Seven Ways to Beat Inflation

Original Post: http://blogs.forbes.com/baldwin/2011/03/01/seven-ways-to-beat-inflation/
William Baldwin Mar. 1 2011 - 8:40 am for Forbes.com

Non-fiat money; image via Wikipedia

The cost of living could double over the next decade or two. What are you going to do about it?


If you are young and still in the workforce, your best defense is your talent. Wages tend to keep up with inflation, at least over long periods. If you are retired, you’ve got only your balance sheet to lean on.

In this report I’ll look at seven strategic moves for combating the Consumer Price Index. Companion pieces will take up fixed-income investing (with six inflation-fighting ideas) and how to own commodities (five ways).

In all, there are 18 inflation fighters you should know about. That doesn’t mean you should adopt them all. Some are too speculative or expensive for everyday use. One, in the commodity section, goes in the category of Downright Stupid.

Inflation is, deservedly, retirees’ second biggest source of anxiety (after health). They are old enough to remember the 1970s, when the prices of everything went through the roof. Everything except bonds, that is. Bond portfolios were massacred.

It’s something I think about every day. I own a lot of bonds.

Officially, inflation is quite tame at the moment, which is how the Federal Reserve justifies its printing press (now running off fiat money at the rate of $20,000 a second). Chairman Ben S. Bernanke reassures us that prices aren’t going up much, if you don’t count food or energy.

This reminds me of a classic remark from a long since diselected mayor of Washington, D.C.: Our crime rate isn’t all that bad, he said, if you don’t count the murders.

Here are seven strategies for beating inflation. In all likelihood, you already have some of these in place. You don’t have to be terrified by the CPI.

Own real estate

Over long periods, home prices more than keep up with the price of living. The real price gain (appreciation net of inflation) has averaged something like 1% a year over the past century.

The suburban home I grew up in appreciated at a 6% annual rate between the time my parents bought it in 1953 and its recent sale. This, despite the recent real estate crash and despite the fact that the house was poorly maintained. After inflation: 3% a year.

The housing crash isn’t quite over, but I think we’re pretty close to a bottom. I’m pretty confident that if the CPI triples in the next 20 years, home prices will at least triple.

Your strategy here, if you just retired, would be to postpone downsizing. It’s a reasonable alternative to more-complicated inflation fighting strategies, especially if you have other reasons for staying put.

Own stocks

A stock is a share in a business that probably owns at least some hard assets and has some prospects for increasing its prices as the dollar falls in value.

To be sure, a surge in inflation can hurt stocks for a while. Stocks got killed after the 1973 Arab oil embargo sent the CPI on an upward spiral. But over long periods, stocks beat inflation. Over the past century they have earned 6% a year, above and beyond inflation, when you include dividends.

Owning shares enabled investors to survive inflation in Brazil and Mexico. It has enabled U.S. investors to survive the Great Inflation that began in 1971, when the dollar was unhinged from gold. Since then prices have more than quintupled. Nonetheless, U.S. stocks have delivered a real annual total return in the past 40 years near their 6% long-run average.

At the moment, U.S. stocks are richly priced in relation to corporate earnings, so I expect only 5% a year, net of inflation, over the next 40 years. Still, stocks’ resilience to CPI creep makes them an important part of a retiree’s portfolio.

Put at least a third of your investable assets in equities. Put in more if you don’t own a home. Put in more if you have enough slack in your budget to tolerate some wild swings in your net worth.

The cheap, easy way to own stocks is through an exchange traded fund or open-end mutual fund tracking an index. Index funds for the S&P 500 cost 0.1% of assets per year, or thereabouts.

Own resource funds

You get a concentrated dose of inflation hedging by owning shares in companies that dig stuff out of the ground.

The T. Rowe Price New Era Fund has delivered handsome returns over the past decade by owning resource sector companies like Schlumberger, Cameron International and Freeport-McMoran Copper & Gold. This fund is very affordable, at a fee of 0.67% of assets annually.

Cheaper still, but without the active management, are two exchange traded funds from Vanguard, covering the materials and energy sectors. The portfolio of the materials fund (ticker: VAW) starts with Freeport-McMoran, Du Pont and Dow. The energy ETF (ticker: VDE) has Exxon Mobil, Schlumberger and Chevron as its largest positions. Both of these funds cost 0.24% annually.

If you are putting in $100,000 or more, you can get either of these Vanguard sector funds in the open end (mutual fund) format. The open end funds have no sales loads but penalize short-term holders with a 2% redemption fee. The expense ratio is the same.

Whatever their net worth, investors desiring Vanguard sector funds in their taxable accounts are better off with the ETFs. You can trade in and out of an ETF as often as you like, incurring only your online brokerage fee ($9 or less) and a bid/ask spread (a few pennies a share). With this flexibility you can harvest tax losses.

Vanguard also has a Precious Metals fund. This one is not available as an ETF. It has one of those sanctimonious redemption fees that get in the way of loss harvesting.

Own resource stocks

You don’t have to pay a fund company to hold stocks for you. Hold them yourself. You’ll eliminate that management fee. Instead of putting $100,000 into a fund, copycat ten of its positions at $10,000 each. Savings: $240 to $670 a year.

Your transaction costs for à la carte investing won’t be much higher than for the ETFs, and indeed may be a bit lower. Shares of big companies like Exxon trade at narrower bid/ask spreads than do the ETFs that hold them.

Include in your mix energy, fertilizer, gold and timber companies. For gold exposure, Newmont Mining is the obvious choice, but you’ll find some intriguing, if flaky, alternatives by taking a peek at Vanguard’s Precious Metals sector fund.

Weyerhaeuser is the big timber holder. It is now converting into a real estate investment trust in order to eliminate corporate taxes.

Buy REITs

Apart from some timber companies (see preceding paragraph), the REIT industry consists primarily of landlords. REITs own office buildings, malls, apartments, warehouses and storage cubicles. The inflation hedge: Landlords jack up rents to match the cost of living.

Tread lightly here. REIT prices have doubled in the past two years. That means your dividend yield is half what it was. It also means that, even if your dividend keeps up with the cost of living, your share price will struggle to do so.

Delay Social Security

Are you (a) in good health and (b) financially comfortable? If so, then it may make sense for you to delay starting your Social Security payments. By doing so you earn a fatter monthly check, and this check is inflation-protected.

Whether it’s best to start drawing at 62 or 66 or 70 is a complicated question. Often, it makes sense in a two-earner couple for one member to start at 66 and the other at 70. Read more about the strategy here.

I’ll add one point to the usual actuarial analysis. Social Security is a bankrupt Ponzi scheme. One way to make it more solvent would be to reduce the inflation escalator for prosperous retirees. This outcome is not highly likely, but it’s more likely than any reform that involves confiscating benefits already paid.

By not taking $100,000 in benefits from 66 to 69 you buy an inflation-indexed annuity starting at age 70. You thought you were buying a CPI-indexed supplemental annuity. After you start collecting it turns into a CPI-1% indexed supplemental annuity. You might have been better off taking the 100K and investing in the stock market.

In short, if you are on the fence, and you are what President Obama considers rich, start at 66 rather than 70.

Owe money

If you are retired, your mortgage should be paid off. But if you are younger it may make sense to owe money. To the extent you owe money you get a windfall from unexpected inflation. That’s because you pay off your creditor with cheapened dollars.

Suppose you are 40 and owe $500,000 on your fixed-rate mortgage. And suppose you have $500,000 in a tax-sheltered retirement account, invested in Ginnie Mae funds. In these circumstances, you can sleep at night. Inflation can’t hurt you very much.

