Exotic Loans

That sound? It's the approaching thunder of a trillion and a half dollars of option arm loans about to reset. That's trillion with a T. A Mortgage Broker's Synopsis:

These Option Arm, Neg Am Pick a Pay Loan programs were one of the things keeping the home building bubble and mortgage lending bubbles going for the last 3 years. Without these products, the market (at least in California) would have collapsed 3 years ago. Instead the bubble just got bigger and bigger and we will see even a greater collapse when it comes. Ninety percent of those who take an interest only loan can only afford the interest only part and not only that, there entire lifestyles are planned around that payment.

These loans were seen as smart because if you're flipping the home you only plan on making payments for a few months so why not keep those payments as low as possible? Unfortunately two things happened, people started using these loans because the initial lower payment was all they could "afford", and the market collapsed and would-be-flippers were stuck with the homes. The lenders were only too happy to push these loans as the commissions were huge.

When you are talking about the high loan amounts in California, the money to be made by pushing someone into one of these programs is huge. So are the temptations. Some lenders went so far as to put on their rate sheets that the maximum a broker or mortgage loan officer can make is $50, 000.00 on a given loan.

These exotic loans are only one of many causes of the housing collapse in the US, but possibly the most important. They're something I've been quite interested in: Negative amortization, The credit bubble . I just hope we can keep these loans out of Canada. It's easy to put the responsibility on the borrower, but as the US has shown us people are generally dumb financially unsophisticated, and need to be protected from themselves and unscrupulous lenders (and stopped from taking the rest of us down with them).

On related note, here's one of the many amusing antecodes from the collapse:

Doug Milliken, the newly elected Arapahoe County treasurer who ran on a platform that promised to help families avoid foreclosure, is in the process of losing his house. Milliken’s campaign fliers promised to ‘educate homeowners on how to make wise decisions to avoid losing their homes’ and to ‘empower families to save their home when faced with foreclosure’. He said he didn’t expect he would be embroiled in the same problem he was telling voters he would help them avoid. ‘When I brought up this issue, this was the furthest thing from my mind,’ he said.

Cars: Tied for best looking movie of the year

We finally watched Pixar's Cars. Great movie, and i'd say as good looking as X3 on our home theater. It's going to be hard to pick a "Best picture quality" winner at this Jadies.

Your 'Cheap and tacky' Wedding (A Harsh Lesson in PR)

Jilted marquee company's revenge turns sour. Steve Hausman emailed Great Marquee Company saying he and fiancee Paula Brosnahan would not require the company's services for their wedding:

Hi Klaus, Paula and I went and viewed your marquee setup at Devonport the other weekend and unfortunately we did not like it.So this is just to let you know we will not require your services on 7 April 2007. Thanks for your assistance and we are sorry that it turned out this way although we are glad we looked at the marquee prior to booking as that would have been a huge disappointment. Regards Steve Hausman

The reply:

Hi Steve, Thanks for your reply. Your wedding sounded cheap, nasty and tacky anyway, so we only ever considered you time wasters. Our marquees are for upper class clients which unfortunately you are not. Why don't you stay within your class level and buy something from payless plastics instead. Kindest Regards Katrina Office Manager

And, of course, this has now spread across the Internet. Whoops. LOL. But it gets better:

In an even better twist, the bitter-tongued staff member, who was promptly fired after the email came to light, is, reportedly, also the CEO's wife.

Green Server - Meh

Energy production is a fascination of mine, so I’m also interested in the other side of the equation, consumption. Or in this case, conservation. Efficiency in computing is becoming ever more important as companies like Google deal with the economics of powering (and cooling) thousands of computers. But what about the home or small office network?

I finally saw a repeat of episode 2 of Dragon’s Den I had missed, and one presentation was the Green Server by fellow Calgarian and computer nut, Jonathan Levine. It’s a small, low-power server and the idea is you let it do server things instead of your power-hungry PC. The theory is you save money on your power bill and there’s less strain on your PC. I think the theory is sound, modern PC has far more power than is required to sit and download a file overnight ¹. However, the dragons were right to turn the investment down. This company has no chance.

