Author: bill

by

Summer Vegetable Recipes – Gazpacho

While my mother-in-law has been incapacitated my wife has been shopping at the local farmer’s markets for her. There is an abundance of great, fresh vegetables in the area and good ingredients are the key to great dishes. One of our favorite summer time dishes is Gazpacho. The recipe I used is from the New Best Recipe book by Cook’s Illustrated. A slight variation of the recipe can be found at http://www.jimschrempp.com/recipes/recipe_gazpacho2.htm. I used Beefsteak tomatoes and Red Gold “fresh, squeezed” tomato juice. This is all that we had left and it is going to my mother-in-law.

Gazpacho

by

The $64 Question: Where is the bottom to the real estate market?

I am guessing that there are a lot of anxious people pondering that question. The optimists out there are hoping for a quick recovery. The pessimists cannot help but notice that the bad news keeps coming. Today Fannie Mae announced that it lost $2.3B in the quarter and has cut its dividend.  The really bad news is that the Yahoo article implied that the the market for Alt-A securities and all of its close cousins is probably defunct. This implies that the flexibility the mortgage brokers had with low documentation loans is gone, too.  This is not surprising but its impact could pull out the last support for real estate prices in the hardest hit markets. This is a “hassle” barrier for small business owners and commission based workers who might want to buy into this downturn. I think if a buyer has to put a considerably larger down payment  and a lot of more income verification to get their dream house, I think that they are going to demand some type of fundamental analysis that they are buying near the bottom.

My contribution in this area is the following graph comparing real estate prices to the Consumer Price Index(CPI) for several real estate markets. Comparing real estate prices to the CPI is a traditional way of evaluating financial performance and risk. For those readers that want to know I got the CPI data from the Bureau of Labor and the real estate indexes from the S&P/Case-Shiller® Home Price. I converted all of the indexes into percentages relative to their 2000 index values. The bottom line on the graph is the Consumer Price Index. It looks like the down turn in the real estate market has a ways to go in some local markets that benefited from the real estate bubble.

2000-08 Real Estate Appreciation versus the Consumer Price Index

by

Freddie Mac reports loss of $821 million (Reuters)

Reuters – Freddie Mac on Wednesday posted its fourth consecutive quarterly loss, set plans to slash its common stock dividend and warned of more difficulty ahead amid the steepest U.S. housing market slump since the Great Depression.

Although I recently expressed a  negative opinion of Fannie and Freddie Mac’s future, I was a little surprised with this announcement. I thought they would not even discuss cutting the dividend until after the elections.  Although I think it was a necessary decision for Freddie Mac, I thought there was an implied agreement to not cut the dividend until things settled down. Tonight I heard the CEO on NBR and I was not impressed with his efforts to finesse the hard questions about Freddie Mac’s financial plan. Things are not settling down. The big losers in this sad affair are the elected officials who went to bat for Fannie Mae and Freddie Mac. I think that the housing bill was a huge stretch for our elected officials so this announcement is a bitter pill to swallow.

Freddie Mac reports loss of $821 million (Reuters)
Wed, 06 Aug 2008 12:22:15 GMT

by

The Continuing Problems at Fannie Mae and Freddie Mac

With the imminent signing of the housing bill you have to wonder when the financial situation is going to improve at Fannie Mae and Freddie Mac. I think it is fair to say that the stock prices fully incorporate the lack of faith the stock market has with these organizations. If you look at stock chart for Fannie Mae you can see that stock holders have taken a huge hit. The stock has gone from about 60 to 11.5. This has been a disaster for some investors. If you look at its recent stock price history and its dividend rate, it looks like it is cheap. Is it a time to invest? I think their future is dim and here are some risks I see that may not be incorporated in the stock price.  Caveat emptor!

Dilution Risk

I believe that there is a serious risk that that the government will be forced to make an equity investment as part of a restructuring and wipe out the remaining shareholder equity. It is hard to envision a financial restructuring plan that does not involve a government equity investment.

Dividend Cut

Although the dividend rate is a very attractive 12.1%, I think it is unlikely that Fannie Mae can continue this dividend rate with such poor prospects for earnings. Dividend rate cuts are traditionally bad for stock prices.

