinks.

On that note, here are a few select comments that were publicly posted in response to Part I .

"The US govt doesn't run the country anymore. It is run by lobbyists. Lobbyists for big business, special interest groups and a certain middle eastern country. It must be terribly frustrating for the millions of intelligent, fair and balanced Americans."

"If the USA can bully Canada in such a manner, just imagine how the USA is bullying other countries. Now it's easy to understand why so many people around the world dislike Americans (but are afraid to say so openly fearing even more bullying)."

"The Bush administration is not in favor of Free Trade. Nor are they against Free Trade. They could care less about Free Trade. Nor do they care about being consistent on any issue or point of view. Instead they care only about rewarding friends and cronies. They are in favor of that which most benefits their corporate backers at any given moment. If 'Free Trade' benefits them when talking about access to energy they are all for it. But if 'Free Trade' does not benefit them when talking about lumber then they are against it. This is the mentality of a petty criminal. This is the mentality of the Bush Administration."

That last comment was posted by "Chive". I absolutely agree but would like to make one modification to the last sentence as follows: "This is the mentality of protectionists in the Bush Administration as well as protectionists in the EU. Heck, it is the mentality of protectionists everywhere, the US and EU merely being the worst of the lot."

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Playing Hardball With Softwood

The New York Times Op-Ed contribution Lost in the Woods summarizes nicely the dispute between Canada and the US over lumber. Following are the key paragraphs:

American and Canadian lawyers, lobbyists and negotiators have been fighting on and off over Canadian lumber exports to the United States since the 1980's. In 1982, a coalition of 250 American lumber mills claimed that Canadian provinces were subsidizing lumber exports by charging set "stumpage fees" - the price forest companies paid when harvesting standing timber - while American mills were paying open market prices. While the fight over things like stumpage fees is complex enough, it got a sharp twist in 2000 when Congress passed an amendment giving American companies injured by foreign trade the punitive duties imposed by the United States, which in the case of Canadian lumber exports now amount to about $5 billion.

Never mind that the right of the United States to impose such duties is in dispute, or that the W.T.O. declared the Byrd amendment (named after its creator, Senator Robert C. Byrd) illegal. American and Canadian officials now face two lumber disputes: the old one about timber management practices; and the new one about who owns the money held by the Treasury. Making things uglier are conflicting decisions by a panel convened under the North American Free Trade Agreement and by the W.T.O., with the United States claiming that favorable rulings by the latter trump adverse rulings by the former.

Canadians, including the normally friendly Canadian business community, are particularly outraged that Washington has rejected the Nafta panel decision. In Canadian eyes, this refusal by the United States betrays the central deal that underpinned Nafta in the first place: Canada allowed unfettered access to its energy resources and an end to restrictions on American investment in return for a binding method of settling disputes. As Prime Minister Paul Martin made clear recently, the dispute is coloring everything from the oil and gas trade (Canada is the largest foreign supplier of energy to the United States) to cooperation in the World Trade Organization, the International Monetary Fund and World Bank.

If a supposedly big advocate for "free trade" can not even resolve a relatively minor dispute with its biggest trading partner when it is clearly wrong, what hope do any free trade talks have down the road? One has to wonder just how much the lumber lobby contributed to the Presidential and Congressional campaigns.

Lawrence Herman and Gary Hufbauer, the authors of Lost in the Woods, proposed appointing "a special envoy with the authority to negotiate a final and durable compromise by a date certain, say June 2006".

No! As far as I am concerned there is simply nothing to negotiate. The Byrd amendment is illegal, the US has illegally confiscated $5 billion from Canada, and worst of all the United States betrayed the deal that underpinned Nafta in the first place: Canada allowed unfettered access to its energy resources and an end to restrictions on American investment in return for a binding method of settling disputes. Not only does the US refuse to honor Nafta agreements with Canada, it will not even honor agreements as to resolving disputes.

What's stupid about all of this is cheaper lumber is desperately needed in the US. With the cost of lumber high and lumber demands up in the wake of several hurricanes, not to mention the stupid waste of paying more than necessary to build houses just to make a few lumber barons rich, one would think that it would be to our advantage to increase the supply at a cheaper cost. But no. We do not honor our own agreements with our biggest trading partner, even when it is obviously to our own advantage to do so.

That is a pretty pathetic record on "free trade" in general and Nafta specifically. It is certainly not a record one would expect unless from "free trade' advocates unless there was a lot of money sloshing around somewhere to keep the status quo of illegal tariffs. I suggest it is high time for Canada to demand the US honor its agreements.

If the only way to get trade agreements honored is to make it extremely painful to those not honoring them, then so be it. Canada can end this mess in about two days flat if it wants to. As a free trade advocate, I recommend that Canada threaten to shut off all oil and Natural Gas deliveries to the US on one weeks notice if the US will not abide by its trade agreements.

Playing hardball over softwood would not only end this nonsense in a hurry, it would also send a strong message to every country about the consequences of ignoring trade agreements for political convenience. Just to make sure people do not mistake this for USA bashing, the EU is equally guilty with their protectionist farm subsidies. The difference being (for now), no one has either the political will or a bat big enough to force changes in the EU. Canada does, and they should use it.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Can't Lose vs. Cashing Out

RISMedia is reporting Investors Flipping Over Second Homes.

"I don�t see how you can lose money," says Houman Sarmasti who took up a new hobby a few years ago: flipping real estate. "You might not gain a lot, but I don�t think you can lose, especially the way real estate is going."

That faith in real estate values has convinced an ever-growing number of homeowners that one home is just not enough. And this surge in second-home purchases is helping to pace the real estate boom, while raising concerns about a bubble nearing the bursting point.

More than one-third of all American homes purchased in 2004 were for investment or vacation purposes, according to a recent study by the National Association of Realtors.

"It�s the expectation that prices will continue to rise that leads people to spend much more than they otherwise would," says Dean Baker, co-director of the nonprofit Center for Economic and Policy Research in Washington, D.C.

