DrumBeat: March 21, 2008
Posted by threadbot on March 21, 2008 - 9:18am
Topic: Miscellaneous
Australian producer BHP-Billiton has removed all personnel from its Neptune tension leg platform (TLP) in the deep-water US Gulf after inspections discovered ‘anomalies’ in the facility’s hull.
Mexico Diverts Pemex Exploration Monies
The Mexican newspaper El Universal reported that the Finance Ministry would “reassign” funds the company was planning to use to explore for oil and gas for other programmes.
Commodities fall Worst in over 50 years
``The oil-price slump, along with all the other commodities, resulted from the dollar staging a rally, so the large funds flowed out of the commodities complex,'' said Victor Shum, senior principal at consultants Purvin & Gertz Inc. in Singapore.
http://www.nytimes.com/2008/03/21/business/21econ.html?hp
Slump Moves From Wall St. to Main St.
By PETER S. GOODMAN
Published: March 21, 2008
I have described what is going on as “Cheap is the new chic.”
Last nite with friends having dinner, the talk was of selling
a house in my family.
I said sell the house now, and everyone immediately came in with a
version of, "Don't sell it now! the market is terrible. Wait."
And I just couldn't say anything, because if I had. it would've been,
"but this is as good as it's going to get."
"If the stock markets go up with many other parts of the economy still in full-blown, long-term crisis mode, a new and better use of the word “decoupling” might be to refer to the detachment of the financial economy from the rest of the economy. What exactly would it mean, and what would it feel like, for us to have a Dow at 14,000 or even higher while house foreclosures keep soaring to record heights, venerable retailers like Sears and Kmart tank to the point of crumbling (NYT: “Saving Sears Doesn’t Look Easy Anymore“), millions of consumers experience a personal financial crash due to over-indebtedness and other problems, and soaring food and fuel prices — happy news for traders in those areas, grim news for everybody else — keep squeezing us all relentlessly?
http://theteemingbrain.wordpress.com/2008/03/16/headlines-from-the-meltd...
Nothing has been fixed. Nothing has changed.
Richard Heinberg-
It’s becoming increasingly likely that 2008 will go down in history as the year the Second Great Depression began.
Nothing is moving from the yard at Warrenton, OR Weyerhauser mill. They are said to be losing $1M or more a month. No doubt, this is a pattern everywhere. Weyerhauser just sold its containerboard unit to International Paper --
We'll all be eating potatoes out here on the coast pretty soon -- and happy to get them, I believe.
Thank you for that. I know in Arkansas last year there was a wave of
pine mill closings.
No, it was 2006!
Maybe Bernanke should consult these guys:
"TIED TO HOUSING Annual housing starts, which peaked at more than 2 million units in 2005, fell in September to the equivalent of fewer than 1. 2 million units, a 40 percent drop. Because the typical new wood-framed home requires about 15, 000 board feet of lumber, the 800, 000 drop in housing units translates into a roughly 12 billion board feet drop in lumber demand. That decline compares with about 2. 45 billion board feet of softwood lumber production in Arkansas in 2006 and total U. S. softwood consumption in 2006 of 60 billion board feet, according to the Southern Forest Products Association.
Lumber prices and demand are not expected to improve before spring 2009.
“They think that 2008 will be just about a carbon copy of 2007,” said John Grigsby, operations manager at H. G. Toler & Son Lumber Co. in Leola.
Henry Spelter, a forest economist at the U. S. Forest Service’s Forest Products Laboratory in Madison, Wis., agrees. "
http://www.nwanews.com/adg/News/207546/print/
Lumber is about the only construction material declining in price and has been for a good year or 2...
Glass half full....
This will give forests a chance to recover.
Same paradigm, in fact, applies across the mine and harvest spectrum.
Bad for the economy = Good for Mother Earth
This came to my mind too, if only I could believe that it wasn't just delaying the inevitable...
Just arrived here from the other thread about how we need to stop growing. But as soon as a crisis hits, we mainly talk about how horrible it is that we are consuming less of our natural resources in the form of lumber, for example. We are going to do everything we can to keep the growth economy going. Fear and greed trumps all.
Our family home of 20 years is being spruced up with a view to sale this spring.
Two kids out by fall at Uni most of the time, cashing out to a smaller house will make us debt free. Still be room for the kids between term time.
Even my wife did not take any persuasion. And she loves this house.
(As her Polish granny used to say: ''Never fall in love with something you cannot carry on your back'').
Around Aberdeenshire it is still boom time and at the peak of the market.
That is the plan , any way.
Trick is to move faster than the UK credit crunch - which is moving at speeds approaching that of a Pyroclastic Flow...
