2008-07-30 (Wednesday) by Gregory Tucker.

Yesterday I received the following email:

Hi,

I own the .COM version of your domain name gregorytucker.us and I want to sell it.

I was wondering if you would be interested in buying this domain for $195 seeing as though you own the same domain but in another extension ?

Let me know
Thanks
Shawn.

What is the purpose of the question market at the end of the statement? Regardless, I ran a whois on the domain and found Shawn did not own the domain at all. Thanks, Shawn, or whatever your name is for letting me know the domain is available.

In the process I did some research on cybersquatting. Shawn uses an unnamed method of cybersquatting, which I will call spoofsquatting, in which he lies about owning a domain in hopes he gets a response. He will register the domain after getting a response from the victim. This method is cheaper than actual cybersquatting, which requires him to register domains in advance of any known interest in it, but I suspect less reliable.

The net result is I know own the gregorytucker.com domain, in addition to gregorytucker.net and gregorytucker.us which I owned already. Now if only I could find a way to snag the reon.com domain, which I found is owned by a company in Beaverton.

Posted in Family | Print | 1 Comment »

2008-07-20 (Sunday) by Gregory Tucker.

This introduction by Thomas Friedman gave me a good chuckle this morning:

I am reliably told by a Bush administration official that there is an old saying in Texas that goes like this: “If all you ever do is all you’ve ever done, then all you’ll ever get is all you ever got.” Could anyone possibly come up with a better description of President Bush’s energy policy?

Friedman’s article chastices the Bush/Cheney administration for failing to use its political capital to begin to solve the multi-generational, multi-faceted issues surrounding energy. Freidman describes the administration’s incompetence, without discussing why.

Yesterday I had the opportunity to view the PickensPlan on his new website. Boone Pickens has been advertising his plan heavily on CNN, and lest you think his purposes are altruistic, he is heavily invested in the plan he is proposing. Without knowing his reasoning for coming forward so publicly with the plan, we can assume it is to obtain public subsidies or at least public tolerance of the project. Pickens will require new transmissions lines that may require right-of-way permission from regulators, which may be opposed by local landowners affected by the lines.

The PickensPlan is a bit simplistic. He proposes to replace natural gas used for electricity production with wind power. The natural gas could be used to replace or offfset liquid oil. Besides his own wind project in the Texas panhandle, he doesn’t address how to scale up wind power throughout the rest of the midwest. Nor does he address how to increase demand for LNG fuel in automobile transportation, or whether the owners of natural gas turbines will simply roll over and die in the face of public pressure (unlikely). Finally,the PickensPlan doesn’t address the issue of greenhouse gas emissions.

I have come to see that the issues of energy production, global climate change, and foreign oil dependency are solvable in my lifetime. Over at the E.N. Thompsan Forum at the University of Nebraska Lincoln podcast, Amory Lovins gives a very enjoyable and inspring talk on automobile design and its impact on oil usage. Over at the Woods Energy Seminar podcast from Stanford iTunes U, Elton Sherwin presents a broad array of solutions from a public policy perspective.

Posted in Energy | Print | 1 Comment »

2008-07-14 (Monday) by Gregory Tucker.

This weekend excited me for a couple reasons:

1. I received my transcript in the mail. I am officially an MBA.

2. I passed the ITIL v3 Foundation exam on Saturday. I already had the V2 certification, so this updates my certification to the latest version of the standard.

My next step on ITIL is still TBD. APM Group has still not produced information or training on the higher certifications for ITIL V3. I will not pursue advanced certifications in ITIL V2 right now.

Posted in ITIL, MBA | Print | 3 Comments »

2008-07-14 (Monday) by Gregory Tucker.

<i>Fannie and Freddie are now officially bailed out</i>

For background, read this article.

1. Treasury asked Congress to increase line of credit
2. Treasury asked Congress for power to buy their stock
3. The Fed opened their discount window lending facility to the GSEs

All three options (especially #3) provide short-term working capital that will forestall a credit panic in both companies. Basically, if lenders (bond buyers) believe the companies will soon fail, they will stop buying bonds. These moves will persuade lenders that the companies can make good on short-term loans for now, allowing the companies to keep operating.

At the same time, the moves do not put either the Fed or the Treasury on the hook for entirety of the bad debt. This assuage foreign lenders, who would otherwise slow down buying treasuries because the federal debt would have doubled overnight. At the very least, Uncle Sam’s cost of borrowing would have increased dramatically, because of the risk premium.