Why? A run-up in inflation will raise interest rates and that will cause your Ginnie Maes to lose value. But it will also, over time, make your home’s value higher than it would otherwise have been, while your mortgage debt remains frozen. So you’ll wind up with more home equity than you otherwise would have had.

I’m not advocating willy-nilly borrowing, only a holistic approach to your balance sheet. If you are young and mortgage heavy, you are not as vulnerable to inflation as you may think. You can lighten up on the timber and gold stocks.

Dr. Doom: Buy Housing Now

Airtime: Mon. Feb. 28 2011 12:45 PM ET

Marc Faber, editor of "The Bloom, Boom & Doom Report", explains why now is the time snap up real estate deals.

Ranch has key selling point: Steve McQueen

Original Post: http://www.inman.com/news/2011/02/28/ranch-has-key-selling-point-steve-mcqueen

House Profile: Iconic star's hideaway is on the market

By Mary Umberger, Monday, February 28, 2011. Inman News™

Editor's note: Inman News will be profiling a series of homes with interesting stories and backstories to tell. Got a house story to share? Send an e-mail to press@inman.com.

Steve McQueen. Flickr image courtesy of classic film scans.

The "King of Cool" apparently found a measure of peace in Santa Paula, Calif., where he could stash his collection of cars, planes, and motorcycles, and the locals didn't seem to think it was such a big deal that a legendary movie star was living in their midst.

Steve McQueen had largely turned away from Hollywood when he settled in the town, about 75 miles northwest of Los Angeles, in 1979. Drawn there, according to biographers, by the town's reputation as the vintage-plane capital of America, the tough-boy icon purchased a nearby 15.5-acre ranch (see slide show below) with an 1892 cottage and a 4,500-square-foot hangar that he stuffed with dirt bikes, Indian motorcycles and rare sports cars.

McQueen, who became one of the world's highest-paid actors in the 1960s, honed an image of toughness in such noted films as "Bullitt," "The Great Escape," and "The Cincinnati Kid."

But he started turning down most roles in the 1970s, focusing instead on auto and motorcycle racing and traveling the back roads of the West. He purchased two vintage Stearman biplanes and persuaded a Santa Paula local to become his flight instructor.

"He married his third wife, Barbara Minty, in the living room of the house at the ranch," said David Kean, the Los Angeles real estate agent who's currently marketing the property for sale. McQueen and the former model wed in January 1980, not long after the couple moved into the house.

McQueen's time at the ranch was to be brief. Diagnosed with mesothelioma, a cancer related to exposure to asbestos, shortly before they were married, he spent his last months there and in Mexico seeking medical treatment.

He died of complications from surgery in Ciudad Juarez, Mexico, in November 1980, at 50.

A memorial service for the actor was held at a pond on the Santa Paula property, Kean said.

"He loved to ride his dune buggy around the ranch," Kean said. "The airplane hangar on the property was full of his cars and motorcycles."

They're gone now, having been auctioned in Las Vegas in 1984. But other McQueen touches remain, Kean said.

Although a subsequent owner installed a kitchen/family room addition and planted a vineyard, "everything else is as McQueen left it," Kean said.

"He collected old pull-chain toilets from old bus stations, and had them installed in the house," Kean said. "He tried to make everything of the period that the house was built."

The property declined, turning into "kind of a mud pit" in the years after McQueen died, Kean said. The current owners bought the place about seven years ago, spruced it up, and established a now-flourishing vineyard that produces 5,000 to 7,000 bottles a year, he said.

"My idea would be to make a deal with the McQueen estate, and buy the property and work in the McQueen rights," he said. "They could produce wine and export it to Asia -- McQueen is a folk hero in Asia."

The McQueen name apparently has retained its luster: In 2007 Forbes magazine listed him as No. 10 among 13 "top-earning dead celebrities," with the licensing of his name having earned $6 million in the prior year.

The magazine said at the time that McQueen's image of hard driving and fast living, which earned him the nickname "King of Cool," had found appeal with a new generation, 40 years after the release of "Bullitt," arguably his best-known film.

Actor Ashton Kutcher and David Beckham, among others, have said they regard McQueen as a personal style icon.

Indeed, Keen said, it's been mostly Hollywood-types who have visited the Santa Paula ranch as a candidate for a second home, drawn by the McQueen connection and the isolation of the property.

"McQueen liked the town because people left him alone," and that attitude appears unchanged, Kean said. "I've had celebrities (who came to see the ranch) go into the town, have lunch, and nobody bothers them."

But no sale so far, Kean said.

Even for a Beverly Hills buyer, the $1.095 million asking price for the three-bedroom home (down from the original $1.95 million, and now listed as a short sale) gives pause.

"In this economy, even my wealthiest clients are tightening their wallets," he said. "One client said his net worth had dropped from $1 billion to $600 million and he's nervous about it. They see the loss, they don't see what they have."

Still, he said, some actors "who I think may want that McQueen image" have been interested in the place.

"They want the fantasy of the ranch, but they get overwhelmed" by the idea of maintaining its acreage and horse facilities, he said. "It's a fun fantasy, but not everyone wants the reality."

What $48 Million Will Buy You in Aspen

Love to ski and have $48.5 million burning a hole in your pocket? Then a fabulous mansion in Aspen adjacent to the ski slopes that just hit the market might be perfect for you. Candace Jackson has details.

Homebuilders Report Profits Despite Tough Market

Original Post: http://blogs.forbes.com/heatherstruck/2011/02/23/homebuilders-report-profits-amid-still-tough-market/
By Heather Struck for Forbes.com Feb. 23 2011 - 10:10 am

The Department of Commerce said Wednesday that real GDP declined by 2.4% by metropolitan area in 2009, after a 0.4% decline in 2008. The drop in production appeared in 292 of 366 MSAs, reflecting the slow-down in manufacturing and construction, that took place that year.


Meanwhile, luxury builders Meritage Homes and Toll Brothers are beating the Standard & Poor’s Supercomposite Homebuilding Index this year to date, reflecting a gradual recovery out of 2009’s near stand-still for the housing market. Meritage has returned 14.6% this year and Toll Brothers has returned 9.3% compared with 2.9% for the S&P homebuilding index. Shares of Meritage were down slightly Wednesday by 0.3%, while Toll Brothers shares saw a 2.5% gain.

Toll Brothers reported a profit for its first quarter ending January 31, with net income at $3.4 million, or 2 cents per share, compared with a loss of $40.8 million, or 25 cents per share, in the year-ago period. The profit beat the 7 cents per share loss that analysts were expecting for the quarter. The Pennsylvania-based company also reported net revenue of $334 million, up from $326 million the year before.

The average price of homes sold increased to $586,000 from $548,154 a year earlier, while the number of new homes sold grew by 4%. The company ended the first quarter with more units in its backlog of 1,472, but a 2% decrease in value at $825.2 million.

Toll Brothers’ CEO Douglas C. Yearley, Jr., said that, “The market is still tough; the home buyer is still wary. Although our customers recognize that this is perhaps the best time to buy in many years, so far the market is not generating the positive momentum that creates urgency among buyers.”

Home improvement stores are also improved in their last quarter. Lowe’s reported a 39% increase in its fourth quarter profit, boosted by higher-than-expected sales for the quarter. The announcement came after Home Depot, the larger company by revenue, said on Tuesday that its fourth quarter profit increased by 72% from the year-ago period.

Lowe’s reported a profit of $285 million, or 21 cents per share, and revenue up 3% at $10.5 billion for the quarter ending January 28. Analysts polled by Thomson Reuters were expecting profit of 18 cents per share on revenue of $10.4 billion.

