HitchHiker's Travels

Long time no post!

2009-03-07T18:25:00.006-05:00

Well,

It has been quite some time since I've last posted, back in early October in fact. Much has happened over the last few months. Financially, we are worse off than back in October of 2008. The stock market has fallen another 2000 points, or some 55% lower than the DOW's high of 14150. The credit markets remain stymied and are still largely non-functional, the government has gone from the lender of last resort to the lender of first resort for most mortgages, credit cards, and consumer loans such as automotive loans - in fact through a combination of fiscal policy and monetary policy via either loans or guarantees - our federal government has put up some 9 trillion of monies - some 2 trillion of which has been spent on this crisis to date. Corporate earnings are under increasing pressure and are still falling, with no end in sight over the next six months according to prevailing statistics. There is not much to be upbeat about looking ahead over the next six months. Long term, I have no doubt that we will recover, but there are many obstacles in the near term that concern me that need to be dealt with now.

First off, we need serious regulatory reform. The regulatory systems currently in place were built to oversee and regulate relatively simple financial transactions. The complex financial instruments ala CDO's, CDO squareds, RMBS's, CMBS's, and the list of acronyms goes on, are so complex, each containing hundreds or thousands or even ten's of thousands of financial instruments themselves. These types of financial instruments are too complex for the current regulatory system to handle. Even the ratings companies and the systems used by the ratings companies are largely defunct and need reform. The entire system needs to be re-thought from the ground up. Statutes such as FASB 157, or mark to market accounting, are at this point contributing to a continued downward spiral of our nation's banks and until we stop the bleeding so to speak, it will continue to get worse.

Second, we need a coordinated global effort to stem the financial crisis that continues. We need the G20 nations all on the same team. Individual uncoordinated efforts to fix the problem will fail due to the law of unintended consequences, particularly in the G7 nations that drive the majority of global GDP. What one country does may have unintended consequences in other countries. The danger of the eastern European banks and nations defaulting on debt is real, which will in turn put the western European banking sector, who has largely financed the eastern European block, in somewhat dire financial circumstances. A default of the western European banking system would have global repercussions to say the least - and would require the equivalent of some 15 trillion dollars to prop up and avoid insolvency - a sum that is beyond the individual countries in the EU to provide - and the EU itself is unlikely to have the backing of the member countries to attempt a resolution.

Third, we need to avoid a systemic breakdown of global trade practices. I've said before and I'll say it again, the world is flat, we are all dependent upon one another in some form or fashion. If the G20 countries adopt protectionist trade practices, the global recession will quickly become a global depression.

Specific to what is ongoing here in the U.S., I have increasing concerns surrounding how our current administration is handling the financial crisis. I don't see many positive developments that are going to help our country return to economic growth. What I do see is our federal government spending trillions of dollars we do not have on supposed stimilus spending that largely will not help our economy in the short term. Put another way, the budget that Obama's administration has proposed and his ten year plan, contains more deficit spending than all other previous presidential administrations combined since the inception of our nation. At the same time we hear a lot of rhetoric about financial discipline, but it is only rhetoric in my view at least. YMMV. :-) What I do see is an overzealous administration that is bent on significantly expanding the role of government for the long run. This does not translate into a quick economic recovery for the private sector - given the basic premise that government exists at the pleasure of the private sector since government only exists by taxing the private sector to begin with. Increasing government taxes by definition taxes the private sector at a time when the private sector is already reeling from the financial crisis. Do we want unemployment and negative GDP growth to continue for a longer period of time? Then let's continue to grow the government by all means. But if we want to return to healthy economic growth sooner rather than later, then we need to fix what is broken in our financial markets, and we need to not significantly grow the government. Unfortunately, I don't see any well thought out resolutions to either of these problems. I see a lot of big government spending proposed in an effort to take over our healthcare system and to significantly increase the cost of energy for all Americans to the tune of 1000-1400 dollars per year per American family by implementing a cap and trade system.

So, at least right now, I wish I had more upbeat words for this post, but I just don't see much to get excited about that is going to turn around our economy right now. Longer term, moving into the latter half of the next decade, I see a LOT to get excited about, provided we let the private sector innovate and remain free to do so, there are technologies around the corner that will significantly change the way we live - in many cases so much so that we cannot imagine the fact that our lives will change more in the next 20-30 years than they have in the last 200-300 years.

From a secular market analysis perspective, assuming the last bull market ended in 2000, we can expect the next bull market to start somewher around 2017, perhaps a bit before that or a bit after. If your investment horizon is anything within the next 10-15 years, it is my opinion that the "buy and hold" philosophy is going to be painfully disappointing for most folks and for most "investment advisors" that stick to this investment philosophy. I have a good deal of my 401k monies in absolute return style investment funds and I have since the summer of 2008. I still have roughly 25% of my longer term investments in stock funds, select funds that are relatively well positioned for market volatility and do not have to adhere to a buy and hold type investment philosophy. I have been buying stocks since DOW 8500 and still continue to buy on a monthly basis. The prevailing question I get is, how low will stocks go? The answer depends upon how we deal with the problems I've outlined above. If we see adoption of protectionist trade practices and a corresponding breakdown in global trade, then we will see a lot more pain in the markets, I'd estimate DOW 4000 or possibly even lower. That is the worst case scenario in my view. There is a good chance we could also see similar DOW numbers if we fall into a liquidity trap here in the U.S. - which for those who don't know means that no matter how cheap the Federal Reserve makes money - nobody spends money - and we continue to see price deflation over time - which contributes to continued asset deflation. This is what happened to Japan over the last 15 years - pray we don't fall into this same trap, as it will be very painful if we do. If we can manage to avoid a trade breakdown and a liquidity trap - then I'd still say there's a good chance we could see further deterioration in the markets as a result of current downward pressures mostly on corporate earnings. The fact is that we had enjoyed several years of record corporate earnings even well after the recession of 2001, and we were due for a normal cyclical business recession right around now. Since the financial crisis has made what would have been a normal cyclical business recession much worse - in my view we can expect corporate earnings to come under more pressure than they otherwise would have. The fact that corporate credit is severely restricted, and that the commercial paper markets are still relatively frozen except for the paper being bought by the Federal Reserve's newly created lending windows, means that we'll see more earnings contraction than during a normal cyclical business recession. With that in mind, it would be my guess we'll see DOW 6000 before all is said and done - maybe a bit lower maybe a bit higher. Given we've already seen DOW 6500, we don't really have much further to go to see this market low.

Well, that's about all for now. Sorry that this post didn't have much good news in it from a financial perspective. That said, we should all cherish the time we have to spend with our families and friends. They are what matter the most in life no matter what happens short term with our economy.

Oh what a difference two weeks can make!

2008-10-09T20:52:00.002-04:00

Well, since my last post, we have seen the beginnings of what I have expounded to date. We have seen the DOW fall from roughly 11k to 8500 as of today. The DJIA is down a full 40% from it's highs exactly one year ago today of roughly 14150. A historical analysis of secular bear markets indicates that we usually see a drop from market highs of 30-50%, dependent upon various economic conditions. Given the fact that we're as close to a "perfect storm" of economic stressors as we can get without entering into a bonafide depression, I'd say we have farther to go before we see a market bottom. We're already at 40%, 50% would put us closer to DOW 7000. Only time will tell how low we will go. Secular bear markets are also characterized by lower than average PE (Price Earnings) ratios. A historical analysis of PE ratios since market inception indicates an average PE ratio of 12:1. More recent averages over a period of time post inception (the last 25-50 years) show an average PE ratio of 15:1. We're sitting close to 12:1 at this moment at DOW 8500, however, it is important to realize that we're talking a mean or an average here, and in secular bear markets, we usually see the lower side of the historical average, so it is likely we'll see DOW 7000 with PE ratios falling to 10:1 or perhaps even a bit lower.

One thing we've learned over the past two weeks is that the false assumptions made a year ago regarding the nature and extent of the problems we're experiencing are in fact far more widespread than originally expected. It was after all the very same Hank Paulson who uttered in testimony two summers ago now that the subprime mortgage problems would be contained and would not spread to other markets. Surprise! We're now suffering through the largest financial meltdown since the Great Depression itself. Some 59% of Americans, according to CNN polls, believe an economic depression may become a reality. While I am all but certain that we will suffer through a major recession, I remain somewhat optimistic given the failsafe government institutions and extraordinary measures currently being undertaken in an effort to minimize the effects of the global banking crises that we're bearing witness to. Yes folks, this is indeed a global crisis. While we're hearing about how over-leveraged the U.S. investment banks were at 30:1 on average, the European banks on average are leveraged some 50:1. Iceland has nationalized their three largest banks, and the chances of an economic depression seem likely. Overall, while it may be difficult for us to fathom, the European nations are in even worse shape financially than the U.S. banks are, and with the much higher leverage ratios, have much more pain and turmoil to look forward to. The developing nations and emerging economies, especially China and India, are heavily dependent export economies, meaning these export dependent nations primarily depend upon the U.S. and European nations to consume their exports. With the massive and inevitable financial de-leveraging process that the U.S. and European nations must undertake, which will require less lending due to tightening credit markets, export dependent economies will also be hard hit. Look for India and China to continue to experience downward economic pressures. In short, we are quite possibly looking at a global economic recession. As Thomas Friedman expounded in his book The World Is Flat, we are all connected, all of our economic systems are intimately intertwined together. A large failure in any one part of the global economic system cannot be contained, as we thought in the case of the subprime mortgage problems, and therefore by definition such a failure will have widespread effects on the global economic system.

