Where are we going and why are we in this basket?

Being a Christian unavoidably supplies one with a very efficient conscience. I feel it is my moral duty to say something to those of you who have any interest in being prepared for the uncertain economic times ahead of us. I suspect that most people who hear these predictions will not act on them, but I am OK with that. My duty as a Christian is not to save you, but to inform you and give you the tools to make wise decisions. God Himself will not impose his will on you, even though his will would be the best possible course for your life. He gives you the information, YOU have to do your part.

Any comparison between myself and God, and my advice and God’s advice is purely superfluous and incidental. I do not have delusions of godhood. I could be wrong. I’ve been wrong lots of times in the past. You’d be crazy to follow my advice. I am a crackpot. There, full disclosure.

On to the prophecies, Um, I mean predictions.
1. The 750 billion dollar bailout will turn out to be a huge economic non-event. The economy will continue to lumber along in heavy seas. There will be minor ups and downs, but the general trend will remain firmly down for at least five years, ten would not surprise me in the least. You, and your children and your grandchildren will be paying for this enormous lapse in judgment for decades. All for naught. You should be incensed. I would not be surprised if they end up spending 2-5 times that much in a vain attempt to stop the inevitable. Do a google search for “the mother of all bailouts” if you want a real education.

2. The 75 billion dollar housing package from President Obama, ditto. Various parties over the last ten years thought it would be a good idea to push cheap credit onto the housing market, allowing and encouraging people to buy houses who otherwise could not afford to do so. It also encouraged people to upsize to a house they couldn’t really afford. This was bad and dumb for any number of reasons, but that’s how we got here. There’s plenty of blame for both the Republicans and Democrats, AND the FED. Pretty much only the Libertarians thought this was a bad idea and said so out loud. Nobody listened to them and we created the largest housing “bubble” in history.

Any time supply artificially outstrips demand, or demand is artificially stimulated, creating a larger than normal supply, there will be a correction. In this case, our artificial stimulation of the housing market is the equivalent of shooting an anvil into the sky with a cannon. While you could keep the anvil afloat a little longer by attaching a bunch of helium balloons to it, you have not solved the fundamental problem of the anvil being up where it doesn’t belong. The ONLY thing that will solve the housing crisis is for the price to continue to drop, a lot, until supply and demand match again. Once they do, life will be good and housing construction will assume normal rates. The rescue package is the helium balloons if you didn’t get the analogy. It will only prolong the correction and agony.

So, here’s the take home message, your house value is going to be stagnant at best, and will probably drop over the next five years. If you put less than 10% down as your down payment in the last few years, you are probably “upside down” on your mortgage. This means the house is now worth less than what you owe on it. This is why small down payments are a pox on humanity. If you are upside down, you have limited choices. You could sell at a loss and pay the bank the difference. Chalk that up to the school of hard knocks and never do that again.

You could try for a short sale. That’s where you sell the house at a loss, and the bank agrees not to take the loss out of your hide and/or your paycheck. If the bank will go for this, that wouldn’t be a bad deal and not really dishonorable on your part.

You could gut it out and just keep paying your house off. If your job is stable and you can massage your budget to make extra payments on the principle of your mortgage, do it. The debtor is the slave to the lender. Slavery is highly over rated.

If you have a pile of cash, this is a good time to buy a house, using a whopper down payment. Get a small fixed interest rate mortgage to finance the difference. Interest rates on fixed mortgages are at historic lows. ARM’s (Adjustable Rate Mortgages) are going to see substantial and rapid increases over the next five years. Don’t get one. If you have an ARM, you need to get out of it to reduce your risk. If you’re upside down, the bank will be loathe to refinance your house unless you give them big piles of money to improve the debt to equity ratio, and I feel for you.

3. The Obama administration has promised to create 4 million new jobs. Actually, they changed the language a bit, and now they are going to save and/or create 4 million jobs. Some days they say 3 million, some days 3.5 million, some days 4 million. It is, admittedly , an inexact science. Of course, it turns out to be pretty much impossible to tell how many jobs are preserved by any given action. If the economy loses an additional million jobs next year, well jeez, it would have lost 5 million without the Super Duper Federal Rescue Plan.

