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powayseller
ParticipantChris, thanks for correcting the error made by the poster. I was surprised at his comment too. Since when is the future expected volume factored into the price of an asset?
ParticipantBugs, he is not anxious to give me any information at all. To my e-mail asking what is the source of job growth (i.e. is it all real estate-boom related as in San Diego?), he sent me an Inc. article, which rated the fastest growing small towns in the U.S. Yuma was tops on the list. I wrote him back, with my data found from the state employment data website. I showed him the biggest occupations in Yuma are construction (10%), agricultural workers (8%), teachers, restaurant and retail (5% each), truck drivers and cashiers (2% each). Yuma has 2,000 cashiers, and less than 10 engineers. Ok, how sustainable and fast growing will they be when the economy slows? I closed with telling him that I look forward to getting the information in the mail, that HE used to make the decision to buy this land, because I am certain “your company did not make a decision to purchase these parcels based on a Inc. magazine story.” So far, he’s given me NOTHING other than that Inc. article.
North County Jim, – the refinery has been in the works for 5 years. They have the permits, and plan to start construction in one year. The original refinery was supposed to be outside Phoenix, but that area had too high ozone levels already, so it had to be moved. Mexico is cooperating with oil delivery. My approach was to give them the benefit of the doubt, that the refinery would go through. It looks like a money-losing idea, so whether the refinery goes in or not, makes no difference to me, since the impact of the refinery is negligible, and the Midwesterners are not going to retire in Yuma, a desert town with 120 degree summers.
ParticipantChieftain, do you think it is likely that Yuma, a city with 65% foreign born from across the border, will attract high numbers of Midwestern retirees? Enough retirees to make this land, 40 miles outside of town, appreciate in value?
The comment about staying a friend was tongue-in-cheek, because she really is a friend, not just an acquaintance, so she and I will remain friends even if we disagree on an investment issue:)
On the other issue, I tend to believe my friend, even if that makes me a prejudiced ignorant idiot who makes absurd comments. What’s at stake here is deciding whether to make a real estate investment, so I don’t have the luxury of being politically correct. I need the facts. Therefore, it is important that I know if my assumption is false.
If you could show that there is a high demand among blue collar Americans buying homes in border towns in Texas, Arizona, etc., then I would be corrected. I welcome you to provide accurate information on this topic. It goes to the heart of the financial planner’s sales spiel, that the land will be more valuable because blue collar workers are coming in droves. They would have to come in by the tens of thousands to appreciate land that is 40 miles outside of town. An example of one or two people won’t do. I’m looking for large groups, such as what we see in Florida and Phoenix AZ.
ParticipantThanks rankandfile, I do try to stir up the pot. But I need to learn to be strong without alienating people.
ParticipantWhere’d you get the idea she is no longer my friend? We still ARE friends, and have a get-together today. I agree with you to let this drop. I already told her earlier today that I would keep investigating this, but keep mum to her, since I don’t want to upset her, but if she wants to know what I find out, she can ask.
I’m a Nebraska girl, and my parents still live there, so I feel that gives me the right to speak of the Midwest. My husband’s family is farmers in Iowa. So you’re barking up the wrong tree to call me prejudiced toward Midwesterners. I would have preferred a statement from you proving me wrong, i.e. that you know blue collar workers from the Midwest are flocking to Yuma and other border towns, and that the racial profile of the community is irrelevant to them. I am more interested in figuring this thing out and being proven wrong, than in whether I make an observation that is politically incorrect. Let’s face it: housing issues are full of racial and ethnic factors, and ignoring them doesn’t help me learn about this issue.
Anyway, the comment about the Midwesterners was made by the businessman that I discussed this with; I really don’t know if Midwestern blue collar workers would avoid Yuma. I could find no data that Yuma is a retirement community magnet, so I assumed he was right.
ParticipantThe volume in those is too low to allow you an exit at the market price. They are too illiquid. That’s one reason to avoid them right now.
