If you've read my past few posts you might think I’m in a bit of a pessimist. You couldn't be more wrong. I think that we will look back at 2013 as “the turnaround” year we have all been waiting for. Yes, I know about the Fiscal Cliff, the Debt Limit and all the rest but when you look at the job numbers, the stock market and the money sitting on the sideline waiting for a place to park it’s hard to imagine that the economy is not ready to really move forward at a faster pace this year. Construction jobs are up and with the spring coming and at least 50 billion dollars ready to rebuild the northeast this may be the tipping point. Add to that the fact that with mortgage rates as low as they are and the market betting that they will go up, making those who have been waiting to now jump into the market combined with an increase in sales prices in most places now is the time to buy.
One of the most common effects of the business cycle is that we tend to be in the recovery stage long before anyone realizes it. Although most economists believe we are in recovery, all agree it’s been very anemic. Now we can see that the job market has expanded and although the unemployment rate has remained in the 7.7%-7.8% range for a few months the number of jobs created has continued to go up and those jobs are beginning to show up where we need them, in construction.
As of November 2012 we can see that the number of homes for sale dropped by almost 20% from the same time the year before and the number of pending sales increasing each year since 2010, exactly the trend needed to end this recession. The combination of less inventory, more home sales, the lowest mortgage rate in years and an increase in construction jobs will lead to a great 2013.
While the banking system has gone through a number of regulatory corrections and lending requirements have become more stringent I have no doubt that all those buyers who have been waiting will find, by mid 2013 that the prices have gone up. Once those sales have become statistics, the train will get moving faster. Right now existing home prices are still lower than the cost of new construction and as less inventory is available, new home sales will tell the story.
As a member of the National Association of Home Builders I can tell you that most builders understand that the next decade of buyers will be looking for a smaller (1700-2200 square feet), more energy efficient home. Once these new homes have become the norm the value of the larger, older homes will fill out the market and make many more options available to purchasers. With more cash down the markets will be more stable than in the past and you will know I am correct in this optimism when banks again get more aggressive by the end of the year.
If you are not in the market to buy, sit back and watch, but if you have been thinking have we hit the bottom, the answer is YES. Jump in now. A year from today you will be bragging about what you paid for your new home. Below is a graph showing today's sales prices are almost exactly back where they were in 2005. They won’t be here very long. Take advantage.
While no one can predict fuel prices in the long term, we can look at current pricing and give an educated guess at what prices will be in the future. As with all predictions, the further the time line the less accurate this guess will be. Guessing on pricing in 2014 is very possible, 2020 a little less so and guessing prices in 2030 will need more then good luck. What we can do is look at the reason to ask the question, and then look at the various different answers. An example, if your home has a heating system that uses hot water (a boiler), your units life expectancy can be as much as 50 years. If we are heating with any kind of furnace (hot air), we can expect a life half as long, making the decision (shorter amortization) on fuels more important.
If you’re thinking of switching from oil to gas and need to replace your current oil burner or oil furnace you can expect to pay between $4,500 and $7,000. Hot air systems (furnaces) representing the lower end and hot water systems (boilers) represent the higher end of this price range. In addition, on top of these prices expect to pay an additional $1,000-$2,000 if you choose any of the highest efficiency (92 percent to 95 percent efficiency) units.
“They (the public) can expect to save in the range of 15 percent to 34 percent. That’s because natural gas is a lot cheaper than oil right now,” says National Grid’s Dennis McCaffery. To calculate the savings you can figure saving between $150-$340 per $1000 of current heating costs. Here's the rub, if you are switching to natural gas it’s clear the switch is worth it but if you are in a rural area where only propane is available you might want to think differently. Currently propane averages 30%-35% more costly than natural gas and with that extra cost, while burning a cleaner burning fuel, it’s price is similar to that of oil.