"In the past, a typical buyer might have looked at a place listed at $400,000 and said, 'Can I afford $400,000?' If the answer was no, they wouldn�t buy it. Now, if they think they can sell it for $600,000, it�s a different equation."

Perhaps nowhere is the speculative fervor as great as in South Florida, where huge profits can be made by selling pre-construction condo contracts. The practice is so popular that Miami real estate agent Mark Zilbert launched a Web site, condoflip.com, this past summer. It will allow buyers from around the world to bid in real time on construction contracts for Miami condos that haven�t yet been built.

Thousands of new condos are going up around Miami, and a large proportion of people with deposits on the units -- mainly from the Northeast U.S., Europe and South America -- have no plans to move in, Zilbert says.

Indeed that "Can't lose" attitude of amateurs is exactly why The king of real estate is cashing out.

Tom Barrack, arguably the world's greatest real estate investor, is methodically selling off his U.S. real estate holdings as prices drive the market to nosebleed levels.

"There's too much money chasing too few good deals, with too much debt and too few brains." The amateurs are going to get trampled, he explains, taking seasoned horsemen, who should get off the turf, down with them. "That's why I'm getting out."
Right now, Barrack's view of the U.S. market couldn't be clearer: It's a great time to sell, and a terrible time to buy.

The slump will show up first in speculative hot spots like Miami and Las Vegas, he says, where condo developers are preselling their projects for what looks like big profits. When they actually build the units over the next year or two, he predicts, they will end up spending more then the units are now selling for.

At that point, says Barrack, the developers will try to raise prices. "But most of these buyers are speculators," he says. "They will either sue the developers to get the original price or take their deposits back and walk away." The developers will then put the units back on the market, and the glut of vacant condos will drive prices down. "It's the busted deals caused by construction costs that will cause the turn in the market," he says.

Whether or not Barrack has the right catalyst or not (personally I think pure exhaustion caused by falling real wages accompanied and rising unafordability will be the reason), the question has to be asked: Who would you rather believe?

1. Houman Sarmasti, who has been flipping real estate for three years
2. Tom Barrack who manages $245 billion portfolio of trophy assets, from the Raffles hotel chain in Asia to the Aga Khan's former resort in Sardinia to Resorts International, the largest private gaming company in the U.S.

Now admittedly we are comparing different classes of property here, but who do you think has a better feel for things in general? My money is betting on door number 2.

In the meantime Realty Times is reporting Silicon Valley Home Prices Fall $27,000.

September's median home price, based on closed sales of single-family detached homes, came in at $733,000, down from $760,000 in August -- the lowest its been since March this year when the median was also $733,000, according to Creekside Realty owner/broker Richard Calhoun's Bay Area Real Estate Market Newsletter.

Even with the $27,000 price plunge, the median price is $103,000 more than it was a year ago, a 15.25 percent increase.

OK but what about the person that bought anytime since March? Is that 8 straight months with no appreciation? Are any of those "can't lose" investors leveraged to the hilt on zero% down loans getting nervous?

Mark Hicks, broker/owner of the Seabrooke Group in Campbell, CA reported that sales fell, year-over-year, for the tenth month in a row and at one point in September inventory surged past the 3,000 unit mark to post its first year-over-year inventory gain since July 2003.

First year over year inventory gain huh? Is that making any of these "Can't Lose" investors a bit nervous?

Not to worry. Demographics will bail out California property owners, or so they say.
Everyone wants to live in California. Right?
On that note, let's play a fun little game of Question and Answer.

Q. Who can afford to live in California?
A. Practically no one. Housing affordability in California has slipped to about 14% overall. In some areas such as Los Angeles and San Diego, affordability is as as low as 10%.

Q. Are home prices vs. incomes now irrelevant?
A. To get to 14% affordability levels, income and wages had to be irrelevant for quite some time.

Q. Can this environment go on forever?
A. In spite of what anyone says, this is not a "totally new paradigm", and in the long run valuations and affordability matter regardless of what anyone says about "fundamentals" such as population growth or low interest rates. It is a simple economic fact that home prices just can not forever stay above people's ability to afford them. The current situation therefore is simply not sustainable. It is a speculative bubble that is 100% guaranteed to pop. One of two things will happen: wages will rise or housing prices will fall. I am 98% confident of the latter. Even IF wages start to rise, they can not possibly rise quick enough to have a meaningful impact given that affordability levels are so low.

Q. Is California a Mecca for job creation?
A. California was a Mecca for job creation. Much of that job creation was centered around a booming real estate industry. Watch what happens in a housing slump. I guarantee you it will not be pretty.

Q. Are some California residents seeing the light and attempting to cash out and move out of state or rent?
A. That is exactly what rising inventory implies. Inventory is skyrocketing in many locations.

Jobs and wages are two of the keys to sustaining the California boom. Will the following make any of these "Can't Lose" investors a bit nervous?

Construction layoffs could signal trend.

San Diego construction companies, which have long been the main driver of local employment growth, cut 200 positions last month. And that may be the shape of things to come, economists warn.

"There might be some seasonal reasons for the construction losses, but the decline could be a sign that our overall employment growth is slowing," said Alan Gin, economist at the University of San Diego.

Gin said the construction layoffs are one more sign that the housing boom, which has created jobs for builders, mortgage brokers and real estate agents, is winding down.

"The number of home sales is down, price appreciation on most homes is not as great as it used to be, and it's taking longer to sell homes," Gin said. "That could mean less growth in construction work."

Financial services cut 200 jobs last month, largely related to real estate and mortgage operations. Scientific services cut 400 jobs. Temporary employment firms � another major driver in local employment over the past several years � added no workers.

Ryan Singer, economist at the San Diego Regional Chamber of Commerce, warned that the economy is likely to worsen in coming months, as high fuel costs and rising mortgage rates force consumers to cut their spending.

"We're entering a period of risk for the national economy, which will show up here as well," he said. "Energy-related prices, higher interest rates and the growing realization that housing prices may have peaked means that people will get a lot more cautious."

Mish, is this California "soft spot" just for San Diego?
No, not really. Here is more supporting evidence.

