Housing market fire sales…

Housing Market Fire Sales – Fingers of Instability Series Part Six
:: The Market Oracle ::

Little reported in this week’s news was the Fire Sale Hovnanian Homebuilders conducted over the weekend. Offering 30% discounts on their new homes as they headed for the sidelines before their peers do. It is an act of yelling “FIRE IN A THEATRE”. Please understand that prices are set at the margin, in other words, the value of your holdings are determined by the last price at which they were transacted. In this example with Hovnanian it works out this way: Homes were sold at 30% discount to reduce inventories and to satisfy creditors that were getting nervous and demanding payment.

But the result after the sales is that every homeowner in similar homes in the area just saw the value of their homes drop an equivalent amount. Imagine a homeowner who had 20% equity in his home before the Hovnanian clearance sale; he may be a prime-quality borrower and live in a personally-affordable home (had the income to support his purchase). Presto, he wakes up on Monday and his is now 10% underwater on his purchase, and since his and many other mortgages in his area have been SECURITIZED, those previously healthy AAA credits have been turned into trash with these sales.

This person’s wealth just suffered a CRASH, no different than if the value of his or her stock investments declined in the same manner. Homeowners and homebuilders in general had been holding their prices up through value-added incentives, such as special countertops or flooring sales tactics, are now between the proverbial rock and a hard place. This will no longer work. That sound you hear is the sound of crashing home values around the country as homebuilder after homebuilder will follow Hovnanian out the exits.

2020: Energy independent housing in California?

Given the price of oil this proposal could actually pencil out over say, the life of a 30 year fixed rate mortgage…. though it’s probably not what builders want to hear this quarter as most are just trying to figure out how to stay solvent till 2010.

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State regulators propose developing energy self-sufficiency by 2020
David R. Baker, Chronicle Staff Writer
Tuesday, September 18, 2007

All new housing developments in California should be so energy-efficient by the year 2020 that they could produce all the power they need on their own, state regulators proposed Monday.

The California Public Utilities Commission suggested sweeping changes to the way the state deals with efficiency, the effort to squeeze the most use possible out of every electron and drop of fuel. The commission wants California’s electric utilities to collaborate on creating one grand plan for improving energy efficiency throughout the state, rather than pursuing their own separate programs the way they do today.

The commission’s most eye-catching proposal calls for radically increasing the efficiency of new buildings, even though the commission doesn’t regulate the housing industry.

New housing developments would need to be “zero net energy” by 2020. They would require far less power to run than existing homes, so little that each development could generate all the power it needed, either with solar panels, windmills or small generators.

Ecosystem Marketplace: Cap and Trade on the Willamette?

Pollution may go to market:
Under ‘cap and trade’ plan, firms could pay for restoration projects to compensate for wastewater
By Lee van der Voo
The Portland Tribune, Sep 18, 2007

It seemed like a good way to save $150 million.

By paying farmers to plant trees, a wastewater treatment utility in Washington County avoided building a massive refrigeration system, instead using shade to cool water in the Tualatin River.

Now that same utility, Clean Water Services, is aiding a study — paid for by the Environmental Protection Agency — of a “cap-and-trade” program for the Willamette River.

The proposed program, called the Ecosystem Marketplace, aims to allow businesses and public utilities to curb pollution by buying into habitat restoration instead of paying for expensive, sometimes unsuccessful technology.

Global warming lawsuit dismissed

Global warming lawsuit dismissed – Los Angeles Times
A judge denies the state’s bid for damages from carmakers.
By Marc Lifsher, Los Angeles Times Staff Writer
September 18, 2007

California’s attempt to collect billions of dollars in damages by accusing automakers of creating a global warming-related “nuisance” was dismissed Monday by a federal judge in San Francisco.

The courts aren’t set up to deal with climate change and other “political questions” with international reach, U.S. District Court Judge Martin J. Jenkins said. That task belongs to Congress and the executive branch of the government, he said.

The suit, originally filed a year ago by former Atty. Gen. Bill Lockyer, claimed that emissions of carbon dioxide and other so-called greenhouse gases from automobile tailpipes cause environmental damage. It cited as examples melting Sierra snowpacks, prolonged droughts and dying forests.

