Tuesday, November 24, 2015

Power Grid Down!

A Devastating Power Outage Is Possible
If you want a vision of real "gloom and doom" take a moment and ponder the possibility of a devastating cyber-attack on America's power grid. Being a believer in several of the ideas and theories presented by writers like Nicolas Taleb, author of the best sellers "The Black Swan" and later a book titled "Antifragile" it is not unusual that I might find Ted Koppel's new book interesting. The book titled "Lights Out", reveals that a cyber-attack on America's power grid is not only possible but likely and that we as both a country and as a culture are shockingly unprepared for such an occurrence. In fact our whole society has become based on what we consider an unending flow of current that allows us to live lives of comfort. There is no question that the moment the lights go out everything would change and both our country and economy would immediately be forced into survival mode. 

emember when, not so long ago, much of the Mainstream Media was mocking people who stocked up on emergency supplies ("preppers") in case of a catastrophe as a bunch of "rightwing" survivalist kooks wearing tinfoil hats? Well, it now appears that Ted Koppel is wearing a tinfoil hat because he is warning about a possible apocalyptic catastrophe that could knock out the nation's power grid for up to two years and is recommending that people stock up on emergency supplies.
Such recommendations are made in his recently published book
- See more at: http://www.newsbusters.org/blogs/nb/pj-gladnick/2015/11/03/lights-out-has-ted-koppel-become-rightwing-survivalist#sthash.si3pNcrA.dpuf
emember when, not so long ago, much of the Mainstream Media was mocking people who stocked up on emergency supplies ("preppers") in case of a catastrophe as a bunch of "rightwing" survivalist kooks wearing tinfoil hats? Well, it now appears that Ted Koppel is wearing a tinfoil hat because he is warning about a possible apocalyptic catastrophe that could knock out the nation's power grid for up to two years and is recommending that people stock up on emergency supplies.
Such recommendations are made in his recently published book
- See more at: http://www.newsbusters.org/blogs/nb/pj-gladnick/2015/11/03/lights-out-has-ted-koppel-become-rightwing-survivalist#sthash.si3pNcrA.dpuf
Ted Koppel the veteran newsman and the former anchor of ABC’s Nightline has written a book that delves into how we have grown accustomed to cyber-attacks, but makes the point that we have never had a cyber-attack that amounts to a weapon of mass destruction. In the past attacks have resulted in grand larceny or what amounts to the huge vacuuming of intelligence information. In a television interview Koppel said, "My point is that, if someone succeeds in taking down one of our power grids, and the Russians and the Chinese can do it and maybe the Iranians and the North Koreans, it would be devastating." In the past when the lights go out it is usually because of Mother Nature and we have always managed to get through it. But what if the power went out in a number of states affecting millions of people for weeks, even months?  In "Lights Out," Koppel paints a grim picture of a paralyzing power outage in the form of an all-out cyber-attack on the nation's electrical grid.

We Are Totally Unprepared For This!
Koppel says that for about three years a number of our top leaders, including the president have warned of those who are trying to get into our infrastructure, especially the power grid. He points out that the president twice mentioned the issue in successive State of the Union addresses, but did not dwell on the risk. The secretary of defense at the time, Leon Panetta, called the threat of a cyber-attack on the power grid potentially a cyber-Pearl Harbor.  Koppel interpreting the statement as important also noted that nobody was paying any attention to it. This became the motivation for his book, as he wondered, A:) are these people just exaggerating for reasons I don’t quite understand, and, B:) if they’re not, what is the government doing to prepare for it and to prepare the public for it? His instinct told him that the answer was going to be "not much", and when he researched the matter it turned out to be closer to the truth than we might think and this is not an exaggeration.

The power grid is the system that connects North America's supply of electricity so that if one area has particularly heavy demand, power from another region can serve as back-up. The downside to all this is that because it is interconnected if a hacker manages to take down an entire grid, a huge portion of America along with parts of Canada could lose power. The electric grid operates as a series of networks that are defined by geography, failure in one place can cause failure in another place, which can cascade into collapse of the system in a large area. On August 14, 2003, a power line in Ohio overheated, causing a widespread blackout that affected over 50 million people, it lasted up to four days in some areas. After talking to many people, including the last four heads of the Department of Homeland Security and Department of Defense Koppel got the sense that none of them knew what to do if such an event were to occur. More frightening might be that several of them know that the likelihood of it happening is great. When Koppel spoke to Janet Napolitano just after she left after five years on the job as secretary of homeland security he asked the question, what do you think the chances are of a cyber-attack on the power grid? She said very, very high, 80 to 90 percent.