Whatever solutions to the global economic problems we're currently experiencing will be measured in years, not days, weeks, or months. The average secular bear market lasts 17 years. The bull market ended in year 2000. We have seen below average market returns since that time, and the recent market declines take us all the way back to 2003. Chances are we will not see a return to a true bull market until the latter half of the next decade. This means we can expect single digit market returns for a number of years. For those with a 20+ year timeframe from an investment perspective, there's not much to worry about. For those with a five year timeframe, it's time to worry, even ten years out, I'd be concerned based upon historical secular bear market analysis.

Goodnight all! :-)

Wall Street forever changed?

2008-09-22T13:27:00.003-04:00

Yesterday evening the Federal Reserve instituted a change to the bank charters for the two remaining, surviving large investment banks. Goldmann Sachs and Morgan Stanley's banking charters are changing, literally overnight, from an invtestment banking charter to a commercial banking charter. This is yet another unprecendented change in how our financial systems are structured. As I commented just this morning on another web forum, it is hard to get my mind around the amount of change we're seeing moment by moment in the financial world right now. The entire financial landscape is literally changing form right before our very eyes. These changes will inevitably have lasting and profound effects on our collective futures. Whether these changes are for better or for worse, remain to be seen.

What does this change in banking charters for Morgan and Goldmann mean? It means that these two investment houses will be converted into bank holding companies overnight. It means that, once put into effect, just like any other commercial bank, these two entities will be able to form retail banking establishments that can take your deposit monies. This is a way to allow the struggling entities to re-capitalize over time. It also means that the era of the highly leveraged investment houses with limited oversight has come to end this week. Commercial banks have much more stringent capital requirements and are subject to much stricter and more invasive oversights than investment houses were ever subjected to. So, these two entities, which are currently leveraged well over 20:1, will need to de-leverage down to somewhere in the ballpark of 10:1. That is quite a large delta. Now, no doubt taking on additional customer deposits will help close to gap, but this is assuming there are a large number of depositors willing to take on the additional risks, even if those risks are FDIC insured, with their deposit monies. It'll be most interesting moving forward to see how these huge fundamental shifts in the banking sector will take shape over the next several months.

As this week starts out, as per my last blog post, there is much to debate surrounding the impending bailout legislation, and I've been a part of several forum conversations where opinions range from a full endorsement of a bailout to those that are deadset against any bailouts what-so-ever. For the most part, people fall somewhere in the middle. Many feel that we need to outline a lot of punitive measures as part of the initial bailout bill. I disagree, now let me explain why.

If we hold up this legislation arguing over specifics, and a financial meltdown triggers in the meantime, there will be no stopping it at some point. Timing is of the essence here. We have about a week, and if we don't see the government step in within a very short timeframe, we're in real trouble whether or not we "normal folks" can understand what's going on behind the scenes here. Very few people have a really good understanding of the critical importance of the credit markets for businesses to function day to day. The destruction of commercial credit, if "allowed" to occur, will bring on a 1930's style problem, and I don't think that is in anyone's best interest.

Yes, we need serious regulatory reform, and we need consequences doled out over the next several years to those responsible for these problems, but we don't need this verbage in the bailout bill, we need the bailout bill to be passed now, then we can dealve into the required regulatory reform and legal ramifications over the next few months. The bottom line is that the best and brightest on Wall Street are having a difficult time unravelling the complexities of the derivative securities with respect to how to move forward with any bailout. I personally don't want Congress even attempting to alter established law as they're a bunch of lawyers who don't have a good understanding of economics or finance.

Let's use an example here to drive home my point. Wall Street was just wheeled into the ER complaining of severe chest pain, akin to a heart attack in progress. That's not the time to argue over how the patient's diet over the past 20 years led them to the position they're currently in. It's also not the time for the doctor's to argue over methods of treatment, and order a bunch of tests and scans that take hours to get a result back. It's time to get the small number of key medical tests done immediately that give the doctor's enough info to administer life-saving drugs and/or surgeries in an effort to save the patient's life ASAP. Once the damage to the patient's heart has been minimized and they've made it through the initial heart attack, then the doctor's can argue over the best course of treatment and how to alter the patient's lifestyle permanently in order to give the patient the best chance to live a long, prosperous life moving forward.

Some may argue we're not in dire straits per the above example, and I would very much disagree based upon the statistics we're seeing in the commercial credit markets, housing markets, and financial markets. Introducing even more regulatory change into what is already clearly an uncertain market may have severe unintended consequences in the short term, and may in fact make any chances of a bailout succeeding much less likely. Paulson is very aware of this fact, hence his reservations. No doubt this is going to be a very interesting week on Capitol Hill. I for one will be watching quite intently day to day to see what happens.

We the taxpayers own all of the bad mortgage debt?

2008-09-21T17:29:00.004-04:00

Well, per the title of today's blog entry, it would certainly seem so. For those who haven't seen the legalese particulars of the draft legislation to authorize the Treasury to spend some 700 billion "at any one time" to buy up the bad mortgage debts all tied up in various overly complex "investment" securities, ala RBMS, CBMS, CDO's, CLO's, etc., here it is:

The following is the legislative proposal from Treasury Department for authority to buy mortgage-related assets:

Section 1. Short Title.

This Act may be cited as ____________________.

Sec. 2. Purchases of Mortgage-Related Assets.

(a) Authority to Purchase.–The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.

(b) Necessary Actions.–The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:

(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;

(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;

(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;

(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and

(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.

Sec. 3. Considerations.

In exercising the authorities granted in this Act, the Secretary shall take into consideration means for–

(1) providing stability or preventing disruption to the financial markets or banking system; and

(2) protecting the taxpayer.

Sec. 4. Reports to Congress.

Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.

Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.

(a) Exercise of Rights.–The Secretary may, at any time, exercise any rights received in connection with mortgage-related assets purchased under this Act.

(b) Management of Mortgage-Related Assets.–The Secretary shall have authority to manage mortgage-related assets purchased under this Act, including revenues and portfolio risks therefrom.

(c) Sale of Mortgage-Related Assets.–The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act.

(d) Application of Sunset to Mortgage-Related Assets.–The authority of the Secretary to hold any mortgage-related asset purchased under this Act before the termination date in section 9, or to purchase or fund the purchase of a mortgage-related asset under a commitment entered into before the termination date in section 9, is not subject to the provisions of section 9.

Sec. 6. Maximum Amount of Authorized Purchases.

The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time

Sec. 7. Funding.

For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Secretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.

Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Sec. 9. Termination of Authority.

The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall terminate two years from the date of enactment of this Act.

Sec. 10. Increase in Statutory Limit on the Public Debt.

Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.

Sec. 11. Credit Reform.

The costs of purchases of mortgage-related assets made under section 2(a) of this Act shall be determined as provided under the Federal Credit Reform Act of 1990, as applicable.

Sec. 12. Definitions.

For purposes of this section, the following definitions shall apply:

(1) Mortgage-Related Assets.–The term “mortgage-related assets” means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.

(2) Secretary.–The term “Secretary” means the Secretary of the Treasury.

(3) United States.–The term “United States” means the States, territories, and possessions of the United States and the District of Columbia.

I especially love Section 8, complete legal immunity for everything. Beyond the usual CYA tactics, you have to wonder why that needs to be explicitly outlined.

Also, the verbage surrounding the 700 billion "outstanding at any one time" I find interesting. This could end up being manipulated to put us into a lot more than 700 billion of actual debt, dependent upon how the distressed assets are inherited, repackaged, and eventually sold off for cents on the dollar. For instance, once a distressed asset is repackaged and sold, it may technically no longer be applicable against the 700 billion limitation, because the asset was sold off the government books. Fun fun!

So, we are certainly living in interesting times. I came upon an interesting tidbit of information yesterday that I wasn't previously aware of. Apparently, in 2003 Chris Cox, who runs the SEC or Securities Exchange Commission, changed the leverage regulations for the large investment houses. Previously, the i-banks were limited to 12:1 leverage ratios. The change made under the current administration's watch effectively allowed unlimited leverage ratios for the five largest i-banks. Lehman Brothers died with a 32:1 leverage ratio. Care to guess who the five largest i-banks are? Here's the list: Bear-Stearns, Lehman Brothers, Merrill Lynch, Goldmann Sachs, and Morgan Stanley. Boy, that list sounds awfully familiar doesn't it? These are the exact same five i-banks that are now on the ropes so to speak, three of which no longer even exist in their original forms, with other two not looking so good. In hindsight, de-regulating the large i-banks without introducing additional oversite was not a good move on the part of the Bush 43 administration in my view.

More later folks! :-)

Do the taxpayer's now own AIG?

2008-09-17T10:18:00.002-04:00

Well, as I suspected, AIG was deemed "too big to fail" in that a potential bankruptcy filing on the part of AIG would have brought into question the stability of the entire global financial system itself.

So, last night, Treasury Secretary Paulson, Ben Bernanke and select Congress members authorized the Federal Reserve to float a bridge loan to the tune of some 90 billion of our tax dollars to keep AIG afloat in the short term. What will happen in the long term is a bit murky at this point as details are still coming out on precisely the nature of the deal that was struck. In my view, this problem could have been avoided entirely, had the credit rating agencies done their jobs and downgraded AIG's credit ratings several months ago, instead of doing so on the same day that one of the largest investment banks in our history, Lehman Brothers, filed for chapter 11 bankruptcy protection. The simple truth is that we have known for some time that the mark to market values of the complex securities and derivative insurance contracts held by AIG weren't worth nearly what the company's management wants to believe they are worth. Had the credit agencies downgraded AIG's creditworthiness 6-9 months ago, it is very likely that we the taxpayers would not have had to bail out AIG in the first place. Unfortunately, the credit rating agencies waited until the entire U.S. financial system was in much more dire straits before taking action. Therefore any ability for the private sector to generate an additional 70-90 billion in financial backing for AIG was all but impossible given even the commercial banks themselves are hesitant to lend to one another right now, as the interbank LIBOR rate spreads clearly demonstrate, and most certainly will not lend to investment houses or insurance companies as a result. This would not have been the case 6-9 months ago when capital was still more readily available as compared to current circumstances.

