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Optimistic Sign #4: Wholesale Used Vehicle Prices Rebound


According to Calculated Risk, wholesale prices for used cars and trucks rebounded significantly in February, after a huge drop in January.  Indications are that buyers are making larger down payments and taking out shorter duration loans.  It appears that many people are switching from buying new cars to used.

I view this as optimistic for several reasons.  First, it shows that these durable assets (cars, that is) do have value and are not plummeting to zero.  That gives more confidence to both buyers and lenders that they're not just throwing their money down the toilet.  Second, it shows that there is still fundamental demand for vehicles despite the inventory overhang, and there is a price where people will buy.  Third, it indicates that the demand for used vehicles is matching the supply, and some of that demand will eventually spill into new vehicles as the supply of used cars diminishes.

Optimistic Sign #3: CEO Roundtable


Every month or so, I sit down with a small group of CEOs of other small technology-based businesses here in the Twin Cities.  It's an informal place to talk through our problems, share experiences, etc., in a confidential and safe environment.

This month we started the meeting by going around the room sharing our views of the economy; naturally I shared my determination to seek out optimistic indicators no matter how foolish it makes me seem.  Pretty much everyone was gloom-and-doom.

But at the end of the meeting, one of the other CEOs made an interesting observation: "Remember how we started the meeting talking about how bad the economy is?  Isn't it interesting that nearly every one of us said that our business right now is picking up, and some of us are doing better than ever."

Optimistic Sign #2: Buying a Suit


This week, for the first time in about ten years, I had to buy a suit.  I only need to wear a suit a few times a year, and I had been living off the inventory I collected during my investment banking days.  That inventory finally ran out, so back to the menswear store I went.

(Incidentally, the new suit today, in 2009, cost less than a new suit of similar style and materials ten years ago even though it had to be special ordered.)

While at the store, I happened to chat with the owner and asked him how business was doing.  His response: January and February were brutal, but things seem to be picking up just a little now.  (They did have some deep discount items, but it was end-of-season stuff like sweaters.)

High end men's clothing is a very discretionary item, so when that starts to tick up, it means that some people are finding the money to update their wardrobe, or that they can't defer it any longer.

Optimistic Sign #1: Media Defaults to Pessimism


I've been optimistic that we're nearing the bottom of the recession since January 2008.  Long enough that I'm starting to feel foolish.

But you know what?  I've decided that I don't care.  My company is doing OK (never better, in fact), and the only way to deal with this murk we're in is to keep your head down and push forward.

So I decided a couple weeks ago that I would make a point of looking for signs that the economy is bottoming out, or even maybe starting to improve a little.  Maybe this is early, maybe we've got years to go before the recovery starts, but in the meanwhile I'm going to search for the signs of hope.

And someday the economy will recover, and when it does, you heard it here first.

On to my first Optimistic Sign: The Media Defaults to Pessimism

All through 2008, the media (and especially the financial media like the Wall Street Journal) wrote articles about looking for the bottom: how great the stock market prices were, the great deals you could get on a foreclosed house, etc.

Since January, however, I've noticed the tone of the articles change.  Now they say that things could get much worse, don't buy into a sucker rally, the recession will last much longer.

On NPR a couple weeks ago, there was an interview of a government official (I think it might have been Gordon Brown, Prime Minister of the UK) where the interviewee mentioned a forecast that the economy would bottom (that is, stop getting worse) sometime in the second half of 2009 and show some modest growth in 2010.

The striking thing was how hostile an skeptical the interviewer was to this pronouncement: "Really?  Do you honestly think we're going bottom out any time before the end of 2010?" (or words to that effect).

Remember, Gordon Brown does not know when we'll hit bottom.  Neither does the interviewer.  Nobody does.  We could be at the bottom right now, and we would not know it for months.

But the default position seems to have become that this recession will last at least until the end of 2010.  That's almost two more years of recession, and a recession lasting over three years total--exceptionally long in postwar history.  Is it possible?  Sure.  Plausible?  Maybe.  Certain?  No way.

I consider this irrational gloominess (the opposite of Alan Greenspan's famous irrational exuberance) an optimistic sign, if for no other reason than the pundits are always wrong.

But less cheekily, it means that we are emotionally accepting the fact of the recession which is an important step to moving on.  It's the moving on which produces a recovery.

Still Transitioning


I'm slowly getting the hang of this new blog software thing....This morning I finally discovered the comment moderation queue (so that's where all the comments went!).  I'm still fiddling with the site design, and plan to get a custom favicon up soon.

