Archive for January, 2006

Twelfth Night, and the Dow

I didn’t spend a lot of time pushing this on here, but we had a very, very successful Twelfth Night Celebration on Friday, and raised some serious money for the American Cancer Society.  We’re grateful to the Apollo Dance Hall in American Fork, as well as our sponsors Hammond Promotions, Horizon Title, Kunzler Financial, Picture Perfect Utah, Sign-A-Rama in Murray (Brad Hill), The Music Makers dance band, and Weddings 4 Less.  All of you were marvelous.  Thank you from the bottom of our hearts.

Pictures to follow.

The Dow cracked 11,000 earlier today, then immediately retreated.  What that means for bonds is…nothing.  Bonds were absolutely flat today.  I think there’s a good deal of nervousness about the late January Fed meeting, which is the one where we have a changing of the guard from Alan Greenspan to Ben Bernanke.  If the Fed signals that its rate hikes are done with for now, that’s going to be really good for mortgage rates.  It ought to do this.  There is no inflation, or threat of it.  The yield curve remains inverted – seriously inverted (that’s when the short-term bonds have a higher yield than the longer-term bonds).  That always means a recession, or it has always meant that in the past.  Best way to avert an inflation, other than tax cuts, is an infusion of cheap money into the economy via lower interest rates.  I’m sure Bernanke does not read this blog, but I’m assuming that if I have this figured out, he does, too.  We’ll see.

Meantime, 30-year rates are still hovering at 6%, and 15-year rates are 5.375% or thereabouts.  Still lots and lots of money to be made in real estate in Utah.

It’s going to be a terrific year.

Politics as Usual

I have tried very hard not to get too overtly political in this forum, not because I have no political convictions, but because those convictions usually have little to do with mortgages.  There are exceptions, though, and I believe the Jack Abramoff conviction for conspiracy is one of them, so I’m going to comment fairly extensively on it and you can just skip this post if you don’t care, or don’t want to care.

Fair warning.

I don’t know Abramoff personally.  I do, however, personally know a number of the people he is alleged to have bribed.  Note: throughout this post I am going to use plain english for things that are, in the mainstream media, all tied up in legalese.  What is known in Washington as a quid pro quo, for instance (literally “something for something else”), is, in the rest of America, known as a bribe.  So I’m using the term that humans use, and not the one that politicians use.  Sue me.

For those who haven’t been following this story, either football fans still groggy from the incredible heavyweight fight known as the Orange Bowl or those of you from West Virginia – to whom my heart goes out – Abramoff is a high-powered A-list lobbyist who has now pled guilty to stealing money from indian tribes and using it to buy votes in Congress.  Oh, and he spent a little bit of the money on himself, too.

As I said, I don’t know Abramoff.  I do know a lot of lobbyists, though, and a fair number of Members of Congress.  First, lobbyists are not the enemy.  What lobbyists do is attempt to influence the Congress (or the Executive Branch, the State Legislature, the City Council, etc.) to pass some piece of legislation that fixes a problem their donors have.  This can be a small thing, like requiring a 5% tariff on foreign widgets, or a huge thing, like changing a tax rate from 32% to 43%.  Lobbyists are hired by a group of the disgruntled to get Congress to listen to them and do what they want. 

Second, the vast, vast majority of lobbyists are just people trying to make a living, and generally not a very good one.  There are rich lobbyists, of course, just as there are rich novelists, but when someone tells you he’s a writer, you don’t automatically start looking for the Lexus, do you?  Most lobbyists don’t make beans, and they struggle to stay relevant, get access to Congressmen and Senators, and they remember every single day that if they don’t raise money from contributions, they will starve.  It’s a brutally tough business.  One reason I left D.C is that after 10 years I didn’t think I had what it takes to do that job.

My father had what it took for 25 years, though.  To my knowledge, he never worked for an organization that had enough money to buy anyone, so he did a lot of arguing.  Cajoling.  Wheedling, even, though Dad was never good at that.  He just bludgeoned you to death with logic.  Sometimes that works.  Rarely, though, because you are dealing here with the Rock Stars of politics, the fellas that think The World Revolves Around Them.  They hate to be proven wrong even more than the average guy (and how much do you enjoy it yourself?), so logic is only successful in the long run, and most people – and most donors – don’t have the patience for that.  They have hit on a faster way to convince 220 Congressmen that their bill is really in the public interest.