Home Depot’s fourth quarter profit soared to $587 million, or 36 cents per share, on revenue of $15.1 billion, beating analysts’ expectations for net profit of 31 cents per share on revenue of $14.8 million. The company said same store-sales growth in the U.S. helped it beat the consensus.

Markets opened Wednesday lower than its previous day’s close, still pressured by rising oil prices and political heat created by protests in the Middle East. The Dow Jones industrial average was down 41 points at 10 am at 12,171, the Nasdaq was down 9 points at 2,747 and the S&P 500 was down 2 points at 1,312.

Homes That Help You Take Aging in Stride

More homes are being built with "universal design" features that will help boomers stay in their homes as they age. But these features no longer evoke a hospital room -- and they're appealing to a younger demographic, too. Amy Hoak reports.

KB Homes Takes On Foreclosures

For Sale By Owner: Not a Good Move Right Now?

Original Post: http://realestate.aol.com/blog/2011/02/18/for-sale-by-owner-not-a-good-move-right-now/

By Barbara Correa Posted Feb 18th 2011 3:32PM

Do you really need a real estate agent to sell your house? Fans of the For Sale by Owner (FSBO) approach say no. But here is a cautionary tale about the potential pitfalls of going the For Sale by Owner route.


Matthew Peters and his wife, Fiona, had two FSBO home sales under their belt, so they naturally opted for the do-it-yourself strategy the third time around as well.

The average seller looking to unload a home automatically assumes the first stop is securing a trustworthy real estate agent to market and sell the property. But for an adventurous few, the idea of saving that 5 to 6 percent broker commission is just too tempting.

The Peterses were in that small percentage. The couple had been renting out their two-bedroom ranch in Madison, Wisc., for about three years when they finally found a buyer last year willing to pay the $191,000 asking price.

Then the trouble began.

The couple planning to buy the Peterses' home was anxious to move -- the lease was ending on their rental -- so they asked if they could come in three days prior to closing. With a loan commitment letter in hand, the Peterses opened their house to the new family. That's when the trouble started.

According to Matthew Peters, their would-be buyers promptly charged roomfuls of new furniture, even two flat-screen TVs, to the point that they compromised their credit score and the bank canceled their loan. The worst was yet to come.

Soon, Peters learned that the ideal family he thought he'd been dealing with were actually his See photos of homes for sale in your area and across the country on AOL Real Estateworst nightmare, and now they were living in his house. "The house that we kept so tidy and spent thousands getting ready for a sale was now a disaster area,'' says Peters. "They ruined some of the floors, kids drew on the walls, they punched holes in the walls. They had a troubled teen that kicked in a door, the lawn was ruined from the above-ground pool they put in. We started getting complaints from neighbors.''

The family was now renting, and in addition to trashing of the house, they were constantly late with the rent. Peters continued to show the house to prospective buyers, but in its junked condition, it was a hard sell. Finally, after six months, Peters evicted his tenants for nonpayment. He spent two full days cleaning and hired some contractors to fix a series of broken items.

Then he ran into a little luck. One day, a man called about the house, saying his 70-something mother was looking for a single story place in the neighborhood and could pay cash. The house closed 10 days later. The two parties ended up splitting the fee to the buyers' broker, each paying around $5,000.

Peters, who is now renting, says if he had it to do all over again, he would definitely hire a sales agent. "We thought we were going to cash in not having to pay the broker commission,'' he says. "One thing people don't factor in is the time. I probably spent dozens of hours on showings.''

Still interested in trying it yourself? Check out these factoids:

• FSBO sellers declined in 2010, from 14 percent of overall home sales in 2003 and 2004 to just 9 percent in 2010.

• Another 32 percent of FSBO sellers sold to a relative, friend or neighbor.

• Before listing your own home, you need access to good current data about sales prices, market times, and activity. Be familiar with the process and know the requirements for your state. Some sellers believe that because they are not licensed, laws and regulations do not apply to them. Know the law, or hire someone who does.

• You will need to invest time to market the property and be available to show your home and respond to any inquiries.

• If the property is priced to reflect true market value and it is placed in the multiple listing service, nothing will stop it from selling.

• Most FSBOs often wind up paying at least half of the brokerage fee to the broker who produces a buyer.

Source: RISMedia

A Luxury Stucco House With Unique Features

Architect Robert Bartels built a rustic cottage as a retirement home in Rowayton, Conn. The 2,550-square-foot stucco house has generous open spaces, a den with a clock tower and a unique stairwell hatch inspired by the Paris metro. It's on the market for just under $2 million.

Room for Rent at the Mansion

The mortgage crisis is hitting multimillion-dollar homeowners especially hard and some of them are renting out rooms in their mansions in an effort to raise cash. Alyssa Abkowitz explains.

Steve Jobs Has Months To Live? American Cancer Society Cries Foul

Original Post: http://blogs.forbes.com/matthewherper/2011/02/17/steve-jobs-has-months-to-live-american-cancer-society-cries-foul/

Feb. 17 2011 - 2:55 pm By MATTHEW HERPER for Forbes.com

The National Enquirer has reported that Steve Jobs has only six weeks to live based the paper’s analysis of photographs that purportedly show the Apple founder. Hogwash.

Even if the photographs are real, the estimate of how much time Jobs has left, or any speculation about his condition, is baseless. You don’t have to take my word on that – you can listen to Otis Brawley, Chief Medical Officer of the American Cancer Society and a noted oncologist.

“Based on a photograph or even based of a videotape of someone giving a presentation on stage, it is impossible to make an estimation of someone’s life expectancy,” says Brawley. What’s more, he says, it’s not even really possible to make those kinds of estimates after a real exam. “I can’t look at someone’s picture and immediately say they’re sick,” says Brawley.

Nor would extreme weight loss necessarily mean a bad prognosis if Jobs is being treated, Brawley says. Wasting occurs among people who are undergoing chemotherapy – even if the patient is going to get better. And it’s also not always possible to tell wasting from weight loss due to dieting or exercise, either.

Brawley says he has some experience with supermarket tabloids. He was once quoted in one making a prognosis about Dirty Dancing star Patrick Swayze’s cancer. Later on, he says, another ACS official was quoted by the tab saying exactly the same thing about Senator Edward Kennedy.

As I’ve written before, because we all know that Jobs is sick, new information doesn’t tell us much about whether he will get well. There’s no excuse that hanging on every bit of Jobs news is material to Apple. It’s just evidence of our fascination with celebrity.

Why LinkedIn is More Valuable than Facebook

Original Post: http://blogs.forbes.com/ciocentral/2011/02/16/why-linkedin-is-more-valuable-than-facebook/
Feb. 16 2011 - 12:07 am Posted by Bruno Aziza

Image via CrunchBase

Investors started the year excited, then disappointed, about the potential of a Facebook IPO and a $50B valuation. But fortunately, the upcoming LinkedIn IPO and its $2B valuation gives them an opportunity to get in the game and cash in on the much talked-about “social network” trend.

The LinkedIn IPO is indeed exciting, but if you are an executive, you should spend more than just your money on LinkedIn – you should spend time understanding how the social network works, and how its model can help you build better applications for your organization.

LinkedIn offers many practices that organizations should follow when building internal applications. In this post, I’ll focus on two: how LinkedIn thinks about productivity, and its approach to data.

“Time In App”

Most productivity applications measure success by the number of hours its users spend in it. For example, we know that Facebook represents about 12% of your internet time. According to Nielsen Research, internet users spend close to 5X more time on Facebook than YouTube. So Facebook wins, right? Wrong! While “time in app” might appear to be a great gauge for stickiness, LinkedIn’s CEO argues that it might not be the right measurement (see Jeff Wiener’s explanation at the O’Reilly Web 2.0 conference here).