There was one complaint about the site design--I'm not sure if it's a browser issue, or someone complaining about my nonexistent graphic design skills.  I basically took the stock Drupal theme and added my "cosmic finger" banner and snow-covered font from the old site.  I tested it under Safari and Firefox, but I don't have easy access to a current version of IE (I have a ten-year-old copy, and this site sucks with that, but I'm not going to lose sleep over that).

The other thing I want to get working again is the live feed from my home weather station--which is only useful if you happen to live in my home, but cool nevertheless.  So expect to see some more tweaks of the site design: this is a work in progress, and I welcome all comments.  I'm even going to turn off moderation, at least for the time being.

So, How 'Bout That Economy?

I've been optimistic that we're near the bottom of the economic downturn since the beginning of 2008.  I'm starting to understand that I don't have a clue when this will end (but neither does anyone else).  To give myself some credit, however, I was also early in calling the start of the recession (back in February 2008, I wrote that I thought a recession started between November 2007 and January 2008, which was dead on and months before the Conventional Wisdom said we were in one).

In retrospect, what I wrote a year ago ("....the recession began sometime between November and January....we're probably close to the bottom right now....") seems hopelessly optimistic.

All of this is a way of saying, don't believe my opinions about the economy, I don't have a clue.

But I do have some observations:

  1. This is already the worst economic downturn since the early 80's, and there's a good chance it will be the worst since the Great Depression.  But we're nowhere near as bad as the Great Depression and I see no reason to assume it will get that bad.
  2. As bad as the recession of the early 80's was (and it was the only one on par to what we're going through now), it also ended surprisingly fast.  At least surprising for the people in the middle of it.
  3. The Great Depression capped a whole series of Depressions in the 1800's and early 1900's, some of which were almost as bad as the Great one.  The economy really is different (more stable) now, as compared to the Gilded Age.
  4. Therefore....we will come out of this recession, and maybe sooner than the Conventional Wisdom thinks.  Right now the Conventional Wisdom is that the recession won't end until the end of 2009, and some are pushing it into 2010 or further.  The CW will always see the end of the recession 6-12 months in the future, even when the recovery is already beginning.

Fred Wilson wrote yesterday that he sees a fundamental shift in the economy going on: the big old "blue chip" companies are often the ones who got themselves overleveraged and in trouble, and the younger, smaller companies are taking over.  I think there's a lot of insight there: over the past 20 years many mature companies (GE, GM, etc.) turned themselves into "growth" companies by developing financing arms, which essentially goosed their growth with leverage.  The real growth companies (ones whose core businesses were growing) saw no need.  The new "blue chip" companies are ones like Google, Microsoft and Cisco, with dominant market positions and cash-rich balance sheets.

In my own business, I've observed that the world is definitely not coming to an end, and in fact innovative companies are taking market share (a statement which--fortunately--describes our biggest client).  There is still consumer demand, especially if you have a product or service which people like at a good price.  There is still room to compete, especially on value and no-gotcha services.

So while I'm still optimistic that we may be nearing the bottom of the recession (and I'm going to stay optimistic no matter how long it takes!), in practical terms I'm keeping my head down and focusing on business.  If enough people do the same, this recession will be over, and sooner than we all think.

The Dorkmobile Arriveth


Following up on the article from last November about my recumbent trike, I did get the Velokit installed in the hopes I could keep riding in the winter.  But I made two mistakes.

First, I was too optimistic about the cold weather advantages of having a full fairing.  Keeping the wind off is nice, but I didn't think of the problem of the inside windshield frosting over.  When the trike is moving this isn't a problem, since there's enough air movement inside to keep the window clean.  When stopped, however, my heavy breathing causes instant fog, and if it's much below freezing the fog freezes almost as fast.  Once frozen, it won't easily come off, making for a hazardous situation.

Second, we had some early snowstorms this winter followed by an extended period of very cold weather.  This coated the side streets around my home with a very persistent layer of ice and made it impossible to get up the hills on the trike.  Had I planned ahead I would have gotten studded tires, but I didn't think of that in time.

So I pretty much stopped riding between Thanksgiving and mid-February.  Now that we're getting towards spring, we've had a higher sun and enough days of above freezing weather to clean the ice off the roads, and I've completed one and a half round trips to the office on my trike this year--a total of 25 miles so far in 2009.

I've set my goal for this year at 2,000 miles.  I think that's do-able, if I'm diligent about riding to work whenever possible and get in a few extended trips on the side.