As I said, the AIG bailout should be more of a short term problem. The bridge loan should be temporary in nature given AIG has over a trillion dollars in assets, most of which is tied up in AIG's very profitable insurance subsidiaries. The short term financing is necessary due to AIG's credit rating downgrades which, almost overnight, required tens of billions of dollars in additional collateral. Let's be clear here, AIG as a company isn't insolvent, they are simply short on cash, hence the bridge loan. This situation, while certainly much more complex from an AIG perspective, is much the same as a bridge loan used when a consumer purchases a new home before selling their old home, and when the old home sells, the bridge loan is paid back with interest. Over the next several months, AIG will need to liquidate some of their assets to repay the bridge loan and generate the additional collateral monies required due to the actions of the credit ratings agencies. Personally, I see this as an excellent time to buy into AIG stock if you have monies that you can afford to lose, given AIG will most likely not fail, and eventually the government will be out of the AIG business altogether, hopefully within the next year or so, and at a paltry 3.xx dollars per share, this stock has fallen over 95% from it's 52 week highs. I see a lot of upside here long term.

Keep a watch out on WaMu, quite possibly the next financial company on the perverbial chopping block. It will be interesting to see, if WaMu takes a turn for the worse, whether or not the guv'mint will step in. I've maintained to date that the decision point on guv'mint intervention has to do with CDS market exposure. To the best of my understanding, WaMu does not have much exposure to the CDS markets, meaning that the potential failure of one of the nation's largest S&L's will not result in a crisis of confidence on credit default swaps. The failure of WaMu has more to do with bad mortgage lending and mortgage investment practices that have brought on major mark to market write downs over the past year, and write downs will most likely continue over the next 12-15 months at least given WaMu does have exposure to Alt-A mortgage securities which are currently seeing 16% 60-day delinquency rates on mortgage payments, coupled with the fact that many of these same Alt-A mortgages are due to experience rate resets to prevailing market rates over the next 1-2 years. This means that 16% delinquency number is going to rise quite a bit since people already cannot afford their current "discounted" teaser rate mortgage payments. In many cases the monthly mortgage payments increase by a factor of 50-100% when the introductory discount rate period comes to an end. Could you afford that today? Yeah, neither could I. :-)

AIG to survive?

2008-09-16T16:11:00.002-04:00

So, the latest company on the perverbial chopping block is AIG, one of the largest insurers and reinsurers in the world. Rumors abound this afternoon that the Fed and the Treasury are busily working on behind the scenes type deals similar to the JP Morgan/Bear Stearns bailout. What is the difference between Lehman Brothers and AIG you may ask? Great question, and honestly one I'm not sure what the answer is. I'd suspect the difference is that one company was a global investment house with an emphasis on bond investments, the other is a global insurer with significant ties to the CDS markets. While Lehman Brothers will without a doubt have a negative impact on the CDS markets, the failure of one of the largest CDS market participants and one of the largest insurers in the world, would at the very least have far reaching negative financial consequences and, worst case, could lead to a financial meltdown similar to the 1930's. So, while I'm not a fan of enabling Wall Street's continued bad behaviors, I think AIG is one player that is indeed too big to fail. Therefore, don't be surprised if we see deal announced after normal trading hours either tonight or tomorrow night that includes either a direct investment on behalf of the Federal Reserve and/or the U.S. Treasury, or a deal that allows another player to prop up AIG with backing from the Fed, similar to what happened with Bear Stearns. Bear Stearns was another global investment bank that had significant CDS market exposure were it to fail. In fact, Bear Stearns held some 40% of JP Morgan's CDS contracts, so it is no surprise that the Fed stepped in given the failure of Bear Stearns would have led to serious capitalization and solvency concerns for JP Morgan itself. Since JP Morgan is one of the largest commercial banks in the world, the failure of such a bedrock banking institution would lead to crisis of confidence in the financial sector that would contribute to the systemic risk of a serious financial meltdown. I've always felt that the key decision factor on whether any bailout would retain Fed backing will be tied to CDS market exposure. If confidence in the CDS markets, nominally valued at some 60 trillion dollars of insurance investment contracts, is called into question, we will almost without question see a systemic problem that will lead to a systemic financial meltdown that will in turn lead to a major recession at the very least, and quite possibly a depression. This would occur regardless of the failsafes that are available to prevent relatively minor failures on occasion within the financial system itself, i.e. the failsafe institutions were never meant to serve as a backdrop to a major financial meltdown, these institutions, just like the banks themselves, are not properly capitalized to be able to prevent such large scale problems from occurring.

The Fed held steady on the fed funds and discount rates today. I believe this was also wise on the part of Ben Bernanke given we still have latent inflationary economic pressures that the Fed must remain concerned about. It will be most interesting to see if the Fed does move into unprecedented territory if no entity in the private sector steps up to bail out AIG, meaning if some type of lending window will be opened up to include insurers such as AIG. Already, the Fed expanded the TAF and created the TSLF that enabled non-commercial banking institutions to either obtain liquid funds from the TAF, or trade in essentially toxic securities as collateral and to receive Treasury bonds in return. This is a fancy way, in my view, of allowing the investment houses to trade in worthless securities and receive investment grade T-bonds in return to help shore up their balance sheets. In many cases, it appears on the surface at least that the Fed is, for example, taking billions of dollars of nominally valued derivative contracts onto it's books, and handing back like amounts of T-bonds in return. Trouble is, those derivative investments are likely worth no where near the amounts stated. So, who eats the loss? I don't have a real answer to that question, but my sense is it's us, the U.S. taxpayers, eventually, one way or another. This is just a masked form of a bailout that isn't as obvious to those that don't understand the complexities of the dealmaking that is ongoing behind the scenes.

Well, time to hang it up for now. More on the various exciting finance topics when I can find the time! :-)

Black Sunday?

2008-09-15T22:00:00.002-04:00

Well,

It has been entirely too long since my last post! :-)

Family-wise, we are all very busy. This summer was rather on the boring side for the Baldwin family what with still supporting two mortgages in this down housing market. Times are tight especially given the significant increases in food and energy prices of late. Still, we are managing to keep our collective heads above water financially, at least for the time being. I am mega-busy on the job as we are now knee-deep in our Lotus Notes to Microsoft Exchange email migration, which I am entirely responsible for. This project will hopefully be complete before the Thanksgiving holiday, at which point we'll be able to dial it down a notch or two and breath a little bit. Until then, I will have no life.

Finances, you know I love to talk about finance and economics.

Yesterday, Lehman Brothers, the 150 year old brokerage house, announced chapter 11 bankruptcy filing after several failed attempts to either obtain funding or find someone to buy them last week. The market responded by dropping 4.5% or over 500 points in a single day. Not good. Remember Black Monday from way back in 1987? Today may indeed end up being called Black Sunday in the history books folks. AIG, one of the largest insurers in the world, is quite likely next on the Wall Street chopping block, with likely followers such as WAMU (Washington Mutual) - the largest S&L in the United States mind you, along with several other large regional and national banks with significant risk exposure to derivative investments gone bad - such as CDO's, CLO's, RBMS's, CMBS's, and various other acronyms that most folks don't have much familiarity with (which is probably part of the problem in all honesty - too much unregulated complexity). For those who don't really understand what is going on here, all you have to understand is that we are beginning the process of enduring what will become the largest unraveling of the financial system since the Great Depression itself. The risks at this point, while sounding somewhat alarmist, are systemic in nature, meaning the entire system is at risk, because everything has become so intimately and complexly intertwined that the biggest problem is that we won't really know just how systemic the effects will be until it's too late.

What is behind all of this? Why all of the doom and gloom on my part? Well, perhaps I'll spend a few minutes and attempt to describe in relative lamen's terms what's happening here. While this all, on the surface, may seem to be related to the subprime mortgage debacle, that whole problem was more symptomatic than anything else. The underlying problem is that we've forgotten the basic fundamentals of finance. Proper capitalization is key. What caused the Great Depression back in the 1930's? A massive credit contraction due to irresponsible lending, too much leverage, and greed. The credit contraction brought about asset price deflation, meaning declines in asset prices, including real estate, and of course, the legendary stock market crash. What is causing today's financial meltdown? A credit contraction due to irresponsible lending, too much leverage, and greed. The credit contraction, which initially reared it's ugly head with the subprime mortgages, is continuing to rear it's ever larger head, with Alt-A mortgages being the next major "problem" we've yet to really see. Look for more bad news in the coming months given 16% of all Alt-A mortgages are currently beyond 60 days late at this point in time, and getting worse by the month, and most of these Alt-A mortgages haven't reset to prevailing rates yet! So, the credit contraction will continue, in fact in many ways it is just getting started. In short, it is going to get worse before it gets better. We are already seeing asset deflation in home prices and commercial real estate prices. The de-leveraging process is now under way. We've written down roughly 520 billion dollars so far, with estimates ranging from 1-2 trillion before we're out the woods. So, at best, we're half way through the asset price deflations from a securities perspective, at worse, we're only 25% of the way down this road less travelled.