Being a Congressman involves two often contradictory jobs.  One is legislating, which is the job they are elected to do.  The other is campaigning, which is the job they have to do in order to get to do the first job.  Very rarely is anyone good at both jobs.  In fact, I would personally speculate that about 80% of Congress is made up of people that are only good at the second job, and who are, in fact, miserable failures at their primary gig, which is making law.  But because our system requires that a candidate be elected first before he can legislate, it is inevitable that the electoral winners will be good campaigners.  This also means that they are most unlikely to be good legislators, because quite frankly, the one job requires public panache and savoir faire, charm, and a fantastic amount of self-delusion, and the other requires meticulous research, attention to detail, sober judgement, and infinite patience.  Name one person you know that has all these qualities.  Yeah.  Me too.  And he’s too smart to run for office.

Oh, I almost forgot.  Being Congressman (let alone Senator) takes one more thing.  Lots and lots of money.  This is where we get back to the lobbyists, in case you were wondering.

On the one hand, lobbyists can be extremely useful creatures.  They can function almost like extra research staff, especially if they are any of those things I just mentioned that good legislators have to be.  They can make solid arguments in favor of particular bills, provide you with mountains of research, even clean up the language of your bill so that it has a better chance to do what you want it to when it becomes law.  On the other hand, lobbyists ultimately get paid for results, so if the bill isn’t passing, there’s going to be tension there.  There are lots of Congressmen that are simply too stupid to follow good argumentation, and lots more that don’t care enough to do it, and they get the same number of votes as the ones really trying to do the right thing.  So to get their votes, arguing is not enough.  This leaves two options: threats and bribes.

A threat, to be credible, has to be delivered by someone with the power to make good on it.  When the Utah Shooting Sports Council (a group that has lobbyists) comes to Congressman Matheson and tells him that it would be in the best interests of his political career for him to vote “no” on a particular bill, that is unlikely to be very persuasive.  If the NRA comes and says the same thing, they will get his attention.  It’s all about membership and bucks in that game.  If the NRA comes out against you in Utah, that’s going to be tough to overcome at the ballot box.  If the Church of Jesus Christ of Latter-day Saints – that’s the Mormons, for those of you that are not up on the Utah lingo – were to say that to you, you’d know that your political life was on the line (they are very, very careful not to do this).  Threats are made by use of fax, email, written letters, or (most effective) phone calls, and for a lobbying group to be powerful it must be able to generate not just donations to keep the doors open, but political pressure in the form of citizen outrage.  As you might imagine, this is hard to do.  Really hard.  When was the last time you got mad enough to call your Congressman?  Right.

But there’s another way, and it’s faster than any of the others, and it’s easier, too.  It’s called a bribe.  Lobbyist A goes to Congressman X and says, Your Lordship, I think you should vote “yes” on this bill.  Congressman X consults his Deeply Held Beliefs and says no, he cannot do that.  It would be a betrayal of the Public Trust.  Lobbyist A replies in sadness that he believes that he cannot then make a small contribution to the Congressman’s re-election campaign, and will instead report to his donors that they should back the Congressman’s Arch Enemy in the upcoming.  Congressman X consults the codicil to his Deeply Held Beliefs and replies that he does have a particularly important media campaign coming up in a month or so, a real corker that would Set The Record Straight about his opponent, and could he have another look at the legislation in question.  Lobbyist A says certainly, he’d be happy to arrange the Congressman’s staffers’ trip to Geneva to consult with some UN experts on the crafting of the legislative effort, which he is sure will result in a bill worthy of General Acceptation.  And he believes that his donors would be gratified if the Congressman would accept a token sum, over a period of months, that might help defray the expense of combatting the Foul Lies of the Opposition, etc.  You can see how this works.  Feels all slimy, doesn’t it?  Well, it is.  And it happens all the time (sometimes not quite this overtly).