Apparently, the conversation with Jeh Johnson, who currently runs Homeland Security and was trying to be more optimistic also failed to be very reassuring. Koppel said, "It didn’t go well, because, on the one hand, he conceded that the likelihood of a cyber-attack on the power grid is great. On the other hand, when I said, OK, what’s the plan? You’re the secretary of homeland security. He sort of dismissed it and said, well, as long as you have a radio with extra batteries." When Koppel pressed him it became clear that even while most people view formulating a plan for such an event as the responsibility of the government he found that they haven’t taken that responsibility very seriously, or at least have not come up with a solution yet. At issue is the fact we must deal with this the possibility of the power grid failing, but, and because we don’t know of any way to do so we have totally avoided the matter.

The Economy Would Grind To A Halt!
As to fears he will be dismissed as a doomsayer Koppel indicated he was more worried if people later found out what he had discovered and done nothing it would be a greater ill. Knowing there is not a plan, and that mass evacuations from places like Manhattan can't be done because we have a situation of too many people and no place to put them must give us pause. The author spends three chapters of the book dealing with the Mormons because after 200 years of being driven from pillar to post they are the one group that has learned how to survive in difficult situations. Noting that they are probably about as well-prepared as any large group in the country. The one thing the Mormons do that he would recommend to Americans in general is to put away a three to six months supply of food and water.  While he understands that there are tens of millions of people in this country who can barely afford to put food on the table every day he recommends that those who can afford it stock up.

Koppel takes the stand that if people do that and if the government has a backlog of freeze-dried food, which lasts up to 25 years, we can probably survive something like this, if not, there will be thousands of fatalities. Towards the end of the book the well respected veteran newsman quite provocatively lays out the case that in addition to all the wonderful things that it does the internet can be used as a weapon of mass destruction. Also he makes it clear a major worry is it would not require a foreign government to cause such a scenario to unfold, nor would someone need a ton of money to do it. Someone sufficiently skilled in cyber-warfare, using an individual laptop, can inflict enormous damage. He was told by the man who was the former chief scientist for the National Security Agency, that he believes there are individual groups, possibly a group like ISIS that could buy the expertise, and that the equipment they need is available off the shelf. This makes his warning a very scary prospect.

Those of us that have suffered through a few days without electricity will testify that it changes everything. Because I'm responsible for a number of buildings and the comforts of the tenants that fill them I'm very aware of the many problems that quickly surface when electricity takes leave. Elevators stop, alarms fail, pump systems, refrigeration, hot water, heating, cooling, communication breakdowns, and more grind to a halt. People can't work when businesses are forced to close, and cars don't move without fuel, even city water supplies stop flowing. Trillions of dollars of paper wealth based on "faith" in the system would vanish in the blink of an eye. The ugly bottom line if that because everything is intertwined and dependent on electricity in some way or form few things would work. If this occurs we can only pray it comes during a season when mother nature has blessed us with reasonable weather that won't rush to test our limits. My experience has taught me few Americans today softened by city life have the training and knowledge that they can flush a toilet with a bucket of water, my point is that overall we are a helpless lot.

Few among us has researched the topic of grid failure to any degree, so I will defer to Mr. Koppel when he suggest that if and when the lights go off because of such an attack, that they will remain off for quite sometime, and that power will be difficult to restore. I also cannot easily brush aside his worries and find myself troubled that nobody in the government has rushed to call his claims false. This man has no history of  bantering about "the sky is falling" revelations which gives credence that his concerns and warning should be given valid consideration. If such an event would occur in the cold of winter the death toll would be staggering, and I guarantee the government would be utterly paralyzed. I have done a fair amount of reading on this topic and suggest it might be wise or for others to do the same, and if they plan to do their search by computer they might want to do so before the lights go out.

Footnote; To those of you familiar with this blog you know that often the topics I write about are of an economic nature, below are a few article that can be tied in with or are related to this article. As always your comments are welcome and encouraged.

emember when, not so long ago, much of the Mainstream Media was mocking people who stocked up on emergency supplies ("preppers") in case of a catastrophe as a bunch of "rightwing" survivalist kooks wearing tinfoil hats? Well, it now appears that Ted Koppel is wearing a tinfoil hat because he is warning about a possible apocalyptic catastrophe that could knock out the nation's power grid for up to two years and is recommending that people stock up on emergency supplies.
Such recommendations are made in his recently published book
- See more at: http://www.newsbusters.org/blogs/nb/pj-gladnick/2015/11/03/lights-out-has-ted-koppel-become-rightwing-survivalist#sthash.si3pNcrA.dpuf

    Tuesday, November 17, 2015

    Auto Price War Ahead, Lower Prices Coming Soon!