It is politically clever to make it difficult or impossible to judge the outcome of your legislative efforts. I have very low expectations about how many real long term jobs will get created by this. Some will. It’s hard to spend that much money without employing somebody. They will undoubtedly show glowing anecdotal evidence of great outcomes here and there, but they will be anecdotes, not evidence. There is a big difference.

The problem is, where does the money come from? Washington does not have a magic money fountain that spews out free money without consequence. There are only three places Washington can get money. They can get it through tax revenue, they can borrow it or they can print it.

They can get it from taxing you. If you’re a successful (to Washington, that means evil) business person, you can count on this happening. Question….now that you the successful business person now have less money, because the government just took it from you by force, you now have less money to pay your employees, or hire new ones.
If you do the math, the current stimulus plan costs approximately $300,000 per job saved/created. So how many employees are you, the business person, going to have to cut to cough up that 300k? I’m thinking about 8-10 jobs. In this first order analysis, we’re going to take away 8 jobs to create one job. Let’s see, how’s that going to turn out? You’re right, rotten crummy bad.

Let’s do more sophisticated 2nd order analysis. Let’s suppose that you the successful business person runs a VERY profitable company. You’re swimming in profit. You get hit with new taxes, but you decide you’re not going to downsize your business, you’re just going to reduce your profit to almost nothing in a goodwill effort to not fire your employees. What a guy/gal! The Obama plan is now a roaring success.

Oh wait, we said second order brainy analysis. What did you, the evil successful business person do with your evil capitalistic excessive profit back in the old days? Either you put it in the bank, resulting in the bank having more cash reserves so they wouldn’t go belly up, or you invested it in the stock market, or you bought houses and cars and boats and airplanes that created a lot of jobs directly and efficiently.

Now, those folks that build boats and RV’s and houses are all getting laid off. You DIDN’T put that money in the stock market and due to reduced demand, the stock market dropped like a frozen turkey from an airplane. Or you didn’t put that money in the bank, and banks started going belly up due to lack of cash reserves. Is any of this sounding even a little bit familiar?

The bedrock problem with all this is the government has a centuries long track record at being inefficient at manipulating capitalism, every time, without any serious exceptions. By definition, they are going to take money away from successful people who know how to run a business and create jobs, and give it to people who, by definition, have a proven track record of NOT knowing how to run a bank, or a car company or pay for a house.

They could just continue to borrow money, and as long as China is willing to finance the Federal Government at stupid ridiculous levels of national debt forever, who needs a budget??? If you have any doubt about the viability of this option, do a google search for the ratio of national debt to GDP (Gross Domestic Product) to find out how terrifying this strategy has become for the U.S. economy. I do not use the word” terrifying” lightly.

If the Obama administration says thing like “reducing the deficit by 50%” you have to make them define their terms, or it’s just more smoke and mirrors. Did you know that much of the money spent by Washington isn’t even reflected in the official budget. The Feds don’t have to use the generally accepted rules of accounting like everybody else does.

For example, did you know that the entire Iraq war does not appear in the Federal Budget when calculating the deficit? If they had to play by the same rules you and I do, the official Federal deficit would look much bigger and much scarier, which is scary indeed. If I do bookkeeping like they do it, it’s called accounting fraud.
Don’t just trust me on this, do a google search for “how big is the federal deficit” to get a real eye opener on creative accounting.

They could also just print money like it was going out of style. In large measure, they are already doing this. Many governments have tried that over the decades and centuries. It works every time, in the short run, but works badly or horrifically in the long run. Since our fine government officials have an attention span of something under eight minutes, you can guess that they will try this, for a time. It will even work, for a little while longer. Again, if you want to know what’s really going on, do a google search for “inflating the money supply”.

The bottom line is that job losses will continue to mount, a lot. There will be much hand waving and vigorous finger pointing to explain why the government’s plan was a really good, but x,y, and z just somehow prevented it from having the desired effect. I’m sure they will blame Bush (and he deserves some of the blame for sure), and the Republicans, the chinese, the evil business people, etc. ad infinitum. Do not believe it, it is a BAD plan from the start and it is doomed to failure. You cannot dig your way out of a hole. You cannot borrow your way out of debt. The government cannot spend its way into prosperity. The Austrian school of economics is going to be proven right with a vengeance.