I’ll get to the killer flaw, but it’s worth mentioning that it never came up during what I saw of the show. To be fair, Jonathan may have discussed it with the dragons and we missed it, as the show is heavily edited for entertainment. To viewers like me it appeared the pitch failed because of Jonathon’s truly lousy performance as presenter. I wouldn’t be surprised if that actually was the cause since he does an equally poor job with online posting ² and the company has an awful website. Not visually awful, it’s actually almost pretty. The problem is it reads like spam email or late night shopping channel presentation. Save “HUNDREDS of $$$ per year”, “radically improves the integrity of the user's data”, immune to malware, and other claims, and even a rant about Windows cloud what little objective facts and information there are. Jonathan, every technology company has the problem of trying to sell too many features at once. If you think it’s hard with investors wait until you get to the public.

But those are not insurmountable problems. I’m sure professional marketing is high on their list of things they need funding for. There’s even a good reason in a post by Jonathan as to why he ending up presenting to the dragons instead of someone more “suit”. And while there are plenty of nuggets of investment wisdom, Dragon’s Den is first and foremost entertainment. O’leary will insult you just for fun as often as he will for an, umm… business reason.

No, the main reason why they have no chance is this product already exists. There are dozens of network attached storage devices out there from experienced, reputable companies. These companies already have cheap manufacturing in Asia, and they already have sales channels, and advertisements, and reviews on CNET, and a history of providing support, and stock on the NASDAQ, and the next version already at the lab, and so on. And these products have one advantage beyond price and specs that leaps out at me, in most cases the device is also a router or media adapter. Those are additional jobs that are required 24/7, but the green machine doesn’t do. They are also print servers, firewalls, and, like the Green Server, backup devices ³.

Still, I wish them luck as I’m always hoping to see more high tech development here. At the very least I can sympathize with the state of VC in Calgary for anything not oil. One last problem is how the hell they came up with a $3,125,000 valuation for a company only at the prototype stage and no proprietary hardware. I doubt it happened in this case, but a lot of Dragon's Den presenters seem like they think how much money they want, how much company they want to keep, and don't do the math.

1. The theory is sound by I’m still skeptical of the numbers. I’d like to know where you get your numbers regarding the number of computers in homes and average power supply wattage. I know a lot of people who have one laptop that hibernates overnight.
2. Like this joke (I hope it’s a joke) Jonathon posted to the CBC website :

   Finally, I'd like to speak to that "mad scientist" business. I hate it. You'd better get over what I look like, because anyone who compares me to those undisciplined cranks is gonna get invited out to the woods behind my house for a little re-education.

3. I know the Green Server website mentions off-site backup, but that doesn’t mean anything without details or reputation. What size data? Where is it located? How do I know it’s safe? I would say those questions all need to be answered, but it’s moot. The fact is there are many off-site backup solutions out there, including at least one I know (x) that’s free. And that one is automated backup which is far superior to drag-and drop backup.

Borat's tricks

Ever wonder how they get people to have what they think is a real interview with Borat? Here's one story: How I was duped by Ali G.

I don’t know what motivates Borat/Cohen to use his considerable talents to deceive and manipulate: maybe it’s his way of gaining power over the childhood sting of religious animosity or the feelings of inferiority from a woman’s beating him at Scrabble.

Yah right, or maybe it's the millions of dollars.

New browsers: Firefox is still king.

I've been using Internet Explorer 7 and Firefox 2 at home and work since they were released a month ago.

7 is the best IE yet and contains improvements that were sorely past due. It finally adds tabbed browsing and a search field, finally bringing it up to par with Firefox.

Up to par with Firefox 1 maybe. However, Firefox 2 has raised the bar even higher with inline spell checking and even better extension management. Upgrading to Firefox 2 was very pleasant, especially how it went through my add-ons checking for compatibility. The one that wasn't was upgraded for me. Compare that to the IE installation which required a Windows verification and a reboot.

For me the spell checking is reason alone to prefer Firefox, but so is the responsive tabs compared to IE's which are sluggish when switching between them. Not to mention IE's unfortunate UI, including the still awful options window.

