Sunday, November 30, 2014

Why Travel Matters.

Back in November of 2012, I ran across this article in the Economist, arguing that the United States was on pace to become the world's largest producer of oil by 2020, and would be able to produce enough energy to be self sufficient by 2035. I recall thinking how dramatic a change that would be -- and I saved the PDF, meaning to blog about it.

"Alberta Energy Firms Face Harsh New Reality"
Jeffrey Jones, Jeff Lewis, Carrie Tait
The Globe and Mail, November 28, 2014.
I wasn't quite sure what to say, though. But spending a little bit of time in Calgary really focused the issue for me. The Alberta business section of the Globe and Mail is on the right (the oil price was also front page news).  I've linked to the main article here.

The recent oil price slide will probably completely eliminate the Canadian federal budget surplus. That creates serious problems for a government that has fixed expenses (salaries, pensions, debt service) but falling revenues. Most of the world at this point has, or soon looks to have, the same problem as Canada.

A nice way to understand this situation is to read a brief blog post of Paul Krugman's from October 15, entitled "1937." He noted that markets are signaling that "once again the big risk is deflation or at least very sub-par inflation."  He measured deflation in that post by looking at the market for Treasurys, specifically the 10-year, showing the yield had fallen below 2%, potentially a sign of recession, deflation, or both.

When I tucked the Economist article away for future reference in 2012, I never would have thought that a falling nominal oil price could be a bad thing.  Today, though, I'm not so sure.

And I'm not the only one.

Wednesday, November 19, 2014

What Do Bubbles Look Like?

Sentinel Media Services
"Midcentury Modern in Sonoma"
 The San Francisco Chronicle, Nov 19, 2014
screenshot taken Nov. 19, 2014
The San Francisco Chronicle gets my attention today.  On a fairly regular basis, the paper features a particular piece of real estate for sale somewhere around the San Francisco Bay Area.

Today, they're publishing about a property on Austin Avenue, in the Prestwood neighborhood of Sonoma.  The asking price is $2,295,000. The house is a little under 1,900 square feet.

You can see the location here. One nice thing about Zillow is that it will show you the recent sale history of the property.  I took a screenshot of that, and that's on the right, too.  

The Zillow history shows that William Grecian tried to sell this property back in November of 2010 for $445,000; he couldn't find any takers.  He dropped the price to $420,000 in April of 2011, but still didn't find a buyer.  He dropped the price another $12,500 -- and that's when Laura and Richard Tackett made their offer, for $407,500 on July 15, 2011.  

Zillow.com
"826 Austin Ave, Sonoma"
 screenshot taken Nov. 19, 2014
available at http://tinyurl.com/krxbtzh
Laura and Richard held the property for 872 days.  On December 3, 2013, they listed it for sale at $648,000, a 59% price increase.  Laura and Richard figured the change in the real estate market meant that they'd just made an investment with approximately a 20% annual rate of return.  Of course, Richard and Laura were wrong; the property didn't sell for $648,000. 

Instead, it sold 17 days after listing for $730,000. 

More like a 26% annual return.  

The property was purchased by an LLC, which is more or less the general practice in California with real estate projects that are expected to appreciate significantly.  The registered agent for the LLC is Patrick Doyle of Petaluma, who's a general contractor and is the manager of the LLC. The Deed of Trust on the property (which I checked) reveals the equitable owners. The Deed of Trust is a public record and if anyone's particularly excited to find out who put up the money for this deal, feel free to head to the County of Sonoma's Recorder's office -- they're open 8-5 Monday through Friday.  

The LLC listed the property for sale on November 5, 2014.  The LLC held the property for 320 days.  I can't calculate the annual rate of return, because the calculator I use presumes that the values change monthly; here, the ∆ in the price is so substantial that the number of days included can change the implied rate of return.  But it looks like about a 215% presumed annual rate of return.

Comments, "Midcentury Modern in Sonoma"
Sentinel Media Services
The San Francisco Chronicle
screenshot taken Nov. 19, 2014
There are a great many things I could say about this situation. I'm going to hold those observations, and I think I'll revisit this blog post in a couple of years (months?), perhaps updating it with the transaction history of the address.  

At this point, though, I do want to draw attention to the comments about the house on the Chronicle's web site.  

One poster thought the property looked like a good "flip."  

Another wrote that "I can't believe anyone would pay over 2 million for this toy house."

Interesting.

Tuesday, November 11, 2014

Kintsugi and Courts.

"Kintsugi," Wikipedia. 
“The world breaks everyone and afterward many are strong at the broken places." Ernest HemingwayA Farewell to Arms

A "thank-you" to Pat Brown first, for linking to an image of a piece of Japanese ceramic ware. The picture illustrates Kintsugi, the Japanese technique for repairing broken pottery, using a lacquer or resin sprinkled with powdered gold.

The ├Žsthetic value of Kintsugi comes from the marks of wear, an inevitability for the handiwork of humans in a land of earthquakes (like Japan or California). Kintsugi highlights the cracks and repairs as simply an event in life, rather than allowing service to end at the time of the damage. Kintsugi does not attempt to hide the injury, but instead "the repair is illuminated," illustrating the vicissitudes of existence.

"Napa County Courthouse Plaza," Wikipedia.
image available at http://tinyurl.com/lg26yxc
Given the beauty of the bowl pictured, it made me think of the recent damage to the Napa County courthouse in the 2014 South Napa Earthquake.  I have an emotional attachment to the structure, having been sworn in as an attorney there before my first trial. How fitting would it be, I thought, to embrace Kintsugi in the context of the High Victorian Italianate architecture of the historic 1878 structure?

Such a reminder seems somehow particularly appropriate for a building dedicated to law. To quote Holmes, law is a series of painful steps and world-shaking contests "by which mankind has worked and fought from savage isolation to organic social life." Law does not flow from some mysterious omnipresence in the sky, but is instead the consequence of the work of minds and hands. It is subject to crisis, disillusionment, and despair, much like pottery inevitably suffers breaks, knocks, and shattering in daily life.  Yet the ├Žsthetic value shared by precious pottery, and even-more-precious justice, when joined by illumination, can make each more beautiful, and perhaps both even stronger for the history -- not less.