I have never seen anything like this before.
Within the space of two weeks, it may even be too late.
Trying to sell a $500k (we hope!) house in Dallas historic district. 6 years ago my wife and I both sold smaller homes near here within a month of posting a FSBO sign in yard, now we're lucky if we get a call and it's been 6 weeks WITH an MLS this time. Although Dallas prices have leveled compared to coasts, we're not yet in decline but, then again, we never appreciated as much as FL & CA. Things have defintely softened. Hope to get out before the/a crash. Any suggestions on where to store cash until while we wait for the bottom?
I think it depends:
If you think bottom has not occured, then cash out now and rent, taking advantage of getting back in when bottom is truly reached.
Trouble is, in this new world paradigm, is there a true bottom? : - 0
Here, the market is looking like reaching a peak (still climbing, but rate of climb is slowing)
But in my case, maximising cash equity is only one side of the story.
I intend to try and maximise equity with one sole purpose: Buy something smaller for cash. Cancel all debts, maybe get a little cash in hand, ensure kids get through college with no tuition debt.
I think this may be important: Debt slave / indentured bondsman avoidence may make a significant difference to peoples lives in the next decade.
I believe the game is over.
You leave the table with the chips you got.
Leave it much longer, then you leave the table with no chips at best, or you leave IOU's with other, unpleasant players.
Like I said before:
If you leave this site with nothing else but a fair understanding of Jeff Brown's ELP , it may save your life, it will save your sanity.
He went through a mild form of this shit through the 80's. Though at the time, it probably did not seem so mild.
It too have been through this shit , but on a milder scale.
In a decade hence there will be clear winners and losers:
The winners will have Downsized in time, The will have ELP'd. They will still have enough humanity, wit, intellegence and ability to communicate and entertain without recourse to measuring life by how much 'stuff' you can accumulate.
The losers will be those who mistook stuff and things and status for life.
Psychologically, we in the west are about to go back in time by at least 80 years.
We are going to live in a world where credit is rare to non existant; where any credit is local, communal and only given to a man of known honesty and trustworthiness. Only given to a man who has 'social credit'.
That is my tuppence worth.
Each man is responsible for his own family's well being. Each must decide how best to negotiate this chicane (or banking chicanary...).
My plan is to cash out now.
I may fail.
But I will try.
I was born in a two room back to back in a northern industrial city.
I can hack a lot worse than my very pleasant middle class life by simply down sizing a notch.
And I am very lucky in the woman I married.
She comes from a people who fled in the night with what they could carry.
Handy that.
In a tight squeeze.
Any suggestions on where to store cash until while we wait for the bottom?
Depends on what you fear. Hyperinflation or famine or ill-legimate government(s) or bank failures have a different answer than depression or price collapse.
As you are already betting on price collapse - short term government bonds might be a good place as the transaction costs in/out should be minimal. Precious metals has been a historic store of value, but sometimes the value goes down.
Good luck on making the right bet.
As Mudlogger noted, OIl Patch survivors have "Been there, done that," regarding deflation, at least on an industry basis. What saved my bacon in the late Eighties was when I went to my boss at the time and literally demanded a 50% pay cut--offset by an equity interest in oil deals I generated. I suspected that layoffs were coming and by cutting my salary by 50%, I moved myself from the highest paid employee to the least paid. And as I suspected, there was a round of layoffs.
Regarding your house, if I were you I would cut the price to 5% below the last comparable sale, and then keep cutting it by 5% below the last comparable sale.
I believe that 90 day T-Bill rates are down to about 0.21% . Stashing cash, in amounts over $100,000, is beginning to be a real problem. Real T-Bill interest rates, after inflation, have been negative for a while, but there is some chance that nominal T-Bill rates could go negative. You would actually pay the government to hold your money for you (I think that it happened in the Thirties), and a lot of T-Bill money market funds probably have negative yields now.
How much do you want to bet westtexas isn't taking his own advice? and how much do you want to be he'll use Spousal Nesting Syndrom as his excuse.
Actually, when I can sell, pricing the house at 5% less than the last comparable sale is precisely what I plan to do. As I explained in my missive, I have some personal experience in surviving deflationary cycles. Partly because of that experience, we never went crazy in real estate, and we live in a much smaller home than what we could have techically afforded (I would just prefer to be in a two bedroom rented unit).
In any case, you will note that they have basically had zero activity after six weeks--that kind of sounds to me like the property is overpriced.
BTW, why don't you go over the recommendations in the following article, posted almost a year ago, and see how people would have fared if they had followed my advice to radically downsize then?
ELP Plan (April, 2007)
http://graphoilogy.blogspot.com/2007/04/elp-plan-economize-localize-prod...