    Wait For It, Lower Prices Coming!
    Prepare yourself for a price war in the automotive sector. For a long time I have had a problem with economist and others pointing to the auto industry as proof that the American economy is on the mend. Years of rising auto sales driven by artificially low interest rates have driven sales and leases. While we hear claims that the auto market is hitting on all cylinders we also hear of far too many unemployed students buying new cars. Failure to focus on where the sales are coming from or originating is a mistake and so is not recognizing that the industry is creating its own problems in future years. Recently, we have heard about sales not about soaring profits. Record levels of channel stuffing produces sales gains, but no profits. 

    The facts behind what has pushed this market forward are very disturbing. Over 31% of all new auto loans this year were to subprime borrowers. Subprime loans now account for 36.5% of all outstanding auto loans. The easiest way to become a subprime borrower is by defaulting on previous debt obligations. In a shocking development, auto loan delinquencies have been surging, this means subprime loan delinquencies now stand at 18%. Pretending to sell automobiles to people either dependent on money from the government or no means to pay for that automobile is not a good business idea. When you have huge financial lenders and the rest of the Wall Street banking consortium doling out 7 year 0% loans and subprime loans as if it were candy it’s easy to move inventory. Sadly, while this has temporary boosted the GDP the issuing of what is destined to become more bad debt always comes back to haunt us in the long run. A big problem is that such lending often increases the monthly obligations of people who are already struggling financially.

    The Federal Reserve has been pumping in trillions of dollars of liquidity into the economy and much of it has resulted in pulling future consumption forward. These polices will soon become a headwind to both future sales and growth. This is more proof of just what an infusion of money from the Fed can produce and how it adds to the great distortion. Auto loan debt continues to ratchet higher every month and is at an all-time high of $950 billion, up 33% since 2010 when the Fed, Wall Street, and the political class in Washington decided they needed new debt bubbles in auto loans and student loans to jump start our moribund economy. Recent figures showed that there are 65 million auto loans outstanding, and the average debt now stands at $17,352. Currently over 30% of auto “sales” are actually leases. The rest are financed over an average of 65 months. This means that virtually all new car sales are nothing more than 3 to 7 year rentals.  Issuing billions of debt to subprime borrowers for housing proved to be a disaster and going forward we should expect the same trend to reveal itself in autos.

    This will result in a slowdown in American factories and have a dampening effect on growth. New-vehicle sales in the U.S. were up 13% in 2012 and up another 7.6% in 2013, since then it has been up, up, and away. The problem is that now more used cars are about to enter the market. Manheim Auto Auctions expects 2.1 million off-lease cars to hit the market this year, and says that could rise to 3 million or more by 2016. This is good news for used-car shoppers, but does not bode well for the automakers. When used car prices are strong consumers are more inclined to consider and buy a new car that cost only a little more. Because many people have chosen to lease cars in recent years we are now positioned that millions of used cars will soon be thrust onto the market as leases expire. This flood of used cars is expected to put massive pressure on the prices of used cars as well as reduce the need for many people to buy a new vehicle because of a secondary market that offered only limited choice and selection.

    Going forward all this will damped new car sales in several ways. Car shoppers can expect their trade-ins have less value meaning they will face both larger loans and bigger payments or forgo the purchase. This will carry over and make leasing more expensive because automakers base lease rates on predicted resale or "residual values," which is an estimate of what the new car will be worth at the end of its lease. Another factor we should not underestimate is that many of the used cars entering the market will be attractive top of the line models with all the bells and whistles. These lower used-car prices are a delayed response to the new-car market's revival from the recession: From a bottom at 10.4 million in 2009, new-car auto sales are on track to break 16 million this year. John Rosevear who has been writing about the auto business and investing for over 20 years, and for The Motley Fool since 2007 has suggested that if you want a nice car you might want to wait a little longer. 

    The number of used cars coming off lease has already started rising, and if you go shopping for a good clean used car that is two or three years old with around 30,000 miles on it the odds are that you'll be looking at a lot of cars that just came off-lease. The bottom-line is the automobile market is about to get "down in the dirt competitive" as more than ample supplies and other factors hit both dealers and manufactures. Adding to the idea auto prices will not be rising any time soon is a decline in metal prices from overcapacity in China, factors such as lower commodity prices are beginning  to work their way into overall production cost. It is also logical to expect companies exporting cars into the united States to push hard to offset flagging sales in their own countries and take advantage of their weak currencies which plays out to their advantage.

    Much like the airline industry the auto sector has always had a history of being a "glamour" industry, this means it tends to attracts individuals who enjoy both risk and attention. It also means it is full of stories marking past failures and littered with names that no longer exist. A chief reason the automobile industry took a beating during the 2008 downturn was because the world was mired in overcapacity. When this occurs companies are forced to cut prices and are faced with reduced profit margins. It is important to note that as competition sharpens it will most likely result in the demise of many of the weakest players in coming years. Any slowdown auto sales or the economy will only hasten this event, and put the stock prices of auto companies under a lot of pressure, do not be surprised if the issue of bailouts or downsizing again becomes necessary. Most at risk are the smaller players that will have difficulty raising capital in this industry that constantly demands a company invest huge sums of money to stay competitive.

