Book Review: The Age of Turbulence

The Age of Turbulence: Adventures in a New World





In September, I was fortunate enough to see one of my favorite people live at my graduate school alma mater George Washington University’s Lisner Auditorium. The “Maestro”, Alan Greenspan, was promoting his new book, The Age of Turbulence. At 81, Greenspan is hardly in need of money to support his modest lifestyle. However, having been virtually silent for the past 18 years at the Federal Reserve, he is literally bursting to express his opinions, both political and economic, as well as providing us with some insight and history for future generations. I believe this book, and the controversy surrounding it, may have a significant positive impact on the future economic success of the US economy.

Greenspan explained that the Fed was weaker today than in years past due to the “global forces” beyond its control. These “forces” are part of the “Conundrum” mentioned in one of his famous speeches about the Fed’s inability to affect long-term interest rates in 2004. In a light moment during his speech, Greenspan said he received over 10 bottles of the famous Caymus Conundrum wine. When asked how it was, he said he never touched it because of the name, “Conundrum, by its very nature is unknown. Why would I want to drink that?” he explained.

Greenspan, often referred to as a Right Wing Libertarian Republican, took the time to correct this mistake. “I am not right wing. [I am] far from it.” He explained how he felt that the Republican Party has moved too far away from its fiscally conservative roots, and how this shift allowed the Democrats to take control the house in 2006 and possibly the presidency in 2008. There are many other political issues mentioned in his speech and in the book, including issues relating to Greenspan’s disappointment with the Bush administration and his admiration for Mr. Clinton’s fiscal restraint.

What keeps the Maestro up at night? He mentioned 5 topics:

• US dependence on oil


• The growing U.S. deficit


• Lack of government funding for future Medicare requirements


• Inequity of income in the US


• The need to clarify the rules of intellectual property.

Greenspan was reluctant to talk about current Fed actions and the short term outlook for the economy. When pressed, Greenspan jokingly offered a highly precise a prediction of 42.5% chance of recession, up from the 30% chance he predicted in February.

Real Estate Corner: Catch a Falling Knife? Not Yet...

There are several indices that aim to measure the value of residential real estate in this country. The most accurate and least biased is the S&P 500/Case Shiller Home Price Index. I decided to test the accuracy of this index by comparing it to my own purchases of homes in the Washington DC area.

I purchased my first home, a townhouse near Fair Oaks Hospital, in Fairfax, VA in October of 1989. My timing was impeccable. When I compared it to the Index, the value of Washington single family homes was at an all time high. The Index peaked just 4 months later before falling like a rock until it reached the bottom in February of 1992. It was at this point I abruptly sold the house at the bottom of the market. According to the index value my home should have dropped about 5%. In reality, the property had dropped 10% and after selling commissions I owed more than it was worth.

The 10% I had put down was gone and I was now underwater by about $10,000. The index, which peaked in the Washington area in April of 1990, did not reach that peak again until February of 1999, nearly 10 years later.

I was recently in Tampa, Florida visiting a client when the S&P 500/Case-Schiller Home Price Index for July of 2007 was released. The report showed that the worst real estate markets in the country were Detroit, Tampa, and Washington. I asked my client about the local market to check to see if this rang true. He told me about two completed condo projects with no owners and one large condo project with just one family living in it. The scariest thing about this is that the Index does not include condos!!!!

Most people consider the value of their homes to be whatever the highest value ever paid in the neighborhood. Nationwide, I believe home prices have now moved down to their October 2005 values. In Washington, these values are down to the May 2005 values. The index shows a drop of 4% year over year nationally and a drop of 7.2% in the Washington MSA.

In my April 2005 Newsletter, I predicted a 10% market drop nationwide. It appears as of July of this year, we are nearly halfway there on a national basis and 75% there in the Washington MSA. Let’s take a look at the housing data to see just how bad it might get. Most of this data comes from Greg Weldon’s website http://www.weldononline.com/ and John Mouldin’s Weekly E-Letter.

Existing home inventories have increased by more than 1,000,000 homes since March 2007 and have doubled since 2005. In January of this year, there was a supply of homes for sale of about 6.6 months on the market. This figure has moved up to 10 months. There are now over 500,000 homes in the process of foreclosure and this number is increasing at an alarming rate. New home sales in August saw the largest decline in 30 years. Mean new home prices are down 11% in the last five months. Expensive homes, those above $750,000 are down over 35% from last year.

Many of the loan products, which helped people buy homes the last few years, are now gone. This includes not only sub-prime and Alt-A loan products, but the every day jumbo variety as well. The impact of this mortgage credit crunch will not be felt until the forth quarter of this year. As a result, I still believe we have a significant drop ahead. Washington MSA may experience a 15% drop from the 2006 high; nationwide I am still sticking to my 10% drop prediction.

While this may seem bearish, the market will bounce back. There will be some terrific buying opportunities in 2008. A significant amount of patience, however, will be required.

Asset Allocation: Going Green

In case you haven’t noticed, just about everyone, even the Nation’s capital, is going “green”. In December of 2006, Washington DC became the first city in the nation to pass legislation requiring not only government-owned office buildings larger than 50,000 square feet to adhere to green building standards, but privately owned buildings as well.

How can you make a positive impact on the environment and capitalize on the “green” phenomenon?