4. Everybody knows about the housing bubble now. The next two big things you’re going to hear about are the hedge funds, and the commercial property bubble. Both are in deep, serious, long term trouble. It’s hard to get good data on the hedge funds, but everyone that I trust who has named a figure puts that market at well over a hundred trillion dollars. My best guess, and I am a complete amateur at this, is that the hedge funds can rob Peter to pay Paul for another two years at the most. The Fed has already made promises to this sector of “around” a trillion dollars. When they start defaulting, a trillion dollars will barely constitute a band-aid. It will make the present crisis look downright manageable by comparison. Lots and lots of banks and a few governments will fail then. When that happens, you had better have a 6-12 month emergency fund in place. Spare groceries would not be a bad idea either. I pray every day that I am wrong about the hedge funds.

5. All of those nice governments overseas who have been loaning the Federal Government money by the barge-load are going to lose their motivation to keep doing that. For various reasons, the U.S. dollar will lose a big chunk of its value over the next decade. It looks strong right now (compared to other currencies), but only because the banks in Europe were even dumber than the banks in the U.S. In reality, it has already lost a substantial amount of buying power compared to even 3 years ago. All of those currencies will all go down, a lot. I hope I wasn’t unclear. This is a fancy way of saying big time inflation. If we’re lucky, it will only rise to 12-15% per annum. First we have to get through the initial deflationary period, then the inflation will take off like gangbusters.

You will suddenly hear terms on the news like Bretton-Woods, official dollar devaluation, reserve currency (it won’t be the dollar any more, most likely a “basket” of currencies). When that happens, it will have a lot of bad consequences for everybody in North America pretty much.

6. The stock market is not going to magically bounce back in 2009. It’s just not. Sure, there will be little teasers where things are starting to look up. Do not trust these brief moments. 2010 is not looking so good either. I could be wrong about that. I have no formal training in this arena. If you listen to my advice, you are listening to a complete amateur.

I would be remiss if I failed to point out that the stock market has lost almost half its value in the last five years, while my investments have, on average yielded between +6% and +15% every year, depending on which category we’re talking about. If you just pay extra principal payments on your house, that’s a guaranteed return of 6-8% right there.

To end this cheery post, I leave you with an informative and amusing source of information that exhibits a much higher truth to baloney ratio than anything you will see on the network news:

http://www.dailyreckoning.com/

There’s a lot of stuff on there that’s useful, but I particularly enjoy the Mogambo Guru. He’s actually a fictional character, but the column is written by a guy with access to information that you almost never see on the nightly news. Beneath the obvious comedy is a surprising amount of sobering truth.

This one is also extremely informative. It’s a short book at less than a hundred pages. They are giving it away as a downloadable PDF at the moment. I’m not sure how long that will go on. Get yours soon. In less than 100 pages, you can learn more about what’s really going on in the economy than 95% of the goofy talking heads on financial TV. Learn what inflation really is, and what causes it and why it’s so insidious. This book is a little dated, and in some ways an oversimplification. It is still a terrific way to educate yourself so that you can recognize who is telling the financial truth, and who is spreading the baloney on thick. I do not entirely agree with his assessment about how to avoid the coming difficulties, but the other 95% is extremely worthwhile and educational.

http://www.biorationalinstitute.com/zcontent/alpha_strategy.pdf


You have now been duly informed. Do what you think is right to protect yourself and your family.


Finest regards,

troy

Rehabilitation for a Murderous Lift

Troy had the drywall lift put back together, but then when he went to use it he found out that the cables were twisted. They got in a real bind the first time he tried to use the lift. frustration set in

He then worked on it some more, taking it apart and reassembling it. Fortunately he only had to do the upper half which was easier than the bottom half. So if he had to screw up, he did it right. When he got it put back together (again) he found out that it was about one inch short for the ceiling. So now there are some 1x2s on top of the 2x4s that were already there. He also took the precaution of marking when to stop turning so he won't crank too hard and pop the cable ends off (again).

On Sunday, he did manage to use the lift to put up three sheets of drywall. Progress may now continue.