Banks take your deposit monies and then leverage those monies, making loans against assets such as cars, houses, commercial real estate properties, and banks also invest your monies in other investments which earn a higher rate of return than they pay you. SEC regulations require banks to retain a 10:1 capital reserve ratio. Put another way, for every $10.00 that a bank has leveraged, it must have $1.00 in capital reserves. Capital reserves are extremely important to the solvency of any financial institution. What we're really seeing right now as part of this whole financial meltdown, is that most of the banks and brokerage houses aren't properly capitalized. Lehman Brothers leverage ratio was 32:1 today, the day it claimed bankruptcy. Too much leverage works well, as long as asset prices rise, but the second asset prices start declining, it is all but guaranteed that capital reserves won't be sufficient to cover the margin calls that assuredly will come a knockin, and sure enough, as the de-leveraging process moves forward, Lehman Brothers, just like Bear Stearns, will not be the last major financial company to fail. These failures will have global implications. Japanese banks held a great deal of Lehman Brothers debt for instance, and now those same Japanese banks, who were already in bad shape, have nothing to show for their Lehman Brothers investments. Not good.

For certain, no one really knows just exactly what's going to happen tomorrow, next week, next month or next year. From my cheap seats though, things look worse than they ever have, much worse than the last time I took the time to post anything to my blog. When you see names such as AIG, Citicorp, WAMU, GM/GMAC, Ford, and Wachovia all with similar financial balance sheet problems, all of which are potentially on the perverbial chopping block, it doesn't bode well for the U.S. economic situation. Of one thing I am certain, we will get through this, somehow or another, we'll all get through what appears to be an increasingly dismal financial meltdown.

I won't even start to discuss the Fannie/Freddie situation, I could write paragraphs on how the government bailout is in fact a sign of just how dire things really are, and how things will get worse as a result of said bailout. All I'll say is that anyone who thinks that Fannie and Freddie would ever do anything BUT fail, need only to look at the capitalization ratio of these two firms, who hold a paltry 160 billion in assets to cover some 5.4 trillion dollars in mortgages. Last I checked, a 10:1 capital reserves ratio would mean these two agencies should have held some 540 billion in reserves. 160 doesn't even come close, so you end up with the same problem described above. When asset prices deflate, in this case the American dream, our homes, neither Fannie nor Freddie held the required capital reserves to cover the losses. Once again, we've strayed away from solid fundamentals, and we're going to pay the piper sooner or later.

There's an old adage that time heals all wounds. The Fannie/Freddie bailout will make the S&L crisis look like child's play in comparison. What we really need is time. Same as with the S&L crisis, we need a way to allow our major financial institutions to remain solvent, even though many of them are technically insolvent right now, until such time as they can de-leverage, re-capitalize, and perform the required write-downs over a period of many years. That's exactly what we did when South America defaulted on all of it's debt back in the 1980's at which point just about every U.S. financial institution became insolvent overnight. Rather than let a systemic problem produce massive bank failures, we changed the regs and allowed banks to gradually absorb massive write-downs of the South American debt defaults over many years. This is basically the same thing we need this time around. Opponents will argue moral hazard. We'll have some of that too, as today's demonstration of allowing Lehman Brothers to fail clearly demonstrated.

There are many more complexities that we could talk about, the most important of which is probably the effects on the CDS markets. Credit Default Swaps. Look them up on Wikipedia when you find a few spare moments. You will be hearing more about the CDS market, which is valued literally in the ten's of trillions of dollars. Not bad considering CDS's didn't even exist until the mid 1990's! The CDS market allows companies to build a contract to cover risk assessments against all sorts of securities. It's all very complex. Think of it this way. Let's say you were to consider buying ten million of CDO contracts, but you were worried about the risk. You could go to the CDS markets and essentially buy insurance for your 10 million dollars of CDO contracts, for say, a hundred grand. For that hundred grand, someone (the buyer of the CDS itself) will guarantee that you will continue to get paid if the CDO contracts default for any reason. It's a fancy way of allowing investors to essentially buy insurance policies on the underlying investments, which allows them to mitigate the risk inherent in the contract, or specifically the potential for the investment to default. Put another way, it allows the investor to swap the risk in return for making insurance payments on the contract, hence the words credit default swap.

The failure of Lehman Brothers will result in quite a large number of defaults on some 620 billion in outstanding debts. Think about what that will mean for the CDS market that I just wrote about above. Most of those bad debts are secured with CDS contracts. Trillions of dollars of nominal CDS contract values are at stake, and the process of unravelling the complexities of who all holds the 620 billion in derivatives that just went worthless due to the Lehman Brothers bankruptcy filing is just getting under way as a result. Those who hold the hundreds of billions of dollars will want those who promised to keep making the payments to, well, keep making the payments. The trouble is, it's a big ponzi scheme, as the sellers and buyers of the CDS contracts are the very same players, meaning the banks and brokerage houses (a guy at JP Morgan was the creator of CDS's back in 1995 if memory serves) that are already enduring huge write-downs and insolvency issues. Does anyone really think that any of these banks, brokerage houses, or insurance companies are in a currently in a well capitalized position to honor the payments on trillions of dollars of nominal contract values? Yeah, I didn't think so either.

Hang on to your collective hats folks, we are living in VERY interesting times!

Politics and Economics...

2008-02-06T11:12:00.001-05:00

Well, it has certainly been an interesting few weeks on the political and economic fronts. Today I'll attempt to relay my viewpoints on both topics.

First the political front. Super Tuesday just passed us by with some interesting results.

Clearly on the Republican side of the house, McCain has pulled out into the front of the pack, but still has quite a ways to go delegate-wise to win the game. The surprises came with Huckabee grabbing more states than was anticitipated beyond Arkansas, his home state, and equally surprising was the fact that Romney pretty much fell way short of expectations. Being a conservative myself (and please note I did not say Republican), ideally if I could combine aspects of all three leading candidates into one person, that is exactly what I would do. I like McCain's national security experience, I like Romney's economic experience, and I like Huckabee's stance on healthcare and the fact that he is a conservative Christian when it comes to being a values voter. Unfortunately, we cannot combine candidates into one person, so what's the best answer at least in my view? I think McCain will inevitably win the Republican nomination, it's almost a forgone conclusion at this point. The problem that remains, is that many a values voter is considering sitting out this election cycle if McCain wins the nomination. I believe this is a serious error in judgement on the part of my fellow conservatives, essentially we'd be cutting off our noses to spite our faces. Not good. So, McCain needs to do something to appeal to the evangelical base if he's going to have any chance of winning the Presidency. I think the best answer is to endorse Huckabee as his VP. Huckabee is a very well spoken somewhat moderate economic conservative, which matches him up well with McCain, yet has the conservative values that will appeal to values voters, especially in the south where McCain is most vulnerable. So, I vote for a McCain/Huckabee ticket. There you go.

What do I like about McCain? Well, as previously stated, I like his foreign policy experience and his national security experience. I also happen to agree with his approach on immigration. Many of my fellow conservatives disagree with McCain's approach on immigration policy, especially surrounding amnesty, but I think they disagree more from an idealistic perspective that is not grounded in reality. Short of agreement upon deportation of criminals, I believe that mass deportation is not only impractical (probably impossible in reality), it would also most likely result in a depression. Yes, not a recession, a depression. Like it or not, most of the 12 million people here illegally, have come here to work hard and to have a shot at the American dream. The fact that they have come here illegally at this point is largely irrelevant. If we were to forcibly remove and/or prevent 12 million people (and this number is most likely considerably higher BTW) from working, we would see a huge contraction in our economic output. Removing 12 million plus consumers, 12 million workers, 12 million debtors, etc., cannot be done and not have a dramatic negative effect on our economic system, our banking systems, our housing sectors, consumer sectors, and the list goes on. McCain knows this, that is why he supported the bill in question, and that's why the Z visa was included in the bill in question. Amnesty isn't pretty, but you know what, we had a chance to resolve this issue back in 1988 and we chose not to, and shame on us for doing so, but now we're going to have to take our medicine and realize that no matter how much we want to sit around the table and talk trash about mass deportation and massive fines against companies that have hired and employed illegals, doing so would take us from recession to depression. Let's be clear, EVERYONE in Congress knows this is the case, because they have economic experts testifying to this end. I know, because I've watched the testimony with my own eyes on C-SPAN. What we in fact have is a largely uneducated America who doesn't realize that we will cut off our nose to spite our face if we choose any policy that endorses mass deportation. Honestly, how could anyone argue otherwise given the vast majority of illegal immigrants do in fact contribute measurably to our economic output?

That said, many of my fellow conservatives have expressed outrage regarding the fact that many people have come here illegally at this point is largely irrelevant. They scream about law breaking, about setting a bad precedent, about stolen socsec numbers, about how illegals should have to adapt not the citizenry. To these points I say that they are all very valid arguments and points to be made, but they do not change the reality we must face economically. Given the dramatic economic consequences that are based in reality and not emotion surrounding the topic of illegal immigration, yes, these facts are largely irrelevant to any real solution. I'm not saying they did not break the law, etc., fact is illegals have, I'm saying that these people are largely integrated into our economic system, and shame on us for letting this problem fester for the last 30 years, now we have to live with the real consequences of our inaction, which is to embrace some form of amnesty when all is said and done.

What don't I like about McCain? Well, he's not very conservative economically. He voted against the Bush tax cuts, even if it was for good reason. He's also a recent convert of conservative social values, probably in an effort to appeal to values voters, meaning it's not a true change of heart on his part, it's about politics at this point in time.

On the democratic front, it's been interesting race to watch for sure. A number of months ago Hillary was all but a shoe-in for the Democratic nomination. Obama has since somehow managed to capture the hearts and minds of the young and the young at heart, as well as the African-American vote across the board. His marketing based upon hope and change resonates with many voters, even some conservative voters, much like John Kennedy did many years ago. After Super Tuesday, it seems delegate counts between Obama and Clinton are nearly equal, which is really saying something for Obama considering how powerful the Clinton political machine is here in the U.S. It definitely shows that our electorate is growing tired of the same old same old. My only real concern is that Obama resides much further to the left from a policy perspective than Hillary does. In this respect, I have to wonder what those big CHANGE signs really mean. Vote for Obama, vote for change, because that's all you're going to have left in your pockets when he's done in office (tax and spend).