Take Steps Towards Becoming Carbon Neutral

The concept of becoming carbon neutral can be debated by many as is global warming in general. However, for the purpose of this article, I will assume we all want to make a positive impact on our environment. You can start by taking steps to move your household towards carbon neutrality. I took the test at http://www.carboncounter.com/ and learned that I generated 4 times the carbon of the average US citizen! Thus, according to the calculations on the web site, I need to donate $576 to “offset” my carbon emissions and become “carbon neutral”. The donation goes to the Climate Trust, a 501 (c) (3) working towards a more stable climate.

According to the website, offsets are used to:

• Increase energy efficiency in buildings, factories, or transportation,


• Generate electricity from renewables such as wind or solar,


• Modify a power plant or factory to use fuels,


• Put wasted energy to work via cogeneration,


• Capture carbon dioxide in forests and agricultural soils.

Practice Energy Efficiency
Next time you buy a new appliance, remodel your home or buy a new one, factor energy efficiency into your decision-making process. According to the US Green Building Council, http://www.usgbc.org/, 10% of all carbon dioxide emissions in the country come from our homes. Typical American homes lack energy-efficient appliances, windows and insulation, thus consume extra energy to compensate for loss of heat and air conditioning. The up front costs of improvements will be recouped in the long run.

Recycle and Buy Recycled Products
Most people today recycle bottles, plastic and newspapers in their homes. However, few of us use recycled products. Using recycled materials, especially if they are locally made, can have a huge impact on the environment. Many of today’s building materials come from recycled waste. If you are in the Washington area, check out Eco-Green Living. Eco-Green Living, is the premier green, organic, and fair trade store in the Washington, D.C. metro region for lifestyle, home remodeling, and personal care products. You can find out more at http://www.eco-greenliving.com/

Invest in “Green” technology
The following is a list of funds that invest in various forms of “Green” technologies:

PowerShares Water Resources Fund (PHO) is based on the Palisades Water Index™. This Index seeks to identify a group of companies that focus on the provision of potable water, the treatment of water, and the technology and services that are directly related to water consumption.

PowerShares Global Water Fund (PIO) is based on the Palisades Global Water Index™. This Index seeks to identify a group of global companies that focus on the provision of potable water, the treatment of water and the technology and services that are directly related to global water consumption.

PowerShares Global Clean Energy Fund (PBD) is based on the WilderHill New Energy Global Innovation Index. The Index seeks to deliver capital appreciation and is composed of companies that focus on greener and generally renewable sources of energy and technologies facilitating cleaner energy.

PowerShares WilderHill Clean Energy Portfolio (PBW) seeks to replicate, before fees and expenses, the WilderHill Clean Energy Index, which is designed to deliver capital appreciation through the selection of companies that focus on greener and generally renewable sources of energy and technologies that facilitate cleaner energy.

PowerShares WilderHill Progressive Energy Portfolio Fund (PUW) is based on the WilderHill Progressive Energy Index. The Index is comprised of U.S.-listed companies that are significantly involved in transitional energy bridge technologies, with an emphasis on improving the use of fossil fuels.

The Spectra Green Fund (SPEGX) is a mutual fund that seeks long-term capital appreciation by investing at least 80% of its net assets in equity securities of companies of any size that, in the opinion of the Fund's management, conduct their business in an environmentally sustainable manner, while demonstrating promising growth potential.

By doing your part in the “Green” movement, you can feel good about the choices you make for a better world for you and your children.

Book Review: The 4-Hour Work Week

The 4-Hour Workweek: Escape 9-5, Live Anywhere, and Join the New Rich

By Timothy Ferriss

What do you do? Tim Ferriss has trouble answering the question. Depending on when you ask this controversial Princeton University guest lecturer, he might answer:

“I race motorcycles in Europe.”

“I ski in the Andes.”

“I scuba dive in Panama.”

“I dance tango in Buenos Aires.”

He has spent more than five years learning the secrets of the New Rich, a fast-growing subculture who has abandoned the “deferred-life plan” and instead mastered the new currencies—time and mobility—to create luxury lifestyles in the here and now.

Whether you are an overworked employee or an entrepreneur trapped in your own business, this book is the compass for a new and revolutionary world.

Join Tim Ferriss as he teaches you:

• How to outsource your life to overseas virtual assistants for $5 per hour and do whatever you want

• How blue-chip escape artists travel the world without quitting their jobs

• How to eliminate 50% of your work in 48 hours using the principles of a forgotten Italian economist

• How to trade a long-haul career for short work bursts and freuent "mini-retirements"

• What the crucial difference is between absolute and relative income

• How to train your boss to value performance over presence, or kill your job (or company) if it’s beyond repair

• What automated cash-flow “muses” are and how to create one in 2 to 4 weeks

• How to cultivate selective ignorance—and create time—with a low-information diet

• What the management secrets of Remote Control CEOs are

• How to get free housing worldwide and airfare at 50–80% off

• How to fill the void and create a meaningful life after removing work and the office

You can have it all—really.

Mortgage Update

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Sector Performance Report 9/30/07

In 2007, the industry sectors that are dominated by large cap multinational companies have out-performed all others. As noted by economist Michael Albert on his blog http://www.leadlag.com/, the sectors of the S&P 500 with the highest multinational cap weighting, like energy, industrials, materials and technology, significantly outperformed the domestically dominated sectors such as financials, consumer discretionary and consumer staples.

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