What's for Dinner?

A couple days ago I was unloading some groceries, and took my gloves off so I could better stack the yogurt. I set them on a convenient shelf in the fridge thinking, even as I set them down, "That would be a really good place to forget them. Wouldn't that be funny?" And sure enough, I promptly forgot all about them.

Troy came home an hour later and soon asked, "Is there any special reason there is a pair of gloves in the fridge?" Ha ha ha, I just started laughing, and explained how they got to be there.

It reminded me of a morning a few years ago when I got up and opened the fridge to pack my lunch and saw Troy's headlamp sitting prettily on the top shelf. Later, when I asked Troy about that, he said, "Oh I was wondering where that was." It turns out he was so tired that night that he put the headlamp "away" in the fridge. I can't remember where the glass of milk he wasn't going to finish ended up.

So if you want to have some harmless fun, pick a strange object to put in the fridge and see how your spouse reacts. (Just try not to pick objects that they might need in a hurry when they're late and trying to leave. They might not be as amused then.)

-christina

More Drywalling...with Excitement

Working in the shop has greatly improved since the temperatures have come up to about freezing. When I joined Troy today, the torpedo heater was going and things were positively toasty. Well, ok, my fingers were a little "heat challenged" but that improved as I started moving around a little more. (I guess that's a euphemism for working harder.)

Just in case any of you doubters remain, Troy insisted on capturing proof today that I do drywall.

Not that you can really tell that it's me. (Unless you're a really good study of my butt, and if you are, I don't really want to know about it, and you probably shouldn't admit to it.) You can admire my new workboots and toolbelt. (Not purple, but this one actually works.)

After putting in a few full sheets of drywall, I started to do some of the fiddly pieces we had to cut around the interior walls. One nice thing about this is that the pieces are generally sized so I can handle them on my own. And another is that I can learn some drywall skills out in the shop before I'm forced to "showcase" them in the house. Because right now, I'm slow...but sloppy. (To paraphrase a friend.)

While I was cutting those pieces Troy thought he would keep himself productive by continuing with the ceiling pieces. A one-man job with the drywall lift. For some background let me share that this is the same drywall lift that has attempted to kill Troy a couple times. And those of you with any sense of foreshadowing can now guess that it tried it again. First piece of drywall is headed up to the ceiling, Troy gets it right up at 12 feet, and SMASH, it hurtles down at Troy, but missed because he has learned to duck. There was some unladylike language but that's ok because Troy is not a lady.

This prompts Troy to "fix it good." So he spends the rest of the day going to buy parts, disassembling the lift, and trying to reassemble it with heavier-duty cables. It's not finished yet, but Troy is hopeful that it is in the last stages. This left me working alone in the shop. Yes, I have been promoted to unsupervised drywall work. Woo hoo...wonder if I'll get a raise? (More responsibility and all...)

We now have the walls half done, and the ceiling is still about a quarter done. But before we do any more, we'll have to hang some more plastic. Blah...

Good night from

-Slow...but sloppy.

What You Don't Want to See

So Wednesday we had some torrential rains and high winds. There was considerable risk of being blown off the road in open spots on the way home. And you know that spot on the left of the windshield where the driver's side wiper pushes all the rain and it just sits there until it either flows down the windshield (if you're driving slow) or flows back to the side window (if you're driving fast)? Well, even as I was driving 50-55 mpg mph, the wind was actually blowing that water to the right across the windshield again. It was windy. And rainy. Ok, I think you get the point.

Anyway, as I walk into the house I hear noises that are a lot like water dripping. Now, there is a spot outside the kitchen where the water drips down from the roof and falls two stories onto the ground just outside the window that can make you think there's water dripping inside, but this was even closer. And louder. And yes, as I walk into the kitchen, the plywood we have on the floor to protect the foam insulation is wet and splattered. And there's water seeping through the bead board ceiling over the porch section of the kitchen.