Wasn't it Dr Abernathy that said -- regarding smoking; "Do as I say, not as I do?"
WT may be constrained in following his own advice, but it doesn't mean it's not sound.
Being above market price in a falling price environment is not a good place to be--much better to be somewhat below market price in a falling price environment.
This also holds true for labor costs, which is one of the advantages of implementing aggressive cost cutting, it allows you to underprice your competitors for declining job opportunities. If people want to do as I did, you should give some serious thought to going into to your boss's office and demanding a pay cut.
I'm using the strategy as I attempt to sell my Subaru. Unfortunately, the glut of used Subarus plus this strategy still have not resulted in a sold Subaru.
Stashing cash, in amounts over $100,000, is beginning to be a real problem.
Hmm. That's just a stack of 100 coins. About the size of a thermos of coffee.
Also, if I may interject this. It may be of an advantage in 1-10 years to NOT have anyone KNOW you have money.(that by definition leaves all electronic money out).
In 10 years, I don't know if I would trust the Gov at that time knowing what I have any more than I would want a burgler to know what I had.
Just sayin...
BTW, there is a REAL problem getting physical silver right now. For those interested in those things...
To ease the sting a little bit I try to look at the low rates of return on cash as the temporary cost of capital preservation.
mcgowanmc,
I recommend that you speak your truth as you see it.
Over a year ago I told two different friends "Stop waiting, stop fixing the place up to make it more attractive. Sell for whatever you can get for it. Residential housing prices will decline more-or-less continuously for years." Of course they didn't; one has lost the house to foreclosure and the other is making payments on two houses as the value of both declines. That's the bad news.
The good news is: now they both take my ravings about PO a lot more seriously.
Errol in Miami
mcgowanmc,
One more thought about "speaking your truth".
Last year people on this site derided you for saying "depression by Christmas". I think time will bear your out.
IMO the last Great Depression (actually the second "Great Depression" in US history, but people like to forget these things) actually started with the collapse of the Florida real estate bubble in 1926. The system just had enough momentum that 'injections of liquidity' (margin loans) kept the creaking edifice together till 1929.
Errol in Miami
"I have described what is going on as “Cheap is the new chic.”
or, paraphrasing a once popular country song
"i was shabby when shabby wasnt chic"
High gas prices force Americans to drive less
Rising gas prices are finally at a level which is causing a majority of Americans to change their driving habits.
Seventy-two percent of respondents to a recent poll said recent price increases in gasoline has caused financial hardship for them or their households, according to a national CNN/Opinion Research Corp. poll released Wednesday.
"For some time we've been trying to determine the breaking point for when gas prices take their toll on the consumer," said John Kilduff, an energy analyst at the trading firm MF Global. "It appears we've found that point." CNNMoney.com
http://www.njbiz.com/article.asp?aID=73734
Has it started to bite, already ?
In a Norwegian version of this news 5% of them asked say they have quit using their car entirely ...
For the first time that I recall, I saw a guy get out of a bus in North Dallas with a folding bike, unfold it and pedal off to work. An everyday occurrence in many areas of course, but something new for the auto-centric North Dallas area. He may be at risk of being seized and sent off to an auto dealer run reeducation camp. . .
The mainstream media as a whole is one big re-education camp on this subject. Witness this latest example in a Farmer's Insurance ad that is just another media portrayal of bikes as quaint playthings. The subtext is 'let us help you be normal and get back into a car.' Here's a video posting of the ad if you want to watch.
They are wasting their time. Money talks, and with petrol at it's current price bikes will increasingly be ridden in preference to driving, quaint playthings or no. The media are just spitting in to the wind. Invest in shares of bikes makers.
Interesting that an insurance company is behind the commercial. So far the insurance sector (homes, autos, small biz) have dodged most of the flak from the economic slowdown. I suspect that insurers are beginning to feel the effects of slower new car sales and reduced insurance income from homes that have been vacated. Many small businesses are going under here in central Florida so insurers are probably experiencing losses there as well.
Anecdotal aside: We received notice that our home insurance was going to be cancelled some months ago, a normal occurance in Florida of late. We had been with the company many years with no claims. Recently we received a call from the insurance company asking 'would you like us to attempt to place you with another company?' Our answer...'No, we will self insure' which brought an audible gasp from the phone. We still carry the Fed flood insurance...Priced at about $300 per yr it's a bargain.
Gotta love that action...Good customer that pays insurance bill on time with never a claim...Insurer cancells customer and offers to help place them with another, unheard of company, at a higher rate.
One more good reason to avoid mortgages and re-fis.