ParticipantDiego Mamani, we are experiencing slowing housing starts, slowing retail sales, lower house sales, at the same time we see higher oil and rent prices. We have inflation rising while the economy is slowing. Ben attributes the persistent inflation to rising commodity prices. He does use CPI, but relies more on PCE to gauge consumer prices, at least that’s what he told the Senate.
The CPI is definitely manipulated by the government, and the inputs and methods were changed drastically in the 1960’s or 1970’s. The CPI is useful to the government for calculating cost of living increases for entitlement programs. But to me, it does NOT reflect my increased costs. I do NOT experience 2% -3% inflation in my own life, but more like 8-10%. Calculated Risk has excellent write-ups about the flaws in this measure, mainly substitution and hedonic adjustment. I researched this a little myself, and let me give you a couple examples of why the CPI is so low, when we experience prices rising so fast.
Mamani, here are a few examples. If the price of steak goes up, the government CPI statisticians exclude steak from the meat categoy and substitute the cheaper hamburger, justifying it by saying the consumer would buy hamburger if steak is too expensive. This is “hedonic adjustment”. Read about it on the government web site. Read also what inputs they use, and the weighting attributed to each. I actually have researched it, have you?
Another example. Health insurance for a family is $600/month, about 10% of wages if you make $100K/year. For employers it is the largest cost. For GM, $1,000 of every car is for health insurance for their workers. So the health insurance premium should be 10% of CPI, but is it less than 0.1%.
Another example. Housing, which costs us 33% or more of our income has risen by 10? or more annually, so housing costs should be at least 20% of CPI (this is being conservative and assuming the average American spends 20% of income on housing). But housing costs are EXCLUDED. Instead, the CPI uses owner equivalent rents. In the last 6 years, as housing prices boomed, the owner equivalent rent went DOWN, because rents got cheaper as more people bought houses. The rent component is 40% of CPI, so the housing asset bubble lowered the CPI.
The CPI is a government number, that they try to keep low so they can minimize the cost of living increases for social security, VA benefits, and disability. It is not meant to educate us about the true cost of living. So to me, I am not sure how it would ever be useful.
About pausing: Ben said he does not want the high price of oil and commodities to feed through into permanent price increases. He wants to see productivity rise, so that higher prices don’t have to be passed along.
Thanks for your responses, and I hope nobody got bored with my explanation of the CPI.
Participant“There’s just too much room for expansion to create the sense of scarcity needed to make one piece of scrub more valuable than another.”
Bugs, he says that 87% of AZ and NV land is government owned, and of the 13% that is private, most is used for agriculture, leaving little land for developers.I checked further into this, and the refinery is 40 miles outside of Yuma. How expensive can land ever get 40 miles outside a small desert town with high unemployment? The guy kept saying, “It’s outside of Yuma”. He didn’t say it was a 45 minute drive! So the parcels are 36 and 48 miles outside of Yuma, too far to be impacted by any growth originating in Yuma. Who would be a potential buyer in 5 years, assuming the refinery goes in?
ParticipantMy friend blew off everything I said, and my warnings. She trusts this company, “to make informed decisions about the land they purchase, because it is their expertise. They have been in business since the 60’s or 70’s and have only had one situation on land that didn’t increase the value to the investors.” They wanted to diversify so earlier this month they moved retirement money into investments with this company, buying land in Arizona and Nevada.
Maybe this is a good situation, but what bothers me is how the planner misled me about the impact of the refinery, and that he has so far refused to provide any of the analysis I requested.
This is a portion of the e-mail I sent to the financial planner:
Mr. Financial Planner,
As far as Yuma appreciating despite the end of the RE boom, it is certainly possible. I am interested in learning how you arrived at your decision.I am a serious investor, and am looking for places to make a good return.
I would like to request copies of the analysis, feasibility study, and appraisal report. What type of information are you required to provide to investors – I would like a copy of that also. Please provide a list of your prior projects with the rates of return earned on each.