According to the LA Times, California Sheds 23,700 Jobs in September.

California's economy lost a net 23,700 jobs in September, the Labor Department said today, a surprising decline that suggested the state's economy might have hit a soft patch.

It was the state's first net job loss since December 2004. And it came as the state has been enjoying relatively stable employment growth this year, averaging more than 23,000 new jobs a month after being sluggish for much of the first three years after the 2001 recession.

California's September job swoon was surpassed only by Louisiana and Mississippi, both devastated by Hurricane Katrina.

A good chunk of the California decline was due to seasonal factors, economists said. Many school districts started their years in August instead of September, which shifted employment growth from September to August, said Howard Roth, chief economist for the state Department of Finance. August employment was revised upward by a hefty 22,600 jobs as a result, he said.

But even after factoring in that shift, the state's job growth in September was still relatively sluggish compared to recent months, Roth said. "It's a fairly weak report." He suggested that higher gasoline prices might have taken a toll on hiring, but it would take several months of poor job reports before anyone could conclude that the state's economy was slowing significantly.

Other economists and employment specialists said the state's job market was stronger than the latest numbers suggested.

"We don't see any reason to panic," said Jesse Harriot, vice president of research for Monster Worldwide, a leading online job search firm. He noted strong demand in the Los Angeles area for jobs in such sectors as aerospace, manufacturing and construction.

Hardly anyone ever sees a need to panic. By the time anyone does, everyone does, then it is usually too late. Just remember, the best time to panic is before everyone else does.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

2,000' Sisters

Not to be outdone by Christopher Carley's Fordham Spire, the Chicago Tribune reports that Paul Beitler and LR Development are proposing "a futuristic, tweezer-shaped broadcast tower looming 2,000 feet over the lakefront...At the top would be several floors for restaurants and an observation deck, and at the base would be a 400-car garage." Designed by supertall maestro Cesar Pelli, the design "isn't Buck Rogers architecture. It's Duck Dodgers design, utterly daffy, a cartoonish version of tomorrow," according to Blair Kamin.

As I posted about months ago, the Fordham Spire is within spitting distance of my office window. Now if I walk to the other side of the office, the broadcast tower would grace that northerly skyline. These two proposals are less than one city block away from each other. Notably, the broadcast tower (aka the "Tweezer" and officially called "Tall Tower" by the creative powers that be) sits directly west of Lake Point Tower across Lake Shore Drive. Lake Point Tower is such a beloved building that until these two proposals, no tower in the Streeterville area could break that building's height. At 645', each tower would more than triple it.

Pardon the crudeness of this graphic, but I couldn't help but fashion a photomontage envisioning these two 2,000 ft neighbors. My eyeball guesswork may even err on the shorter side when compared to this official photomontage. Click image for larger size.



Update: Lynn Becker raises some good points.

Mark Yr Calendar

How to Build a "Loopscraper"

Just follow Ove Arup's helpful assembly instructions:

Totally Out of Touch with Reality

Congress is totally out of touch with reality.
Now most people have long been aware of that for quite some time, but following are a few extreme cases reported just today. The first is a New York Times interview with Connie Mack, the Chairman of the President�s Advisory Panel on Tax Reform.

Here are some Questions for Connie Mack, followed by his replies.

NYT: You have already announced a proposal to eliminate the alternative minimum tax for individuals, which will cost the government $1.2 trillion in lost income over the next decade. Do you find it difficult to cut taxes post-Katrina, when the government is desperate for revenue?
CM: The Congress and the president can address that issue. Of course, the president already has addressed that issue. He said there won't be any increases in taxes.

NYT: Well, the U.S. government has to get money from somewhere. As a two-term former Republican senator from Florida, where do you suggest we get money from?
CM: What money?

NYT: The money to run this country.
CM: We'll borrow it.

NYT: I never understand where all this money comes from.
CM: When the president says we need another $200 billion for Katrina repairs, does he just go and borrow it from the Saudis? In a sense, we do. Maybe the Chinese.

There you have it.
The President�s Advisory Panel on Tax Reform and has no idea where money comes from other than we borrow it from the Saudis and perhaps the Chinese. If the president needs another $200 billion, no problem, we just borrow it.

These are the clueless people running our country. There is no hint of fiscal sanity by anyone in this administration or this Congress. Here we are, well into Bush's second term and the President has yet to veto a single appropriations bill, or for that matter any bill. No one seems to think of this as real money. We just borrow it.

Well it really isn't real money since it is not backed by gold or any other assets for that matter. We need money, we just borrow it.
If no one will loan it to us, we just print it. No one cares, for now anyway.

Given that the appropriations process is painless (until this mess blows up in a credit crunch), there is simply no limit to the stupid things we spend this borrowed money on incluing (as ridiculous as it may seem) spending money to prevent terrorists from playing Bingo.

Are Terrorists playing Bingo?
One might think so given this funding to prevent it:

Kentucky lands grant to protect bingo halls from terrorists.

Kentucky has been awarded a federal Homeland Security grant aimed at keeping terrorists from using charitable gaming to raise money.

The state Office of Charitable Gaming won the $36,300 grant and will use it to provide five investigators with laptop computers and access to a commercially operated law-enforcement data base, said John Holiday, enforcement director at the Office of Charitable Gaming.

The idea is to keep terrorists from playing bingo or running a charitable game to raise large amounts of cash, Holiday said.

"The idea is to keep terrorists from playing bingo...". Wow, I sure am glad we are solving that problem. The devastation that could be caused if terrorists started playing bingo instead of blowing up subways could be catastrophic.

It's hard enough to believe someone would even propose such silliness let alone it would receive actual funding. Granted, the amount of funding is small, then again this stupidity all adds up.

Speaking of stupidity adding up, please consider the Bridge to Nowhere.

Sen. Ted Stevens, R-Alaska, sponsored legislation to build a "bridge to nowhere" that would connect Ketchikan, Alaska, to an offshore island where only 50 people live, appears to be indestructible. The highway bill allots $223 million for that project and $229 million for another boondoggle bridge near Anchorage.

