After the Bust

I know that a book could be writting on this subject, and it is not my intent to write one.  There are a number of thing that most people can do to increase their energy savings through lowered consumption.  Some of them are just common sense, and sure you will say “everyone knows that,” while there are a few other suggestions that you may not have thought of.  Here’s a quick list:

1.  Take time to plan your trips, make sure that your routes are the ones that are the shortest and most efficeint.  How many of us think we know a way to get somewhere that is shorter but we have never taken a look online to confirm whether or not it really is?

2. If you can, pay the extra dollars necessary to acquire high efficiency equipment like A/C and heating units.  While you pay a premium for the equipment, most units will save you big over the life of the equipment, especially since energy costs continue to rise.

3. Make an adjustment to your heating or cooling habits, you can work and live in a comfort zone without being in an excessive cost zone.  If you are in the heat of the desert maybe you can live with 75 degrees instead of 70 degrees.  Over an entire summer if you are cooling or heating a 2,000 square foot home the savings can be substantial.  Something as simple as a fan or ceiling fan can make an effective 5 degree difference in cooling or direct heat back down to you before it escapes the room.

4. In keeping with the above, upgarde your thermostat and set it to use less energy when your are gone to work.  You can save the money that the upgraded thermostat costs you in a short time.

5. Shorten the time that your pool cleaning system runs and consider off-peak times to run motors for such purposes.

 6. Cut back on decorative landscaping that is expensive to keep in place.  Do you really need to have acres of decorative grass that requires hundreds or thousands of gallons of fresh water pumped to it for aesthetics? 

7. Unplug electronics or applicances that stay in a ”standby” mode and continue to use power.

8. Incandescent lights use more energy because they create a lot of heat.  While there are still negative feature, fluorescent lights offer a substantial savings. 

9. Check to see if you can get a tax credit for making changes.  Many utility companies offer rebates for making landscaping, thermostat or light bulb changes.  Expect the feds to participate more with major alternative energy credits for solar and other sources.

What about recycling, building ”green” and home tune-ups?  All great ideas, it takes some effort, but with energy bills potentially going through the roof everyone needs to take some time and evaluate their consumption situation.

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If you are trying to follow where we are in the real estate cycle you may want to check out “The Big Picture” at www.ritholtz.com and specifically read the recent post on the blog at http://www.ritholtz.com/blog/2009/07/why-housing-isnt-yet-bottoming/ it has some great arguments about why we are still headed down.  Sadly, I agree with his assessment.  He published the following chart on his site which dramatically displays just how bad things are historically:

As discussed on this site within other posts, there are some who believe that we will not turn around this mess without having housing prices stabilize and turn back up.  There are just too many people who will continue to hit deep negative equity water and dump more real estate onto the market.

I really don’t expect to see prices continue to drop at 32% or more per year, which has been the case here in Las Vegas.  The prices are likely to continue to decrease in price at a decreasing rate.  Las Vegas, unlike many other cities, is adjusting quickly to price drops and my expectation is that we will hit the bottom sooner than many others.  That could occur when home prices find their way below the cost of construction or below their expected or forecasted value based on historic trends.

At some point the psychological aspect of the housing market will change, and assuming credit is available, there will be more people willing to consider a purchase.  The fact that things have fallen so far is of course going to stigmatize the entire market for quite a while. 

When will it happen?  That’s the trillion dollar question that no one can answer.  In Las Vegas we are already seeing many properties sell below what it would cost to construct them.  When you get to about $ 70 per square foot for an average home here, you are near or below the cost of construction (which includes the lot and site improvements).

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The unemployment rate in Nevada hit 12.3% the other day and I have read that it is at or near 15% in Michigan.  Nationally we have hit a 50 year unemployment high that is climbing, and there are nearly a million and a half people not counted as unemployed because they haven’t searched recently for work.

When you consider the fact that the unemployed are staying that way for a longer and longer period, you can begin to understand why polls are saying that there is an “erosion of confidence” in our economic system. 

The problem is that there are no real signs that things are turning around.  The Press wants to jump on anything.  If a dog barks, or home prices stabilize in Beverly Hills, it must be an economic recovery.  In reality things are likely to get worse in 2009 with continued housing market problems and a new wave of commercial defaults and foreclosures coming our way.

No one really knows if 2010 will end this down market or if it will take much longer.  Real estate cycles can last decades.  In Las Vegas we have been told that there is a 5 year supply of commercial buildings, condos and homes that will have to be absorbed in order for us to return to normal.  Unless we see a mass exodus from California, which is not entirely unrealistic, it will take much longer than most people are willing to admit.

I’m not trying to be negative here, just report some dire information about our economy and the direction in which it is headed.  I am looking forward to the time when things get better, but it appears that we have to prepare for more pain not less.

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The Wall Street Journal had an interesting article today authored by Stan Leibowitz entitled  New Evidence on the Foreclosure Crisis

it’s an eye opener because the article identifies negative equity as the main cause for mortgage foreclosure, not mortgage rate changes or unemployment, which many thought were the reasons. 

It is important to understand that foreclosure are happening because people are finding themselves in debt holes that are so deep that it would take them decades to get out of them, and rather than spend every dollar that they earn trying to make it right (pay it back), people are just walking away.