I look around for Troy because he usually wants to know about these sorts of things so we can deal with them but I can't find him in the house. I presume then that he is working in the shop. (It turns out he was finishing his "homework" from the other day. Good, Troy; you get a silver star.) I look for the two-way radio, and see that they are actually both on his dresser. So he doesn't have one. And I briefly think about but quickly reject the idea of walking over to the shop in all the rain. So I pick up the phone and call his cel thinking, "Oh no, I have just become one of 'those' people." I mean I picked up the phone. Called his cel. While he was just 100 feet away in the shop. Shameful. But it worked. And I stayed dry. So there. [/end defensive rant]

Anyway, it turns out he knew about the water but just didn't see much to do about it. I rounded up a couple pails and put them out. We ended up with a couple inches in both: not that much really. (Well, any water coming through your ceiling is too much, but in the context, it's not like we were flooded out.) And although this is the first time it has leaked in the last 2.5 years, it does not instill a lot of confidence in the roof. I mean, I think most people hope their house stays dry even when it rains, or even when it's windy while it's raining. I hope you can see why Troy wants to tackle the kitchen next thinking it is the worst section of the house in almost every way you could measure it.

What you don't want to see in your house:

And this does not exactly fall into my dream decorating scheme:

All for now. No matter what else might be wrong with your house, please appreciate it if it is at least dry,

christina

P.S.

Yes, the weather was every bit as lovely as my wife suggests.
Yes, I did not get my assigned homework completed, and no, the dog didn't eat it.
By plywood, Christina of course means drywall. Easy mixup, and I actually debated for quite some time about using plywood for the inside walls, instead of the more conventional drywall. It would be stronger, and you could hang anything on it anywhere by just driving a screw in and you're done.

But, the wall is already super duper overbuilt strong, and drywall offers significantly better fire resistance. Since I do no end of things that could potentially blow up or spontaneously catch on fire, I like that little extra insurance. Happily, 5/8" fire rated drywall costs the same at Lowes as the regular 5/8" product. They don't even stock the non-fire rated product. I'm not sure how it's different, though I would guess they incorporate some sort of chemical fire retardant in the paper facing. The gypsum itself isn't flammable a bit, though it could be damaged by the heat of a nice house/shop fire. I suppose I could google that and find out. If I had to guess, I'd say it was treated with borate or boric acid or one of its other sisters.

In defense of my failed assigned homework, I did get biodiesel made, and I did do a very necessary car repair so I don't go out in the morning and find a pile of rust where my car used to be. I may do a blog post in future about the ridiculous and unnecessary obsolescence of most automobiles. I'll just have to build my own and show them how it's done. Soooo frustrating when people just keep doing it wrong.

Also, I finished my heavy wooden beam for hoisting whatever heavy objects I desire. It's (4) 2x 10's, five feet long, all glued and clamped and nailed into one massive 6" x 10" x 5' beam. This sits on the bottom chord of the three "heavy" tripled up roof trusses. The trusses are in turn supported by extra studs in the wall. All very hefty and strong. Aircraft grade galvanized steel cable will loop around said hefty beam to give a place to attach the hoist or come-a-long or skyhook or what-have-you. The cable by itself is rated for a load of 3,900 pounds. Typically, it will have a breaking strength of twice that or more. I will have six loops or 12 "individual" cables to transfer the weight and stress of whatever heavy object I'm lifting up to the beam. So the cables should be capable of 12 x 3,900 pounds, or 46,800 pounds.

Of course, the wooden framing would never support that, and I'll stick to a very conservative 2-3 tons maximum. I don't have any way to move or transport anything heavier than that anyway, so it all works out fine.

Finest regards,

troy

Warm Weather and Consequences

Did you have the fabulous weather we had yesterday? Suddenly it was sunny, for one, and warm, for another. Saturday was a good good day. I did have to work in the morning, but after that I stayed in town to eat lunch and do some shopping. Every place was packed as people were only too happy to get out of the house, mostly without coats, certainly no mitts, hats, and scarves necessary and just wander around smiling at strangers as you shared a connection in the sheer joy of having warm sun on your face. Oh, and shopping, of course.

I got home in the late afternoon but was solar-powered to get some work done, and I did. I also had dinner ready to go when Troy got in and we did some more work in the shop before bedtime: finished hanging the plastic we left half-hanging last week (that long ago already?) and by unloading the pickup of all the plywood drywall we weren't quite getting on the walls yet. The truck is now, at least, ready for whatever task it may need to perform next. I knew I would be gone the next day so I gave Troy the homework of finishing to screw in all the drywall we had up on the walls which he can do without me.