Sen. Tom Coburn, R-Okla., violated an unwritten rule when he dared to advance a measure to trim some of his colleagues' expensive and unnecessary pet projects from that bill. Coburn wanted to withdraw funds for the bridges and shift $75 million to rebuild a Louisiana bridge damaged by Hurricane Katrina. It should be a no-brainer that the needs of the devastated Gulf Coast are greater.

Sen. Ted Stevens, R-Alaska, was personally insulted, however. Alaska, which ranks No. 1 in per capita federal spending, was being unjustly singled out, he argued. The 37-year Senate veteran threatened to resign and "be taken out of here on a stretcher" if the Senate killed off perhaps the most egregious example of wasteful spending in the massive highway bill.

Senators were so moved by Stevens' sense of outrage � or the idea that their own pet projects could be next � that they voted 82-15 to keep funding the bridges. The Senate also refused to defund a $500,000 sculpture park in Seattle and $950,000 for a Nebraska museum parking facility.

Those wasteful projects are only a few of the 6,371 "earmarks" legislators pushed into the transportation bill alone.

With our federal highways in a sad state of repair (at least they are around Chicago), I sure am glad we have our priorities straight. I can think of no finer use for transportation funding than a $500,000 Sculpture Park in Seattle. Can you?

Pray tell, what else is buried in that transportation bill?
Bah, who cares? It's all borrowed money anyway. Or so says, the Chairman of the President�s Advisory Panel on Tax Reform.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Monday, Monday

My weekly page update:

LVMH Osaka in Osaka, Japan by Kengo Kuma.

The updated book feature is The Unsettling of America: Culture & Agriculture, by Wendell Berry.

Some unrelated links for your enjoyment:

Stories in Practice
"Bridging architectural education and practice [by] experimenting with the Blog as a new medium for exploring issues in the practice of architecture." Click on Class Blog-Links for individual pages. (added to sidebar under blogs::architecture)

Inventioneering Architecture
"A showcase for Swiss architectural teaching and contemporary Swiss architecture," with audio and video clips. Ongoing.

onesmallproject
Web page of the forthcoming book Building More, Wanting Less, "inspired by living conditions in the working class neighborhoods of Bangkok, Buenos Aires, Chicago, Colombo, Delhi, Hong Kong, Istanbul, Los Angeles, Mumbai, St. Petersburg, and Singapore."

housingfinance
"The latest news, analysis, thoughts and trade secrets from the editors and readers of Apartment Finance Today and Affordable Housing Finance." (added to sidebar under blogs::urban)

Measuring Design Excellence

At the 2005 AIA Chicago Design Excellence Awards Friday night, one name stood out more than Brininstool + Lynch, David Hovey, Krueck + Sexton, Perkins + Will, and John Ronan (all multiple winners that night): photographers Hedrich Blessing. As each winning project was displayed on the projection screen at the end of the ballroom, The 75-year old Chicago institution's name accompanied most of the slides, right below the name of the architect. This says two things: most Chicago architects come to Hedrich Blessing for the documentation of the final product, and architectural photography is an important element in the deciding of architectural prizes.

Focusing on the second, photographs are usually required for this sort of prize, given the fact that each jury member could not possibly visit every building submitted. In the case of AIA Chicago, all projects are by local architects but the buildings themselves can be anywhere. While a dream jury might be flown to every submission wherever it may be, the money doesn't exist for such an endeavor. So color-saturated photographs, usually devoid of any human presence, are used to persuade the jury that what they're looking at is a winner.

For the sake of comparison, let's look at one winning building -- the Perspectives Charter School by Perkins + Will -- with an image by a professional photographer and one by yours truly.


Image by Steinkamp/Ballogg Photography


Image by me

Many things are apparent here:

:: The professional composition is more dynamic, especially in terms of the canopy, whose tip appears angle liked the prow of a ship. Definitely this is achieved by the choice of lens, though notice how each image is roughly the same from the angled line in the double-height glass area to the left.

:: The professional shot involves the context more, setting the school apart from its surroundings.

:: The otherwise gray exterior takes on a dramatic purple glow in the dusk-time professional shot, though I don't know if it's a natural, on location effect or an effect achieved in the processing.

:: The choice for a dusk-time shot also helps add some vibrancy to the shot, whose glass reflections add to the grayness in my shot.

Does this mean that if the jury only saw my photographs they wouldn't have given it an award? Without knowing for sure, I'd say it's a possibility. Let's say that were the case, what does it say about architecture awards? How does a jury judge a building if not by photographs?

In this case, the awards focus on members of the local AIA Chapter who are responsible for submitting works for consideration. The awards give recognition to those members doing quality work. If those awards are highly influenced by imagery over substance or experience, it lessens the meaning of them.

On the other hand, the Mies van der Rohe Awards for European Union and Latin American Architecture varies in a few ways. Selected "experts" choose the projects for consideration. A jury then selects finalists (around 30), after which they visit as many as possible before making their choices for awarded work and special mention. Extensive documentation is required at each level, including not only photographs but also initial sketches, a complete set of drawings, and explanatory text. Given the responsibilities of the jury, both in dissecting each entry's documentation and visiting the projects, and the biannual nature of the prize, naturally this award carries more weight than the AIA Chicago award.

Architecture + Foam = GRANNY

Dutch newspaper de Volksrant reports that Dutch publisher PCM's new headquarters in Amsterdam is being designed by OMA. Running the article through the always-reliable Babelfish, we learn what PCM wants: "It must become a bldg. of which says people: look, there sits them, there something is going." But looking at the pile of foam below, I can't help but wonder "where something is going?"



Later in the article we learn, "It is a preliminary draft. The actual design must be still developed, in association with the project developer, political and the buurt." Certainly that's true. But what's up with the clunky, tabletop form? Further deciphering of the translation reveals the base is a two-story plinth devoted to public activities; above are the stacked, traditional functions of the PCM; then there's the cantilevered top where "those logos would be appropriate sticking out. You can present see you that you 'breaking news' on the bldg. late." In other words, Times Square in Amsterdam?