Alarming studies: Global warming could cause mild regret in a few rich nations

Let me know if I need to ’splain why these two studies remind me of each other. Not a perfect parallel, but …

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Study warns of global-warming crop disaster
Agricultural decline predicted by 2080
Reuters
Published: Thursday, September 13, 2007

WASHINGTON (Reuters) — Global warming could send world agriculture into serious decline by 2080 with productivity collapsing in some developing countries while it improves in a few rich nations, a study reported yesterday.

India, Pakistan, most of Africa and most of Latin America would be hit hardest, said economist William Cline, the study’s author. The United States, most of Europe, Russia and Canada would probably see agricultural gains if climate change continues on its current course, the study found.

Overall, the world’s agricultural productivity was forecast to decline by between three per cent and 16 per cent by 2080, according to the study published by the Washington-based Center for Global Development and the Peterson Institute for International Economics.

Study: Casual Sex Only Rewarding For First Few Decades | The Onion – America’s Finest News Source
September 5, 2007 | Issue 43•36

ARLINGTON, VA—An alarming new study published in the International Journal of Sexual Health reveals that casual sex, the practice of engaging in frequent, spontaneous sexual encounters with new and exciting partners, may only provide unimaginable pleasure and heart-pounding exhilaration for, at most, 25 to 30 years.

“People who choose to participate in random, no-strings-attached lovemaking sessions with sexually adventurous strangers should be advised that this type of behavior is only incredibly liberating for the first quarter-century or so,” said Dr. Loren Sullivan of Yale University, who coauthored the study on the long-term side effects of living out one’s wildest fantasies on a semi-weekly basis. “Though sometimes it can be longer.”

Sawmill profitability benchmarking: 2004 and 2006

What difference a year or two makes…

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Global lumber/sawnwood cost benchmarking report—2004

Sawmills on the West Coast of the United States are the most profitable in the world, with 2004 earnings at average mills more than twice the overall global average earnings of USD 24/m3. Mills in Australia held the number two spot with earnings of USD 58/m3, followed by British Columbia’s Interior region sawmills at USD 55/m3. The lowest average sawmill earnings in 2004 occurred in European countries as well as parts of Russia where they ranged from around break-even to a high of USD 15/m3 in the Baltic States.

North American sawmill profits lowest in the world in 2006 and Q2 of 2007:

VANCOUVER, BC, 12 SEPT 2007 — Sawmills throughout the U.S. and Canada achieved dismal operating results in 2006 where the profits at average1 mills were barely positive and slipped into negative territory in the second quarter of 2007, when lumber prices collapsed to below the cost of production. The cost of logs delivered to the mills has generally been rising in North America and, in conjunction with low lumber prices, has caused sawmills to incur deep operating losses not seen since 1991. These and other findings were released today in the latest issue of a report published by International WOOD Markets, PricewaterhouseCoopers, and The Beck Group. The report, titled Global Lumber/Sawnwood Cost Benchmarking Report—2006 and 2007 Q2, is the most comprehensive compilation available on global timber, lumber and sawnwood cost benchmarking, covering over 170 sawmills in 29 major forest products producing regions of the world.

Sawmills in South Africa, Chile and North-west Russia were the most profitable in the world – the 2006 and 2007 Q2 earnings2 at average mills were between two and five times greater than the overall global average earnings, a dismal USD 13/Mbf, or just 4% of lumber sales revenue. In North America, the U.S. South posted the best mill earnings–this was one of the few areas not punished by rising log costs. The worst sawmill earnings for all the regions in the report occurred in Brazil, the U.S. Inland West region, Quebec and the B.C. Coast. They all recorded negative earnings in 2006 as well as the second quarter of 2007.

The U.S. West Coast region reported some of the lowest earnings in 2006 (near zero) and 2007 Q2 (negative) due to rising delivered log costs and poor lumber prices. This region had the highest average sawmill earnings in the world in 2004. The B.C. Interior challenged US West mills for lowest operating cost honours at top-quartile mills but fell short in 2006, as in 2004.

The US economy continues its slow death before our eyes

Okay. Serious hyperbolic inflammatory rhetoric alert. But, it’s backed up with data. Worth reading through the whole article. Click on the article title link. Then think for yourself. Paul Craig Roberts is the former Assistant Secretary of the Treasury in the Reagan administration.