Political Risk

Fannie Mae and Freddie Mac have a close relationship with the Democratic party, the former Countrywide chairman, and they were an active participant in the subprime mess. Countrywide sold their junk loans to Fannie Mae. As an exasperated Paul Gigot said in the in the Wall Street Journal article, “They were partners!” The political savvy of Fannie Mae and Freddie Mac in the past have left them with a huge political risk and a lot of bad blood in Congress. In the past Fannie Mae and Freddie Mac allegedly spent over $200 million dollars on lobbying and fighting reform that may have prevented the subprime mess. I found it interesting that last week liberal leaning journalists were wondering about the wisdom of the housing bill. It is hard to gush over “change” coming from Obama and ignore the reality that the housing bill is fatally flawed and the Fannie Mae gang is bringing a lot of political baggage with it. The wise men and woman of the Democratic party undoubtedly see a serious political risk and are probably working overtime looking for acceptable ways to spin this issue in the upcoming months. The fiscal conservatives of the Republican party see an issue they can unify the party with. If the Republican party is successful at convincing a significant number of voters that the Democratic party is primarily responsible for the mess at Fannie Mae and Freddie Mac, the more likely that these organizations will undergo serious changes regardless of the outcome of the elections. Most voters believe these organization are dirty and expect some type of reform. For some fiscal conservatives this could easily become a “holy war”.  If a fiscal conservative cannot make some political points with this issue, they should give up public service and go fishing.

Operational Income Risk

Fannie Mae and Freddie Mac have large portfolios of bad loans. Congress via the housing bill is asking these two companies to increase the size of these portfolios. It sure sounds like Congress is encouraging Fannie Mae and Freddie Mac to relieve the banks of their bad loans. The authors of the housing bill also hoped that by providing more opportunities for refinancing, the flood of foreclosures will diminish and the price for existing homes will stabilize. If you look at the following graph from the foreclosurepulse blog it is easy to conclude that the foreclosure rate is down over last year and most of the problem loans are now owned by the banks. This implies that most of the home owners have lost their houses and the game is already over. To increase their net income without resorting to Enron-style accounting the banks, Fannie Mae, and Freddie Mac will have to try and keep an orderly real estate market despite the price pressure caused by the huge inventory of foreclosed homes that they will be trying to sell. It would not be surprising if they blew up a few local real estate markets as they try to dispose of their inventory. All of this risk for Fannie Mae and Freddie Mac makes earnings forecasts a moot point. Considering all of their financial problems, the big question is whether these companies are already in receivership.

ForeclosureGraph from ForeclosurePulse Blog

by

Why I Volunteer at Habitat

The most important lesson I learned as a volunteer for Habitat for Humanity is that our primary goal is to build families. Families living in poverty have a lot of problems and their problems are both daunting and unrelenting. A new house is a big ticket item but it solves only a few of their problems. Almost all of the families are left with myriad of other problems in which each one by itself could derail the home ownership process. To embrace the American dream they need a helping hand from some friends and a lot of luck. When a family partners with Habitat to build their house, it is our hope and our prayer that this will be the turning point that will break the web of poverty. I find myself amazed and humbled when I see all of the families who have survived the odds and have now chosen to help others who are less fortunate. At the center of this process is a grace. Many of us have experience this freely given, unmerited favor in our lives. We enjoy it but rarely have the time to dwell on it. When we finally slow down and recognize how lucky we have been, we are in awe that it is God’s grace that has been working in us and through us for a vary long time. It is not we volunteer but how we volunteer that is making the difference. God’s grace is at its pinnacle when we see it seeded in these families who have found the strength to not only survive their hardships but reach out to help others. It is here I see the discipleship of grace in full bloom. Let the circle remain unbroken!

by

Fannie Mae & Freddie Mac Bailout: The most important mistake by Bush?

I am fascinated with the Fannie Mae & Freddie Mac bailout. As a Treasurer for a Habitat for Humanity affiliate I have an above average interest in the market for poor quality real estate loans. We were the original sub-prime lender. This bailout will allow Fannie Mae & Freddie Mac to corner the market at bad loans?! Is that the plan! Now imagine that you are in charge of investments for a retirement fund. Would you buy Fannie Mae or Freddie Mac securities?  How much of a risk premium would you require? Why would anyone over the age of sixty own any Fannie Mae or Freddie Mac securities? I think a lot of people are going to sit on the side lines for a couple of years.

It does not take a whole lot analysis on the subject before you come to the conclusion that passing this bill could ultimately determine Bush’s legacy for historians. It has the scandalous overtones of the oil for palaces scandal and the near sightedness of the Smoot-Hawley Tariff Act. The Wall Street Journal has been screaming to anyone who will listen that this bill is a really bad idea. Bush has the opportunity to be remembered like Hoover.