Even with a functional basis for the tripartite divisions, I can't help but think OMA either pulled in the C-team for this job or maybe the design hit the presses a bit too soon. After their Seattle Public Library design furthered the gap between Modernists and Traditionalists, OMA seems to be straddling that line. And I gotta say it doesn't work.

(via Archinect)

Separated at Birth?

Just discovered this Archinect discussion (via Design Observer) that had me laughing out loud.

It started with:


Jean Nouvel and Dr. Evil

But then...


Daniel Libeskind and that guy from There's Something About Mary

and...


Frank Gehry and Gonzo the Great

and...


Sanford Kwinter (right, with Rem) and Sideshow Bob

speaking of rem...


Rem Koolhaas and Daniel Emilfork (from City of Lost Children)

but lest we forget the Pritzker Prize winners...


Thom Mayne and Bill Murray

and...


Zaha Hadid and Ursula from The Little Mermaid

and my favorite...


Stanley Tigerman and an Ewok

and finally my contribution...


Carol Ross-Barney trying really hard to look like Isabella Rossellini

Check out the discussion for bigger images and for many more architects separated at birth.

2 Blogs

A couple architecture blogs that just came to my attention, both worth checking out and both added to my sidebar links (under blogs::architecture):

:: mirage-studio
Eclectic blog by an architecture student, with items on Calatrava, anti-smoking ads and even AutoCAD pointers.

:: Architecture Sketches
Just like the title says, sketches from Botta to Utzon.

Which Way to Build?

The New York Times covers both ends of the spectrum with articles on mega suburban developer Toll Brothers and Shanghai's high-rise building boom.

A visual comparison of the two illustrates China's and the US's apparent dichotomy in viewing land and habitat.



The Toll Brothers view land (what they call "ground") as an investment to be bought up insatiably. If there's a market for real estate, they'll buy the land and develop it. A desirable Toll Brother situation might be covering the remaining buildable land in New Jersey with variations on the Estates at Princeton Grove, pictured above, which is not too far-fetched. The Times piece focuses on the economics, politics, and personalities at play as the Toll Brothers snatch up more and more land for more and more profit, at the expense of any critical thinking (or apparent mention) about long-term energy (covered by Kunstler) or house sizes, among the many questionable concerns with sprawl.



In sharp contrast to the American trend is China's vertical housing developments, the Skyline Mansions in Shanghai pictured here. With an additional 1,000 skyscrapers anticipated beyond its current crop of 4,000 by the end of the decade, China actually shares a similar delusion regarding energy and scale as the US. While many anti-sprawl people might advocate building vertically, the environments created with this method don't appear much of an improvement over suburbia.

What the US and China also share are completely blind, financially-driven developments that ignore quality of life and the environment at community and regional scales, in favor of cushy private realms. McMansions -- be they on a 1/2-acre patch of grass or 40 stories in the air -- serve the individual and family at the expense of these shared realms. My view isn't optimistic though, because both countries are feeding each other along the way, be it through cheap consumer goods or the model of Western society. But rather than contemplating when either bubble will burst -- a fascination of the Times in both regards -- I'm more concerned with the long-term effects of each type of development, from the environment on down to the individual. Which way to build? Neither.

Ben Bernanke Inflation Fighter

Some ideas are just too stupid to not comment on. Hyping $Ben Bernanke as an inflation fighter is one of those ideas. It�s not just one person who lost his mind either. Both Tom Schlesinger, executive director of the Financial Markets Center, and Mark Zandi Economy.com chief economist have simultaneously gone off the deep end in proposing that "Helicopter Drop" Bernanke is an "inflation fighter". That absurd idea was proposed in a CNN Money article about who will replace Greenspan as next FED chairman entitled Favorites pull ahead in Fed derby. Let's take a look:

Glenn Hubbard, the former chairman of the CEA who is now teaching at Columbia, is also frequently mentioned as a strong candidate and viewed as less of an inflation hawk than Bernanke. Bernanke is seen as the long-time champion of explicitly pegging Fed interest rate moves to the rate of inflation.

"I would be nervous about picking an inflation-targeting champion as my next Fed chairman given the potential impact on employment growth," said Tom Schlesinger, executive director of the Financial Markets Center.

"No matter who is Fed chairman, they're going to inflation target either explicitly like Bernanke wants to do or implicitly," said Zandi. "Someone without his inflation-fighting credentials might have to do more to win the markets' trust of their inflation-fighting credentials."

That comment by Zandi is so stupid I just have to repeat it:
"Someone without his inflation-fighting credentials might have to do more to win the markets' trust of their inflation-fighting credentials."

Anyone that thinks Bernanke is an "inflation fighter" must not have read Bernanke's most famous speech Deflation: Making Sure "It" Doesn't Happen Here
Following are some "choice" snips from that famous speech:

I am confident that the Fed would take whatever means necessary to prevent significant deflation in the United States and, moreover, that the U.S. central bank, in cooperation with other parts of the government as needed, has sufficient policy instruments to ensure that any deflation that might occur would be both mild and brief.

Of course, we must take care lest confidence become over-confidence. Deflationary episodes are rare, and generalization about them is difficult.

Preventing Deflation

First, the Fed should try to preserve a buffer zone for the inflation rate, that is, during normal times it should not try to push inflation down all the way to zero.

Second, the Fed should take most seriously--as of course it does--its responsibility to ensure financial stability in the economy. Irving Fisher (1933) was perhaps the first economist to emphasize the potential connections between violent financial crises, which lead to "fire sales" of assets and falling asset prices, with general declines in aggregate demand and the price level. A healthy, well capitalized banking system and smoothly functioning capital markets are an important line of defense against deflationary shocks. The Fed should and does use its regulatory and supervisory powers to ensure that the financial system will remain resilient if financial conditions change rapidly. And at times of extreme threat to financial stability, the Federal Reserve stands ready to use the discount window and other tools to protect the financial system, as it did during the 1987 stock market crash and the September 11, 2001, terrorist attacks.