    Sunday, November 15, 2015

    Killer Robot Update

    In Britain a May 27, 2015 article in the Telegraph reports an academic has warned that killer robots which are being developed by the U.S. military will leave humans utterly defenseless. Make no mistake progress is being made by several countries to move in the direction of producing a slew of these weapons that can perform many different functions. About 28 minutes into the Democratic debate on November 14th Hillary Clinton talked about recently revealed Russian plans for a drone submarine with nuclear tactical capability. While I have written about the subject before an occasional "Killer Robot Update" has merit. This subject should not be limited to drones, killer robots, and a slew of other ugly possibilities. Blame it on an imagination gone wild or a distrust of those with too much power. Unfortunately more recent revelations about the American government spying on us, our friends, and the leaders of our allies across the world does little to calm my concerns. We must take note that technology is quickly blurring the line between drones and robots at the same time that the killing power of these machines is being ramped up, we should be afraid! To say these machines have the potential to become formidable and a danger in the wrong hands is an understatement.

    Let it be clear, killer robot-drones are no longer the stuff of science fiction and the technology to make such weapons exist today. The U.S. Navy’s X-47B, a Northrop Grumman-developed drone, has already accomplished the task of taking off and landing on an aircraft carrier entirely on its own, it is only a short step to add missiles to its weapons bay. The unmanned plane is capable of supersonic twists and turns with a G-force that no human being could manage, and could take autonomous armed combat to a whole new level. In South Korea, several years ago a Samsung subsidiary designed a stationary robot sentry that sits along the demilitarized zone and can identify and fire at a target on its own. It’s linked up with a human operator for now. The web site --- http://www.wired.com/dangerroom/2013/10/weaponized-military-robots/ ---goes even further when describing the advancements of these killer robots with automatic rifles and states they could be on the battlefield in the next 5 years. An October 18th article by Allen McDuffee says Robots armed with automatic weapons, anti-tank missiles and even grenade launchers are marching, er, rolling ever closer to the battlefield now that they’ve shown they can actually hit what they’re supposed to.
    Killer Robots Like Swords Stand Ready To  Kill

    May I suggest the possibility this subject has been largely kept off the radar of the American people by those wanting our government to go "all in" on this technological arms race. People under the impression we can come out on top are often driven by the fear it is only a matter of time before it happens anyway. Please note, a preemptive weapons ban is not unprecedented. In 1995, parties to the UN’s Convention on Conventional Weapons added a protocol banning blinding lasers. Leading up to that ban, the U.S. was against it but after considering the potential for mass proliferation the U.S. changed its stance and helped generate support for the measure. Ultimately, this is a call to action and suggests a ban on "offensive autonomous weapons."  Those pushing such an agenda cite similar international agreements on chemical and biological weapons, space nukes, and lasers that blind people. For now, the U.S. says it doesn’t support an international ban on this technology but pressure is being applied by groups like the UN.

    Four robotics companies  HDT Robotics, iRobot, Northrop Grumman and QinetiQ  have already ran their machine gun-armed robots through a live-fire demo at Fort Benning in what has been dubbed the "Robotic Rodeo". This was to give the brass a chance to see just how viable such systems are. The Army, which issued a favorable assessment of the technology doesn’t see our armed robotic overlords as weapons taking the place of boots on the ground, but rather as combatants working alongside troops in the field. “They’re not just tools, but members of the squad. That’s the goal,” Lt. Col. Willie Smith, chief of Unmanned Ground Vehicles at Fort Benning said. Senior Army officers attending the rodeo appeared satisfied with the robots after seeing them accurately hit targets 500 feet away, and they hope to see battle ‘bots in action within five years. “We were hoping to see how they remotely control lethal weapons,” said Smith. “We were pleased with what we saw here. The technology is getting to be where it needs to be.”

    It should be noted this isn’t the first time the Pentagon has played with weaponized robots, but earlier experiments proved such machines weren’t ready for prime-time after some of them moved without commands. Northrop Grumman’s CaMEL (Carry-all Mechanized Equipment Landrover) was among the armed robots on display, it can be fitted with automatic weapons, anti-tank missiles and grenade launchers. It can run for more than 20 hours on 3.5 gallons of fuel, and carry a load of 1,000 pounds. It also can produce power to charge batteries or power other systems and a hybrid engine allows the armed robot to operate very quietly on the battlefield and travel farther to provide firepower where it’s needed. “CaMEL is a multi-function platform that can quickly transform from supporting troops to protecting troops as an armed wing-man, increasing the firepower of dismounted platoon and company maneuver units,” said Phil Coker of Northrop Grumman in a statement.  