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American Economy: R.I.P.
By Paul Craig Roberts
09/10/07 “ICH’

The US economy continues its slow death before our eyes, but economists, policymakers, and most of the public are blind to the tottering fabled land of opportunity.

In August jobs in goods-producing industries declined by 64,000. The US economy lost 4,000 jobs overall. The private sector created a mere 24,000 jobs, all of which could be attributed to the 24,100 new jobs for waitresses and bartenders, and the government sector lost 28,000 jobs.

In the 21st century the US economy has ceased to create jobs in export industries and in industries that compete with imports. US job growth has been confined to domestic services, principally to food services and drinking places (waitresses and bartenders), private education and health services (ambulatory health care and hospital orderlies), and construction (which now has tanked). The lack of job growth in higher productivity, higher paid occupations associated with the American middle and upper middle classes will eventually kill the US consumer market.

The unemployment rate held steady, but that is because 340,000 Americans unable to find jobs dropped out of the labor force in August. The US measures unemployment only among the active work force, which includes those seeking jobs. Those who are discouraged and have given up are not counted as unemployed.

With goods producing industries in long term decline as more and more production of US firms is moved offshore, the engineering professions are in decline. Managerial jobs are primarily confined to retail trade and financial services.

Franchises and chains have curtailed opportunities for independent family businesses, and the US government’s open borders policy denies unskilled jobs to the displaced members of the middle class.

When US companies offshore their production for US markets, the consequences for the US economy are highly detrimental. One consequence is that foreign labor is substituted for US labor, resulting in a shriveling of career opportunities and income growth in the US. Another is that US Gross Domestic Product is turned into imports. By turning US brand names into imports, offshoring has a double whammy on the US trade deficit. Simultaneously, imports rise by the amount of offshored production, and the supply of exportable manufactured goods declines by the same amount.

The US now has a trade deficit with every part of the world. In 2006 (the latest annual data), the US had a trade deficit totaling $838,271,000,000.

….

According to Forbes magazine, the top 20 earners among private equity and hedge fund managers are earning average yearly compensation of $657,500,000, with four actually earning more than $1 billion annually.  The otherwise excessive $36,400,000 average annual pay of the 20 top earners among CEOs of publicly-held companies looks paltry by comparison.  The careers and financial prospects of many Americans were destroyed to achieve these lofty earnings for the few.

Hubris prevents realization that Americans are losing their economic future along with their civil liberties and are on the verge of enserfment.

Evergreen Pulp mill chips in for machine

Evergreen Pulp mill chips in for machine
John Driscoll/The Times-Standard
09/05/2007 04:27:20 AM PDT

Evergreen Pulp is busy building a machine that will chew up whole logs from tan oak trees, long considered a weed where it occurs on timberlands.

The Samoa mill may be able to supply 10 to 15 percent of its needs using the whole log chipper which it bought from a veneer plant in Rogue River, Ore. The machine will be housed in a three-story building, and includes sorters, shakers and bins to separate the pulp processes’ raw material — chips — from hog fuel, which would be sold to local wood-burning power plants.

Evergreen Pulp tapped for renewable energy study

Evergreen Pulp tapped for renewable energy study
James Faulk/The Times-Standard
08/04/2007 04:27:35 AM PDT

EUREKA — Evergeen Pulp Inc. has been selected by the California Energy Commission to head up a program to help the state wean itself off fossil fuels.

Diversified Energy Corp. and Evergreen Pulp were selected by the state to run a $500,000, 36-month-long energy project through the Public Interest Energy Research Natural Gas Program, part of the California Energy Commission.

The program is to encourage companies to research, develop and demonstrate technologies to replace natural gas with renewable resources.

LA: August Home Sales Take a Major Plunge

August Home Sales Take a Major Plunge
REAL ESTATE: Despite dropoff, median prices are holding steady.
Los Angeles Business Journal Online

By HOWARD FINE
Los Angeles Business Journal Staff

The expanding mortgage crisis and credit crunch slammed the Los Angeles housing market in August, with home sales plunging 50 percent from the same month last year and 25 percent from July.