Third, as suggested by a number of studies, when inflation is already low and the fundamentals of the economy suddenly deteriorate, the central bank should act more preemptively and more aggressively than usual in cutting rates (Orphanides and Wieland, 2000; Reifschneider and Williams, 2000; Ahearne et al., 2002). By moving decisively and early, the Fed may be able to prevent the economy from slipping into deflation, with the special problems that entails.

As I have indicated, I believe that the combination of strong economic fundamentals and policymakers that are attentive to downside as well as upside risks to inflation make significant deflation in the United States in the foreseeable future quite unlikely. But suppose that, despite all precautions, deflation were to take hold in the U.S. economy and, moreover, that the Fed's policy instrument--the federal funds rate--were to fall to zero. What then? In the remainder of my talk I will discuss some possible options for stopping a deflation once it has gotten under way.

As I have stressed already, prevention of deflation remains preferable to having to cure it. If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.

So what then might the Fed do if its target interest rate, the overnight federal funds rate, fell to zero? One relatively straightforward extension of current procedures would be to try to stimulate spending by lowering rates further out along the Treasury term structure--that is, rates on government bonds of longer maturities.9 There are at least two ways of bringing down longer-term rates, which are complementary and could be employed separately or in combination. One approach, similar to an action taken in the past couple of years by the Bank of Japan, would be for the Fed to commit to holding the overnight rate at zero for some specified period. Because long-term interest rates represent averages of current and expected future short-term rates, plus a term premium, a commitment to keep short-term rates at zero for some time--if it were credible--would induce a decline in longer-term rates. A more direct method, which I personally prefer, would be for the Fed to begin announcing explicit ceilings for yields on longer-maturity Treasury debt (say, bonds maturing within the next two years). The Fed could enforce these interest-rate ceilings by committing to make unlimited purchases of securities up to two years from maturity at prices consistent with the targeted yields. If this program were successful, not only would yields on medium-term Treasury securities fall, but (because of links operating through expectations of future interest rates) yields on longer-term public and private debt (such as mortgages) would likely fall as well.

The Fed can inject money into the economy in still other ways. For example, the Fed has the authority to buy foreign government debt, as well as domestic government debt. Potentially, this class of assets offers huge scope for Fed operations, as the quantity of foreign assets eligible for purchase by the Fed is several times the stock of U.S. government debt.

Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

Conclusion
I hope to have persuaded you that the Federal Reserve and other economic policymakers would be far from helpless in the face of deflation, even should the federal funds rate hit its zero bound.

Mish, that article was from 2002 do you have anything more current?

Well that's a good question but if I critiqued every silly thing Bernanke has said since 2002 we just might be here for a while. That said, enquiring Mish readers deserve answers so let's look at a couple of recent articles about Bernanke.

In The Fed's Wild Imagination Kurt Richeb�cher takes apart Greenspan's and Bernanke's views on the "global savings glut" theory.

In his testimony to Congress on July 20, 2005, Mr. Greenspan declared it quite likely that the world is currently experiencing a global savings glut. Agreeing with Ben Bernanke, he mentioned this glut as one of the factors behind the so-called interest conundrum, i.e., declining long-term rates despite rising short-term rates.

Having read a lot from the Fed's luminaries, their inability to distinguish between rampant global credit excess and a global savings glut does not surprise us. In this view, the Federal Reserve has come to the rescue of a world where excessive saving is threatening depression by eliminating savings.

Attracted by superior rates of return on U.S. assets, investors around the world have been scrambling to pour their excessive savings into direct investments, stocks, bonds and real estate in the United States, in this way financing the resulting huge U.S. trade deficit.

While this explanation may seem to make sense, there is one big snag: Not one word of it is true. First of all, in reality, private foreign investors have drastically curbed their investments in the United States. According to the Bank for International Settlement - the international organization of the world's central banks - Asian central banks financed 75% of the U.S. current account deficit in 2004.

First, private capital flows into the United States have slumped. Without the massive interventions by the Asian central banks, the dollar would have collapsed long ago.

Second, the dollars with which these central banks have been buying U.S. Treasury and agency bonds have definitely nothing to do with Asian savings. Evidently, the central banks are recycling the dollars, no more, no less, which they receive from U.S. trade and capital flows. These dollars have come into the central banks' possession through their interventions in the currency markets, to prevent a rise of their currencies against the dollar.

To speak of a global savings glut as a possible cause of the surprisingly low U.S. long rates in the face of these blatant facts is truly the height of insolence and absurdity. That this opinion comes from the leading figures of the Federal Reserve is more than shocking.

Here is what Bernanke was saying on Tuesday, Oct 11, 2005 as reported by Reuters in More Asia FX flexiblity needed.

White House economic adviser Ben Bernanke said on Tuesday greater currency flexibility in Asia and stronger economic growth among U.S. trading partners were needed to help reduce global trade imbalances.

He also told the group that while energy prices were pushing up U.S. inflation, it did not appear they were having much of a spillover impact on so-called core prices.

Anyone that thinks that a higher RMB is going to solve US's trade gap with China is point blank nuts. For starters it would push up the price of goods coming from China, thereby causing inflation. Secondly, at 20-1 wage differentials between China and the US it will not bring back jobs to the US or by itself restore trade balance either. For the record, I actually agree with Bernanke that energy prices are not having too much of a spillover effect on the economy, but that certainly is not the view of inflation fighting hawks.

Two dark horse candidates in the race to replace Greenspan are said to be current fed governors Roger Ferguson and Donald Kohn according to this article entitled Greenspan Chooses a Successor.

Both are highly skeptical of Bush's tax cuts, despite the strong economic recovery the cuts have spurred. Both could be expected to continue raising interest rates, in part to punish the president for not raising taxes and failing, in their view, to pay enough attention to the budget deficit. Their likely idea of a tacit deal next year with the White House: You raise taxes, we'll stop boosting rates.

If that is true, does anyone think this president would appoint either of them?

Martin Feldstein, the president of the National Bureau of Economic Research, is seen as an almost co-favorite with Bernanke but given Feldstein's position as a director of the scandal plagued American International Group, as well as his likely political independence as compared to Bernanke, the choice may be a foregone conclusion.