Our answer...'No, we will self insure'
Since I have never considered that as an option, what's involved ? Just a lot of cash ?
Since I have never considered that as an option, what's involved ? Just a lot of cash ?
Nothing.
If you own the property without a lean that says 'as terms of this lean you shall carry insurance to cover us, the holder of the lean' - who is to stop you?
Besides - if the property is going to be subject to destruction in riots or a nice war - the insurance is null and void. (But you CAN get it covered if you pay extra of terrorist coverage!)
This probably isn't a good idea. You stand something like a 1 in 500 chance of having your home burn down during your lifetime. (This may be higher or lower depending on where you are)
Unless you have the financial assets to be able to weather losing your home unexpectedly, insurance is a must.
What you CAN do is keep extra cash around and opt for a high deductible.
Depends too on what Tax Law says.
If you had a 50K income and lost a 100-200K home and could write off the loss over years, ya might do just fine. In the case of totaling with fire, you still have the demo costs - last time I looked at demo costs that was 20K for a 2 story 100 year old wood building.
I've never bothered looking into tax law WRT an un-insured home loss. Plenty of case law should be now generated due to Katrina....
Silence, thanks for your concern. I am 63 and currently own 3 homes, two rentals. I have owned many homes in the past. None of them has burned down nor have there been fires of any description. Maybe I have been fortunate but I have taken precautions to prevent electrical fires.
I can afford to repair or replace my home if it is totally destroyed and the effort would not send me to a home under an overpass. Of course if this misadministration and the Fed continue to destroy the dollar none of us will be secure...the damn money will be worthless and lose it's status as world reserve currency. If that happens oil prices in dollars will skyrocket and we will see a major recession.
I have hidey-holes for cash gold and silver but not around the house.
I am simply fed up with Florida Insurance (un) Regulation and the insurance companies. The only money they will receive from me in future is for my vehicles and motorcycles. I carry high liability coverage for those because many drivers in Florida are uninsured in any meaningful way...in fact, many drivers in Florida are driving around with suspended or revoked liscenses...and drunk. I carry comprehensive with high deductables.
Also remember that most homeowners policies include personal liability coverage and will also pay for your legal defense if sued for a covered incident. Just something to keep in mind.
Hi Yohahn, I appreciate your reply and concern. After the screwing that the people living on the Gulf Coast and in NO received after Rita and Katrina...Well, lets just say that I would rather be self insured than have to drag an insurance company into court...Years after the storms, some of the storm victims are still wrestling with insurance companys.
I have a damned good lawyer and he has been very effective in the past. I would rather have him than an insurance policy...which is really just another piece of paper.
I second that. All State and State Farm have disgraced themselves !
If/when I build the house I want (garage apt that meets Passiv Haus standards, solar PV that can get by Historic District standards) in the Lower Garden District, I plan to make it fire-proof, first class electrical system, 200 mph wind resistance, 8' up to anything that can be water damaged), I will likely forego most types of insurance.
Liability is certainly needed, perhaps flood.
Best Hopes for not needing insurance,
Alan
Liability is certainly needed, perhaps flood.
But is not flood insurance "the government"?
What happens to that insurance when 'the people' say 'screw' to the 50+% tax rates?
"I have a damned good lawyer"
i have one too, a bulldog in a suit. what many dont realize is that when you file a claim with the ins co. you turn over the right to defend yourself in court.
have you considered forming a holding corporation (with limited liability) to "hold" your property ?
Silence - you've really bought into the propaganda. Even using your own logic, there is good reason not to buy insurance. Assume your 1-500 chance is correct. That means that, if I'm a statistically average guy, I'll have one house burn down in every 500 lives I live. Sure, it could be this life, but that's a 500-1 longshot! I think I'd be willing to take that chance. Certainly, the insurance company thinks its a good bet that my house won't burn down, otherwise they wouldn't be willing to sell me that insurance.
Hey River, I'm considering doing the same thing. The thing that holds me back is I lost a house in the Oakland fire.
Regarding your post yesterday on the piece Citigroup put out on deleveraging, Russ Winter put up an article today that I think is probably right on Citi's intentions: http://wallstreetexaminer.com/blogs/winter/?p=1502
Hi Moe, sorry for the late reply...I went for a ride. I answered in the post up thread that I have taken precautions for fires caused by electrical problems. We have the home we live in and a couple of smaller detached rentals on beachside. All are stucco over block which doesn't burn well. The two rentals are tar and chip flat roofs (best for high winds). The one we live in has a very high trussed roof with the heaviest shingles available. I put the shingles on myself so they are right.
Don't ask me why I have rentals in this economy...I must be charitable for I am not making money on them anymore. Insurance (and taxes) in Fl since t