I imagined that most of the defaults were being made by individuals who were being forced into foreclosure because they could not make their mortgage payments, but negative equity foreclosures are made by people to proactively elect to default.  They are simply trying to better their financial situation.

I can identify with people who don’t want to be straddled with hundreds of thousands of dollars of mortgage debt.  It was fun buying the Mercedes and touring Europe, but when property values dropped and you find that you have to pay it all back, that is just downright brutal, right? 

Based on this new found knowledge, I will again speculate that the American people will elect to default on their large mult-trillion dollar debt in the next several years rather than pay for it via huge tax increases.  California is effectively defaulting its 24 billion budget shortfall via its I.O.U. program.  They should be starting from scratch with a zero based budget, and kill progarms that they just can’t afford, but in the American tradition they would rather default that accept the fact that they simply could not afford them.

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Can you see what is on the horizon, looks like $11 a pack cigarettes, higher unemployment, higher gas prices,  the implemenation of a large value added tax (VAT)  increases and all while we are struggling to get through one of the most difficult time in years.  Many have already succumbed to living with increased stress.

I don’t have to tell you how bad stress is for you physical and mental health.  There are hundreds of articles and books already written about strees and the negative effects that it can have on your life.  Stress can make your life much more difficult, and ultimately it can bring you down.

Watching television and listing to radio doesn’t help, most of the popular shows take one side or the other, telling us how much better change will be or saying that we are headed into deep water with the changes proposed.

While I don’t think “don’t worry, be happy” is an entirely appropriate direction, I do think that simplifying ones life is a good idea.  Getting rid of excess baggage in our lives like expensive, gas eating toys is not a bad idea.  Do you really need that second boat or camping trailer?  How long has it been since you got on those ATV’s or motorcycles?

How about making a serious run at your boss regarding working from home?  Even a day or two a week would cut commute time, gas expenses, clothing costs and generally make you life less stressful.  If not, how about trying to get the work week shortened to four 9 hour days?  It takes an effort, but if you can find ways to increase the quality of your life by managing your time better, you will likely decrease your stress.

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Anti-government, anti-right wing protests?  I guess that those descriptions of the Tea Party rallys all over the country this week didn’t strike me as being entirely off the mark.  I can understand that a backlash is building against the rampant spending that appears to be the “solution” to the financial crisis.

It is my guess that this wave of dissent will evaporate if thing begin to return to normal, which is relatively unlikely.  What is more probable is that Tea Parties may be the infancy of a much larger dissent that could develop if thing become worse.  It appears that the President is about to attempt making radical  changes to the tax system, healthcare delivery and possibly to energy policy. 

I don’t know that anyone can predict what the outcome will be to these well intentioned changes, but if you are listening to the press, there is already talk about some individuals leaving the country to escape what may become (in their opinions) harsh, penalty-like income re-allocations. 

Change is a great mantra that may help you get elected, but few people may have understood what “change” entailed in the mind of the Democratic leadership.  If you are sure that you are on the wrong road you assume that another one has to be better, but that is not always the case.  I’m not saying that we went from the wrong road to another wrong road, but at this point I can’t see that the one that we are headed down is better.

One thing is for sure, change is never easy.  Another thing is for sure, if you protest what the government is doing loud enough you may become labelled as an aggitator subject to investigation or harrassment.  It’s not supposed to work that way, but guess what, nothing works the way that it is supposed to.

Looking to the short-term future its my opinion that a broad based backlash will continue to build as we deal with more economic turmoil.  Hopefully the economy will make the turn upward that most of us would like to see.  Will the turn be because of government intervention or despite it?

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It’s so much easier to not prepare for any potential future crisis that it’s almost the American way.  Like the government’s preparation for Hurricane Katrina, its was easier to turn a blind eye.  I remember picking up a magazine and reading an article about the potential for a huge negative impact to New Orleans if a Hurricane hit there many months before Katrina arrived.  The potential for loss was great and it was well known, yet there were very few who thought to prepare. 

Regardless of the recent announcements that state that the government thinks things are getting better, we are now looking at the potential for a another wave of home mortgage foreclosures, the likelihood of numerous commercial mortgage foreclosures and by the way the monetary system as we now know it may not survive.  A major inflation has been predicted by many prominent economists.   Without being a full on survivalist, there are many people getting back to the basics of having stored food, water, a gun and gold just in case.

If I mention being prepared to many people I get the “I don’t want to survive a crisis that I need food, water or a gun for.”  While everyone has their own decisions to make, and I’m not trying to sell you anything, I can’t see that it would take a great deal of effort to prepare for an unlikely event.  Maybe we won’t have any futher financial crises, but then again you could find yourself in an earthquake, flood, storm, epidemic or part of some other natural disaster.  Being prepared is not just a good idea for Boy Scouts.

Oh yeah, I want to give some credit to Ameko on the “Your Money” MSN message board for reminding me to get plenty of shotgun shells just in case the zombies come.