Our Geothermal Adventure (Chapter 1)


A year ago my parents replaced their relatively new natural gas furnace with a geothermal system (or for the purists, a Ground Source Heat Pump, GSHP). They wanted to save energy and the environment, and saw this as a way to cut way back on their carbon footprint. They combined this with "windsource" electric service (which, at least in theory, supplies your electricity from wind farms at a slightly higher cost) in order to reduce their CO2 emissions from heating their home to effectively zero.

A geothermal (GSHP) system uses a heat pump (essentially a refrigerator which can be run in reverse) to extract heat from the ground in the winter, heating the house and cooling the ground. In the summer it runs the other way, extracting heat from the house to cool the house and warm the ground. A series of water-filled coils, the ground loop, act as a heat exchanger and turn the ground under the yard into a giant heat sink. The net result is heating and cooling 3-5 times as efficient as a traditional furnace.

My parents are happy with their system, but I had a hard time seeing how it made financial sense. Even with the higher efficiency, drilling a bunch of deep wells for the ground loop is a very expensive proposition, and natural gas is quite a bit cheaper than electricity.

Nevertheless, we decided that when the time came to replace our own furnace we would at least investigate geothermal.

That time came this winter, when the main furnace in our house (we have two) died on a cold night. It's 25 years old and past its expected lifetime, and when the technician looked at it his first question was whether we actually wanted to spend any money fixing it. We got it working again (at least for now) for a couple hundred dollars, and immediately started researching replacement options.

And so began the first chapter of Our Geothermal Adventure.

The Energy Equation

My first step was to call Dad and get some hard numbers from him about his geothermal system. Fortunately he keeps good records of utility bills, and was able to give me actual electricity and natural gas usage both pre- and post-geothermal. I could match those records against the records I kept of our bills from the same month to see how their heating costs compare to ours (answer: my parents' house uses about the same amount of heat as ours).

A little analysis showed that in my parents' home, the geothermal system heats their house for about a third as much energy as natural gas. This is as expected. However, at the rate we pay for electricity (about $0.11/kWh right now), electricity is two to three times as expensive as natural gas per BTU.

So in a year when gas is cheap (like this year), geothermal would cost about the same, and when gas is expensive we might save a third of our heating bill. That hardly seemed like enough of a difference to justify the huge upfront costs of the GSHP.

We decided to keep exploring anyway, since the environmental positives were appealing, even if the financial equation wasn't coming together.

Excelobama To The Rescue

About that time we learned that a geothermal tax credit was in the 2009 Stimulus Bill, as it was then going through congress. That would mean that the feds would pick up nearly a third of the cost of our installation if we decided to go down that route.

Then, at the first meeting with a geothermal salesperson, we learned that our local power company, Excel Energy, has a special "dual fuel" rate for people who heat with electricity (including geothermal) but have a fossil-fuel powered backup. The deal is that you let Excel turn off your electric heat as needed (an hour at a time, up to 24 hours over the course of the season) and they cut your electric rate in half for the power used for heating. This lets the power company better manage their load during the peak of heating season, and the backup furnace runs only a tiny fraction of the time.

The combination of these two factors--the Obama rebate and the Excel price cut--changed the math radically. Even compared to a year with cheap natural gas, our heating bill would be cut in half. If gas goes back to $1.50/therm (as it did after Katrina), we save 75% or more. And with the feds picking up 30% of the upfront cost, the payback for going geothermal got much faster.

In fact, when you look at the price difference between a geothermal system and a conventional furnace (remember, we have to replace the furnace anyway), we figure the geothermal will pay for itself within 7-10 years. That's actually before the warranty runs out from some manufacturers.

So it looks like we'll be getting a new geothermal system this summer. And this article can only end with....

To Be Continued....

Welcome to the New Frozen North


Welcome to the new Dispatches from the Frozen North! I've migrated from iBlog to Drupal, an open-source content management system. iBlog was good for what it was, and a good choice back in 2003 when I first started writing this blog. Sadly, it has not been maintained in recent years and has become almost non-functional as the operating system has changed and iBlog has not kept up. That (and generalized life business) is a big reason why I haven't been writing much the past six months or so. iBlog was simply too painful. I'm hoping that Drupal will be useful for many years to come. It's far more powerful than iBlog ever was, and has a lot of features and extensions for all sorts of amazing new capabilities. For now, I'm still stretching my wings. Expect the layout and features of the site to change a lot over the next few months as I try things out. With luck I'll be able to avoid the temptation to overload the pages with gizmos and gadgets: one of my goals is to keep the site clean and usable. Comments, as always, are welcome. And now supported natively.