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Following on the heels of Greenspan calling the real estate market "frothy," Sound Money ran a story on this weekend's show about the expected coming decline in housing prices. The summary of the segment was "The smart money is on home prices eventually deflating." To give the how and why of the decline, Kai Ryssdal interviewed David Shulman, who is now an independent real estate analyst. Here are a few of the fun quotes from the interview:

It'll pop...If you look at international evidence, you could have prices drop by as much as 30%. Basically we're running out of buyers.

Shulman gave three triggers for the bubble bursting:

1. The AMT will apply to 20 million taxpayers in 2006 up from 3.5 million in 2005. These folks will no longer be able to deduct property taxes or mortgage interest from their federal income tax. This changed will increase their bill by a few thousand dollars, removing buyers from the market.
2. Banks are now offering option only ARMs in which the borrower pays neither principle nor the entire interest bill which causes payments to increase every month. The amount borrowed continually increases unless the borrower pays more each month than the lender requires. This will obviously place an increasing squeeze on borrowers and will look like a very bad investment when housing prices are no longer appreciating at a high rate than mortgage rates.
3. In 2007 $1 trillion in ARMs will become adjustable. This is the biggest single year reset in history. For comparison, the value of such mortgages in 2005 was $80B and will be $350B in 2006. "If interest rates stay exactly where they are today, we'll find lots of folks paying anywhere between 50 and 100 percent more on their mortgage payments by 2007," said Shulman. I expect that some of these borrowers will begin to have to sell their property in order to get out of mortgages they can no longer afford.

Is Shulman right? I have no idea. But I agree with him when he says, "This smells to me like NASDAQ '99." My neighbors have listed their home for 45% more than they purchased it two years ago, an annualized gain of about 21%.

I hiked from the "M" trailhead to Baldy Mountain in the Bridgers today. The roughly 5 mile hike gains about 4000 ft of elevation from the 5000 ft high parking lot to the 8914 ft high peak. It was great. The consistent rains we've had this spring have made for a terrific wildflower season. Feel free to take a peek at the pictures.

Toyota should buy out GM says Thomas Friedman in his most recent NYT piece, which while somewhat plausible based on Toyota's six times larger market capitalization is used primarily as a provocative point to allow him to extol the virtue of the "geo-green" movement that he's been attempting to advocate into existence. Along the way, Friedman says that the US should make incentives for the building of hybrid vehicles which can be plugged in so that the nation can have greater energy independence. His rationale for the increased independence is that "We don't import electricity. We generate all of our needs with coal, hydropower, nuclear power and natural gas." He's wrong. While I'm pretty sure that we domestically supply a larger fraction of our electricity needs that we do our petroleum needs, the US does import electricity from both of its neighbors. Furthermore, the US imports a good deal of natural gas, usually in the form of LNG, much of which is used to generate electricity.

While I agree with Friedman that pluggable hybrids are a good, technically accessible idea that probably ought to be encouraged by the government, I'm a little annoyed at his factuality gaffe.

In his latest ariticle which claims the US needs+ double the number of troops in Iraq, Friedman contrasts the Powell Doctrine of overwhelming force to the apocryphal Rumsfeld Doctrine:

Just enough troops to lose.

I finally got around to posting the pictures that we've taken over the last half year. Here are the winter and spring pictures.

These are a few of my favorites:

Reuters is running an article about OPEC hitting the wall. Rising gasoline prices have prompted gasoline consuming nations to request that OPEC increase its supply. OPEC has responded by officially saying that it plans to or is considering planning to raise supply. However, the OPEC President, who is also the Saudi Oil Minister, has said that the move is "just symbolic." Producers will not be able to increase output in the short term. According to Libyan Energy Minister Fathi Bin Shatwan, "Everybody in OPEC is at full capacity -- maybe Saudi Arabia has something left but it is heavy oil -- so in practical physical terms we have nothing." By heavy oil, Bin Shatwan means oil that cannot be converted to gasoline economically with current refining technology. Additionally, the Saudis have spare capacity for high sulfur oil, but that also requires special refining in order to be used as gasoline in Western nations because of the pollution problem it presents.

Recently President Bush has suggested that closed military bases be used as sites for new oil refineries. Initially this suggestion didn't make much sense to me. In light of the news from OPEC that the oil production capacity they have is for oil that we can't turn into gasoline, the President's suggestion makes more sense. It's not just that he believes we don't have enough refineries. I assume he believes that we have the wrong type (i.e., old) refineries which, increasingly leading to further gasoline shortages as the oil producers are able to produce less light, sweet crude and only have left the heavy, sulfurous crude. We'll need new refineries because the old ones won't have the requisite input.

My assumption is that the land the closed bases are on will be given or veritably given to oil refiners as an incentive to build newer refineries in the name of a secure national energy policy.

I do wonder what OPEC's hitting the wall bodes for the future. The Reuters article reports analysts’ projections of oil prices hitting a record of $60 per barrel soon. This apparently worries the Nigerian Presidential Adviser on Energy who said that as prices rise OPEC worries about the health of the global economy and about the potential development of cheap alternative energy which could undermine their business. Ostensibly OPEC would like to produce more, but is unable. Whether oil producers will be able to increase output eventually is not addressed in the article. I wonder if articles like this about a major Middle East oil field approaching depletion and underperforming quota won't become more common.