    It appears Isaac Asimov's 3 Laws of Robotics may have been tossed into the trash bin in mans rush to build a better killing machine. All science-fiction readers will remember these were the laws that were to be built into all machines that would keep them from ever harming a human being. It is possible that Asimov's 3 Laws of  Robotics have been overridden by Forest Gump's Law of  "Stupid Is As Stupid Does!" A half crazed lunatic might even praise a killer robot for its performance and not hesitating when ordered to kill and slaughter unarmed women and children. No need to worry about PTS or all the costly issues and problems human soldiers  present, with killer robots it all becomes about killing!

    Footnote;  Your comments are welcome and encouraged. If you have time check out the archives for other post that may be of interest to you. My two other articles about robots can be found below,

    Saturday, November 14, 2015

    Euro-zone Remains A Dysfunctional Mess

    Europe Is A Dysfunctional Mess!
    To say the Euro-zone is a dysfunctional mess is an understatement. Proof is apparent in the many articles such as the one appearing on October 5th indicating Italy has asked fellow Euro-zone members to back a common unemployment insurance scheme to shield the continent’s jobless from future economic shocks as part of Rome’s broader push to deepen integration in the single currency. Pier Carlo Padoan, Italy’s finance minister, who unveiled the plan in Luxembourg, said it would mark “big progress towards solidarity — or risk sharing” across the Euro-zone that suffered deep divisions during this year’s tense negotiations over a new Greek bailout.

    The economy of the 19-member union grew 0.3 percent in the third quarter, slowing from 0.4 percent in the prior quarter is the report from Eurostat, the trade bloc’s statistics office. “So far the message coming to most of the citizens of Europe from monetary union is that it’s about banks and fiscal tightening, not about growth and jobs,” Mr Padoan said in an interview in his office. “This proposal is part of trying to convince Europeans that Europe is part of the solution, not the problem.” Again the reality is that a pan-European jobless scheme would struggle to gain traction because several Euro-zone members will be wary of funding a policy that requires the bloc’s healthier labor markets to support its weaker ones. Just last month, supporters of deeper financial integration hit a roadblock from Germany in their efforts to secure agreement on a common scheme to protect bank deposits.

    Leaders Address Crisis With Vows Not Plans
    Meanwhile according to a report from the ECB lending to the private sector slowed in September, suggesting the bank’s stimulus measures have yet to spark a significant turnaround in the region’s economy. According to the ECB report, lending to households was 1% higher than one year ago, a slight acceleration from August, but this occurred as lending to businesses slowed to 0.1% last month from 0.4% in August. The fact remains the Euro-zone economy is going nowhere despite all the over the top efforts by the European Central Bank to stimulate the economy. As usual difficult structural reform is lacking and the only real effort being made by politicians is to give the impression that leaders are hard at work trying to arrive at how to correct the problem. It has become the chief pastime of those in power to meet and talk, then meet and talk some more, but action is seldom seen.

    Adding to the Euro-zone's woes of economic stagnation is contagion flowing from slowing economies across the world, a October 20th article in the Guardian is an example of what they face. The piece delves into how about half of the 1.6bn tonnes of steel made globally comes from China and why firms operating in the UK simply can’t compete. Guardian contributor Karl West, wrote; The latest grim chapter in the long, slow death of Britain’s steel industry may have been decided in India, but it was scripted in Beijing. He then continues saying, Tata Steel, owned by the Indian conglomerate Tata Group, just announced it has been forced to cut 1200 jobs in Britain.because it has been hammered by a toxic cocktail of high green taxes on emissions, a strong pound, slowing demand coupled with cheap Chinese competition and over capacity.

    The Euro-zone Has Failed To Take Action In This Crisis
    Stories like those above are all over the place and this is even before we get to the issues growing from a massive flow of refuges into the Euro-zone. While the boost in population would cause a person to envision eventual economic growth from increased demand for goods and services, near term concern is over the cost of assimilating more than a million people into society. It should be noted these people arrive with nothing and often do not even speak the language. This has created conflict between not only countries already beleaguered by slow growth, high unemployment, and deficit budgets and their better off neighbors, but groups within many of its members.  

    Gypsies in Italy have been considered by many Italians to be a problem for years and in several other countries unemployment coupled with worry over terrorist threats have raised concerns. This means it may be difficult for some countries to get enthusiastic about the refugees and migrants flooding the area. It has become common place to see pictures of poorly dressed refugees huddled in the rain and cold at the borders of countries denying them entry, this usually is complete with wire fences and armed guards. As usual the meetings of leaders in Brussels and other cities yield little other than more meetings and photo opportunities. The pledges to address the crisis as a common force produces little accept the promise of money and action to come, but nothing seems to get done. Mix in a few gems of unrest, such as the independence movement by Catalonia gaining strength in Spain, and it is easy to understand how fragile the Euro-zone really is. The frustration at just how inept and dysfunctional governments can be is not a unifying force that would make the people of Europe pass more power to those in charge.