Tax and spend has long been an argument used by the conservative Reagan coalition. Unfortunately, this argument has fallen flat on it's face because of runaway spending by Bush and his fellow conservatives in Congress. Fiscal irresponsibility was probably the single largest reason conservatives lost their majority in Congress in 2006. Going into a very important Presidential election, what does Bush do? He proposes the largest budget in the history of our nation. 3.1 trillion dollars, and Bush was the first President to cross the 2 trillion dollar line a few years ago. I don't think this helps the conservative Presidential candidates myself, and I believe proposing a budget of this magnitude demonstrates a serious lack of foresight on the part of the Bush administration. Myself, there is nothing more important to me than fiscal conservatism. We simply cannot continue to spend more than we generate economically and survive as a sovereign nation and as a world power. The fact that we seem to think we can, indicates a major flaw in our national psyche at least in my humble opinion. Every empire before us ultimately failed because of complacency and an increasing dependence on the national treasury to survive. If we think that solely because we are America that we will not ultimately suffer the same fate as nations and empires before us (including the recent demise of the USSR), then we are supremely naive.

On to economics, since I've already started talking about finances. :-) We are hearing a lot of talk about recession of late. A number of popular economic metrics that somewhat reliably predict recession are indicating we are either headed for recession or in some cases are already in recession. Recent numbers from the various guv'mint agencies provide mixed results. BLS numbers (Bureau of Labor Statistics for those who don't know - http://www.bls.org/) that track unemployment still look okay, but job growth numbers took a turn for the worst this month. For those who don't know, if job growth registers anything under, oh about 120,000 jobs per month, then in fact we have contracting overall job growth economically. Obviously, the last several months now, we've not seen numbers above 120k. Not good. Unemployment numbers "appear" to be okay, but if you take a look at how the BLS calculates national unemployment, you'll see that it uses rolling averages year over year. This type of approach yields more stable result sets over the long term, favoring statistical accuracy during steady growth or decline periods, but yields very inaccurate result sets during change periods, when we move from growth to decline, or from decline to growth in the number of jobs. Most of us can remember the democrats in Congress giving President Bush a hard time about slow job growth during years 2002-2004 when we were coming out of the last minor recession, seeing only 80-90000 jobs per month being added. Revisions to the numbers (and these historical numbers are revised very very often as new and more accurate data is gathered from the past 2-3 years of economic and job activities) now show we were actually seeing real job growth in excess of 200,000 jobs per month for that very same time period. Why so inaccurate you may ask? Because this was a change period for job growth, when we were emerging from a recession, from job decline to job growth. With these facts in mind, it becomes easy to explain why both the unemployment rate and the job growth statistics do not yet show recession. My guess is we will probably see revisions to these statistics over the next year or so that actually show greater job losses and higher unemployment than we currently see.

Real GDP fell significantly more than expected in Q4 2007, showing only a meager 0.6% increase. Keep in mind GDP is also subject to statistical anomalies and therefore Q4 2007 GDP could actually turn negative with revisions over the next six months or so as more concrete data becomes available (then again, it could also rise). If you'd like to check out the data for yourself, you can do so at http://www.bea.gov/ (the Bureau of Economic Analysis). My guess is that GDP will turn negative in Q1 2008 and may be revised to indicate economic contraction for Q4 2007 as well, though we probably won't see this revision occur until sometime in Q2 2008 at the earliest.

If you've ever walked down main street and thought to yourself that despite all of the rosy economic growth indicators that your real life experience just doesn't line up with these statistics, a cool site to bookmark is http://www.shadowstats.com/ published by John Williams. This site is chock full of interesting econometrics that show how our previously used econometrics stack up against the currently used econometrics in easy to understand graphical formats with explanations that are written in lamen's terms that most average folks can actually comprehend. I oftentimes refer to this site's data when discussing economic reality versus the statistics we see.

So, what's my point? Well, I believe we are heading into a recession, in fact I believe we are already in recession, and that the econometrics, as always, are slow to show this reality. Eventually they will show us in recession, it's just a matter of time. Yesterday a services sector growth report was released that had rather dismal numbers. Since the majority of our economic output is services based, this is further evidence that we are heading for recessions. The fact is that the housing and financial sectors are already in recession, and the manufacturing sector has been hit hard from foreign competition, though the recent demise of the dollar has helped our manufacturing exports somewhat. If indeed the services sector, the single largest component overall of our economic output next to consumer spending, is slowing down, then recession is but a certainty. I don't mean to be all doom and gloom, but I do count myself a realist in many respects, especially when it comes to economics.

What does this mean for us? It means that we're likely to see a bear market. We've already seen a market correction, defined as a 10% drop in market value (the Dow saw it's peak on Oct, 9, 2007 at around 14300), we're now hovering around the 12200 mark at present. A bear market is defined as anything greater than a 20% drop in market values. A couple more days like yesterday and we are there folks. Given the crisis in confidence brought on by the housing crisis and credit crunch, consumer spending is likely to slow down considerably, for many reasons beyond the two I just mentioned but won't go into again here. Suffice it to say that the U.S. consumer is just about tapped out of credit. Since consumer spending accounts for fully 70% of our real GDP, any slowdown in this sector will result in recession. Given the statistics already show a miserable holiday retail spending season, it is likely we will continue to see consumer spending level off for a while.

What does this mean for your investments? I'm no expert, but my view is that you should take a defensive position in your portfolios. This means a majority mix of cash and bonds for any short term investments. Long term retirement investments beyond ten years, it's really up to you to decide. Some folks will ride this out and wait for the next bull market. With dollar cost averaging, assuming you continue buying on the downswing no matter what, even if you stay majority equities, long term you'll probably do just fine. For those who are a bit more conservative, you may want to consider reverting back to money markets and bonds in the short term. While most folks interpret the words "bear market" to mean decreased market values of 20% or greater, and this is indeed true, that's not the whole story. In reality, bear markets mean increased volatility with an overall downside direction. Much like we are seeing over the past few weeks, seeing triple digit swings will be commonplace if we are indeed in a secular bear market, as I believe we are. In the investment world, the number one rule really is, don't lose money. For the consumer investor, this rule isn't generally discussed, because Wall Street wants you to stay fully invested. Many MANY mutual funds, hedge funds, value funds, growth funds, pension funds, pretty much any managed investment vehicle, have already taken defensive positions to cover for downside risk. Some investment managers do so via shorting the market (this is how George Soros made his fortune), others do so by holding higher percentages of cash, money markets, bonds, t-bills, etc. What you do is up to you. Myself I'm currently about 30% invested in money markets/bonds with 70% equities, with the majority of my 70% equity in foreign equity funds (because I don't feel the U.S. market is the place to be right now). To each his own though, I hope and pray that you ensure you are properly invested in the markets specific to your life circumstances.

Well, that's enough writing for now...see you all a bit later...

More words...

2008-02-02T17:45:00.000-05:00

Ok, so, this house in the pictures, we are supposed to settle on 2/29/2008. We've had both the pool and the house inspected to date. Overall it is a very nice 22 year old colonial design People's built home. The roof was new in 2004. HVAC oil burner and heat pump was new in 2003. Windows, all high end vinyl units, all replaced in 2004. So the "majors" have been updated, which meets my requirements for serious consideration. The owner also had new entranceway double doors installed, fiberglass, with leaded glass inserts and side windows, and matching lighting. Very pretty, and there's a lighted brick laid sidewalk leading up to the front entrance which also adds a very nice touch. The french doors leading to the sunroom are also of similar quality to the entranceway doors. The home inspector commented today when we toured the house for the home inspection process that all the replacement materials used by the homeowner were of high quality, not cheap by any means, and workmanship was first rate. Overall, our home inspector said we should be able to move into this home and enjoy many years of maintenance free living, except for one major defect. When the owner replaced the exterior roof in 2004, he also replaced the soffits (the area under the roof overhangs) and gutters. The roof installed uses a ridge vent system, which means that the soffits need to have perforated sections, or vents, that must be baffled and unobstructed to provide continous ventilation to the ridge vent. Apparently, whomever did the roof work, either didn't baffle the soffit vents, or covered them completely over with blown insulation. One of the most important elements of the roof ventilation system is to ensure moisture does not stay trapped in the house. So, the one major defect is that mold has formed on some sections of the north side of the roof, on the underside of the plywood upon which the exterior roof is installed. So, the owner must repair this defect. Our real estate agent will submit an addendum accordingly, and we will of course have any work inspected after the fact to ensure the repair was done properly.

The inground pool, which was installed in 1991, is an Anthony gunnite pool with a plaster surface. The pool is very well maintained however all equipment is original as far as the pool inspector could tell. This means the plaster surface of the inground pool will most likely need to be updated in the relative near future, and the pump and filter, while top end units when originally installed, will be difficult to repair and parts will be hard to find given the age of the equipment. Still, the plaster, coping, tile work, and equipment looks as good as can be expected given the pool is coming up on 20 years of age. Of course, the children are excited about the prospect of having a pool to enjoy over the summer and to invite their friends over to enjoy along with them. Myself, now I have to become the resident pool maintenance expert! :-)

Well, gotta run just now, the kids need help with their homework and there is work to be done...

More pics and more words...

2008-02-02T17:39:00.001-05:00

Ok, time for a few more pics...then I'll post another blog entry with more of the written word...

Den

Master Bedroom

Master Bedroom (other direction)

Sunroom (overlooking pool)

Wow...long time no type!

