Money matters: A House of Cards about to fall? Part 1
Graham Macdonald
MBMG International Ltd.
For anyone who hasn’t seen Cobus Kellerman’s excellent
article “House of Cards” on our website, the timing now seems ideal to highlight
the three major concerns that he has regarding the US economy:
1) A possible slowdown in the housing market
2) High energy prices (oil has only recently fallen below $70)
3) Increase in interest rates putting even more strain on an overstretched
consumer
Whilst we can debate a plethora of other potential stumbling blocks (not to
mention exogenous shocks such as terrorism and energy crises), we won’t have
enough time to address any more than the above three problems in one report.
Cobus starts with the most erudite body of people that share some of our
concerns - the Federal Reserve. This is a verbatim quote of a now prescient
speech delivered by none other than Alan Greenspan last August. We thought it
was a very important warning then and do so now (emphasis is ours):
“The determination of global economic activity in recent years has been
influenced importantly by capital gains on various types of assets, and the
liabilities that finance them. Our forecasts and hence policy are becoming
increasingly driven by asset price changes. Thus, this vast increase in the
market value of asset claims is in part the indirect result of investors
accepting lower compensation for risk. Such an increase in market value is too
often viewed by market participants as structural and permanent. To some extent,
those higher values maybe reflecting the increased flexibility and resilience of
our economy. But what they perceive as newly abundant liquidity can readily
disappear. Any onset of increased investor caution elevates risk premiums and,
as a consequence, lowers asset values and promotes the liquidation of the debt
that supported higher asset prices. This is the reason that history has not
dealt kindly with the aftermath of protracted periods of low risk premiums.”
In addition, industry participants are definitely starting to tell us a
something isn’t right - Lennar Corp (LEN) chief executive Stuart Miller said,
“Market conditions have been slower in many of our major markets across the
country. Not only have price escalations slowed materially in most markets, but
traffic has been cooling down as well.”
Indeed, Lennar, like other builders, faced weaker housing demand, a surge in
cancellations and more incentives and price discounting in the latest quarter.
Orders rose only 4%, which is significantly slower than the 25% increase enjoyed
in the previous quarter. The company’s cancellation rate rose to 24% from less
than 20% a year ago, and the company’s average discounting and incentive program
amounted to 4% of the average home price, up from 2.75% a year ago. Toll
Brothers Inc (TOL), the largest US builder of luxury houses, said fiscal
first-quarter orders plunged 29 percent, the first drop in three years - Toll
also cut its sales forecast for the year as demand for new homes weakened. In
some cases, such as Ryland’s (RYL), new home sales were recently below 2004
levels.
(Un)fortunately market participants seem to agree wholeheartedly with industry
participants… We all know that Cobus loves his charts and if we are to believe
the charts, the story is that the housing boom is kaput - it’s over. If one
looks at the daily charts of three of the biggest builders in the US - the
Ryland Group, Toll Brothers and Lennar Corp, one will find that all three charts
have broken below 50 day MA and 200 day MA respectively… You don’t have to be a
chart genius to be able to interpret what these three charts are saying. In a
word, it’s “top-out”. The idea is not to knock these companies (and their
respective management), but rather to give us an idea of where the American
housing market is heading. This is quite possibly even better illustrated by the
Philadelphia Housing Index (SHGX) which has most definitely topped out.
Are there any other fundamental clues that add to our nervousness?
Median Home Sale Price: The chart shows rapid deceleration of price
gains. We expect to see more of this over the next few quarters. As sellers and
buyers engage in a stare down, sellers continue to gradually lose pricing power.
New Home Inventory: What can you say about this? Builders have created a
huge inventory. It’s no surprise that the enormous increase in supply has
impacted prices and/or demand. On the 45 year chart, the recent rise (since
2003) is historic!
Single Family Home Sales: The long uptrend in sales has broken. We do not
know how far it will retrace, but we imagine it may very well continue to do so
as mortgage rates tick higher or the economy cools (or both).
Mortgages Applications: Another long uptrend broken. Exactly the same
story as above: higher interest rates mean less sales and re-financing.
