What if Buffett didn’t buy the railroad for the railroad?

Digital delivery is here and we’re going to need 10x the broadband capacity in a couple of years.  Now he has the right-of-ways for all the fiber we need.

And what about that new electrical grid?  Is it feasible to lay towers over tracks?  I don’t know, but I do know that he now has a path to take all the new electrons from solar and wind farms in the Southwest and the Texas Panhandle to Southern Cal and the Midwest.

One thing’s for sure: No one ever accused him of thinking short-term.

Housing recovery: The last act

I was discussing yesterday just what will happen to the bottoming out of the housing market after all the tax credits, foreclosure mitigation programs, and rock-bottom mortgage rates end.

I argued the small rush of newcomers seduced by a bottom, and the improving economy (and therefore more relaxed lending) might be enough to hold sales and prices steady.

But then I found out about the administration’s plan to use 4.2 billion of stimulus funds to buy foreclosed homes and turn them into federal subsidized housing.  By my quick calculation that’s about 40,000 houses at $100,000 each, which is about 6% of current inventory, a big enough share to support the market.

Seems like a perfect plan to me: Ensure sustained recovery, put foreclosed homes to use before they fall in disrepair, help people who did the worse through the crisis, and expand a helpful government program on the cheap.

A watershed moment in Silicon Valley

After their long alliance against Microsoft, Apple and Google parted ways today, and the stage is set for the great fight of the second decade.

Now is the best time to buy a home

I happen to think prices are bottoming out this Summer, and have said so since February (I would only exclude the worst offenders in subprime which additionally have high unemployment, places like the Inland Empire and Las Vegas).

However most people think even with sales picking up prices have more to fall.  So let’s say I’m wrong and prices do fall another 10% into next year.

Even then this is the best time to buy.  Why?  Because mortgage rates are going up and will be way higher this time next year.  About 3 points higher.

Mortgage rates will be up sharply because U.S. treasuries are shooting up (there is, of course, a strong direct correlation between treasury yields and 30-year fixed mortgage rates).  This is not due to inflation fears, or ‘China dumping our treasuries’ or some other ominous headline, but simply because:

a) The economy will continue to improve, and there will be a massive flight away from safety into higher yield asset classes.  People, funds and companies selling their treasuries and putting their dollars into stocks, commodities, hedge funds or Silicon Valley venture funds means treasury prices will go down, and yields up.

b) The Fed will start ratcheting the funds rate up by late 2010 to mop up the massive excess liquidity and keep inflation in check.

So let’s run the numbers using this calculator.

For a $500,000 house, with $100,000 down, at the current 5.5% rate on a 30-year fixed (1.25% tax and 0.5 PMI):

Monthly payment: $2854.49

Total interest paid: $440116.16

Now let’s look at the same house, one year later, now priced at $450,000 with a $90,000 down payment, and an interest rate of 8.48% (corresponding to a 7% treasury yield per this):

Monthly payment: $3,287.99

Total interest paid: $654,925.49

Even though the down payment was $10,000 less and therefore easier to ‘get in the house’, the increase in monthly payment is $433, for 30 years! which comes out to $214,809.33 in additional total interest.  So, again, house price was $50,000 less, and yet payments will be $433 more.

Of course, if prices do stabilize, monthly payments will be even higher ($799).

Some caveats:

• If prices do go down 10% you will lose half of your equity in the near term (50K of the 100K down payment), so this only makes sense if buying for the long term.  But really, is anyone still planning on flipping a house?
• A higher mortgage rate and corresponding monthly payment is not so bad if you’re able to refinance after some years.  But rates are near all-time lows, so they probably won’t come back down anywhere near this for another couple decades, if ever.

So, am I missing something?

Foreign cash for U.S. jobs

Interesting visa program I didn’t know existed:

A bipartisan group of senators is pushing to save the EB-5 visa program, scheduled to expire at the end of September. The program grants temporary visas to foreigners who invest at least $500,000 in distressed areas. If an investment creates at least 10 jobs for American workers, the temporary visa can become a permanent green card. Last year, 945 EB-5 immigrants invested more than $400 million in U.S. ventures.

Some examples

Misleading layoff news

Verizon reported weak Q2 results today due to shrinkage in their wireline unit.  So of course they announced more layoffs, which is just standard operating procedure for a CFO wanting to reassure The Street that costs are being contained and profitability is being restored next quarter.  Whether those cuts actually materialize no one ever checks.

So you end up with a scary “Verizon to Cut 8,000 More Jobs” headline on the Journal’s and other front pages.

Meanwhile we learn that they are aggressively adding FiOS TV and broadband customers, and the rumor is they are hurrying to launch their LTE network in early 2010, perhaps for Apple’s tablet, which you would think requires serious capital investments and manpower for deployment.  So you have to wonder what the net effect is on jobs.  Definitely not 8,000 fewer.

And of course Microsoft is opening dozens of stores, and 7-Eleven is planning a major expansion this year, including 600 stores in Southern California alone.  But you would never see this headline on the front pages: “7-Eleven adding 5,000 jobs”.

The Apple Management Institute

I’m beginning to think Steve Jobs should have been the least of our worries about Apple.

First Jon Rubinstein goes to Palm to develop the Pre.  Now George Blankenship goes to Microsoft to help setup their stores.

Who will be next?

The recession and the cloud

Does your company need capital but banks won’t lend in a recession? How much are your servers worth?

Get on the cloud and sell your equipment!  No credit checks, no commitments.  Just pay as you go.

It’s not just a matter of lowering your capital structure but rather monetizing what you have at a time when money is tight.  Do it quick, before eBay is loaded with used gear and prices crash.

Utility computing makes sense long term, but even more so in the current environment.

It’s reminiscent of how the dot-com bust and 9/11 both benefitted Open Source, as many IT departments, their budgets slashed, started adopting Linux and even OSS databases and application servers.

Camaro: GM’s green shoot

I saw one recently in Dallas.  Beautiful.  And I’ve never liked a single muscle car.  They are selling at a premium over MSRP.

It’s really sad how G.M. managed to reinvent itself, only to be done in by the triple-punch of $140 oil (no SUVs), deep recession (no spending), and credit crisis (no auto loans).  No question their refreshed lineup will serve them well as they reorganize.

The revolution WILL be televised

YouTube is making Gil Scott-Heron look bad.

I can’t wait for network TV to die already.