    Footnote; Currently the though of taking a holiday in Europe seems daunting. Attempting to travel through the area when facing closed borders, strikes, and homeless refugees has offset the excitement of tourist enjoying the weaker euro.
    As always articles on many subjects may be found in my blog archive, thanks for reading, your comments are encouraged.

    Tuesday, November 10, 2015

    Cookie-Cutter Urban Sprawl

    Cookie-Cutter Urban Sprawl Defined!
    Today much of the new residential single unit free standing construction in America is of the cookie-cutter urban sprawl variety. A great deal of this is driven by what is in the interest of big developers and not the buyer or society. This is driven by developers seeking a clear canvas and cheap land on which to build. Builders garner savings from mass production factory like building methods with sites that are in close proximity which reduces travel time for workers. They also love to transfer the cost of upgrading the infrastructure to access the new community to the government. Builders will tell you that buyers want covered patios for outdoor living, less-formal dining rooms, lots of space for entertaining. They want and continue to build units with 1,800 to 4,800 square feet a size identical to 10 years ago.

    Do not underestimate how much residential construction skews the direction of growth in our country and society as business rush to locate near these new opportunities. This tends to gut and leave as wastelands large areas developed only decades ago. We should note "suburban sprawl" comes with a fair amount of ecological impact as ecosystems are paved over with concrete. Our modern lifestyle carries with it pollution of water sources, enormous amounts of garbage filling massive landfills, tons of carbon being spewed into a warming atmosphere, and several more damaging side-effects.It is a lifestyle choice that has been made for us and not necessarily by us. This is guided by the fact that bigger homes are generally cheaper to build per square foot than smaller ones, developers can make a wall a few feet longer, and give buyers more square feet without adding a lot to construction cost.

    Recently, I was reminded that many of the systems we take for granted are historical accidents, meaning they are based on legacy systems hundreds of years old or assembled in a short-term, ad hoc fashion to benefit a certain party, this means they may not be logical or the best choice available. In the case of housing it often is the builder rather than the end user that benefits from the way communities are designed and constructed. Many of the homes being built in cities across the country look very similar to the ones built during the boom. Some, in fact, are even bigger. The average single-family home built in 2013 was 2,598 square feet, 80 feet larger than the average single-family house built in 2008, and 843 feet larger than homes built in 1978. And because it is easier for the builder and people are willing to accept such designs we find many of the new homes going up are two-story with garages that fit two cars and look pretty similar to the house next door.

    This article is an attempt to point out what we want or should be buying is not always what we are offered, told we need, or directed towards. For example it is logical when given a choice many people would choose not to spend their day in a car rushing to and fro, but rather spend the time smelling the roses. This brings us back to thinking about want we truly want and should value in life. Some people scream this planet is in its death throes while we keep on fiddling and feel small dense towns or villages of under 50,000 people are the only viable, sustainable model for the future. These towns would produce most of the their food and goods based on sustainable agriculture raising multiple crops in the same space, and small-scale industry, they would reduce, reuse, and recycle constantly, and they would promote a simpler, slower and less materialistic and consumer based lifestyle.

    Little is different in the change resistant home-building industry since the  2008 recession and the housing bust. Even surveys that suggest that both boomers and younger generations are interested in living in more urban places where they don’t have to spend so much time in the car getting to and from work, builders continue to bang up cookie-cutter communities out in the suburbs. Truth is this market is driven by building a fast, cheap product that looks good and will past inspection. Pride in workmanship and quality take a backdoor to issues like liability and the unit holding together until warranties given by the builder have expired. Some planners and “smart growth” advocates argue that builders should end the practice of buying empty land further and further out and building on it, and turn their efforts towards building more compact, walk-able communities near public transit. It is not surprising that builders rile at the cost rehabbing existing land to fit new projects would add to their projects.

    Doing so is important for the environment, planers say this would save valuable resources and money in the long run, but builders are not interested in the long run. Sadly, trends can often be hard to change. Even the Republican Party adopted a platform at its 2012 Convention to inform and pledged to “expose” both state and local governments around the country to the “underlying harmful implications of implementation of United Nations Agenda 21 destructive strategies for ‘sustainable development’.” Seeing sustainable development as dangerous seems odd, but it points to a growing divide about how different people think Americans should and want to live in the future. Should we continue to live in spread-out, single-family homes with lawns and garages and spare bedrooms? Or do we accept the idea of smaller, compact houses where we can easily hop on a train or walk to the near by restaurants and don't even need a garage, or a car to park in it?