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Do you care that China has accumulated $ 2 Trillion in dollars and appears to be the only major county at this point that is not shedding Dollars?  Is it important to you that China and other Countries have been seriously talking about using something other than the dollar as the international “reserve” currency? 

“Market Forces: The Future of the U.S. Dollar” in the Dismal Scientist by Alaistair Chan talks about China’s recent moves to suggest alternate reserve currencies, and China has already moved toward trading with some partners using Yuans.

The fact that faith in the dollar’s stability is under considerable scruitny overseas should tell you something about its future here in the states.  As India, Korea and others begin to dump dollars in light of our current policy to print mountains of cash, we may find that there are many dollars and no one wanting to hold them.

If the government wants to print another Trillion dollars because they created a new scheme that is based on a 1930’s law, that’s ok.  If they want to bail out the auto industruy a few time . . that sounds good, the airline industry, why not, we wouldn’t want them to go out of business, would we?

Fiscal responsibilty has become an oxymoron.  Its my opinion that U.S. citizens don’t really feel responsible for the debt that is being created.  They really were not part of the decision-making process that created the debt.  If people actually had to sign notes that said theywould repay the $ 118,000 per person, which I’m sure will increase to a significantly higher number in time, they would almost to a person refuse to sign the document, but as long as the government keeps swiping the charge card the bill will keep getting bigger, it becomes less likely that our currency and our way of life will survive.

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There is nothing as surreal as walking through Downtown Las Vegas an seeing so few people that you think you are on a movie set.  The Malls are dead, restaurants always have empty tables and they have short or no lines and amazingly even McCarran Airport is often empty and it seems to have fewer and fewer people arriving.  Now the multi-billion dollar CitiCenter project, the jewel of the Las Vegas Strip, is in financial trouble with MGM and Dubai World squabbling.  Its a new world out there, one that I have never seen, and never wanted to see.  As the unemployment rate climbs above 10% and the vacancy rates begin to climb in offices and retail buildings the reality of this mess is beginning to sink in.

To make the slow down worse, there is nothing on the horizon that would lead me to believe that this craziness is going to turn around in the next few years.  Even if we were to see a turnaround now, it would take years for any real improvement to take hold.  The “experts” are saying we should look for an end to the downturn in 2010, 2011 or maybe 2012.  In other words, its not happening for a while, so its time to accept the reality of minimalism.

Since I’m a baby-boomer with many years of bad spending habits under my belt it’s hard for me to say the words, but yes, its time to become frugal.  There is less money to go around, and the good times can’t keep rolling without cash.  So it’s time to dump the expensive credit cards, time to sell-off the closet full of useless items and time to save any extra dollars that find their way home.

Its downright wrong that the lifestyle of average Americans has to be downgraded because Wall Street fat cats and government regulators continue to find ways to bend the financial system to their will.  I am always amazed that the biggest crooks just smile for the TV and retreat to their private islands or expensive London homes when they are found guilty or discovered to be guilty of ripping off investors and taxpayers for Billions.  The message is clear, the more deceptive you are the less likely it is that you will suffer any real consequences for your actions. 

For me the economic downturn means fewer trips to the Mall, fewer restaurant visits and more time spent reading and watching rented videos.  It’s not that bleak, but for others this nightmare will mean a lost home, a lost job, a lost retirement and possibly a depression that will be difficult to overcome.

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There are a lot of predictions regarding which businesses will survive the “bust” brought about by the recession and which ones will not. Difficult economic times usually act as a “business accelerant” that forces business operating at the margin over the cliff.

One of the businesses most often identified as being in trouble are the newspaper and magazines. The costs associated with producing their product is relatively high. Paper, ink, printing press equipment and relatively high labor costs have all contributed to their profitability problem, but the Internet has been the main culprit for their demise. There is so much free information on the Internet that is accessible in seconds that it is hard to compete with it via alternate media. Many of the newspapers and magazines have seen the light and started to transition their businesses to an Internet model.

Another example of a business in trouble is the pay phone business. Just about everyone is carrying around one or more cell phones. It’s tough to get into a car with another person and not have 2 phones at your disposal, yours and your passenger’s. When you consider just how cheap cell phones are becoming, with disposable phones and by-the-month plans, it’s hard to believe that there will be much use for the pay phone in the next few years.

How about some easy ones. . Television antenna manufacturers, arcades and the CRT Tube manufacturers. It’s hard to believe that antenna manufacturers will not be in trouble as we now transition to digital TV, and CRT’s have been on their way out for some time and there are few manufacturers still around. The prediction that arcade games are less popular since home gaming systems have improved is hard to argue with.

The recession has gone beyond causing the closure of real estate agencies, mortgage brokers and title insurance companies. I have seen the closure of many high-end food establishments as the recession has progressed. There are fewer $ 10 a Sundae ice cream stores, fewer $ 35 per steak restaurants and it seems to me that even branded restaurants with marginal locations are closing their doors. So it’s not just the businesses that have lost out because of modernization, changing trends and the real estate debacle, there are many meat and potatoes business that are also failing.

Survival of a business in the current economic climate has to do with consumer preferences. That’s why places like Wal-Mart and MacDonald’s are thriving. They are relatively cheap, well located, branded and offer necessity items (food and clothing).

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