While Facebook’s drive towards advertising dollars might justify the importance of the ‘time in app’ metric (you might have noticed Facebook’s recent advertising addition to your photos?) – LinkedIn focuses on productivity for its members (LinkedIn makes money via ads, but member services and enterprise hiring services are also part of its business model).

What does this mean to you: Your company’s application model is more similar to LinkedIn than to Facebook. Don’t be drawn to the overly satisfying measurement of “time in app” unless your business model is driven by ads; your company gets more value by optimizing your employees’ time.

If you are looking for inspiration on how to change the culture of measurement inside your organization, I highly recommend looking up Zappos’ CEO Tony Hsieh’s work in call centers. In this video, Tony explains how a longer resolution time is better than a shorter one (his book, “Delivering Happiness” tops the customer service and management charts on Amazon).

“Mi Data es Su Data”

Facebook is not particularly regarded for its ability to give its members value back on their own data. While it’s very easy to get data into Facebook, it’s very difficult to get data out and in a meaningful way. Simply charting your friends’ geographical spread is difficult (join the Facebook Data Team page to stay appraised of the latest). Beyond suggesting new friends, Facebook does little to share back with the community the incredible insights it gathers about its users.

LinkedIn’s approach to data is quite different. The LinkedIn Analytics team has been hard at work understanding your data trail, and they are not shy to share these analytics with you. My favorites include LinkedIn’s “Signal,” “Career Explorer,” “InMaps” or “Skills” which launched most recently.

Each application exemplifies LinkedIn’s drive to fulfill its vision – better connecting business people, through analytics. The above applications showcase that, by using clever algorithms, members can be presented with insights that anticipate their questions and connect with others more efficiently.

What does this mean to you: Your organization is sitting on latent data that, if used, can return incredible value to your employees and bottom line. Think through the data your applications hold and the tasks that could be automated or suggested. Take a look at LinkedIn’s Career Explorer. You can use it to explore the future of your career based on the paths of others. Along the way, Career Explorer suggests relevant information to make your exploration more useful. Imagine if you could build something similar inside your organization. Say your employee wants to launch a new product and your application suggests what the path to launch will look like; who’s encountered similar issues or the knowledge base articles they should read? Wouldn’t that be useful? Career Explorer exhibits the characteristic of the best analytical applications. They don’t just provide insights, they allow you to visualize a possible future and prompt you to act on it.

As I argued in my recent keynote at Predictive Analytics World, our world is becoming more analytical. And in this regard, LinkedIn is light years ahead of Facebook.

Where does your organization stand?

Does Buying a Rental as an Investment Make Sense? .

By JUNE FLETCHER

FEBRUARY 11, 2011

Q. Since so many people have lost their homes to foreclosures and can't get credit, I expect that it's a good time to buy a rental investment place. But I'm also worried that property prices may fall further. Do you think this would be a wise way to spend my money?

A. It all depends. If you're able to obtain a property that's deeply discounted from its current market value, can achieve positive cash flow and can handle the out-of-pocket expenses that inevitably arise when you're a landlord, then it could be a good deal.

But first ask yourself these questions: Do you mind panicked calls at 3 a.m. to deal with stopped-up showers or heat pumps that are on the fritz? Do you have a cushion of cash to tide you over during vacant periods and cover costs like advertising and vetting tenants? Can you afford to put down a hefty down payment to obtain financing? And do you plan to own for a few years so you can benefit from the boost in equity you'll get as you pay down the mortgage, even if it takes a while for home prices to rise again?

If the answer to all of these questions is yes, then you can go shopping. Ask the current owners for copies of all rental receipts, as well as all bills, including utilities, water and sewer, property management and taxes.

Then you'll have to do some figuring so you can compare the income potential of your targeted properties.

First, for each property, take annual rental income and deduct the average vacancy rate for your area, which in Chicago was 9.5% in the fourth quarter of 2010, according to the U.S. Census Bureau. Then deduct all of the operating expenses; this will give you your net operating income or NOI.

Once you get this figure, you can divide it by the purchase price to get the capitalization, or cap, rate. This is a useful figure to have when you're comparing properties, since those with higher cap rates will bring you better returns.

You'll also want to calculate the cash flow by deducting your annual mortgage payment from your NOI.

From that you can calculate the cash-on-cash return for the first year of ownership. Figure out your cash outlay by adding up closing costs, down payment and any expenses for necessary maintenance that was not done by the former owner. Divide your cash flow by your cash outlay and you'll have your cash-on-cash return, which is expressed as a percentage.

This figure can help you decide which property is the most lucrative, and also to compare the yield of a property with that of other kinds of investments, like Treasuries and stocks.

Write to June Fletcher at fletcher.june@gmail.com

Johnny Mac Trick Shot Quarterback

Home Affordability Returns to Pre-Bubble Levels .

By NICK TIMIRAOS for the Wall Street Journal

FEBRUARY 8, 2011, 8:53 P.M. ET

Home affordability returned to pre-bubble levels in a growing number of U.S. markets over the past year as price declines laid the groundwork for a housing recovery.

Bloomberg News

Rows of houses stand in Las Vegas, Nevada, U.S., as seen in this aerial photo taken on Tuesday, Sept. 22, 2009.


Data provided by Moody's Analytics track the ratio of median home prices to annual household incomes in 74 markets. By that measure, housing affordability at the end of September had returned to or surpassed the average reached between 1989-2003 in 47 of those markets. Most economists believe the housing boom took off in 2003.

During the boom, lax lending and speculation pushed house-price inflation far beyond the modest rise in household income. Nationally, the ratio of home prices to annual household income reached a peak of 2.3 in late 2005. But by last September, it had fallen to 1.6, matching the lowest level in the 35 years the data have been collected and well below the historical average of 1.9 between 1989 and 2003.

"Based on incomes, this is as affordable as it gets," said Mark Zandi, chief economist at Moody's Analytics. "If you can get a loan, these are pretty good times to buy."

But the bad news is that those price declines are leaving more borrowers underwater, or in homes worth less than the amount owed.

Many economists and housing analysts expect an additional decline of 5% to 10% before prices reach bottom later this year or early next year. Housing demand remains weak because buyers are skittish about the economy and lending standards are tight.

Markets that now appear to be undervalued include Detroit, Las Vegas, Atlanta and Phoenix. Even in such markets, high rates of foreclosure and underwater borrowers should keep downward pressure on prices. "They're undervalued, but they're going to get even more undervalued," said Mr. Zandi.

Measuring home prices relative to income is not the only way economists calculate housing affordability. They also examine the relationship between house prices and rents. Measured by the price-to-rent ratio—the price of a typical home divided by the annual cost of renting that home—prices are fairly valued, or undervalued, in around 20 markets. Nationally, the price-to-rent ratio stood at 14.85 at the end of September, above the 1989-2003 average of 12. The data suggest pockets of the country have further to fall.

Home prices still remain overvalued by both measures in several markets, including Seattle, Charlotte, New York and Portland, Ore.

Based on rents, "it's still not a slam dunk to buy" in those markets, said Mr. Zandi. He said markets appeared most overvalued in the Pacific Northwest, which was among the last regions to enter the housing downturn. Historical measures also showed prices were still high along the Northeast corridor from Baltimore to Boston.

The cost of owning a home looked less affordable based on rents than on incomes in part because rents also fell through 2009 and the first half of 2010. As rents rise, that could tip the scale back in favor of owning in some areas.