    Part of the goal of this article is to call attention to as why we "do what we do" and in housing it generally has to do with pretty over practical and what best suits the developer. Those wishing to maintain the status quo are quick to point out that builders efforts to introduce sustainable developments have not always been successful and quickly embraced. Any walk-able, mixed-use community, adhering to many of the principles of new urbanism that do not sell well are tagged as proof nobody wants such a product. Builders constructing such compact homes with garages in the back and a big, public park in the middle, with a swimming pool and dog park, so residents can walk and interact with each other often include plans to build coffee shops and other retail within the community. We should remember these planned communities are not being allowed to grow organically and often fail to achieve that "certain something" that makes them pop.

    This debate is on going and will not end anytime soon, it is all part of the "social engineering" issue mankind will face in the future. It will involve modifying a lot of the zoning and building layouts from the old era and it isn't going to be easy. To achieve real change we face several major challenges and when it comes to implementing a real shift in both housing and how we live our lives it will require a critical mass change in public opinion and market direction. While studies may show that the younger generation wants small, compact, transit-accessible housing, builders claim to know better and say "once they decide to have kids and dogs, they’ll want the traditional suburban home with more space." Some people may say they want to live downtown forever, but when reality and life takes over they have a kid or two, or hookup, and they suddenly become "those people" and want to have a house in the suburbs.

    In the past areas like California have often lead the rest of the country when it comes to adopting environmentally-friendly policies that are sustainable for the long term. We should not be surprised if other areas are slow to adopt what they call "smart growth" and just as America is divided politically, it may become more divided country in the way its residents live. People in cities such as Washington D.C., Boston, and Seattle may embrace more walk-able developments, while consumers in other areas where land is cheap may continue to live in sprawling suburbs. It will be interesting to see how this largely unplanned development unfolds going forward, and how much it is effected by changing values of consumers rather than what is easiest for large builders. In such a growth scenario where change really occurs there is a place for small companies focused on remodeling and building homes in already developed areas.

    Sunday, November 8, 2015

    Japan Economy Ready To Enter Recession

    Japan Faces Increased Export Competition
    A recent poll of 19 economists showed that Japan, the world's third largest economy, most likely contracted at an annualized rate of 0.2 percent in the third quarter, following a 1.2 percent contraction in April-June. This means Japan probably slipped into technical recession again in July-September due to a combination of soft external demand, weak private consumption, and a drop in capital spending. A technical recession is defined as two consecutive quarters of economic contraction, while this does not mean the economy is falling off a cliff it does not bode well for those claiming things are on the mend. This is expected to keep policymakers under pressure to put forth additional monetary and fiscal stimulus in the coming months to bolster the flagging economy.
    Currently, the Bank of Japan has tried to portray an upbeat attitude towards the future arguing that the economy remains on track for a moderate recovery. The fact is the BOJ remains between a rock and a hard spot even if they are in no mood to ease policy further anytime soon. Many economist point to a China-led global slowdown as a large risk to Japan going forward so it is understandable many eyes are focused on the third-quarter gross domestic product (GDP) data to be released by the Cabinet Office on Nov. 16th. It is clear that Prime Minister Shinzo Abe's government has been tweaking the budget for the current fiscal year to shore up demand, but the size of any additional fiscal stimulus has yet to be make clear.

    Yusuke Shimoda, an economist at Japan Research Institute said,  "The economy continued to stall in July-September as business investment weakened while companies tried to shed a pile of inventory."  Shimoda added, "We expect a return to growth in the current quarter on improving corporate profits and household income. But the pace of recovery will be modest as China's slowdown weighs on business and consumer sentiment." As usual the message remains guardedly optimistic that things will soon improve, but reality is growth remains more or less nonexistent. The GDP data is expected to show private consumption, which accounts for about 60 percent of the economy, grew 0.4 percent in July-September, but this was following a 0.7 percent previous quarter decline.

    Little help can be seen in external demand where growth likely came to zero, and this is after it shaved 0.3 percentage point off the second-quarter GDP. Another problem is that despite strong business investment and capital spending plans appeared to be in place by the BOJ's tankan quarterly survey, companies have been slow to follow through and raise capital expenditures. Companies have even come under criticism by officials for not picking up the pace. Lack of strong demand and the slowdown in China  are being blamed for capital spending declining about 0.4 percent quarter-on-quarter in July-September,  this makes two straight quarters of declines.