Those were the positive consequences of warm sunny weather bursting upon us. There was also bad consequences.

Troy got home from work and walked into the house declaring that he got stuck in the driveway ramp to the shop. The ramp had been developing a depression in front of the shop edge, but with the warm weather and melting, it had completely turned to mud. (I was so happy to not have even tried to park in the shop when I got home!) His first thought was to pull it out with the tractor. But alas! the tractor is parked in the shop. His second thought was to pull it out with the truck. But alas! the truck is parked in the shop. So he got it out the old fashioned way with some wood and gravel and whatall. Needless to say, we are currently not parking in the shop (again). And this also means that until the ground freezes again (and we all know it will), the truck is essentially trapped in the shop because it would get stuck trying to drive out if we tried it now.

Today Troy took advantage of the lovely weather by cleaning his car (it being drenched in mud in addition to regular road throwup). He was much distressed to see his paint flying off the car as he used the pressure washer. And the one fender is rusting. So he cleaned it up, treated it, and repainted it today. And he did (or started?) another batch of biodiesel which also needs warm weather. We had run out of fuel for the oil stove in the kitchen and this may tide us through the next cold snap. All this is what I heard when I got home this afternoon to discover that he had not done his homework. Tsk tsk.

And this evening we did admire a lovely moon.

Troy had to offer the view twice before I did what I should have done in the first place: get off the couch and go to look. And as soon as I saw it, I thought, "Ooo, I have to try and get a picture." So typical of me to resist the experience, but as soon as I have it, to get a picture to capture it. Sometimes I think I would be happy enough not actually experience life if I could just get the pictures of some experiences.

That's not a good picture.

But it's the one I leave you with tonight,

christina

Igloo Anyone?

Troy came into the house carrying this block of snow and I thought, "Oh no, now he's going to take up igloo-building." But no, he had already dismissed that idea (but it did cross his mind) and just wanted to show it off to me.

This was a small bit of the snow that he had to move to get at the pickup again. It has been snowed in for quite some time, and Troy had been snow blowing around it. Saturday he had to dig it out so we could use it for the fetching of plywood drywall. It was quite a job.

It is now in the shop, still full of plywood drywall since we did not get that unloaded yesterday. Troy would like to keep it in the shop for a while because the back window has leaked for quite some time and the interior is holding a lot more moisture than it should. Some time in the shop might dry it out. But in the very short term this has meant the cars are back out on the driveway, at least until we shuffle some more stuff around and try to make some room. (We keep running into chicken and egg issues.)

There also seems to be a mouse (or more) living in the glove box. I think I heard it trying to get out on the way to church and it made me a little nervous.

Back to Work

We have recommitted ourselves to the projects at hand and to working longer, harder, and just plain more...until we can't stand it again, anyway. We've had a little lull lately and that's ok, for a while, but then it's time to get back at it.

So this Sunday--Superbowl or no Superbowl--we bought 25 more sheets of drywall (about what the truck can handle) and went to put them up. But wait, drywall requires moisture barrier, tedious though it may be. So we worked at getting a 100' long, 8'4" wide piece arranged and hung around two interior walls that butted up against the outside wall. And when we were done, it was swEEt! (That's my "Peyton 'sweet'"--you know like in the commercial where he goes to San Diego and he says the weather is swEEt! I love it.)

We got it stapled all down the wall, and mostly across the ceiling. We had two staplers going (Troy's new cordless from Ryobi and another electric from Harbor Freight Menards--for as long as that one lasts anyway) and we were smoking...and then we faced another interior wall on the other side, the late hour, the cold, and our hunger and we were done for the night. (And guess what? in time to still watch most of the Superbowl--lucky me!)

Here's a rare shot of Troy in his "domain." Doesn't he look like he could play in the Superbowl in that get up? Looking very buff (and puffed!)...

Let me just share with you that he's not quite so manly when he's sitting on the scaffolding telling me to push him around like he's some Egyptian Pharaoh...

That's all from the Gardens,

christina