There you have it folks, $Ben Bernanke IFE "Inflation Fighter Extraordinaire" is the odds on next Fed Chairman simply because he will likely be the loosey-goosey free for all Bush suck up this administration wants and no other candidate has those exact qualifications. I hope I am wrong. If I am wrong, it will not be either the first or the last time. If I am right, please remember this: $Ben is gold�s best friend.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Monday, Monday

My weekly page update:

Marrom House in S�o Paulo, Brazil by Isay Weinfeld.

The updated book feature is The Architecture of Modern Italy: Volume 2, Visions of Utopia, 1900-present, by Terry Kirk.

Some unrelated links for your enjoyment:

The Place Where We Live
"Buildings, Trees, Sidewalks, Glue...A Chicago, IL Blog Dispatched from the 43rd Ward on the Near North Side".

Preservation Institute Blog
A blog about the limitations of modernism, an ever-so-popular topic these days, though I can't say I agree with his reading of the Secretary of the Interior's Standards for additions to historical buildings.

Villard
Appunti di architettura (in Italian).

This Old (Modern) House

Last week saw the beginning of This Old House's latest project on PBS, "a mid-century Modern house for biotech bachelor, George Mabry" in Cambridge, Mass. Though I missed last week's episode, I did catch today's show, where architect Will Ruhl presented a model and some elevations that add to and renovate the existing house. A tour of the Pilot Hill House in Vineyard Haven, also on the show, indicates the architect is skilled in bridging traditional and Modern forms.


Pre-This Old House state


Proposed front and rear elevations

Ruhl's design tastefully adds a third and forth floor, while improving the unexceptional design of the house with a layered complexity that is popular today. The rear elevation's generous glazing will be one of the few pieces preserved, at least visibly, from the old house.

Regardless of the quality of the new and old house designs, it should be an interesting season, as the crew of the TV show educates the viewers on the Modern movement, especially in terms of residential architecture, the most successful and lasting influence of a movement loved by many but abhorred by many, many more. While the show may not convert everybody who watches, it will hopefully give them the knowledge to understand the appeal of Modern and contemporary architecture, beyond merely aesthetics.

Personal Bankruptcy Followup

I received some interesting Emails regarding Personal Bankruptcies Soar.
I would like to share a few of them with you.

From Rich:

It's actually worse than you can possibly imagine. The purpose of the bill is to make sure that no one files a Chapter 7 (which forgives all debts) bankruptcy. Every page you turn in the bill has another "kick 'em when they're down" clause intended to make it more difficult, more expensive, and more time consuming. My wife is a bankruptcy lawyer, so I've heard it all.

But then, what would you expect? The banks and credit card companies spent $400 million on bribes...er, campaign contributions...over an 8 year period to get this bill. Lawyers from banks wrote the bill. It is a mean, nasty, vicious, unconstitutional bill that was bought and paid for. When Bush signed the bill, he turned to Charles Grassley (the senator who sponsored it) and said, "It's a done deal."

The AARP is the only organization that wins in this deal. In return for not lobbying against the bill, the law says Social Security (and unemployment benefits) cannot be counted as income. That will help retirees, currently choosing between food and drugs, to get Chapter 7 bankruptcies.

Today, just one week before the new bill goes into effect, no lawyer can file a case under the new law. There are no forms, no approved local credit counselors (three nationwide services, one in Texas and one in Florida, of course, but no local agencies), no software packages yet, and the bill has yet to clear the committee that is supposed to clean up all the inconsistencies. So, on October 17, nobody will be able to file bankruptcies -- the old law will have expired, and the new law won't be ready yet.

Look for lawyers to abandon their bankruptcy practices. The law is so complex and filled with penalties for lawyers, that it won't be worth it. Can you imagine telling defense lawyers that they can't advise clients about the best defense? Or making a defense attorney swear under penalty of disbarment that every document filed by the client is absolutely true? Or, as Mish said, "Another provision of the bill places the burden of proof for bankruptcy on the debtor's lawyer, requiring the attorney's signature on the petition and verification that they have investigated the claim sufficiently and found it to be solid." Bankruptcy lawyers have these and more dumb rules hanging over their heads, any of which can lead to disbarment. The purpose is to make it impossible to get a bankruptcy by making bankruptcy lawyers give up the profession and go chase ambulances or do divorces instead.

The bankruptcy bill is the worst piece of legislation ever purchased in the history of the United States. Not only is it a sham, it proves that the Congress and the Presidency are both for sale. Price for a bill these days: $400 million will get you whatever you want.

My wife isn't giving up her practice. She plans to expand it into fair debt collection. That's when a bank or credit card company harrasses a debtor in violation of the law, and my wife hits them with a big fat lawsuit. Not only is it poetic justice, it couldn't happen to a nicer bunch of vicious bastards.

By the bye, did you realize that increases in bankruptcy fees are going to pay tsunami victims? Not hurricane victims, mind you. You won't find that tidbit in the bankruptcy law, though. It was written into the Tsunami Relief Act to hide it from us.

Rich from Iowa

From E.D.

Very interesting article on bankruptcy. Candidates should be advised that it could be years before they can obtain a credit card. I was in bankruptcy last year for 6 months due to a 2 million dollar judgment against me. My credit was perfect. Citibank cancelled my card (it had no balance) and now they will not issue a new one. No one will give me a card.

From Sir Charles:

For once, fellas, I am speechless.
About the only thing made in the US of A is whiskey and gunpowder anymore so no wonder the US of A is broke,,,so what should one do??? drink more whiskey or eat more gunpowder??? or both???

Sort of confused about that last one but it seemed interesting enough to post.
From Carol:

I didn't particularly have this planned, but then again gall bladder surgery with no insurance wasn't planned either.

With that hanging over my head, the news that my credit card's minimum payments would soon double was the final straw. I would have been stupid to delay my decision a minute longer. It took me awhile to accumulate the funds, but it is over. I kind of blind sided the credit card companies because I had never been late and had been attempting to pay the amounts down. They on the other hand tried to blind side me with a doubled minimum payment probably hidden in some find print.