Of the 74 housing markets, Baltimore appeared to be the most overvalued. By contrast, prices in Cleveland, the most undervalued market, have returned to 1991 levels based on the price-to-rent ratio.

Historical measures comparing rents and incomes with home prices provide a useful gauge of affordability, but can be imperfect at measuring how close different markets are to recovering from a bubble. After a severe housing downturn, home prices rarely stop falling once they reach equilibrium.

Some areas will stay undervalued for years as they deal with a glut of foreclosures and weak demand. Historical trends show housing could remain undervalued in many markets for six to seven years, seconomists at Capital Economics.

"It's become cheaper to buy than to rent" in Phoenix, said Jon Mirmelli, a real-estate investor in Scottsdale, Ariz., who is renting out foreclosed homes. "But the question is: Can you qualify for a loan?"

Meanwhile, some areas that appeared overvalued relative to historic norms, such as Washington, D.C., may not completely return to pre-crisis levels thanks to structural changes in the economy that support higher prices.

Write to Nick Timiraos at nick.timiraos@wsj.com

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Playing to Hedge Funds, a Trophy Rises in Midtown

Original Post: http://www.nytimes.com/2011/02/02/realestate/commercial/02rents.html?_r=1&ref=realestate

By ALISON GREGOR New York Times. Published: February 1, 2011

Tina Fineberg for The New York Times

With leases above $100 a square foot, 510 Madison Avenue is starting to live up to its high-rent aspirations.

 

When the developer Harry Macklowe contemplated building a boutique office tower with unparalleled amenities at 510 Madison Avenue in the late 2000s, he expected it would be filled with hedge funds and other financial sector tenants who would pay rents well above $100 per square foot.

Tina Fineberg for The New York Times

An interior view of the building.

But the economy slumped in late 2008, and Mr. Macklowe found himself fighting to maintain ownership of 510 Madison, at 53rd Street, where just one company had signed a lease.


He lost that ownership battle to Boston Properties last September. Now, a series of leases signed at 510 Madison late last year for well north of $100 a square foot signifies a turnaround for the building — and may presage a recovery of Manhattan’s overall high-end office market, brokers said.

“Boston Properties had the vision to buy the building at a time in the market five months ago when even then people were very cautious about $100 rents,” said Paul Amrich, an executive vice president of the commercial brokerage CB Richard Ellis, which is representing 510 Madison. “But they knew the trophy status of the building and the location of the building would prove that we would get to those rents again.”

While there were a total of 91 office leasing deals signed in dozens of Midtown buildings for $100 or more per square foot at the height of the office market in 2008, that number plummeted to just 18 deals in 2009, according to data from the commercial brokerage Jones Lang LaSalle.

The tally for 2010 is about the same, with a total of 19 deals signed in eight buildings, including three at 510 Madison.

But many of those deals took place late in the year, reducing the inventory of available space by 23 percent in buildings that Jones Lang LaSalle considers “trophy” properties — and potentially capable of capturing rents of $100 or more per square foot. Those 52 Midtown buildings tend to be located around the Plaza Hotel on Fifth Avenue, in what is known as the Plaza district, and many have views of Central Park.

They may seem more like country clubs than workaday office buildings, with grand lobbies and elevators, tight security and amenities like upscale restaurants to attract financial companies for whom image and high profit margins go hand in hand.

Those 52 buildings had a vacancy rate of 10.1 percent, compared with 13 percent in 2009, and are poised to outperform the office market in general this year, said Cynthia Wasserberger, a managing director of Jones Lang LaSalle.

Much of that has to do with the recovery of the financial sector and its endless race to trade up into more prestigious office space, she said. With office rents still well below their 2008 peak, landlords are still offering concessions to offset the cost of moving. That may encourage financial tenants looking to upgrade, Ms. Wasserberger said.

“It sounds kind of funny to say tenants would be taking advantage of a $100 rent,” she said, “But a lot of tenants with leases up for expiration may find it justifiable to say, ‘I’d rather lock in today at $100 a foot, knowing this building was leasing at $150 or $180 a foot in 2008, so it’s a relative bargain.’ ”

Several towers were developed or rehabilitated in the market frenzy to achieve steep rents, but 510 Madison is the only new office building in the Plaza district.

“It’s an extremely central and rare location to be able to build a brand-new building,” Mr. Amrich said. “That alone sets us apart.”

While 510 Madison’s Central Park views are limited to the top floors on the northwest side, the tower, which was designed by Mr. Macklowe, SLCE Architects and Moed de Armas & Shannon Architects, has column-free interior space, which allows financial companies to create trading floors, as well as 10-foot ceilings with floor-to-ceiling windows in a glass facade.

Newer buildings can be built with amenities that draw financial companies. For instance, 510 Madison will have a top-notch fitness club with a 50-foot pool, a large landscaped and furnished terrace, a private dining area for tenants and their clients and a generator that can provide power in a blackout.

Boston Properties paid $287 million for the 350,000-square-foot office tower and acquired a junior loan on the property for $22.5 million. Besides the three leases signed in 2010 with Senator Investment Group, Chieftain Capital Management and Valinor Capital Partners, Boston Properties also managed to retain the Jay Goldman & Company hedge fund, which Mr. Macklowe signed in 2007 at $135 a foot, at the same rent but on a higher floor. Floors 25 through 28 have been leased, with the exception of 6,000 square feet still available on the 27th floor, Mr. Amrich said.

The hedge funds, private equity groups and wealth management firms that typically seek expensive space tend to be smaller companies, requiring perhaps 5,000 to 25,000 square feet as opposed to 100,000 square feet or more, Ms. Wasserberger said. For that reason, if 510 Madison continues to lease as anticipated, it may account for many more leasing deals of $100 or more per square foot in 2011.

“If the numbers were 19 deals in 2010, I bet we see closer to 40 in 2011,” she said. “The reason is 510 Madison is now open for business. It’s a 30-story building, and those are going to be some partial- and single- and double-floor tenants, so that could account for a sizable number of deals.”

Of course, the higher the floor the higher the rent, brokers said.

“There’s always that premium for the tower view,” said Alan Desino, an executive managing director of the commercial brokerage Colliers International. “Is there a building right now anywhere in Manhattan that on the base floor you’re going to pay $100 a foot? Probably not.”

A large part of 510 Madison’s allure is its location in the Plaza district. Another banner office tower developed speculatively, 11 Times Square, was also hoping for $100-per-foot rents, but its location on Eighth Avenue near the Port Authority of New York and New Jersey has been a detractor, Mr. Desino said. So far, the law firm Proskauer Rose is the building’s lone large tenant.

Still, the right kind of building — for example One Bryant Park on Avenue of the Americas, known as the Bank of America tower — delivered at the right time can create a desirable submarket around it, even driving up rents in neighboring buildings, he said.

“One Bryant Park is a phenomenal building,” Mr. Desino said. “Just due to the efficiency and space you have floor-to-ceiling and, let’s face it, the views are phenomenal. It’s been able to achieve $100 rents in an area that, three years ago, I would have said, not a chance.”

One Bryant Park also happens to be certified by the United States Green Building Council, as does 11 Times Square, and 510 Madison is pursuing that certification. A recent study by the CoStar Group, a real estate information company in Washington, showed landlords could achieve an average premium on rents of 5 to 10 percent nationally if a building was certified as environmentally friendly.


Even if it does not guarantee higher rents, that certification carries a certain cachet, said Christopher Macke, a senior real estate strategist at the CoStar Group. “Maybe you don’t get the premium rent, but you get the tenant, and the other guy doesn’t,” he said. “Put another way, in a green building, you have a higher absorption rate than one that’s not green.”