2008-02-02T16:34:00.000-05:00

Well, it has been entirely too long since I've found the time to write! I guess in one way it was by design, given we had outstanding issues and complaints with our new home builder, and didn't want the builder to be aware what we were up to, hence the absence of posts on the blog. Though we originally put a deposit down to build a new home about 18 miles further south of where we currently reside, we have since decided that the development in question is just too far distance-wise from our places of work, coupled with what we feel was a less than honest representation of the community amenities promised by the builders in the golf course community in question. Our children's friends would also be even further away, so we set out to find a home closer to where we currently live.

Our search over the past several months was laborious yet fun. We quickly came to realize that new construction was not going to be an option, as the prices for new homes in our area are significantly more expensive than the prices down below the C&D canal where we were originally looking to build a new home, usually 70-100k more to build the same house, and it would have been difficult enough for us to have afforded a new home below the C&D canal already! For those who aren't familiar with New Castle County, Delaware, R.C. Peoples is one of the better known builders, especially when it comes to quality built homes. Given all three of our children currently attend Caravel Academy for school, we decided to look in developments close to school and, preferably, a Peoples built home. We toured a number of Peoples built homes over the past several months. We had a mix of requirements for any new home. Stacy had her list of requirements and I had my list. My list was comprised mostly of infrastructure concerns, since most of the best built Peoples homes in our area were built 20-25 years back now, I wanted updates to most of the important stuff for any house we would seriously consider purchasing, including roof, windows, HVAC (A/C and heat), water heater, kitchen appliances, kitchen counters, exterior doors, garage doors, etc. I also wanted four bedrooms (five would be awesome but this is hard to find even today), 2 1/2 bathrooms, living room, dining room, large den, two car oversized garage, exterior basement entrance, and a nice sized laundry area.

Over the Christmas holidays, we toured a few more homes, one of which had recently popped onto my radar via an internet search within a certain price range. I'd never seen the house in question before, so I figured it must have been new to the market, but came to understand that the owner had dropped the list price which fell into my search criteria, that the home was originally listed for quite a bit more but had been on the market for nearly six months without any movement. Well, Stacy really liked the house in question, so we put in a low ball offer and have gone back and forth for the past month with counter offers, and last Friday, we went to contract on our new home. Here are some pictures:

Front

Back Yard

Backyard and back of house

Front Entranceway

Kitchen

Dining Room

Living Room

What to say?

2007-10-05T14:31:00.000-04:00

Wow, it's been some time since I've posted here. All in all, there is not a ton to really say, which is probably why I've not posted any updates. Life has just plain been too hectic. My biggest current concern is that I just cannot find the time and the motivation to get all of the work done that we need to get done in order to sell our townhome, and I can't afford to pay someone to do it either without eating up equity. I've got a ton going on at work and it's just going to get worse as we get closer to going live with our Exchange migration summer of next year. I just don't see how I'm going to get everything accomplished both personally and professionally at the same time. I can't neglect the job, so nothing gets done at home as a result. What little time I do have at home, I use to recuperate from work, to keep my marriage somewhat healthy, and to not be a stranger to my own children. Seems I have no time left once these tasks are accomplished.

Over the past few weeks I've used my leisure time to read for the most part. Authors Douglas Preston and Lincoln Child, who are bestselling fiction writers, originally caught my interest way back when the co-wrote the book "Relic" together, which was made into a movie a few years ago now. They have since written a number of bestselling fiction novels, and I've been busy reading them over the past few weeks, mostly on my train rides back and forth to work, which last about an hour in each direction. For those not familiar, you can learn more about this pair of authors here if you so desire. I've always enjoyed writers that provide a good mix of mystery, action, research, drama, horror, and sci-fi all in one novel. These guys fit the bill at least in my view. Most of the books these two gentlemen co-wrote center around one Special Agent Aloysius X. L. Pendergast, a brilliant FBI agent with a penchent for solving complex serial and usually unsolvable murders, complete with his own skeletons in his family closet which intertwine into the storylines through the books. To date I've read Relic, Cabinet of Curiosities, Brimstone, Dance of Death, the Book of the Dead, and am currently reading Still Life with Crows. While some of the titles sound somewhat dismal on the surface, and do share a surface relationship with the theme of the book, what I like the most is the depth of character development that the writers are capable of throughout the storylines, and the good versus evil overtones.

Outside of my reading, we are both busy day to day with our full time professions, children's school activities including homework on a weeknightly basis, and the assundry household tasks associated with living in today's society.

In so far as the new home goes, we are still waiting on options pricing back from the builder for hardwood flooring for the second floor bedrooms and hallway. We need this piece of the puzzle before we can finalize the price of our new home and the options we wish to install into it.

On the economic front, the Fed dropped the federal funds rate by 50 basis points in September, so I remain steadfast in keeping up on my economic trend reading in an effort to best understand how to move forward with the timing of our new home build process. If this is the beginning of a new Fed easing cycle for interest rates due to the increasingly likely event of a housing led recession here in the U.S., then I'm better off waiting for as long as I can to close on the new home, as the federal funds rates is likely to drop another 50-100 basis points over the next twelve months, possibly to a 3-handle rate. This would translate into considerable interest savings on a home loan. Predicting the future is always, well, unpredictable, but we can learn from the past by analyzing it in hopes of semi-accurately predicting future economic circumstances, at least in so far as the direction of interest rates for the Federal Reserve is concerned. I for one believe we are likely to see 3-handle federal funds rates by summer of next year, given we are still a good ways away from seeing the end of the subprime mortgage problems and the fallout that we're starting to see in the banking and investment sector due to write-downs of the value of securities that hold subprime debts. Economic news is mixed at present, across various industries, so of course, the future is uncertain. Perhaps it's my pessimistic worldview, but I'm betting downside more than upside given everything I'm reading, which if I'm right, will translate into lower rates. Only time will tell.

In the meantime, I'm due to meet with some contractors to quote me on work that needs to be done in our existing townhome, in hopes that the rates are reasonable and that the timelines to get the work done are acceptable. Given the slowdowns in housing construction, I'm betting I can get fairly good deals on labor pricing, hopefully good enough that we can afford them and not overburden ourselves by trying to get the work done all by our lonesome over the next few months.

Best Regards,

HitchHiker

More accurate pictures of our house to be...

2007-09-03T23:49:00.001-04:00

Well, despite the unusual storms we weathered over the last several days, after me beloved wife and I managed to get back onto the same page, we decided to head out to another Ryan Homes development by the name of Pelham Manor, outside of Elkton, MD, near the Brantwood Golf Course for those familiar with the local area. Our trusted Ryan Homes sales rep pointed us toward this development as she knew there were several Bainbridge models that were built in Pelham Manor. So, off to snap some more pictures we drove! We were able to snap several pictures of Elevation D Bainbridge models, which is the same elevation we've chosen for our home. I'll post two pictures here, one of an elevation D Bainbridge without a bay window, one with. I'm going to create a new poll after this post to help us decide whether or not we want to add a bay window, which is a $2900.00 option.

Picture of Bainbridge Elevation D w/o bay window

Picture of Bainbridge Elevation D with bay window

Those who are paying attention will also notice the different elevated roof pitches over the side entry garages between these two pictures. One Bainbridge has the large bonus room finished over top of the garage, the other does not.

Off to bed...

Perhaps the most challenging week of my life...

2007-09-03T19:29:00.000-04:00

Well, these last several days have brought a lot of challenges, both personally and professionally. Personally, my wife and I have perhaps weathered the most challenging week in the history of our marriage of over 13 years. If you've ever experienced a relatively short period of time where it seems like everything that you value in the world comes crashing down around you in pieces, that pretty well describes my week. The good news is that we have weathered this storm and have come out, thanks be to God, stronger and better off for having chosen to stick together. The bad news is that earlier this week when the storms really hit, instead of working together as husband and wife, we turned against one another, and as anyone who's been married knows quite well, when both husband and wife have a string of bad days at the very same time, it generally makes for some very dismal life circumstances when the big waves from the storm arrive one after the other.

So, having weathered perhaps the largest storm we've ever come across to date, hurricanes and tornadoes included, and having survived the very worst, we now look back as we start to pick up the pieces and analyze what went wrong, why, and what we can do differently moving forward. There is much work to do personally for each of us, much to work on, much to change, and much to be thankful for at the same time.

As Christians, we look back and see targeted spiritual attacks aimed at our respective weaknesses that were designed to self destruct our family, and they almost succeeded. Thanks be to our great God that they did not succeed! We are in the initial phases of implementing changes in our lives to ensure that these same weaknesses are never again exploited, at least to the extent that they were up until the recent past.

Please keep us in your thoughts and prayers as we attempt to change our behavior, how we treat one another, moving forward. For those who had a more in depth involvement with me throughout the last several days your thoughts, prayers, and advice were invaluable. I simply do not have the words to express thanks. God bless each and every one of you.

Well, it's time for me to sign off for now...I have to help get the kids in bed and everything prepped for tomorrow, which is the first day of school for our three children. Much to do!

Some pictures as promised...

2007-08-28T22:40:00.000-04:00

Ok, this last weekend we toured a Bainbridge model in another Ryan Homes development called St Annes, I snapped quite a few pics and then drove down to Odessa National and snapped some pics of lot 22, the lot for our future new home. Not much to look at but we're obviously excited about it!

Picture of Lot 22 (our lot)

Obviously not much to look at right now. The area behind our lot, where the greenfields exist, will become Copper Park according to the development plans. Copper Park will contain a baseball diamond, a shared sports field area, and a few other attractions.

Looking across the street from lot 22

The homes in the distance are the first phase built by Ryan Homes, called the Tweedsmere section. Our section is called the Lynemore section.