What really bothers me is that I was charged four times more for uninsured gall bladder surgery than my friend paid who had insurance. The excuse the hospital gave me was so laughable I couldn't believe it. They tried to convince me my bill was higher because others pay an insurance company and the insurance company contracts to pay them 1/4 the cost? Since I wasn't paying an insurance company I had to pay four times that? Insurance companies contract, but they don't pay hospitals retainers, so this made no sense to me at all.

My work friend is filing today or tomorrow as she has insurance but her son's overnight emergency room bill was $8,000 more than her insurance paid? The medical field and HMO's are out of control.

I never thought about the credit card companies cutting their own throats with this new legislation. I like the idea. After missing one payment my interest rate went to 30.99 percent. Rotten SOB's. I bet Abraham Lincoln is rolling over in his grave. He thought he ended slavery.

Thanks for your thoughtful articles.
Carol

The New York Times reported on last minute filings in the October 15th article
Debtors Throng to Bankruptcy as Clock Ticks

It may have looked like a frenzied rush for rock concert tickets, but the thousands of people standing patiently in line for hours outside federal courthouses were waiting to file for bankruptcy. It was the final workday before a tough new federal law takes effect.

"I have a lot of medical bills and, unfortunately, I can't pay them," said Mercedes Estrada, a legal assistant and single mother of three young children from the Bronx, who rattled off a list of more than $50,000 in debts. "It's overwhelming and stressful."

"This is a day of last resort," added Stephen L. Morris, a lawyer bringing his clients' bankruptcy petitions to the court in Lower Manhattan.

Through Oct. 8, consumers had filed more than 1.47 million bankruptcy petitions, a 19.4 percent increase over the same period in 2004, according to Lundquist Consulting, a company in Burlingame, Calif., that compiles bankruptcy statistics. Almost 103,000 petitions were filed in the first three days of this week alone.

"We have never seen anything like this," said Barbara J. May, a consumer bankruptcy lawyer in St. Paul. "We knew it would be an upswing, but this is pandemonium."

In Los Angeles, the lines were thin because clerks took completed petitions at makeshift outdoor stations to handle the more than 4,000 filings expected by the end of the day. Typically, the court receives 200 to 250.

"The law seems draconian to debtors," said Glenn Marston, while waiting in line at the bankruptcy court in Boston. "I don't know how it applies to me, but I didn't want to go through everything if it did."

Here is another fresh article on last minute filings. Crowds Race to File Bankruptcy Petitions

Facing a weekend deadline, thousands of people armed with bulging files of paperwork lined up at courthouses around the nation Friday to seek bankruptcy protection from creditors before a new law makes it much more difficult to shed debt.

The number of cases filed before the law takes effect Monday was expected to set not only a national record but individual records in a number of states. Some clerks said bankruptcy filing records were beaten every day this week.

In Denver, the line at bankruptcy court formed before dawn and quickly grew to more than 300 people as it stretched outside. Some pushed babies in strollers, while others sipped coffee and sodas.

Nursing assistant Colleen Christian brought her 14-year-old son to help her punch figures into a court computer after spending long days on Chapter 7 paperwork at her home in tiny Cotopaxi, 100 miles south of Denver. With credit card debt hovering around $25,000, she said she had no choice but to file before the law changed.

"It was a very hard decision because I've incurred these debts and I need to pay them," she said. "But it was such a weight."

In Chicago, people crowded the hallway outside a packed waiting room for their initial meeting with a bankruptcy trustee.

Substitute teacher Barbara Moore said she had been mulling a Chapter 7 filing for a few years when she heard about the pending law change. She was fearful medical expenses from a cancer diagnosis could add to her mounting credit card debt.

"That's when I decided to stop dillydallying," said Moore, 51. "It just sounds like it's going to be much more difficult and expensive later."

Since President Bush signed the law in April, the number of personal bankruptcy petitions has soared. Preliminary estimates expect a record 200,000 petitions to be filed this week alone, according to Burlingame, Calif.-based Lundquist Consulting, which compiles bankruptcy statistics. The firm said the current record of 102,863 was set last week.

Clerk Yvonne Evans at the U.S. Bankruptcy Court in Atlanta said all 123 employees were called in to help deal with last-minute filers.

"I can't even begin to tell you how extraordinary this is," she said. "The line is wrapped all the way around the 13th floor. It's wild."

Filings were allowed in person through Friday, though attorneys making electronic court filings have until midnight Sunday.

Christian, whose husband just found work nine months after losing his job, said bankruptcy will enable her to pay what she can. "I think everybody should be able to wipe the slate clean and start over," she said.

Similar stories could be heard at courthouses across the country.

"Similar stories could be heard at courthouses across the country" huh. Well fancy that.

Surprise, Surprise, Surprise

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Inbox Overflow

Some selections from my ever-expanding inbox:

2005 Innovation Conference
An impressive line-up for McGraw Hill's conference on innovative building materials, digital fabrication, and their effects on architecture.

Material Skills: evolution of materials
Further exploring new techniques and materials and architecture, the exhibition makes its way to Paris next month.

Solar Decathlon
Designed by students, powered by the Sun (Thanks Eric M.)

Projects on ceramics and architecture
.ekwc's latest call for architects to investigate the "creative potential in the relationship between ceramics and architecture" has a deadline of December 1.

Extreme Makeover, Japanese edition
Not the name of a Japanese TV program where an architect renovates a lucky owner's house - in Japanese, but click on faces for before-and-after pics. (thanks Leslie)

and


Variable Geometry Acoustical Domes
You've got a little under two weeks to catch architect David Serero's installation at the Villa Medici in Rome (above).

Groundbreaking Follow-up

Both Curbed and The Gutter have photographs from last Sunday's New Museum of Contemporary Art groundbreaking, mentioned here last week (unfortunately no exciting photos found for the Spertus groundbreaking).


Yep, that's a Shinto Priest.

Check out The Gutter link for a caption contest, one not nearly as ripe for commentary as this unrelated one at Archinect.