David Berson from Fannie Mae Economics notes: “Housing continues to
weaken, although it’s not collapsing. Most of the latest data on housing
activity shows that this sector continues to weaken, with starts and existing
sales both falling in April (and even the rise in new home sales last month
wasn’t a sign of significant strength). With mortgage rates edging upward,
economic growth moderating, and home price appreciation slowing (and in some
areas falling, thus reducing investor demand), the prospects of a bounce-back
for the housing market this year appear to be dim…”
But why exactly are we so perturbed about this coming slowdown in the US Housing
market? The whole world, especially emerging Asia, is counting on the American
consumer to keep spending as he/she is responsible for almost 70% of US GDP.
Unfortunately there is a very tight correlation between consumer spending and
housing prices. But how stretched is the American Consumer? In one word - VERY!
Top be continued…
The above data and research was compiled from sources believed to be
reliable. However, neither MBMG International Ltd nor its officers can accept
any liability for any errors or omissions in the above article nor bear any
responsibility for any losses achieved as a result of any actions taken or not
taken as a consequence of reading the above article. For more information please
contact Graham Macdonald on [email protected]
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Snap Shots: Composition can make for KO pictures
by Harry Flashman
Did
you ever stop to consider that what makes a great shot has everything to
do with composition, and practically nothing to do with the equipment?
With all the latest cameras, the chances of a shot being underexposed or
overexposed are virtually nil, and even camera shake is being overcome
by tricky electronics. Colors? Almost totally at our discretion. With
digital photography, you just wind in a bit more and save the image to
disk.
Pascal’s
food ‘framed’
So, it is my contention that understanding photographic composition is
the key to getting great photographs. It is that alone which
differentiates a “good” photo from a “bad” or “ordinary” one? Get the
composition correct and you have a winner.
Here’s how. The photographer’s eye is something that you may or may not
be blessed with, but these are some easy hints which will improve the
composition and final visual effect of any of your photographs.
Guaranteed!
The first rule of composition is to “Look for a different viewpoint”.
While the standard, “Put the Subject in the Middle of the Viewfinder”
idea will at least ensure that you do get a picture of the subject, it
will also ensure that your photographs will be dull and boring! If
nothing else, always take two shots, one in the “usual” horizontal
format (called “landscape”) and the second one in a vertical (portrait)
format. You will be amazed just how this simple trick can give you a
better picture. Landscapes taken in the vertical format make the viewer
look more deeply at what the photographer is trying to say in the
picture.
In attempting to get that different viewpoint you should also try to
take some shots from something which is not the standard eye-level
position. Lie on the floor, climb a ladder - anything! Just don’t get
stuck with standard eye-level views.
The next way to add interest to your photographs is to make sure the
subject is one third in from either edge of the viewfinder. Just by
placing your subject off-center immediately drags your shot out of the
“ordinary” basket. The technocrats call this the “Rule of Thirds”, but
just try putting the subjects off-center. While still on the Rule of
Thirds, don’t have the horizon slap bang in the center of the picture
either. Put it one third from the top or one third from the bottom. As a
rough rule of thumb, if the sky is interesting put more of it in the
picture, but if it is featureless blue or grey include less of it.
Simple!
Now what else can you do? One good little trick is to include some
details in the foreground of a shot to lead your eye towards the main
subject. Look for lines, roads, telephone wires, fences, etc., with
strong lines to include in the shot. Arrange the picture so that the
lines “point” towards your main subject. A few foreground details also
help add interest to any photograph.
One foreground detail to always look for is the possibility of producing
a “frame” around the main subject. We call this the “Frame within a
Frame” technique. It is a very successful way to convert an ordinary
shot into one with a lot of visual appeal. And this is indeed a
successful ploy. Any of you who have ever looked at all the entries in a
photographic competition will perhaps recall that the winning
photographs generally will have used that technique.
Perhaps the last tip in making your shots more interesting is to include
people in them where possible. That shot of sweeping rolling hills
always looks better if you can put some human interest into it as well.
A girl on a horse, a couple on a seat or a jogger all help to elevate a
landscape above the hum-drum. Always look to add the human element.
In summary, take any shot in portrait as well as landscape mode, try to
avoid just simple eye-level shooting positions, place the subject off
center, don’t place the horizon line bang in the middle of the picture,
look for frames within a frame and stick people in your pictures to give
some interest.