Here, however, I would like to point something out.  This kind of transaction is, in fact, a normal part of my day.  Yeah, MY day.  I am not a Congressman, but I have a steady parade of people in my office telling me that I ought to do thus and so, in return for which they will give me this and that.  There is a word for this kind of thing in the private sector.  It’s called business.  See, where we get in trouble on this is when we expect a Congressman to do what is in OUR best interests instead of HIS best interests.  In a standard business arrangement, what do you expect the other side to do?  What is best for you, or what is best for him?  Naturally, you expect that the other guy is going to do what is best for him, and he is expecting the same from you, and everyone wins when this happens.  Do you go to the grocery store to see what you can do to help them out?  Do you think that the flyers you get from the local dry cleaner are sent to you because they know you desperately need their assistance?  Business arrangements exist because each party wants something the other can provide, and businesses exist for the purpose of generating profits by providing things.  The economy could not function without the kind of arrangement I outlined above.  And everyone knows this is what is happening and could hardly imagine doing things any other way; in fact, almost everyone is benefitted extremely by participating in these kinds of arrangements, and earnestly desires to participate in as many of them as possible.

Oh, but government people aren’t supposed to act like this.  They are supposed to have the public interest in mind, not their own wants and desires.  This is, of course, manifestly ridiculous, all campaign rhetoric to the contrary.  Given the current set of circumstances, where elections to Congress cost $500,000 and up, and Senate elections start around $2 million, given that the government has around $8 trillion to spend, and that Congress is the only body on earth empowered to authorize the expenses, and given that Congress itself has almost unlimited power to change economic rules that could, with the stroke of a pen, destroy your business, your home, and your life, it seems to me inevitable – absolutely inevitable – that a large number of people would spend huge sums for the purpose of buying a vote in Congress.  If I were Microsoft, I would literally spend millions every year to do just that, in the interest of self-preservation.  Intel I can handle.  Apple is no serious threat.  But federal legislation is potentially devastating, and that’s a risk I just couldn’t take.  If you were Bill Gates, and your billions were just sitting there, and you knew that Congressman Podunk from South Dakota was introducing a bill that would ruin your business, what would you do?  Correct.  You would do what Jack Abramoff says he did.  And I wouldn’t blame you one bit.

But it’s still wrong, because like it or not, the Government IS supposed to be looking for the public interest, and those we elect ARE supposed to be considering the good of the Republic and not what is good for them personally.  The fact that the system all but requires them not to do this may explain the problem, but it doesn’t make it go away.  As long as the government possesses this power, people are going to do what Abramoff did.  They are.  Categorically.  It would be stupid not to.  Therefore, we have to change the system.

Most attempts to do this focus on campaign finance reform, limiting contributions from corporations, lobbying groups, things like that.  Other attempts limit contributions from lobbyists to politicians to $4.17 and a hot dog, stuff like that.  I’m sure these people mean well (actually, I’m sure some of them don’t, but that’s a topic for another time).  I’m sure they are just trying to clean up a messy game.  But all this tinkering does is push the game underground.  The power is still there, and the need to protect oneself against this power is still there, and the means to get protection is still there, it just requires more creativity.  Lobbyists, are among the most creative humans on the planet.  Rich donors (Microsoft, IBM, etc.) are able to pay shockingly creative people to come up with ways to circumvent the system.  If you get caught, all you have to do is buy off the system to look the other way.  You don’t think this happens? 

Now, I didn’t say that it always worked.  There are people that can’t be bought.  Rarely are these people in a position to call the shots, but it happens.  Corruption does get exposed (having a contentious two-party system has definite uses), and bad guys do end up in jail.  No question.  But ask yourself if you think law enforcement gets all of them, or even most of them.  Even if they could find them, even if they could catch them, could they convict them?  Two letters for you: O.J.  The immediate past President of the United States was convicted of perjury.  Nothing happened to him.  He was credibly accused of rape by more than one victim.  He was never tried.  These facts are not even in dispute.  So while it is true that sometimes the graft is exposed, it is undeniable that most of the time it isn’t, and even when it is, the odds of said graft carrying any stiff penalty are long indeed.

Sound like there’s no solution?  Should we just throw up our hands and surrender?  Should we try to get in on the action?  Nah.  There’s a way out.  The good news is, it’s a simple fix.  The bad news is, it’s practically impossible to get people to try it.