Photo of the golf course looking out across the street

You can see the golf course in this picture. The Odessa National golf course is scheduled to be ready for play by Summer of 2008.

Looking down the street to the right from the front of our lot

The home you see down the street is the old farm home. I'd imagine it'll be torn down sooner or later.

Looking down the street to the left from the front of our lot

Not much to say with this picture. You can see that much of the Lynemore section is already under construction, and many homes are already finished with people living in them.

A Bainbridge ready for settlement

The above picture is the home we walked through in the St Annes development. Our house will look a bit different, as this home uses "Evelation A". Elevations, for those who aren't familiar, are about how the front of the home looks. Our future home will have siding all across the front, but we've chosen Elevation D, which adds a two foot bump out to the front right of the home (the entire area to the right of the front door in the above picture), and a one foot bump out for the front door area. Elevation D also includes a double gabled roof, which adds a bit of elegance to the roofline. If I can find a home with our chosen elevation D, I'll post up a picture to give a real example.

United we stand, divided we fall...

2007-08-24T16:38:00.000-04:00

Well, there's an article today in the Wilmington News Journal regarding our new community, Odessa National. The article is critical of the land developer, Joseph Capano, for various reasons, you can read it here if you like.

Yours truly, out of concern for my own future residence, decided to take action and start to form a cohesive group of homeowners via the internet. So, I've created a Google groups community and plan on printing out a few hundred flyers and inserting them into mailboxes with info on our new internet community. My goal is to get existing homeowners talking amongst one another and to get a grassroots movement going to ensure that Odessa National gets the attention it deserves from the builders and the land developers. Here's a link to our community:

http://groups.google.com/group/odessanational

Fun stuff for sure.

Well, that's enough for now, I hope to find some time this weekend to snap some digital pictures of our lot in Odessa National and we're hopefully going to tour a model of our home in another Ryan Homes community, St Annes, in Middletown, Delaware, Sunday evening. I'll snap a bunch of digital pictures of the model home and post up the best of them for all to see here.

Hope everyone has a great weekend! :-)

A picture of the planned golf course community...

2007-08-20T15:07:00.000-04:00

A quick post for those interested, here's a couple of links to the layout of Odessa National. Later I'll post an edited version with my lot circled in red.

http://www.bolisproperties.com/communities/de.htm

http://www.navenewell.com/images/ODESSA.jpg

Granted, you have to strain to see the images well, if you're running IE7 you can magnify the image in your browser to see more detail. If you clicked on the first link, you can find my lot by looking at the very top center of the picture, where the road divides the map vertically, there is a bit of white space, to the left of the white space, you'll notice some yellow colored areas that resemble a baseball diamond with what looks like a rectangular sports field that slightly overlap one another. This is what is called Copper Park, one of the sports recreation areas that is part of the planned community's activities areas. Directly to the left of the the baseball diamond/sports fields, are some lots displayed vertically that back to Copper Park. The topmost lot is right on a cul-de-sac, we are the third lot from the top in that vertical column of lots.

Nave-Newell was one of the master planners for the land development of Odessa National, here's an excerpt from their website on our planned community:

Odessa National Golf Community, New Castle County, DE

Nave Newell completed a site master plan for this exclusive community, which is composed of 750 single-family estate homes, carriage homes and town homes interspersed around an 18 hole, professional golf course. A complex and sophisticated project, the Odessa National Golf Course Community features a clubhouse and driving range, walking trails, active recreation parks and vast amounts of open space.

The site encompasses over 600 acres of farmland and woodland. Environmentally sensitive areas were maintained in the Site Master Plan. The proposed development was designed to be in harmony with the natural beauty of the property.

The project required several pump stations, the delineation of floodplain areas and the design of a regional storm water management system in conjunction with golf course irrigation. Nave Newell completed floodplain studies for Hangman’s Run and Beaver Branch. In addition, the firm was responsible for preparing a Letter of Map Revision, which previously had not been completed for this property.

Bolis Properties, another one of the land development companies that was involved in the planning aspects of Odessa National, has this to say:

Odessa National Golf Club and Residential CommunityNew Castle County, DEThe Odessa National Golf Club community is a 761 home master planned, mixed-use golf course community with club house and driving range located in southern New Castle County Delaware. The project is situated on over 620 acres of land with over fifty percent of the land being deed restricted for open space.

The open space plan also consists of miles of walking trails and numerous parks.

Odessa National is comprised of 6 different housing types including town homes, carriage homes, active adult housing and several different varieties of estate homes. This project is one of the largest ever developed in the state of Delaware.

132 Lynemore Drive - our new address as of Spring/Summer 2008!

2007-08-18T18:43:00.000-04:00

Well, as Captain Picard says, make it so, and so it is done.

Today, August 18th, 2007, we took the plunge and decided to go to contract on a new home in Townsend, Delaware. The community, as I previously mentioned, is a golf course community by the name of Odessa National. Ryan Homes, our builder, anticipates a settlement sometime in late Spring or early Summer of 2008, we won't know any more details until we get into 2008. We won't break ground until winter is over I would imagine, which means we won't start our pre-construction meetings with the project manager/general contractor for Ryan until that point in time. We have 30 days from today to amend our contract if we so desire, which translates into 30 days to make changes to the options we've chosen to install into our new home.

Stacy and I are both excited, yet at the same time I am nervous taking on more responsibility. Stacy's comment to me on the way home today after going to contract was that she is proud of me, that I took a risk in agreeing to go to contract. I suppose I am a bit risk averse when it comes to monies, a bit on the conservative side so to speak. So, now, on to more important and urgent matters, prepping our current townhome for sale! We have a lot of work to get done in a short period of time. Our desire is to have our townhome on the market by the end of September. If we can manage a sale by late fall or early winter, by some miracle, we'll either rent an apartment until settlement, or we may consider living with our parents/in-laws if they will have us. While we are very well aware of the stresses of living with parents, as we did so for about a year's time many moons ago when we built the townhome we've lived in for the past 11 years, doing so will allow us to save a good deal of money for several months on end. At least in my view, the more we can save, the more flexibility we will have both during settlement on our new home, and beyond.

We'll be contacting a real estate agent that was recommended to us the first of next week. We plan on working with this mother/daugther real estate team to determine how best to prep our townhome for a quick sale. Our understanding is that this mother/daughter team has an excellent track record, and is currently only charging 3% commission rates for their services. Sounds a lot better than the 5-7% most other folks are charging these days.

If anyone is interested in learning more about the BainBridge model that we're having built, here's a link to the generic floor plans for our new home:

http://www.ryanhomes.com/pdfpreview.aspx?ID=32ce6b03-d9dd-4b29-a1e1-c94a123445ba

I'd be happy to talk about what options we've chosen if anyone expresses any interest in having me do so.

Our new address as of Summer 2008 will be :

132 Lynemore Blvd
Townsend, DE 19734

One unexpected benefit of the model we've chosen is that for the past couple of weeks, we've wanted the choice of a lot in the next phase that was not yet available in the community because the land development isn't far enough along to begin selling the lots in the next phase. Fortunately for us, our home requires 62 feet in width, which disqualified every single lot that is currently available in phases one and two. So, by default, we were able to move into the as yet unavailable lot number 22, and for half off the expected lot premium. Bonus!

Please do be praying for us as we start down this path, for wisdom, discernment, energy, focus (especially when it comes to getting all of the prepwork done for our townhome), patience within our family toward one another, and patience with this whole process from start to finish.

Lastly, we're getting our family vacation pictures developed soon, and we'll be sure to snap some digital photos of our little lot 22 plot of land, as well as some pics of the surrounding areas and the golf course, which is supposed to be ready for use by Spring 2008. I'll post up some of these pics for all to see...

Finance and Investments...what's behind the market volatility these days?

2007-08-17T11:14:00.000-04:00

For those of you who don't already know, my educational background from college was in finance. While I work in IT, I'm still a hobbiest when it comes to finance and investments, and I still actively trade stocks and commodities. The piece I've written here was initially a web forum response I wrote, but I decided I'd share it here if for no other reason than to meet my goal of posting frequently and giving people more of a window into what I find interesting in life and what I spend my time doing.

The Fed cut the discount rate 50 basis points this morning (6.25 > 5.75). There's a possibility we may see a 25 basis point move in the federal funds rate in October if inflation doesn't move any further north of where it is now. Core CPI still moved .2% last month, which was higher than the forecasted .1%. We're still seeing inflation over 2% annualized so I highly doubt Bernanke will cut the federal funds rate as long as this is the case. Cutting the discount rate will help with liquidity in the short term with the credit crunch, cutting the federal funds rate won't really help with short term liquidity issues if inflation stays above 2%. Yes decreasing the fed funds rate will increase access to the money supply however if inflation rises then the two effectively cancel each other out.

The issue right now, IMHO, isn't about making money cheaper or more plentiful by and large (what the Fed can do in other words). The issue at a macro level is that the unfolding mortgage loan crisis has introduced loss of confidence across the board which has in turn produced a run on the credit markets (similar to the run on banks that have occurred in the past).

My wife and I were talking about this whole issue last night, because we're considering purchasing and building a new home soon, so we're trying to ascertain how best to move forward. Essentially, as I told her, even though the secondary mortgage markets, the RMBS markets (Resident Mortgage Backed Securities), and the CLO/CDO/derivatives markets have become amazingly complex over the last twenty years, so much so in fact that it has become extremely difficult to ascertain what the true value of these overly complex securities really are, in the final analysis, if we understand how banks and mortgage companies fund loans, via a combination of deposits, asset holdings, and lines of credit, etc., then at a high level, if any one of these pieces of the puzzle experiences a corporate or consumer confidence crisis for whatever reason, in this case uncertainty on the value of mortgage securities, then the corporations and consumers will start to pull back, or stop purchasing the securities in question, or attempt to recall their monies, or sell the securities, and those financial institutions providing access to credit, will tighten credit standards and/or suspend availability of credit altogether. The fact is that we have a major confidence crisis on our hands here on multiple levels, and we also most likely have a rather large real estate asset bubble that has peaked and is starting it's downturn.