A version of this article appeared in print on February 2, 2011, on page B6 of the New York edition.

Here’s How John Paulson Made $5 Billion Last Year

Robert Lenzner for Forbes.com Jan. 29 2011
Original Post: http://blogs.forbes.com/robertlenzner/2011/01/29/heres-how-john-paulson-made-5-billion-last-year/

Smart Guys

The secret to the spectacular returns Paulson and his employees reported for 2010 is due to their keeping much of their money- $14.9 billion or 42% of the total assets under management($35 billion)– in the funds. That’s called putting your money to work alongside your clients. That $14.9 billion commitment is revealed in Paulson’s yearend letter to investors.

Some of Paulson’s personal share in his funds must come from reinvesting the $4 billion he made going short against the subprime mortgage bubble in 2007.

The Paulson funds made gross gains in 2010 of $8.4 billion before fees. So, 42% (their share) of the $8.4 billion meant $3.5 billion in gains for Paulson and his employees.

Add to that a 2% fee on $20 billion of capital from investors– $400 million– and then the 20% fee on the total profits made adds another $1.7 billion to the pot shared by Paulson and his team.

By my figuring then, the total take comes to roughly $6 billion before taxes.

Overall, the fund’s strategy made a transition during the year from a short equity bias with a focus on being long distressed securities to a long equity event focus, according to Paulson’s yearend letter.

This growing bullishness on the stock market is due to Paulson’s careful tracking of the equity risk premium measured by J.P. Morgan; the difference between the yield on equities and the yield on bonds. At present, the yield on stocks, the obverse of the price-earnings multiple, is 7-8%– while the yield on 10 year treasuries is only 3.34%. In this comparison the potential return on stocks is double the return on bonds.

Paulson is a buyer of stocks because he sees the equity risk premium in the market as “the highest it has been in over 50 years., indicating to us that equities are due to rise as the current economic environment is by no means the most challenging it has been in 50 years,” he wrote in his yearend letter which was posted Friday on the internet.

Last year, for example, Paulson made a 43% return or over $1 billion on Citigroup– buying shares at $3.20 a share and selling them for $4.60 a share later in the year.

The Paulson Gold Fund was up over 35% on the year, as positions in Anglo Gold, Osisko and GLD, the giant gold ETF all paid off bigtime. Paulson is optimistic that gold will outperform for the next 5 years and is “the ideal vehicle to hedge against the risk of the U.S. dollar.”

The funds held $20 billion in 40 different distressed situations where most of the companies have “repaired their capital structures.”

He also sold off positions in major banks like Bank of America, and went long Anadarko, the oil and natural gas producer.

Paulson’s hedge fund has piled up gains of 26 billion since inception in 1994– 3rd biggest killing of all hedge funds. Quantum Endowment Fund, begun by George Soros in 1973, has racked up $32 billion in net gains. Renaissance Medallion Fund, founded in 1982 by James Simons, has delivered net gains of $28 billion.

He expects all his funds “to outperform in 2011.”

When Luck Plays a Role in Selling a Home

By ANTOINETTE MARTIN Published: January 20, 2011

Original Post New York Times: http://www.nytimes.com/2011/01/23/realestate/23njzo.html?_r=1&ref=realestate

WITH the last year such a dismal and confusing period for so many home sellers in New Jersey, some inevitably decided along the way to drop one agent and try another.

Susan Stava for The New York Times

Danuta Tyszka of Weichert Realtors recently became the agent for a house on Homestead Street in Clifton, which hadn’t sold after six months with another agent.

.“Some people think the next Realtor will make all the difference, or be the lucky charm, or maybe just provide a fresh start,” said Linda Grotenstein, an agent with Coldwell Banker in Montclair.

“Of course, in today’s market,” she added, “really the most important thing is price.”

Or luck, added other brokers based in towns around the northern part of the state. Some say they see themselves as harder-working than others; several suggested that they were particularly talented at attracting as many people as possible to see a house or staging it in its best light. But each of about a dozen questioned about the logistics of the typical home sale says luck plays an indefinable yet crucial part in finding a solid buyer these days.

Danuta Tyszka, an agent at Weichert Realtors in Wayne, described having listed a four-bedroom two-bath house in Clifton last spring and shown it to 80 prospective buyers, none of whom made an offer. After four months, she advised the sellers to let the listing expire and allow her to relist the house for a lower price — $10,000 less, down from the high $500,000s — to see if “fresh” home shoppers would appear.

“The first people who came to see it made a full-price offer,” she recalled. “I don’t really know that the price drop made that big of a difference. It was more like lucky timing.”

Ms. Tyszka is now marketing another Clifton house, a four-bedroom bilevel at 70 Homestead Street, which was listed with another agent for six months. She picked up the listing in December after meeting the sellers through their son, whose apartment lease she had brokered.

With this house, too, she has dropped the price $10,000, to $469,000 from $479,000 — but lightning has not struck a second time as of yet. “The market is very, very difficult in Clifton,” she said. “I’ve had a couple of sales of other houses fall through just as they were about to close. The main reason seemed to be that people are scared, even when they find a house they like, at a good price.”

Using multiple-listing statistics from 2010, Margaret Miggins, an agent at Keller Williams Realty in Short Hills, found that fewer than 50 percent of listed homes sold within a year. She looked at 16 middle- to high-income communities — in Essex, Union and Morris Counties — in which she markets houses. Comparing the total number of homes listed in each town with the total number of closed sales in 2010, she found that Summit did best, with 48 percent of listings sold. (There were 448 houses listed, and 217 closed sales.)

Chatham and Madison came within a percentage point or two of Summit.

In West Orange, a large community in which sales have been slow, only 24 percent of listed houses were sold (1,001 listings, 240 closed sales).

“Price is, of course, a crucial matter,” Ms. Miggins said. “If you are not willing to change your price, do not switch Realtors. And even if you are, it does not always work.”

State regulations prohibit a broker from poaching another’s active listing, or even suggesting that a better job might be done. Still, it is common practice for them to try and snap up one another’s listings when they expire — typically after six months.

Ms. Miggins says she trolls the Multiple Listing Service Web sites for expired listings, and makes cold calls to homeowners if their names and numbers are listed.

“An agent who really knows an area, and knows how to market a particular house in the best possible way, definitely can make a difference,” she said. But she also said she avoided any sellers who seemed as if they might be inflexible about price.

“Every time we take a listing,” she said, “we spend a lot of money as well as time, on advertisings, Web sites, virtual tours, having floor plans done, setting up a computer on a table by the door so there are pictures scrolling the moment someone walks in — and I don’t want to waste all that.”

Roberta Baldwin, a broker with the Keller Williams NJ Metro Group in Montclair, echoed that sentiment. “It is every agent’s nightmare,” she said. “You put in the time and effort — I’ve even gone so far as to paint and refinish floors for a client — and the house doesn’t sell. Then someone else picks it up, and it goes.”

On the other hand, sometimes it is the real estate professional who decides to leave the client.

Ms. Baldwin said she had occasionally suggested to sellers that they might want to terminate a listing agreement. “If you can see that they are unhappy, and you are unhappy,” she said, “then the best thing to do is to bring that into the open and talk about it. Poor chemistry can occur, or the parties can simply get mired in a situation, although you have done the very best you can, and it is best for everyone to walk away.”

In today’s market, she said, “I think the main reason why some people decide to switch Realtors is that they just don’t know what else to do.”