Over the next couple of days I hope to write about the difficulties of buying houses in poverty areas and what I see as strange dealings and complications of the bill. G’day mate! 😉

by

KET: Kentucky Tonight – Ethanol | Home Page

Last Monday I saw a show on ethanol, KET: Kentucky Tonight ”“ Ethanol, and learned several things. It was a round table and the participants were all closely aligned to agriculture and corn.

  • Todd Barlow, executive director of the Kentucky Corn Growers Association
  • Mark Haney, a Pulaski County fruit and cattle farmer and first vice president of the Kentucky Farm Bureau
  • Stephen Bartlett, coordinator of Sustainable Agriculture of Louisville and a member of the Jefferson County chapter of the Community Farm Alliance
  • Norman Harned, a lawyer, a Nelson County cattle farmer, and a member of the Kentucky Cattlemen’s Association

This is not the normal group of pundits you find on big media and their viewpoints were interesting. Some of the things I learned were:

  1. 20% of the corn production is going to ethanol plants. This is the excess production that might have gone overseas or could have been used to maintain low corn prices for cattle fattening.
  2. There are two products from the ethanol plants, ethanol and animal feed. The animal feed portion of the ethanol product mix is rarely mentioned by big media since it is a new market. This animal feed might reduce some of the price pressure in the chicken and hog feed markets.
  3. The production of ethanol is probably reducing the prices we pay for gasoline prices by 10%. It is my guess that ethanol is a more cost effective octane enhancer than those base on crude oil. I am not sure what petroleum based chemical ethanol competes with since I think benzene and MTBE have been removed from the market due to carcinogenic issues.
  4. No one was surprised that the price of corn and the other grains exploded. It seems that everyone there had been through previous booms and busts of the agriculture business. They had seen the symptoms of a boom before. The dramatic increase in corn prices affected most grains. The cost increases are related to the combined effects of ethanol, crude oil increases, inventories, and the weather. Everyone expects that there will be wide swings in prices until these price pressures sort themselves out.
  5. Everyone was curious how the ethanol market will fare without government subsidies.
  6. Everyone viewed corn as a transitional feedstock for ethanol production. There was a lot of speculation about new ethanol feedstocks and everyone thought that if the market lasted long enough it would sort out the winners from the losers. There was a lot of hope in celloustic ethanol using corn stalks, corn cobs, and other low value byproducts of farming. The primary ethanol feedstock source will probably vary by agricultural region. As an example sugar cane stalks would be a likely ethanol source in sugar growing regions.
  7. Everyone was curious how we could lower fuel costs in ethanol production. Most of the questions on whether ethanol results in a positive or negative energy balance to society hinged on the cost of fuel used to harvest and transport ethanol feedstocks.This problem remains even if corn is not used as the primary feedstock.
by

A Prayer to Ponder… Let Me See You As You Are

 

O Lord Jesus Christ,
I long to live in your presence,
to see your human form and to watch you walking on earth.
I do not want to see you through the darkened glass of tradition,
nor through the eyes of today’s values and prejudices.
I want to see you as you were,
as you are,
and as you always will be.
I want to see you as an offense to human pride,
as a man of humility,
walking amongst the lowliest of men,
and yet as the Savior and Redeemer of the human race.

– Soren Kierkegaard, 1813-55

Let Me See You As You Are
trevinwax
Sun, 15 Jun 2008 08:36:42 GMT

by

My Latest Toy, A Weather Station

Wireless Weather Station with Temperature/Humidity Display and Self-Setting Atomic Clock - Black Every couple of months at work we have a “give away”. Products that have been damaged in shipment or have been returned as non-functional are given away to the employees. Either the employees take them away or the garbage man will. We set up a lottery system to minimize personal conflicts when selecting items. It can be viewed as organized dumpster surfing. We had about three pallets of dings and scratches. One man’s garbage is another man’s treasure. A key item to remember is that there are no returns! If for any reason it does not work for you, you are responsible for disposing of it properly.

I picked up this little item. In the past I thought about getting a weather station but I always decided that my money had better uses elsewhere. I was the last employee to pick and it was still there. I guess the appeal of these devices has come and gone. The package had a nice note with it stating that after three days of trying to get it to work she was returning it. I was game to give it a try. I inserted the required five batteries, three for the station and two for the remote sensor, and both devices worked like a charm! I put the remote sensor down in the barn. Living on a farm we pay attention to the details of the weather forecasts.