Modern Medicine: Is Willie the Wonder Wand wilting?
by Dr. Iain Corness, Consultant
When Willy the Wonder Wand stops working properly, this can
be an enormous psychological blow to most men. In medical terminology this
is known as Erectile Dysfunction, or ED as we medicos love acronyms.
The big problem with ED is that it also produces another problem called
Performance Anxiety. Will ‘it’ work this time? Or will ‘it’ fail and you
will be embarrassed? Which makes it even more likely that next time the
performance anxiety will be even greater, with an even greater chance of
failure!
Performance anxiety can be treated, but psychotherapy takes a while and
great faith in the psycho-therapist. Sometimes it is quicker to use another
form of treatment so that the patient can be reassured that, in fact, Willy
still works, so he can stop worrying.
The first thing to do if ED is becoming a problem is to go and have a full
check up. The cause of the problem generally does not lie in the
undershorts, but somewhere else in the body. Or even between the ears. If a
physical problem is uncovered, it must be attended to before all else. This
should include an estimation of testosterone levels, as correction of low
levels can sometimes fix the problem.
If the condition is simple ED, generally caused by aging (if you are over 65
you should expect it), then oral medication will help. This is Ms. Hillary’s
“Vitamin V”, otherwise known as Viagra, or its later derivatives Cialis and
Levitra. They all work the same way, telling the brain to relax the muscles
in the penis to allow the spongy tissues to fill with blood, thence
producing the erection. This does not happen without some psycho-sexual
stimulation, by the way. Viagra is not an instant boner! There is also a
problem with this group of drugs in that they do not mix with other nitrate
drugs such as are used for cardiac conditions. This includes nitroglycerin
(usually taken under the tongue for angina) and Isordil, used to dilate
blood vessels.
There are other ways of getting the smooth muscles in the penis to relax,
and this was one of the first drugs to be used, called alprostadil, probably
better known by the trade name Caverject. This is injected directly into the
penis and will produce the required erection between 5-20 minutes in
general. However, since I cannot even inject my own thumb, I can’t imagine
chasing my Willy around the room to play skewers.
There are problems with alprostadil too, and these can include bleeding at
the site of the injection, and a rather painful condition called Priapism,
in which Willy will not lie down. I well remember the first chap in my
practice to try this form of treatment ringing me up the next day saying, “I
think we should cut down the dose a bit, Doc. They could have picked me up
by the legs and ploughed the front garden with me this morning!”
Of course there are other ways of making Willy wake up. Vacuum devices are
amongst these. By subjecting the penis to a vacuum, it will swell up, and at
the right moment a rubber ring is then slid down the shaft of the penis to
keep the blood in long enough for intercourse. You also have to remember to
take the rubber ring off, or Willy might just drop off by itself!
Another form of treatment involves penile implants. These can be inflatable,
with the pump kept in the scrotal sac (I’ve got tears in my eyes already),
or semi rigid rods that are always in place, and Willy’s owner flips it up
into position before intercourse. Since this requires an operation to
implant the rods, you have to hope that there are no problems
post-operatively, such as infection, or Willy might drop off again,
permanently!
If you have a regular partner, it is best to discuss your fears and Willy
worries with her too. You may be amazed to find that many women are not as
much into the sexual Olympics as you may imagine. You can still have much
fun in bed, but at a slower and more relaxed pace.
Heart to Heart with Hillary
Hillary,
Your column is amazing and my story is not all roses, but I have been in
love with Thailand ever since my first visit at Halloween in the year 2000.
It was then and in Bangkok that I met the love of my life. We have been
married for 5 years now, I’m 49 and she is 29. At the time, I was working in
Singapore and needed a break. Little did I know, but while on holiday “Fate”
would play its hand and a right turn instead of left brought me face to face
with the most beautiful woman on Earth. I will admit I had heard the stories
of Thai women and had to find out for myself, but of all of the women I met,
she touched my heart. In my eyes she was perfect and in her eyes I was
perfect. I wanted a beautiful, loving, caring wife and she wanted someone to
love as well as take care of her and her son. I am not the most handsome man
and it took me quite a while to realize that I was being shallow by just
looking for beauty first and then love.