My address is xxxxxx.
Now, let’s see what he sends me, if anything. Maybe this is a great opportunity, and something I can share with all. Maybe this guy is unwilling to disclose the precarious nature of this deal, and is therefore twisting the facts. Let’s follow this story, because it sure is interesting!
ParticipantGreat stuff, John. I guess we’d have to qualify this and say these are the DOM for a home that is market-priced. How are these numbers affected by expired, withdrawn, cancelled? Why is Solana Beach more desireable than Carmel Valley and Encinitas?
ParticipantI posted this to show how ludicrous the NAR has become. Will you all get mad at me if I call them li*rs?
ParticipantKiki, I should tell you that when I first started writing reporters, I was very nice. My thinking was that they just don’t know what’s really going on, and I would be the nice guy and tell them, and then we would start seeing better stories come out of them.
But after months and months of market declines, I have lost my patience with them. So with Ms. Wedner, I really took her on. But I have dozens of e-mails on my computer written to various newspapers, including the U-T, which are VERY nice and informative, in the manner you proposed. I’m so fed up with shoddy reporting. Maybe I should just take my original e-mail to KPBS and the U-T, written in Dec. 05, and copy THAT to the reporters.
ParticipantColombo, how can China’s oil demands keep growing if their economy stalls? They are just wanting oil to be like us, but are not fully dependent yet on oil as we are.
But in the US, how much can our demand be reduced? What is the biggest use of gas in this country? Isn’t it gasoline for motor vehicles? In a recession, I guess truckers and the unemployed make fewer trips,but for the most part people will still drive to work, heat and cool their homes, and farmers will keep buying fertilizer and running their tractors. How much did oil demand decline in the last recession, or during the last oil price spike? Was it 10%? My question is whether price spikes in oil or a recession will dampen demand enough to cause a price reduction.
leung_lewis, what significance is a chart showing gold/oil? Historically, gold is correlated with inflation, and NOT correlated with the dollar. Is it correlated with oil? I just don’t know why they made that chart.
Thanks for the link to Jubak’s article on China. I look forward to reading his Friday follow-up. It sounds like oversupply and overinvestment is their biggest problem. Then there’s the bad bank loans, housing bubble, government corruption, artificial pegging of their currency. The gov’t enacted tax laws to dampen housing speculation, so an art bubble had replaced the housing bubble.
ParticipantI enjoyed the Emanuel Balarie audio interview (first link). He is predicting a Fed funds rate of 6-6.25%, and I cannot for the life of me figure out why Bill Fleckenstein keeps saying the Fed will pause. He’s been wrong for months, and I think he’ll be wrong again.
The reasons given by Balarie for 6% Fed funds rate: Ben is data dependent, and inflation keeps rising. The economy is slowing because consumers overspent, so raising rates won’t make it much worse for the consumer but it WILL keep inflation from rising more. Ben’s biggest concern is inflation, not the slowing economy.
I side with Balarie on this one. Ben said in his Senate testimony that the economy is doing well because the Fed has credibility, because it has reduced inflation expectations. It is the expectation of inflation that causes inflation. If a company gets a higher price input and believes it is temporary, it will not pass along that price increase. But if it believe it is permanent, it will raise prices; next, workers demand higher wages, and the cycle starts.
This psychological factor in the markets (EXPECTATIONS of inflation cause inflation) explains why he sent his Fed governors around the country talking up their inflation concerns. He wants us all to know the Fed is concerned about inflation and will act to contain it.
Ben said that price stability is the Fed’s prime mission. So he must keep raising interest rates until he has data to prove that prices are stable.
In his testimony, he explained he does not rely on CPI, but on many other data points as well. So we can’t think he is fooled by the massaging of CPI numbers, since that is only one of the many inputs he considers.
I still don’t get why some people say the Fed will pause. What is their reasoning?
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