To add a few more complexities, gas is now being touted as the next big fuel. It is assumed that New York will soon join Pennsylvania and other states as a large producer of hydro-fracked gas. Whether this comes to pass is still in question (and will become a topic of a future post), but there is no question that domestic gas production will increase significantly in the next decade. With natural gas prices at historic lows now one would think that this means that if even more gas comes to market the prices will continue to be low. That’s where the problem lies. If you listen to any of the biggest domestic gas pipeline companies you will discover that their goals and long term plans have nothing to do with domestic sales. In fact most acknowledge that all this exploration and drilling is actually for foreign sales, mostly in Asia.
In China, they are preparing to supplement their coal production with imported gas. Because gas is so much cleaner, China has little choice but to pay a premium for this alternative fuel. The bottom line is that it’s hard to see gas prices doing anything else but rising. The November 12th headline of Money Morning was “ 2013 Natural Gas Price Forecast: Higher Prices Mean an End to the Bear Market.” These are the guys betting on the future prices and they feel very confident in the short term rise in natural gas prices. “In fact, natural gas prices have already rallied to $3.40 per mmbtu, up 79% in just six months, but regardless the day-to-day movements, the long-term outlook for natural gas prices remains bullish, particularly in light of a steady increase in demand,” says Don Miller, Contributing Writer to Money Morning. I’m sure that you could find energy experts who say the opposite, but the real issue is whether these fuel companies make the needed connections to their Asian users. My bet is that they will.
In the relatively small area covered by National Grid (an Albany New York utility) the current conversion rate is 14,000 conversions a year. One can assume that these conversions are taking place all over the country and will continue as long as the gas prices remain low. Interestingly enough, with each conversion demand is increased and supply reduced. Additionally, many, including spokesmen from Southern Company believe "Company officials say they have to think 30 years ahead. There’s a need to develop more natural gas infrastructure in terms of new pipelines and increased storage capacity. We need to determine the pace and degree of natural gas exports. They say once the U.S. begins exporting natural gas, prices will rise domestically."
Lastly I remind my readers that we have seen a similar pricing before. Our current prices are equal to 1976 prices. Do you really believe it is possible for these prices to stay this low for very long? I don’t. If we compare our domestic prices to those of Europe and Japan you can see from the chart below that there is only one direction for gas future pricing. 
While it has warmed up to a toasty 36 degrees today, and the weatherman says we will continue for a few more days in the daytime defrosting, be careful. The real January weather will return and one of my favorite winter activities is looking through the new plant catalogues that begin to arrive right after the Christmas catalogues stop. My favorite continues to be Johnny’s Select Seeds, but Millers (for fruit trees), Park Seeds and Burpee’s still have a place in my heart for flower seeds.
For supplies, try Gardeners Supply. If you want greenhouse supplies, stay local if possible. One of the largest greenhouse supply companies is right here in Schenectady, Griffin Greenhouse. They deliver in Greene county on Friday’s. You’ll find great supplies at Lowes, Home Depot and even Wal-Mart. My only warning on these are in reference to plants. All of these treat their plants poorly and therefore have sick plants with lots of bad bugs. They will have great prices but just one sick plant can ruin your whole garden.
For organic and heirloom seeds the choices continues to grow. Seeds of Change, Territorial, Bountiful Gardens, and last but not least The Seed Savers Exchange offers varieties that are decades old and will not only sell you great seeds but you will be helping a great organization when you do. If indoor tropicals are your thing, check out the Logee’s catalogue. Now is the time to get ready for spring and order your seeds. Flower seeds generally need to be planted 8-14 weeks before needed and may take between 4-10 days to germinate. All seed packets should be read carefully as many seeds have different requirements.
Don’t wait until spring to start start getting ready for the spring. Now is the time to get things going. If you want to extend the season it’s best to extend in both directions. While I generally use this time of year to plant flowering plant seeds, I also continue to plant lettuce and other greens. The short days are lengthening and I rarely need any additional lighting but if you do, now is the time to purchase the springtime needed supplies. That’s it for now, Happy Planting.