In Montclair, there are half a dozen high-end homes that have not sold despite multiple price reductions and Realtor switches. One, a Victorian at 183 Grove Street with a third-floor ballroom where Enrico Caruso is reputed to have sung, was marketed by Prominent Properties Sotheby’s International Realty last year with an original asking price of $1.44 million, after selling for $1.4 million in 2007.

After six month, it was listed by Halstead Properties at $1.3 million; it is now listed as a possible short sale at $999,999.

A version of this article appeared in print on January 23, 2011, on page RE9 of the New York edition..

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Will the Euro split?

Dennis Gartman: Euro Crisis a 'Virulent Disease' Published: Monday, 10 Jan 2011

1:41 PM ET By: Drew Sandholm Web Producer

Original Post: http://www.cnbc.com/id/41002974/
 
 

The euro could soon unravel, said renown currency and commodities trader Dennis Gartman on Monday, as the European Central Bank threw Portugal a temporary lifeline by buying its bonds.

In the next several years, Gartman thinks the currency will break into a northern euro and a southern euro. Germany, he said, won't stand to continue to fund countries like Greece, Spain and Portugal — all of which have lesser average work weeks, lower productivity rates and lower savings rates, he said.

"A break-up of the euro would be so catastrophic to the economic environment, that China would not want that to happen," countered Brian Kelly, founder of Kanundrum Capital.

Just as the euro is about to unravel, Kelly thinks China will support the troubled currency, buy euro bonds and therefore gain more say in the International Monetary Fund. Gartman added that he, too, doubts China wants a break-up to happen, but also doesn't think China will be willing to spend money to keep it going.

Germany, France and other euro zone countries are pushing for Portugal to seek an European Union-IMF assistance program, as Greece and Ireland had, to prevent spreading contagion to Spain, according to a Reuters report citing a senior euro zone source. German Chancellor Angela Merkel, however, has denied the report.

The Portugal bailout talk is simply "random noise" and no reason to change your portfolio, said Gartman. Being as the euro is "demonstrably weaker," he thinks "a small bounce is to be expected." If one has no short position, however, he suggests using this rally to get short. Being as he thinks Europe's problems are long-term, he would sell any rallies in the euro.

With more than 30 years of experience as a currency and commodities trader, Gartman is a "Fast Money" contributor and publisher of the widely read "The Gartman Letter."

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Facebook To Breach 500 Shareholder Limit, Go Public By April 2012

Original Post: http://blogs.forbes.com/wendytanaka/2011/01/06/facebook-to-breach-500-shareholder-limit-go-public-in-2012/?boxes=Homepagelighttop

by Wendy Tanaka for Forbes.com Jan. 6 2011 - 5:56 pm

Image by AFP/Getty Images via @daylife

The social networking giant said it’s planning to go over the 500 shareholder limit, which would require it to disclose financials to the Securities and Exchange Commission even though it is still a private company, according to a document obtained by the Wall Street Journal.

The private placement document filed with the SEC also indicates that Facebook could become a public company by April 2012.

This is the latest development in the big news earlier this week that Facebook received a $500 million investment from Goldman Sachs and Digital Sky Technologies for a nosebleed valuation of $50 billion.

The document filed puts to rest speculation that Facebook and its investors would sidestep the 500 shareholder rule via a “special purpose vehicle” that would allow Goldman’s high-end clients to invest in Facebook. Goldman plans to raise $1.5 billion for Facebook from this special purpose vehicle.

My colleague Jeff Bercovici says there’s so much scrutiny of Facebook because we don’t expect it to act like a business. We expect it to act like our friend.

Texas Oilman Tired Of Being ‘Victimized’ By Obama Drilling Moratorium, May Soon Invest In Israel

by Christopher Helman for Forbes.com Jan. 5 2011 - 2:56 pm

Original Post: http://blogs.forbes.com/christopherhelman/2011/01/05/texas-oilman-tired-of-being-victimized-by-obama-drilling-moratorium-may-soon-invest-in-israel/?boxes=Homepagelighttop

ATP's Titan platform

When T. Paul Bulmahn was a kid in rural Texas his family of seven sharecropped a garden down the road from their home. Because they didn’t have enough land for cows, they raised goats and made decent money selling their easily digestible milk to the lactose intolerant. “Instead of letting things happen or being a victim of society we made things happen.” What’s more, “I always felt that being able to milk goats growing up gave me a fabulous touch with a basketball.”


Bulmahn, 66, now the chief executive of Houston-based ATP Oil & Gas, is once again figuring out how to make the best out of a tough situation.

Bulmahn says that within weeks he will announce a new oil and gas deal (most likely in Israel) that will enable him to take the first steps in saving his company from what he sees as victimization at the hands of the Obama administration in its overreaching response to the BP oil spill. “What’s being done now under the guise of an emergency which has already passed is not fair,” says Bulmahn.

For a small oil company ($800 million market cap) ATP has built an outsized position in the deepwater Gulf of Mexico, operating 18 wells. When BP’s blowout and oil spill occurred last year, ATP had 10 permits outstanding to drill wells and lay pipelines in the gulf. It was also in the process of completing and installing two $600 million platforms to produce oil and gas from new deepwater fields. If ATP could get going on all its permits, says Bulmahn, ATP could stand a good chance of doubling its production to 50,000 barrels per day within a year.

But the deepwater moratorium stopped ATP dead in its tracks. ATP’s drilling plans are not nearly so risky as BP’s was at the Macondo prospect. It wants to use the drilling rig integrated into its new platform called the Titan, to merely drill a sidetrack (like a branch) off of an exisiting well into a reservoir that is already producing from 12,000 feet deep. The government approved ATP’s well location in Mississippi Canyon Block 941 back in June 2008 and ATP filed its permit to drill the sidetrack in July 2009.

Allowing this kind of drilling project should be a no brainer. ATP has supplemented, revised and amended its permit to meet every new request by BOEMRE. What’s more, the Titan platform exceeds all regulatory requirements for safety. Bulmahn is especially proud of the Titan–the first deepwater platform ever to be built in the U.S. with American labor. Designed three years before BP’s spill, Titan features a blowout preventer on the seafloor with two “shear rams” to seal the pipe, plus another BOP system above the water on the platform itself.

Over-engineering the Titan was just common sense to Buhlman, who says that as a small-fry in the deepwater ATP has always recognized it needs to be even safer and more careful than its bigger brethren. ATP has never had a spill, yet, gripes Bulmahn, “BP’s own partner Anadarko has already indicated publicly that there was gross negligence involved. And for that the safe and environmentally sound industry was shut down.”

Bulmahn sees the administration’s actions as a concerted effort to shut down and jeopardize the future of not just BP but “all the companies that had drilled safely and environmentally soundly.”

Can ATP survive even with permits? “The new environment for risk means that managers of most companies are betting the entire company on every well,” says Gary Adams, lead oil and gas consultant for Deloitte. Not many companies have the balance sheet to withstand a possible $30 billion hit for oil spill cleanup. Thus, says Adams, “the Gulf could become a game for only the biggest companies.”

So Bulmahn started looking for options. To ease ATP’s debt load he spun off Titan as a subsidiary and borrowed $350 million against it. More importantly, he began looking all around the world for oil-rich countries “that are desirous of developing their offshore resources, desirous of our expertise, and which would prefer to work with a smaller company like ours that may not have entanglements in other countries.”

Bulmahn won’t yet say where ATP is heading, but rumor is that a deal has been struck that would give ATP rights to develop oil and gas finds offshore Israel, near the area where giant new fields like Leviathan and Tamar have been discovered in recent years.

Going overseas wasn’t Bulmahn’s first choice. “I’m an American first. it’s not where we need to be for our own country’s interest,” he says. But he didn’t see much choice: “I don’t want us ever to be victimized again.”