Nevertheless, the Market Ticker article confirmed that the “zero risk” nature of US treasuries has already evaporated. Default Swap Options (essentially insurance contracts against bond defaults) on treasury debt doubled in price last Friday. Similarly, the 10-year bond moved up 15 basis points (0.15%) in one day last week. Markets are starting to get the idea that 7 years of fiscal recklessness, massive indebtedness (brought on by aggressive foreign ventures and imperialist overreach) and virtually total lack of regulatory oversight  has put us into a financial position where we may not be able to meet debt obligations.

And we haven’t even started talking about state, city, and county debt. Bill, we miss you even more now–we could have lived without that whole Monica thing, though. Does anybody remember 10 years ago, financial markets were reeling over the possibility that they didn’t know how to value the risk on corporate debt, because the market for “zero risk” US treasury debt was about the evaporate? Uncle Sam was running surpluses and no longer need to issue 30-year bonds. Seven years unrestrained Milton Friedman neoconservatism has brought us to our knees. After reading Naomi Klein’s <i>Shock Doctrine</i>, I realize this was exactly the point. The Republican Party neocons couldn’t privatize Social Security or Medicare, but this impending fiscal shock will allow them to accomplish this and more in one fell swoop. Freidman is laughing in his grave, and Cheney is no doubt giddy over the prospect of our federal government defaulting on its obligations.

Regardless, Freddie and Fannie are not “bailed out”. At most the current actions throw a 3-6 month lifeline to the companies. (Add another 3-6 months, and the problem will be entirely that of Obama. We will let him take the blame for this mess.) The problem lies in the fundamental profitability of its underlying loans. The firms’ ability to collect on its loans is much lower than its outstanding debt. This won’t change for the next several years.

Posted in MBA | Print | 1 Comment »

2008-07-07 (Monday) by Gregory Tucker.

Rental ROI Spreadsheet

I changed the scenario, but the overall numbers didn’t change much. Instead of 30 years I assumed 10 years, and assumed the terminal value of the property is the same as today’s value or NPV = Initial Price * (1- 0.065)^9. I assumed an investor could sell the property in 10 years without making any major investments in it (roofing, kitchen, bathrooms) beyond normal maintenance.

Annual Rent Growth = 3%
Initial Rent = 1500
Discount Rate = 6.50% (for NPV)

Price-to-Rent NPV IRR Init.Price
200 $24,216 8% $300,000
150 $54,684 11% $225,000
120 $72,965 13% $180,000
100 $85,152 16% $150,000
84 $94,902 20% $126,000
72 $102,214 23% $108,000

Again, these are gross numbers that exclude taxes, maintenance, and below full occupancy.

At today’s prices, allowing a gross IRR of 8%, I don’t see how an investor could make any money, unless they assumed significant appreciation in the underlying property. Invariably this is precisely what happened, which is why we are where we are today.

The spreadsheet is attached.

Posted in Portland | Print | No Comments »

2008-07-06 (Sunday) by Gregory Tucker.

I ran some quick numbers in Excel, to uncover what pricing levels of real estate are sustainable. Price-to-rent is the purchase price of a property relative to its monthly rental value. Underlying this analysis is the assumption that rental costs are tied to reality–real incomes, unlike real estate prices, so they are a better proxy for sustainable real estate pricing, which is subject to speculative bubbles.

Assumptions:
Annual Rent Growth 3%
Initial Rent $1500
Discount Rate 6.50% (to calculate net present value)

Price-to-Rent - NPV - IRR - Price
200 - $24,010 - 7% - $300,000
150 - $94,432 - 10% - $225,000
120 - $136,686 - 12% - $180,000
100 - $164,855 - 14% - $150,000
84 - $187,390 - 17% - $126,000
72 - $204,291 - 19% - $108,000

These are gross numbers, which assume 100% occupancy and don’t include management costs, maintenance, etc. Investment horizon is 30 years.

Today the Portland market is around 200, implying a gross internal rate of return around 7%. This is pathetic. In the real world any investor would be at break-even on interest alone. Factor in period of zero occupancy, taxes, repairs, etc. and you quickly cash flow negative.

I have heard 120 was a reasonable pricing level–12% IRR. I am guessing this is around break-even for an investor, albeit slightly optimistically. I have also heard 100 is reasonable–14% IRR. In general conservative investors become interested around 84 to 72, which is less than half the prices in the current market.

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