Friday News Digest

I usually take this space to relate something personal and non-Strong Towns-related. (Why? Because I can, I guess). This week, my personal interests and Strong Towns overlap in a big way. Last year I had accepted an invitation to speak at a conference put on by the Eastern Shore Land Conservancy in Maryland. I love that part of the country and, if nothing else, I was looking forward to getting back out there for a visit. Well, this week I found out that the conference is in Easton - where my sister-in-law used to live and my wife and I vacationed - and, more incredibly, that I am co-chairing the conference with none other than Kaid Benfield.

I was planning to travel out a day early to take Kaid to dinner in Washington D.C. Now, we'll be hanging out together with the good people of Maryland and have a chance for some great seafood at the Washington Street Pub in Downtown Easton. The conference is open to the public so, if you can make it to Easton on March 18, please register and plan to attend. I knew this was going to be a spectacular gathering, but now I'm really pumped. Let me know if you'll be there - I hope to see many of you.

Here's this week's news:

• I've found Della Rucker to not only be a sweet person, but a very thoughtful writer as well. This week she wrote about broadening the concept of what it means to "sustain" and she included some references to Strong Towns. Thanks Della! I also want to give a shout out to Gary L. Howe of the blog My Wheels are Turning for giving props to not one, but two Strong Town posts on his site this week. I'm happy to see we are connecting with people in Michigan - we'd love to come over there for a Curbside Chat.

• This piece may hit our readers as being unrelated, but hang with us. An organization called the US Commodity Futures Trading Commission has introduced rules on position limits on a number of commodities, including energy, food and metals. The objective of the new rules is to reduce the amount of speculation in these markets, where traders allegedly bid up the price of these essentials through the use of options and other speculative devices. So this is to protect us, the consumer, from having to pay more for gas, heat, electricity, food, etc... due to someone on Wall Street gaming the system. Sounds good, right?

“Position limits help to protect the markets both in times of clear skies and when there is a storm on the horizon,” said Gary Gensler, chairman of the CFTC. 

• What the CTFC is doing, as per the Dodd-Frank financial reform bill, is limiting the amount of speculation on these commodities. They don't want traders to artificially drive up the price of oil or wheat, so they limit how much can be bet on them. Now you have to ask yourself: are speculators the problem or is a market that is capable of deceiving itself for years, creating artificial bubble after artificial bubble, in need of a corrective, market force (even if it over-corrects at times)? In the following excerpt from a WSJ article, note that "price discovery" means finding the true (non-bubble) market value.

The rules "are not appropriate" because they may reduce liquidity and impair price discovery, the International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association wrote in the letter.

• Ask yourself: have we spent the last two or three decades artificially raising or lowering the price of oil? How's cheap oil worked out for us? Despite the CFTC and Dodd-Frank, commodity limits are not going to save us from $100+ oil.

Oil's climb back toward $100 a barrel -- last touched in October 2008 -- has raised concerns about the impact of higher fuel costs on the tenuous economic recovery.

"Back in 2008, (U.S.) crude oil only traded above $100 a barrel for about six months before the world economy collapsed into the worst crisis since the 1930s," warned Sabine Schels, commodity strategist for Merrill Lynch.

• Is the end of cheap energy going to raise or lower food prices? Can the CFTC regulate the market into not passing higher costs along to us? How is it that food prices are climbing while jobless claims are up as well? Excessive speculation, or a creeping reality?

A recent spike in global food costs has raised fears of a crisis in the poorer corners of the developing world.

World food prices hit a record high last month, outstripping the levels that sparked riots in several countries in 2008, and key grains could rise further, the United Nations' food agency said recently.

• Did we spent the last decade propping up home prices or allowing real "price discovery" to determine where levels should be? Has the lack of a corrective force -- or the delaying of a corrective force -- helped the more than a million property owners that are now going to lose their homes this year?

Lenders are poised to take back more homes this year than any other since the U.S. housing meltdown began in 2006. About 5 million borrowers are at least two months behind on their mortgages and industry experts say more people will miss payments because of job losses and also loans that exceed the value of the homes they are living in.

"2011 is going to be the peak," said Rick Sharga, a senior vice president at foreclosure tracker RealtyTrac Inc. The firm predicts 1.2 million homes will be repossessed this year.

• Had we not had the artificial subsidies, incentives and regulatory environment that created the housing bubble, but instead had a real market that functioned to set prices, would we now be talking about drops in housing prices greater than the Great Depression?

Things were bad but the broader economy never reached Depression territory. The housing market, on the other hand, just crossed that threshold.

Home values have fallen 26 percent since their peak in June 2006, worse than the 25.9-percent decline seen during the Depression years between 1928 and 1933, Zillow reported.

• At what point do we realize that we don't fully understand these complex systems, let alone have the ability to will them to respond to our every tinkering? What level of failure do we need to experience before we start to see delusion for what it is?

Pat Paulson, president of the Minneapolis Area Association of Realtors is optimistic that the number of listings and sales will continue to grow next year, and that the median sales price will increase to $175,000.

• Do we really have the hubris to believe that this time is different, that is can't possibly happen to us? Can a truly great people continue to lie to themselves?

Forbes has learned that banks are quietly reestablishing the no-doc and low-doc mortgage market. In fact, low-doc loans accounted for 8% of newly originated loan pools as of this February, FirstAmerican Corelogic reports.

• But America could never go broke, right? We're not Greece. Or Ireland. There is nobody seriously contemplating that it could be us one of these days, is there? No way that the ratings agencies are preparing to downgrade the credit rating of the world's largest economy, the country that holds the reserve currency?

Two leading credit-rating firms have cautioned the U.S. on its rating, expressing concern over a deteriorating fiscal situation that they say needs correction.

The warnings issued Thursday echoed prior statements by the companies, however, and financial markets largely ignored them. Treasury yields, which move in the opposite direction as prices, were lower in late-morning trade and the cost of insuring U.S. debt against the risk of default, already below that of Germany, the euro-zone benchmark, barely budged.

"My traders are shrugging it off as stuff we've heard before," said Tom Di Galoma, head of interest-rate trading at Guggenheim Partners in New York.

• Remember where you were when you first heard the news that that, unless our government was willing to immediately spend nearly a trillion dollars on bailing out banks, our entire financial system would collapse? That was a sobering moment, wasn't it - the thought that our banks, credit lines, stock portfolios, retirement savings, etc... could just go "poof", and disappear. Couldn't possibly happen again, could it?

"What would the international reaction be if the Fed suddenly had to go and be recapitalized?" said Bob Eisenbeis, chief monetary economist at Cumberland Advisors and a former head of research at the Atlanta Fed. "I don't think that would bode well for Treasuries, or for the dollar, or anything else. It would be embarrassing."

• After all that, I need something to bring a smile back to my face. Since the girls are in bed sleeping, I'll have to go back to our old standard. Boom De Ya Da. 

I love the whole world, and being part of it. Hope you do too. Have a great weekend.

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