We got married in Bangkok in a traditional Thai ceremony and we also got
married in Singapore in a civil ceremony. It was much easier to bring her
and her son to Singapore where we could visit the US Embassy together while
progressing the “Spouse Visa”. The whole process took about 2 months and in
December 2001, I brought my new bride and son home. It was not easy for her,
she was stuck at home all day caring for her son while waiting for me to
come home from work. A few things I did not realize were, she was not mobile
anymore, no friends and no family other than visits via telephone and now
she had to take care of her son 24/7. She was used to working, helping to
support the family and an aunt would take care of her son. She started to
get very depressed and I suggested that she go back to visit her family for
a month or two and I would come as soon as I could, then we could travel
back to the USA together. While away from me, her family talked her into not
coming back to the USA, but to stay in Thailand. They told her that I would
not care and would just visit her when I could. My wife told me that she was
not happy in the USA and would remain my wife, but wanted to stay in
Thailand. I let this go on for a while and visited when I could, my phone
bills were tremendous, but I finally had to give her an ultimatum. I told
her that I wanted her with me and that if she could not come back to the
USA, I would have to end our marriage. After staying in Thailand for six
months she came back home to me.
While apart from her I did a lot of thinking about what she needed to be
happy in the USA. Although she would always say that nothing was wrong and
everything is “up to you”, she really did not mean it. I bought a car and
taught her to drive, brought her to Thai restaurants and introduce her to
the Thai and Lao people that worked there, placed her son in day care to get
him some education and to give her a break and we also moved to the city, so
that she would be closer to shopping and her new friends.
A lot has happened since then. She visits once a year and no longer wants to
live in Thailand, but I do. Being on a 4 week on and 4 week off rotation in
my current job would allow me to do that. She has a great group of friends
that support her. Her family no longer bothers her for money (or at least I
do not hear about it) because they have accepted what we are able to give,
although sometimes we have to help out in emergencies. Our son is now in the
second grade and doing well. I’m the only “Dad” he will ever know. Coming
home after 4 weeks away is like another honeymoon. She cares greatly for my
children and grandchildren and they care for her.
I know that not many of your submissions turn out as happy as mine, but my
story can provide hope for those that still looking. Take care.
Devis from Dixie
Dear Devis from Dixie,
Congratulations! You have discovered that marriage is a partnership, not
subjugation! When things were not working out the way you wanted, you had
the nous to sit down and listen to your wife’s needs as well as expressing
your own. Her depression came from being unable to do the things she was
used to, not that America was a strange country. You met these problems head
on and worked out the way to find a compromise, by supplying the ingredients
to fulfill the needs, and remain as a family in the US. The message you are
giving to those in a quandary with their Thai ladies is to learn to look at
both sides, and work towards resolution. Well done!
A Female Perspective: Raffles
with Sharona Watson

Raffles: the ultimate luxury.
One thing I hadn’t dreamed about was the possibility of another trip abroad.
I told you; my husband likes to surprise me. Sometimes, if not usually, it
seems like I’m the last to know. So you can imagine my surprise when one
morning I was informed that I should pack my bags. “Where to this time?” was
my immediate response. Actually, I was slightly irritated. After all, maybe
I had plans? “Singapore” came the response. I greeted the news with
something of a sigh, to be honest. I don’t want to appear ungrateful, but I
love living where we do. It’s so wonderfully peaceful. Then there’s the
business of getting everything ready, the two girls packed and organised;
even for a short journey, it seems to take ages.
I’ve been to Singapore before. There are definitely some special areas and
great things to do and remembering this seemed to put me in a better mood.
Suvarnabhumi airport is much closer than Don Muang for us as well, so maybe
it wasn’t going to be so bad after all. It was the children’s half term
holiday, so I suppose I should have known that we would probably be going
somewhere. It’s not like Andy to let an opportunity to give the kids a break
slip by.
It’s the second time we’ve been to the new airport and I have to say I
haven’t quite worked out whether I like it yet. For some reason the
officials there are very officious, frankly verging on rude sometimes, which
shocked me a bit. Then there’s the endless miles to walk and some obvious
things like notice boards which are too low, hung in places like the centre
of a thoroughfare where a crowd just gathers around, straining to see the
information which is in a font so small that you need either binoculars or a
magnifying glass to read it, depending on how close or far away you are. I
suppose it’s just teething trouble, but in the meantime, there are a lot of
passengers whom once they have had enough of admiring the building (which is
definitely impressive) will become a little bit irritated by the things
which don’t work. I’ve read in the Pattaya Mail and other newspapers
of criticism of the toilets (dirty and flooded) and the temperature (which
fluctuates terribly) - I just hope they get it right in the end. The sooner
the better.