Since the money will follow the power, we have to get the power out of politics.  Remember, what is a federal crime in government is a family shopping trip out here in the real world.  We don’t want to stop financial transactions for mutual gain.  We just want to stop them happening at the Provo City Council (or any other government organization).  The only way to do that is remove from government the power to enact laws that could destroy our lives.

Once, when the government was first founded in this country, the idea that your Mayor could authorize the bulldozing of your house to make way for a WalMart was beyond any conceiving.  But now, he can.  Once, the idea that government could take 50% of your income to give to other people was unthinkable.  But now, it does.  Once, the idea that saying a prayer at your graduation would somehow violate the Constitution was laughable.  Now, it isn’t.  All these things, and thousands more, have real impacts on our businesses, on our families, and our lives.  All these things are powers the government has taken to itself, mostly, I hate to admit it, on our urging.  I’m sure some of it, maybe even most of it, was done for the purpose of making our lives better.  Perhaps it’s too late to even consider if it has.

But we should.

Here’s what I do, and you are welcome to copy this plan and use it without attribution.  One, I almost never vote for incumbents.  You get one round in the chamber, and that’s it.  Make room for others.  This includes (especially) judges.  Two, I only vote for people that have promised me nothing at all.  If a guy tells me he’s going to “fight for me” in Congress, he’s done.  Forget it.  I don’t want him to do ANYTHING for me.  The fastest way to get my vote is tell me that you will only vote in favor of legislation that repeals other legislation, and you’ll vote no on everything else.  And three, I transact as much business as possible.  Logic is great, and I try very hard to use it.  But logic and a megaphone gets better results.  My megaphone is my business.  I earn respect by the way I do my job, and the more people I can work for, the more likely it is that the “Leave Us Alone” coalition will gain momentum.

Abramoff will certainly go to jail, and his confession will definitely result in the defeat of several Congressmen and Senators in November.  That’s probably a healthy thing.  But unless we start asking why all our regulations, enforcements, and investigations still haven’t eradicated this kind of thing, we’re never going to get any closer to being rid of the other thousand Jack Abramoffs out there, the ones we don’t know about and never will.

We’ve been warned.

Let’s Get This Party Started!

Wake up!  It’s 2006!

A couple things to get us started.  The markets are waiting for the Fed minutes from the last meeting, watching to see if there’s any indication about the timing of the “pause” in rate hikes.  I’m hoping for a total cessation, myself, but that’s probably wishful thinking.  Meantime, we’re holding pretty steady just under 6% on the 30-year and 5.375% on the 15 year.

Here’s an article from Fortune about real-estate markets that you might find interesting.  Note that Salt Lake is ranked #20 out of 100 in projected real-estate appreciation for 2006.

It’s going to be a great year, whether these numbers are accurate or not.

NEW YORK (FORTUNE) — Everybody from Los Angeles to Boston — your mom, your doctor, your dry cleaner — is puzzling over which way the nation’s real estate market is headed. Up or down? Bubble or not?It’s a debate that’s been raging for years, and recently that there have been clear signs of a slowdown. It’s unlikely, however, that the housing market will come to a screeching halt.To get a clearer picture of how things may play out, FORTUNE turned to Moody’s and home property-valuation service Fiserv CSW.The researchers crunched numbers on the 100 largest metropolitan regions in the country, and the results of their analysis appear in the table below.Nationally, the overall outlook seems reasonable: 7 percent appreciation for 2006 and flat for 2007. But markets that have seen the greatest appreciation over the past five years appear to be vulnerable.Indeed, at some point in the next two years, according to the forecast, a third of the nation’s 100 largest metro areas (accounting for 60 percent of the U.S. population) are expected to see modestly falling house prices.Real estate bear markets often come in the form of steady declines over many years, rather than sudden sharp drops.As inflation gradually gnaws away at the value of nominal home prices, regular folks might not take much notice. But in the long run the loss of wealth becomes all too real. From 1989 to 1997, for instance, Los Angeles residential real estate dropped more than 40 percent in inflation-adjusted terms.The nation’s most perilous regional market, according to the forecast data: Las Vegas, a speculator-infested hot spot. Prices there are projected to deflate by 7.9 percent next year, the year after by another 5 percent. For newcomers to the market and those with low-money-down deals who may have overleveraged themselves with adjustable-rate mortgages, even a modest downturn could mean financial jeopardy.