It’s been a little longer than usual since my last post. I try and make most of my posts about my knowledge of real estate, construction and sustainability whenever possible. (Yes, I do get into politics from time to time.) Sometimes, however I have to just let go. This one is for me. If you don’t want to see this personal side of me better skip this one. It could get heavy. On December 10, 2012 we found out that my wife Claudia had our second bout with breast cancer. Our last cancer experience was over 10 years ago so we were told we had past the important recurrence point some 3 years ago. So much for the numbers.
We found out about this cancer totally by accident. Claudia had been in an accident in March and we believed that her breast implant (from her previous mastectomy) had broken. She started getting small lumps on her breast which when checked out were silicon, not tumors. (Good news.) A radiology teckie also saw a shadow she didn't understand but thought should be looked at and so when we did the surgery to clean up the broken implant we had the breast surgeon remove and biopsy the mass that was found by the radiologist. That mass that turned out to be a 3mm invasive cancer with one edge unclear. There is obviously much more to this story but this is not the point of this post. (We are waiting for a confirmation of the next surgery as I write this). No, the point of this post is not about cancer. It’s about math, and our blindness to its reality.
This particular cancer is a very common form of breast cancer with the classic treatment options being either a lumpectomy with either radiation, chemotherapy or both after the lumpectomy or a mastectomy (the more radical approach). We were told by the doctors (both of whom we really like, trust and have faith in) that the recidivism rate for (Claudia’s specific case) and doing a lumpectomy (and follow up) was between .6%-.9% and the recidivism rate for the mastectomy was between .3%-.4%, “so they were both about the same.” Am I crazy? While math was not my best subject I was good enough to figure out that the difference between 7.5% (the average of the lumpectomy rate) and 3.5% (the average of the mastectomy rate) was 4% (or over 100% more likely). To me four more recurrences (and possibly an additional four deaths per one hundred) was a no brainer. We would go with the mastectomy.
I know that there may be a woman out there who have chosen the lumpectomy solution for their personal form of breast cancer and I don’t want to scare them or make them feel that they may have made a bad or incorrect choice. Remember, all cases are different and there are too many variables to go into in a short posting. These are all personal choices and I’m sure age is a consideration to some as well. I know that we would have viewed the options differently if Claudia was 30, not 64. I just want my readers to understand that too often we simply don’t do the math or more commonly, interpret it correctly (which is to say without bias.) The doctors view was that one had a 92.5% success rate and the other a 96.5% success rate. (Both very high and very positive.) While their numbers were correct, I felt that they were looking at the wrong side of the probability equation. The focus of this kind of decision making should not be looked at from the success rate, it should be looked from the failure rate and this rate was twice as likely.
We live in a world where everyone wants to surround themselves with points of view that they agree with and support their current opinions. They want to be “positive.” They don’t want to face the Black Swan. The Black Swan is a book about the “The Impact of the Highly Improbable.” The author, Nassim Nicholas Taleb, considers the most important events in our lives to be these Black Swans. Cancer is generally a Black Swan. How do highly educated doctors not see the significant difference in negative probabilities? The answer, easily. The Black Swan taught me to view predictions from the point of view of the possibilities of the highly improbable.
As we go about our lives, learning to listen to what we don’t want to, surrounding ourselves with contrary opinions and analyzing statistics honestly is important. You’ll find everyone has a point of view and philosophy that they are preaching with supporting data. Our surgeons wanted to do the lumpectomy. When asked why they had no real answer, just the numbers. My guess is we'll never know. I assume it’s less surgery but whether that’s really the reason is just a guess. The number of Black Swan possibilities that await us from hospital check in, to the surgery itself, to the results of the dissection of the lymph nodes are all areas of potentially great, or terrible news. Sometimes it comes down to luck, but an honest analysis of the facts, no matter what is shows is the best course of action. One of my favorite lines from the movies is from Dirty Harry, with Clint Eastwood. Sometimes you've gotta ask yourself a question: "Do I feel lucky?"