The first thing I always notice about Singapore is the organisation.
Everything is in place and functions like clockwork. And the airport? You’d
be hard pushed to find anywhere in the world to compare with Changi. Free
internet, it’s easy to move around in and actually, you don’t even feel like
you’re in a hurry.
The other thing about Singapore is how clean it is. Of course everybody
obeys the rules; so much so that I cannot remember seeing any police in the
three days we spent there. Maybe they’re all under cover?!
The Indian quarter was a brilliant sight of shining lights of every colour.
It was the Hindu festival of Deepavali, the ‘festival of lights’ where
people from all ages give expression to their happiness by lighting earthen
‘diyas’ (lamps), decorating the houses, bursting firecrackers and inviting
near and dear ones to their households to share in a sumptuous feast. The
lighting of lamps is a way of paying obeisance to god for attainment of
health, wealth, knowledge, peace, valour and fame.
I had thought that Singapore seemed busier than usual and I was right.
Deepavali had coincided this year with Hari Raya Puasa (Day of Celebration),
when Muslims celebrate the festival of Aidilfitri to mark the culmination of
Ramadan, the holy month of fasting. That’s the thing about Singapore; it’s
such a brilliant cultural mix that there’s always something of cultural
interest going on; Indians, Malays, Chinese and amongst many others a group
called “Eurasians”. It’s brilliant. That also means the food is going to be
wonderful and the choice is endless. Of course, it’s much more expensive
than Thailand but on holiday, you tend to push the boat out a bit more,
don’t you? Especially in the Indian quarter and especially in just about the
best shop I’ve been too; five floors of shopping paradise, twenty four hours
a day; Mustafa’s.
The best thing came last. I had wondered where we were going to stay. Andy
was staying suspiciously quiet on the subject. He’s bad enough to take
shopping at the best of times but he seemed unusually keen to get out of
Mustafa’s; he claims it’s the only shop he likes going to. Back in a cab
(they are great, the Singapore cabbies) and we started driving past some
older buildings. We’d taken ‘Tiffin’ in Raffles last time we were in
Singapore so I recognised it but when we turned in to the gravel driveway, I
was taken completely by surprise. Naturally I was immediately alarmed by the
potential cost, but Andy just uttered one of his ridiculous sentences,
“Raffles, my dear. Very expensive to those who can afford it, free to those
who can’t.” It’s also clearly a place where those who can’t, leave and those
who can, stay.
Usually, I’m not one to bask in the reflected glory of the British Empire;
where I come from there’s not much glory reflecting from it anyway, but
Raffles is an amazing place. With the suite came a (wait for it…) valet,
called Terence, whose task it was to attend to our every need, which he did.
No detail is overlooked. There’s period furniture alongside every imaginable
modern convenience and quite a few things that I hadn’t even imagined;
summed up by the Tiffin room, where surely the finest food available
anywhere in the world is laid out in front of you as far as the eye can see.
The service is so personal and genuine that you feel like you never want to
leave. Unfortunately, staying forever wasn’t an option, but it was an
unforgettable experience. That’s it; Raffles is less a hotel, more an
experience.
Next week: Contortions
[email protected]
Learn to Live to Learn: Trucking with Drucker
by Andrew Watson
If Abraham Maslow is a genius, then in the same category of ‘greatness’ I
have to put Austrian-born American management guru, educator, and author
Peter Drucker, who specialized in strategy and policy for businesses and
social sector organizations. In the field of education management, he’s a
top man.
It’s always refreshing to have your beliefs challenged; it gives you the
opportunity to justify your belief system, to upgrade where appropriate and
to re-evaluate and change where necessary. At a simple level, it’s like
asking someone to justify why they support a particular soccer team. In my
experience, a typical (English) response would be ‘because you’re supposed
to support your local team’. But how many of us carry this logic into other
realms? Does the same person who supports their local soccer team, support
their local band, or indeed their local art gallery? Do they forego the
pleasures of the supermarket to support their local grocer or milkman?
Surely it depends on your criteria?