He wrote as much in a letter to President Obama sent December 20: “Please Mr. President, give ATP a permit to return to work rather than forcing more American jobs to be lost.”

Maybe the President listened. Though the victimization isn’t over yet, on Monday BOEMRE announced a slight crack in the permit logjam. ATP was notified that its sidetrack permit would finally be allowed to proceed as long as ATP satisfied new safety rules.

Whitney Stanco, analyst at MF Global, says that these new rules will likely include a recalculation of a potential worst-case oil and gas discharges that could potentially erupt from all reservoirs intersected by a well if that well were to fail completely with nothing to stauch the flow.

This is far stricter than previous rules, and says Stanco, the companies named on Monday might not be able to get back to drilling if their new worst-case scenario is significantly higher than their old one. Stanco expects permits for brand-new wells, when they finally come, to include a requirement that companies conduct environmental assessments that could take as much as 12 months.

It’s an opening, and Bulmahn will take it. But he’s not happy about it. Delays are costing ATP $330,000 per day for labor and equipment that’s sitting around doing nothing. “For America to be great we need an abundance of energy, of all kinds, not just oil and gas. We need nuclear and solar and windpower and biomass,” says Bulmahn. “We need them in abundance and we need them cheaply to be able to continue to grow our great country and make it greater than it is now.”

New Facebook Fundraising Makes Zuckerberg A Far Richer Billionaire

Original Post: http://blogs.forbes.com/kerryadolan/2011/01/03/new-facebook-fundraising-makes-zuckerberg-a-far-richer-billionaire/?boxes=Homepagelighttop

by Kerry A. Dolan. Shades of Green. Jan. 3 2011 - 1:36 am

Facebook has raised another $500 million from Goldman Sachs and Russian investor Digital Sky Technologies, at a valuation for Facebook of $50 billion, the New York Times reports. That makes Facebook CEO Mark Zuckerberg worth more than twice the $6.9 billion Forbes said he was worth in September 2010 –when Facebook was valued at $23 billion.

It probably won’t change Zuckerberg’s low-key lifestyle, but the jump in net worth will, as the New York Times noted, put Zuckerberg closer to the ranks of Google founders Sergey Brin and Larry Page, both worth $15 billion as of Forbes’ Sept. 2010 ranking of the 400 Richest Americans.

The latest fundraising will also boost the billionaire fortunes of two other Facebook co-founders, Dustin Moskovitz (worth $1.8 billion on the 2010 Forbes 400) and Eduardo Saverin (worth $1.15 billion on the 2010 Forbes 400). Moskovitz left Facebook in 2008 to start another company, Asana; Saverin helped Zuckerberg found Facebook but stayed on to graduate from Harvard while Zuckerberg and Moskovitz dropped out.

It should also make the Winklevoss twins think twice about appealing their settlement with Facebook. The pair recently told the New York Times that they got a raw deal when settling for $40 million in shares and $25 million in cash with Facebook. As each month passes, the value of those shares just keeps climbing. I’ve said before that they are better off not appealing (See “Twin’s Facebook Fight Rages On“)

The New York Times reported that in the latest fundraising, Goldman Sachs put in $450 million, and Digital Sky Technologies, already an investor in Facebook, put in $50 million. It added that Goldman Sachs will start a special purpose vehicle to let its high-net worth clients invest in Facebook. That will put it in competition with several brokers, including Felix Investments, EB Exchange Funds and GreenCrest Capital, which have been buying shares of Facebook from ex-employees and selling them to accredited (high net worth) individual investors and hedge funds by creating limited liability companies (See “Frenzy for Facebook Shares Heats Up With New Auction“)

Anyone want to wager a guess on when Facebook raises another large round of cash?

Worth It?: Groupon

Daily deals darling Groupon, which sends subscribers free coupons via email, has gotten a lot of buzz in 2010. Is it worth it for consumers to sign up, even if they're not regular buyers of the deals? WSJ's Lauren Goode reports.

Is Bank of America Shaking Off its Woes?

By MIRIAM GOTTFRIED for Barron's MONDAY, JANUARY 3, 2011

Original Post: http://online.barrons.com/article/SB50001424052970203793504576059811600824004.html?mod=BOL_hps_highlight


Shareholders have reason to celebrate the news that the bank has agreed to buy back bad loans from Fannie Mae and Freddie Mac.


Are shares of Bank of America (ticker: BAC) finally shaking off their misery? It sure seems that way.

Early Monday, BofA announced that it would take a $3 billion provision to buy back bad loans from Fannie Mae and Freddie Mac that were issued by its embattled Countrywide Financial division.

BofA expects to post a $2 billion write-down in the fourth quarter as part of the repurchase agreement and said the charge will have no impact on its Tier 1 capital ratio or tangible equity ratios.

The settlement with Fannie and Freddie—the two leading so-called government-sponsored entities (GSEs)—is a huge step in the bank's effort to clean up problems that surfaced during the housing crisis. The mortgages originated by Countrywide emerged as some of the worst issued during the run-up to the crisis, and BofA has had to handle growing loan losses since it bought Countrywide in 2008.

BofA shares were up 60 cents, or 4.5%, to $13.95 in mid-morning trading Monday as investors cheered the better-than-expected terms of the agreement.

Indeed, the time looks right to hitch a ride on the bank's rebounding fortunes.

The deal represents the removal of one of the biggest issues overshadowing the bank's shares, and gives BofA CEO Brian Monyihan the opportunity to improve the bank's financial picture.

"This is a late Christmas present from [U.S. Treasury Secretary] Tim Geithner to Brian Moynihan," says Christopher Whalen, senior vice president and managing director of Institutional Risk Analytics.

Whalen said he was looking for $40 billion to $50 billion in total loan repurchase expense over the next few years, but after today's announcement, he now thinks the total will be a little under $10 billion—a fraction of what would have been expected based on the losses. This will be a positive for shareholders and bondholders, he said.

"To me, this is just evidence that Washington was listening to the Street," Whalen says. "We now have finality on one of the biggest issues facing Brian Moynihan, and he can now be much more aggressive."

To be sure, BofA's repurchase obligations with Fannie and Freddie are not the only problems facing the bank these days.

Mortgage repurchase demands from non-GSEs are not included in the settlement and could continue to pose a challenge.

In addition, some BofA followers remain concerned about a potential threat from WikiLeaks, the international non-profit organization that publishes leaked documents on its Web site. WikiLeaks founder Julian Assange has suggested that the site has access to documents that could damage a large bank, and there has been speculation that BofA was the bank in question.

But the Fannie and Freddie issue was the most important one for investors, Whalen says, and its resolution should send them piling into the sector.

Mike Mayo, an analyst with Credit Agricole, says that the issue brings important closure for the bank and could be symbolic of the beginning of a new chapter.

"While the dollar amount of the cost is in the range of what we expected for the GSE-related exposure, the move helps to eliminate the uncertainty as to the ultimate amount and effectively front-loads the GSE-related costs of the next couple years," he wrote in a research note.

"Moreover it shows a willingness of Bank of America to take more control of the situation, and sets a tone for the year by having this move announced on Day 1 of the new year."

Mayo rates BofA at Buy with a $15 price target.

Jeff Harte, an analyst with Sandler O'Neill, also rates BofA at Buy, but sets his price target at $20.

Harte wrote in a note that the provision would reduce his fourth-quarter earnings per share estimate to a loss of 20 cents from a gain of 20 cents, but expects minimal impact on tangible book value.

"This should be a net positive for Bank of America shares," he wrote.