    I feel it would be remiss not to again reiterate that Japan would be sitting in far worse shape if it were not for the wealth shifted each year from America to the small island nation. America spends billions each year defending Japan and by purchasing many of the goods the country produces. The massive trade deficit America has with Japan of around 76 billion dollars a year feeds large amounts of money into Japan, without this money the massively indebted nation would face even bigger trouble. Demographics are also a problem, Japan is stuck with an aging and shrinking population that is evermore expensive for the government to provide for. Japan's public debt, now stands at around 230% of its GDP and is the highest in the industrialized world. It is hard to be optimistic about the future of Japan or the yen when confronted with such facts.

    Footnote; This is one of several articles I have written about Japan over the years, below are a few others that tend to paint a picture of future economic disruption. Articles on many subjects may be found in my blog archive, thanks for reading, your comments are encouraged.


    Thursday, November 5, 2015

    Lack of Momentum And The Lag Time Of Attrition

    Attrition Is Decay And Decline Over Time
    When looking back over history it is hard to argue with the fact that trends can simply run out of steam, lost momentum is not always sudden. Economic policies function under the same laws and because something appears to be working for a while does not guarantee its future success. It is silly to think that everything always collapses at the first sign of pressure and it is logical to allow for a lag-time or delayed reaction to occur. We may be experiencing the effects of attrition slowly eating away with its constant wearing away or grinding down the underpinnings of our economic system and yet to have felt the impact of the quiet and gentle erosion beneath our feet. Today Chase bank in an effort to cut cost shuttered a couple of their branches in my city, one of them was in a very nice building directly across from my office. Actions like these shout volumes as to what is really happening across America and do little to underpin the job market or real estate prices.

    What started as the Fed's short-term solution to prop up and stabilize a troubled economy has morphed into business as usual and become accepted as the norm. More and more it seems that people have accepted the idea that the economy is evolving and other than that nothing is different and nothing has changed, this is accepting less than spectacular results from an ill-conceived policy and placing them in a positive light. Considering the amount of newly printed cash that has been created and poured into the economy our failure to achieve escape velocity should trouble us far more than it has. This should be said about the global economy as well because central banks have been more than generous at the same time governments across the world continue to run huge deficits. The truth is austerity has been deemed a dirty word and any country claiming to pursue such policies has done so in word only.

    Currently the economy is slowing, not only in America, but across the world, but what many people see as a lack of momentum could be something far more disruptive and disturbing, it could be we are beginning to see attrition starting to take its toll. Attrition is defined as "the action or process of gradually reducing the strength or effectiveness of someone or something through sustained attack or pressure." Today real and solid economic growth as traditionally defined has been largely replaced and supplanted by something harder to understand and very elusive. Growth in both the financial markets and the "virtual part of the economy" made up of items like the internet, smartphones, and other things that create little in the way of tangible growth has become the driver of our lives while demand in many key more conventional areas languish.

    Trends in the type of small businesses being created often give us a peek into the future or a hint at what is to come.  Over the years we have seen a substantial change in the nature of start-ups businesses that give a glance into developments that will soon shape both society and the economy. Years ago small independent doctors began having their practices purchased by bigger groups, than hospital giants, next we had a slew of mortgage companies form, they vanished when housing crashed. Today between the thrift-shops and secondhand stores we have seen the following popping up, tattoo parlors, nail salons, massage parlors, coffeehouses, photography studios, and most of all staffing agencies that provide workers for local businesses. All of these have two things in common and that is little in the way of capital is needed to get started, and most have a short unprofitable life span.

    Yesterday as I drove across town and saw all the buildings sporting "For Sale" or "Available" signs the term a great waste land came to mind. More and more lately I have found that many of the people requesting to look at commercial space for a new business in buildings I own are clueless or totally unrealistic as to the numbers involved in leasing space and starting a business. Even more disturbing from my basket of personal experiences is that in the last two weeks I have seen tenants leasing residential space from me, that I know are on a very shaky financial footing, approved for purchases they are totally incapable of handling, one just bought a house, and the other a new car. The gal buying the house has had her utilities turned off several times due to non-payment and the other person has at times been months behind on rent and received food stamps. Both of these transactions signal problems ahead and are proof the Fed is pushing on a string in hopes something will happen to transform our sagging prospects.

    Forces that have been at work for sometime have weakened and worn down many real businesses and the new "Uber business" model should raise great concern because it has the potential to steer our economy off the cliff. Watching real businesses with a dozen or more employees closing their doors to be replaced by independent part timers playing by their own rules does not scream "quality growth" and has the potential to have a very debilitating effect on the economy undermining both social stability and communities. The Fed can only move the ball so far by pushing the economy forward with artificially lowered interest rates and questionable loan standards that will come back to haunt us. This article was written to make two points, one a lot of what is happening reflects an economy that is crippled and getting weaker, the other to say sometimes it takes longer than we think it should for reality to raise its ugly head.