You can imagine the difficulty in trying to convince a football aficionado
that there might be different criteria for supporting a soccer team, such as
‘the way they play the game’. For example, my criteria are undoubtedly based
on the aesthetic, both at national and international level. The alternative
involves a peculiar illogical allegiance tied up in an emotional attachment,
which perhaps defies debate; a bogus sense of shared values with people whom
you might otherwise cross the road to avoid. Let’s face it; you don’t
seriously believe that the club, the players and the management, actually
care about you, do you?
Then there’s the involuntary but nonetheless blind hypocrisy of it all. I
knew people who used to travel fifty miles to see Arsenal, yet persisted in
the delusional, referring to them as their ‘local team’, whilst they would
chastise someone for ‘supporting’ Manchester United on identical grounds of
‘distance from the city.’ It’s clearly an unsustainable position. As Paul
Merton used to joke, “People ask me, do you live locally? No, I don’t,” he
would respond, “I live five miles away from my house in a tent!”
Resistance to redefining a personal paradigm is behind a great deal of
inefficiency, injustice and ignorance and these are the kinds of issues that
Peter Drucker sought to address. He was interested in the growing importance
of people who ‘worked with their minds’ and was intrigued by employees who
know more about certain subjects than their bosses or colleagues and yet had
to cooperate with others in a large organization. Rather than simply glorify
the phenomenon as the epitome of human progress, Drucker analyzed it and
explained how it challenged the common thinking about how organizations
should be run. Personally, he undid a long standing allegiance to Karl
Marx’s world-view of the political-economic landscape.
It was Drucker’s treatise on politics and society that gave him the
opportunity to investigate the internal machinations (pun intended) of
General Motors. He was fascinated with the “problem of authority” and
promoted the “need for dissent and alternatives,” rightly (in my view)
pointing out that “unless one has considered alternatives, one has a closed
minds”. Following meekly with sycophancy is nothing short of an abdication
of responsibility.
The following is a tremendous anecdote (from Drucker, 1974) about the
fundamental importance of generating disagreement: At a General Motors
meeting, the chairperson is reported to have said; “Gentlemen, I take it we
are all in complete agreement on the decision here?” Everyone nodded their
assent. “Then,” he continued, “I propose that we postpone further discussion
of this matter until our next meeting to give ourselves time to develop
disagreement and perhaps gain some understanding of what the decision is all
about.”
Surely it is a nonsense to start with a conclusion and look for the facts to
support it. Right decisions require “adequate disagreement”; indeed
“disagreement” continues Drucker, is “needed to stimulate the imagination”.
Moreover, he stresses that what is required above all, is ‘understanding’.
The effective manager must ask of another, “What does this person see that
would make so different a position seem to him rational?” Unfortunately, the
capacity to really see another person’s point of view, which necessarily
involves considering the possibility that you are wrong, is often limited by
myopia and can be compounded by a genuine lack of interest in considering
the possibility of being wrong.
Drucker was a courageous writer. Whilst willing to engage in fierce debate,
he wasn’t going to be bullied into submission. Of those appointed to
management positions, he speaks of the need to place “uncompromising
emphasis on the integrity of character”. For it is character through which
leadership is exercised. It is character that sets the example and is
imitated in turn. “Character is not something a man (or woman) can acquire,”
writes Drucker. “If he does not bring it to the job, he will never have it.
It is not something one can fool people about. The people with whom he/she
works, especially his/her subordinates, will know in a few weeks whether he
or she has integrity or not. They forgive a manager a great deal: (indeed
they do; incompetence, ignorance, insecurity or bad manners to name but a
few) But they will not forgive lack of integrity. Nor will they forgive
higher management for choosing him.”
It’s strong porridge, is Drucker. He goes on, “A man (or woman) should never
be appointed to a managerial position if his vision focuses on people’s
weaknesses rather than on their strengths. The man (or woman) who always
knows exactly what people cannot do, but never sees anything they can do,
will undermine the spirit of the organisation.”
Drucker’s words serve as resounding reminders that the practice of good
management is an essentially human thing requiring allegiance to eternal,
enduring, powerful and positive human values such as faith, honesty and
love. Yet how often, in organisations from local to global level, are such
virtues seemingly so glaringly absent? Too many.
Next week: A Principal of principle.
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