The chart posted at the top of the page demonstrates what I'm writing about here today. Now, this particular chart is also predicting a pretty severe asset bubble collapse, which I don't necessarily agree with, but this chart also demonstrates something very important that none of us should overlook. We are in a real estate asset bubble. We've just seen the peak, the only question is, how far down will the adjustment be. Anyone who believes that the subprime "crisis" is over, is most likely sorely mistaken. The majority of ARM loans sold over the last several years don't reset until next year. The total amount of outstanding subprime and Alt-A ARM's that will reset in just the first few months of 2008 alone will add up to a larger amount than the entire year of ARM loans for 2007. In other words, we're just in the beginning of what I view as a mortgage loan crisis. We have the largest mortgage loan company in the U.S. on the brink of bankruptcy. I'll say that again, we have the largest mortgage loan company in the U.S. on the brink of bankruptcy. And Countrywide isn't overly exposed to subprime loans from a portfolio perspective, most of the companies that were overexposed, have already gone bankrupt starting late last year into the first quarter of this year.

When you start to realize that almost without exception the economic growth experienced since the 2001 recession was due to the housing and construction industries, that a significant portion of the job growth we saw was tied to these industries, and a significant portion of consumer's ability to spend was tied to MEW's (Mortgage Equity Withdrawals), and then you come to realize that all of these pieces of the puzzle are in a genuine slump, then it becomes much easier to see a recession on the horizon. Why? We'll start to see job growth numbers decrease (already did last month), unemployment numbers increase (already did last month), consumer spending decrease (starting to now), and so forth.

The real kicker this time around is, economically we've got a situation we've never had to deal with before (we always do in one way or another - that's why forecasting is never entirely accurate). In times past when asset bubbles burst, we had aggregate national savings, we had conversative banks making conversative loans that required 20% down on homes. In other words, consumers and financial institutions could absorb the short term burst of the asset bubble, because sufficient equity and savings existed to absorb price deflation. This time around, there's no savings and comparatively little equity. It's a brave new world in these respects. Nothing like the unknown to make things a little exciting!

Regarding my poll....

2007-08-16T11:20:00.000-04:00

You may have noticed I've inserted a poll at the top of my blog design, asking the question:

Should we move further south to Odessa if we can purchase the home we really want?

Let me provide some additional context so that whomever wishes to vote, can do so with a better understanding of what we are considering.

Currently, we live in Bear, Delaware. We've lived here since 1996 when we bought our starter home, a luxury townhome built by Blenheim Homes. It is a nice home, an end unit townhome complete with a side entrance, three bedrooms, two and one half baths, and a nearly finished basement, mostly done by yours truly with the help of family and friends over the last several years. Our current home has served and continues to serve our needs well.

I work in center city Philly and commute via the SEPTA R2 regional rail from the Newark, Delaware station into the city just about every day. On rare occasions I end up either changing rail stations to Claymont, which means I drive all the way up 495 north and take the last exit in Delaware to get to the Claymont regional rail station, or driving all the way into Philly for various reasons that are always work related. Stacy works as an English teacher about a half hour's commute from our current townhome, not too far away from where Route 7 and Kirkwood Highway intersect.

So, why are we considering moving to Odessa?

Here's the high level bullet points:

1. More space in the home - more bedrooms for the children, more leisure space for fun, bigger yard with a decent play area for the children.
2. More activities/options in the development itself. Walking paths, golfing, tennis, basketball courts, sports fields, club house, fitness center, etc.
3. Much nicer home appointments, the flooring we want, the kitchen we want, the basement and storage space we want, etc.
4. More space for the kids to ride bikes, more homes with more children to befriend.

Well, Stacy and I have been looking at existing homes in our area both online and via actual tours with a real estate agent for a few months now. Most of the existing homes we've looked at would require a fair amount of work on our part, including replacing aging major systems, as well as interior design updates, flooring replacements, and therefore a fair amount of our time and money as well, if we were to choose to purchase an existing home. Only one home that we looked at out of many, was actually in what we would consider "move in" condition with most major systems replaced (roof, HVAC, appliances, etc.). Most of the homes we've looked at are in the vicinity of where our children attend private school, to make Stacy's morning commutes somewhat manageable.

After looking at quite a few homes, we started to back off of the aggressive existing home searches and entered into a more passive mode of receiving the online notifications whenever a new home within a certain price range came on the market, and Stacy started looking at a few existing homes up closer to where she teaches as well.

Enter Mike, a former co-worker and friend of mine, who I had heard through the grapevine was moving through another friend of mine, Ted. After chatting with Mike, who's getting ready to break ground in the same development we're just starting to look at, he peaked my interest. So, Stacy and I drove down one weekend to have a look at the Odessa National golf course community. For anyone who's interested, here's a weblink to the builder's website for this community:

http://www.ryanhomes.com/community.aspx?CID=9457420020424

We are looking at the BainBridge model, mostly because it's the only model home that allows for a fifth bedroom (or what Ryan calls a bonus room) to be added over top of the garage that is a very large bedroom. Having this extra room gives us options for having a guest bedroom upstairs, an office, etc. , yet still gives us the flexibility of giving each of our three children their own bedroom. Our two younger children are both boys, and currently share a bedroom, which is starting to make for some overly-interesting boyhood conflicts that would be easily avoided if they both had their "own" space to occupy when bedtime comes around.

Because Odessa National is a genuine golf course community, we'd have access to the club house as part of living in the community, which costs a mandatory 1200 per year starting out. This buys us some free golf, and use of all club house facilities, including the swimming pool area, tennis and basketball courts, fitness gym, restaurant and bar.

I know it may seem like I'm going on and on here, but all of these things are important, because one of the biggest changes for us is that we'd be consciously deciding to become "house poor" by making this or any other move to a larger single family home given current real estate prices. The major advantage in considering Odessa National is that we've got good facilities to use to keep ourselves entertained on a regular basis, which most other communities and existing homes don't offer, all for about the same price we'd spend buying an older existing home in the Bear, Delaware area where we currently reside. Having the option of a guest bedroom gives us the flexibility to have visitors, something we don't have the ability to do currently. Most of the existing homes only have four bedrooms, so staying up in this area and purchasing an existing home, doesn't give us much more flexibility beyond having separate bedrooms for our children.

The biggest disadvantages are, that Odessa National is close to Salem, New Jersey, home to the Salem Nuclear plant, and the fact that we're adding time and distance to our morning and evening commutes, since this community is some 18 miles south of where we currently reside. This fact will add approximately 36 miles to each of our vehicles five days a week. That makes for an extra 9000 miles per year on my vehicle, and an extra 7200 miles a year for Stacy's vehicle. Figuring an average 20MPG aggregrate across both cars, with gas at 3.25 a gallon aggregate, that's an extra 2835 dollars a year in estimated fuel costs. Yes, we will consider moving to more fuel efficient vehicles, particularly me as my lease on my car is up in June 2008. which is more or less when we'd be moving into this development coincidentally.

Well, I think I've provided enough context for now. If you have comments or questions, please post them in the comments area of this post, and then vote accordingly if you so desire.

All the best,

HitchHiker

First post...

2007-08-15T16:31:00.001-04:00

Well, a few words to start this blog. I've created this blog largely in response to my dear friends Brent and Kevin. Blogging seems to have caught on as Brent's wife, if I'm correct, did so avidly before she met Brent and continues to do so avidly, hence Brent is now blogging from time to time along with his beloved wife here:

http://www.lefttowrite.net/

Kevin in turn started his blog, at:

http://brotherwhereartthou.blogspot.com/

Recognizing that blogs are a great way to keep my friends and relatives up to date on whatever is ongoing in my own life, I'm going to do my best to do just that on a semi-regular basis. I'm not sure if there is a way to "subscribe" to someone's blog, perhaps someone that is more familiar with blogging can help me out here? If so, then those who wish to keep in touch with me, will have the opportunity to do just that, and will know when I've created a new post. There is much to write about however at this moment I'm on the job and therefore this initial post will be brief. I intend to post again in more detail in the not too distant future.

For those of you who are wondering where the name of my blog and comes from. For a couple of decades now, I've routinely used the name HitchHiker as my handle and alias on many a web forum. It probably harks back to HitchHiker's Guide to the Galaxy originally, however it also eerily applies to several facets of my personality, at least from my own viewpoint. WikiPedia defines hitch-hiking as follows:

Hitchhiking (also known as lifting, thumbing, hitching, or thumbing up a ride) is a means of transportation that is gained by asking people (usually strangers) for a ride in their automobile to travel a distance that may either be a short or long distance. The latter may require many rides from different people.

I tend to think of HitchHiking as "temporary in nature", an inconsistent method of travel, and somewhat risky at that, yet also fascinating at the same time. This defines my personality somewhat accurately. I am far from being a consistent person. I start many things in life and rarely "completely" finish them. This applies even to relationships and friendships in my life. Heck, it may even apply to this blog eventually, though I certainly aim to apply consistency here. I value change, at least in certain areas of my life. I bore easily of things around me, which is probably why working in technology works so well for me. By the time I'm bored of the technology in question, it's time to change it anyways (Moore's law says technology doubles every 18 months). Works well for me I suppose.

Well, it's time to log off and catch the train home from work, until next time, I wish you all the best...if you would be so kind as to post comments, particularly any questions you may have, it will definitely help me when it comes to generating future blog posts! :-)