Much of the US’s current energy policy is based on a perceived shortage of natural gas during the 1980’s. The shortage was actually caused by an inadequate distribution system, not a shortage of Natural Gas. The US natural gas market is now in an oversupply condition, with several analysts expecting inventories to reach the maximum capacity of 3.9 trillion cubic feet later this year. Processing and shipping costs from Qatari to the US are estimated at $2 per million British Thermal Unit (BTU). average U.S field requires a Nymex natural-gas price of $7.79 per million BTU’s to earn a 10% return on capital.” The current Nymex price is about $4 per million BTU, future prices are close to $6 per million BTU. Is our natural gas industry in for problems? Will Congress pay attention to economic factors when developing a new energy policy?
Changes to the Fed’s TALF program, specificallly opening the program up to Commercial Mortgage Backed Securities (CMBS)and extending the loan term life to 5 years (up from 1 to 3) seem to have unfrozen parts of the credit market. However the Banking Stress-Test seems to have identified significant banking system exposure from commercial real estate loans.
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TALF (Term Asset-Backed Securities Loan Facility), primarily sponsored by the Federal Reserve, is the new bailout plan that involves printing $800 billion in money to save the Asset Backed Securities market. However, so far Commercial Mortgage Backed Securities are not part of the plan, and that’s a problem.
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On April 17, the EPA Administration issued a “proposed endangerment finding” and a related proposed “cause or contribute finding” regarding greenhouse gases. Proposed Endangerment Finding – “the current and projected concentrations of the mix of six key greenhouse gases—carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6)—in the atmosphere threaten the public health and welfare of current and future generations” Further information on the Findings may be found from the EPA website (http://epa.gov/climatechange/endangerment.html) – go there to find out about how to make public comments on the proposal.
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Background[1] Since 1901, short-term interested rates have risen above long-term rages (inverting the “yield curve”). Each time this yield curve inversion lasted longer than 11 months, the US entered a recession. There have been four recessions without an inverted yield curve, typically at the end of a war. Additionally, the policies of the Federal Reserve [...]
Revisions to Mark-to-Market, effective March 15, 2009, provide guidance to a reporting entity on how to establish “fair value” for assets in cased where there is not an active market. The reporting entity determines there is not an active market, based on the significance and relevance of a variety of factors, then it is assumed that the last “Quoted Price” represents a Distressed Transaction and therefore need not be used on establishing fair value. In these cases, an income approach or net present value with reasonable risk premiums should be used. Additionally, only losses related to the underlying creditworthiness would affect earnings and regulatory capital in financial institutions.
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The article describes highlights of a presentation on Economic Issues & Commercial Real Estate Business Trends – by Lawrence Yun, PhD – NAR Chief Economist and Douglas Duncan, PhD – Fannie Mae Chief Economist, at the National Association of Realtor’s annual meeting held in Orlando during the first week in November, 2008. This post was originally written to be distributed to the members of the Realtor’s Commercial Alliance of Central Oklahoma.
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What we need still need to recognize to have an economic recovery:
1. That we have had low interest rates during the Greenspan Years is a red hearing with regards to our current economic problems; the real problem has been lax credit standards which led to an abnormally high housing stock and an extremely high default rate on home loans.
2. A cut in long-term capital gains from 15% to 10% would buoy the real estate market (both commercial and residential) and relieve some of the pressure to revalue assets under the current Mark-to-Market valuation standards.
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It is suggested that there are at least 5 primary current problems, many of which are the result of unintended consequences of federal policy, that have led to the current global financial meltdown. The current Fed bailout may, if property executed, may help with one problem (sub-prime mortgages that are in default), but only about ½ the money needed to fix that problem has been authorized. Seven other things that will help are suggested.
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The $700 billion Economic Stabilization bill passed by congress last Friday, is actually three bills in one with several other topical areas covered in the 451 pages of HR 1424. The following is a summary outline of the bill. Links to the actual bill and a more detailed summary are provided.
Continue reading about The 2008 Economic Stabilization Bill Summary Outline (HR 1424)