It's more than just a potential recession

The housing problem in the US is more than just a credit bubble and foreclosure flood. There are side effects like the home owner who didn't buy or sell anything, but has their property tax skyrocket because of speculator-fueled prices in their neighborhood. And you also have a lot of building very quickly: Shoddy Construction And The Housing Bubble

Most of the builders employ sub-contractors to do the plumbing, air conditioning, roofing, etc. In boom times, they too rush to complete the job in order to get onto the next job to keep the money pouring in but, for the new home owner, many of these bad construction don’t appear for several years until the shoddy plumbing and roofing starts leaking and the termites find some tasty timber which wasn’t treated correctly.

The end result is, there are going to be a lot of very busy lawyers in the next 10 + years but a lot of people are going to be unlucky because many of these builders will be out of business or will have found protection in bankruptcy.

And, of course, in the end only the lawyers win.

My work in the construction defects business sent my kids to college

More at ABC News: New Homes, Big Problems

One Maryland house had drastic structural problems. The contractor shoved the main support beam through the outside wall when he couldn't get it to fit right on the other end.

It's everything I hoped it would be and more.

A few days ago I finally replaced my beloved Microsoft Natural® Pro keyboard with the Microsoft Natural® Ergonomic Keyboard 4000 that I was considering as it's replacement.

It's good. It's really good.

As the US homeowner moves from denial to anger

I can't keep up with the volume of posts on The Housing Bubble blog anymore as the credit bubble implosion in the US continues to get louder. Even David Lerah is forced to acknowledge the existence of a problem. (Earlier this year he published a book called "Why the Real Estate Boom Will Not Bust - And How You Can Profit from It". Did I mention he's the chief economist for the National Association or Realtors? LOL).

And as expected, the cries of "Who's fault is this!" grow as well. Alan Greenspan slowly heads for the door.

Why I'm big on both thorium and Thorium

I like thorium power (the nuclear energy concept) and Thorium Power (the company). Here's why:

Our world has an ever increasing desire for electricity. Nuclear power provides electricity with negligible air pollution. However, traditional uranium fission reactors leave us with awful radioactive waste, potential weapons material, and the potential for meltdown.

New age nuclear

Nuclear energy produces no greenhouse gases, but it has many drawbacks. Now a radical new technology based on thorium promises what uranium never delivered: abundant, safe and clean energy - and a way to burn up old radioactive waste.

• Replace uranium whole or in part with Thorium and you have a fraction of the waste and it only lasts 500 years instead of 10,000.
• The technology used by Thorium Power can actually consume the old radioactive waste we're spending so much dealing with today.
• Thorium power generation is safer, no possibility of a Chernobyl or even a Three Mile Island.
• Most of the existing reactors in the world can be adapted to use Thorium Power's technology.
• Thorium Power's technology is working now and has been independently verified by Westinghouse Electric.

Thorium Power believes there is a market for about four thorium-powered reactors each in Russia and United States just for plutonium disposal.

So if you have the heart for penny stocks, that's THPW. And check out the Energy from Thorium blog for some nice introductions to the technology (including its birth in the 50's as a plan for a nuclear powered airplane) and ongoing discussions.

Powered by Thorium

I've mentioned by "thorium stocks", and I'm referring to a company I'm going long on called Thorium Power (THPW). The latest Newsweek has an article that provides a good overview, Clean Nukes Go Public.

If reactors were using this fuel, even if it were reprocessed, it could never be used for weapons. This technology is the only way to achieve three goals—produce massive amounts of energy for the world, not emit greenhouse gases, and not spread nuclear weapons materials—without making one of them worse.

Yesterday another shareholder and I had a conference call with Peter Charles, Thorium's Director of Corporate Affairs. We first talked about the stock price drop. Peter thinks it probably had more to do with the merger making so many stocks became unrestricted than any naked shorting. We also talked about some international work and learned that Thorium President and CEO Seth Grae will be in India this month meeting with the government. That's great because India has committed to becoming a world leader in thorium power generation. Here's hoping "my" technology will play a role there.