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By sonnypage
February 19, 2008

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My wife and I are Realtors and associate brokers who live and work north of Atlanta, out in Roswell and Alpharetta. In several of my previous posts, I have written of our mortgage lender friend Amanda. We joined her for lunch on Friday at the Thai Thai, our favorite lunch time hangout. Amanda commented that her 30 yr. fixed rate mortgage was currently hanging out at 5 ¾% and not showing much inclination to come any lower. Bill Gross of Pimco commented a few weeks back that housing had to be stabilized and he thought a 5% 30 yr. fixed rate mortgage was what was needed to make that happen. I reminded Amanda and my wife that we had talked about it at the time, when the Fed was frantically cutting the Fed funds rate. Banks, of course, borrow short and lend long, that's the way it works, that's how they make their money. So if we, for arguments sake, concede that a 5% mortgage will do the trick for housing, then what will it take to get the banks to offer it? If a 3% Fed funds rate won't then will a 2% Fed funds do it? No, how about 1%? Do you recall the jokes of a year or so back about helicopter Ben? They would shovel money out of helicopters. Is anyone still laughing? Would free money induce banks to lend long at 5%? It may well take that to stabilize housing and keep us out of a deep and prolonged recession. The University of Michigan index of consumer confidence survey came out today and showed a sharp drop to the lowest level since 1992. What that American consumer needs more than anything else is convincing evidence that his most important asset, his home, is no longer falling in value. A post or two back I called for a 1% Fed funds rate by Memorial Day. I felt comfortable with that call then, even more so now.

In all the years we have been in business, if it is February, then that means it's time for our firm's annual awards banquet. There are several different ways of gaining an invitation, but this is essentially the top fifteen percent or so of agents from all of our offices. It's always a black tie event at one of the upscale mid town hotels. We are always treated to a spectacular dinner with fine wine, then an awards presentation, finally followed by a dance band and dancing into the wee hours. It's always much fun. In light of the past year's very difficult real estate market, our company this year very sensibly downscaled the event to a luncheon and normal business attire. We had a great time all the same. So here is what I am seeing as I contemplate the residential real estate industry in greater Atlanta. I recently read a report that said the membership of the Atlanta Board of Realtors contracted by about 20% in the past year. Another report anticipated a further drop of 25% in the year ahead. Newer agents who piled in over the last few years looking for the easy money are leaving in droves. There is still tremendous overcapacity in real estate and related industries. I believe that more jobs are yet to be shed; it's still an ongoing process. Interestingly, our own firm has maintained about the same level of Realtors but we are seeing many new faces among us all the same. So what's that all about? Firms we compete with are either going out of business or contracting and many of their top agents are choosing to join us. We continue to pick up experienced agents and gain market share and will come out on the other side of this contraction in great shape. I am told that the Chinese character for crisis and opportunity is the same.

This comes under the heading of it must be true because you just can't make this sort of stuff up. The Georgia legislature is taking under consideration suing the state of Tennessee over a 192 year old border dispute. You see, when Georgia was created as a colony and later became a state, the 35th parallel of latitude was to be our northern border. But when a survey was finally performed all the way back in 1816 they got it wrong by a mile to Tennessee's advantage. Why, you ask, would Georgia go to the time and expense to go to court over something so trivial? You have heard of the drought sweeping most of the southeast. It seems that if the boundary can be shifted a mere mile to the north, the Nickajack Reservoir, which is an offshoot of the Tennessee River, will partially fall in Georgia. Our very thirsty state could then dip its straw in for a little relief. A Tennessee legislator has offered, tongue in cheek I suspect, to settle the whole dispute with a football game. My guess is that Georgia will be able to get some of Tennessee's water, but only after we pull out our checkbook. Fresh water is simply another in a long list of scarce commodities that are going to become increasingly expensive.

In my investment portfolio I am still allocated 40% precious metals and their miners, but now also 40%, up from 30%, in energy and other natural resource plays, and a final 20% in cash. I have neither bond exposure nor short positions. I am now absolutely convinced that our federal government, working with the Fed, will do whatever, and I mean whatever, is necessary to free up the credit markets and stabilize the housing market. In my opinion, in light of that, hard assets will continue to have increasing and extraordinary appeal.

In my last couple of posts you have probably noticed that I seem to be on a nostalgia trip in my reading. I have been going back and rereading old favorites and I have even recommended a couple of them to you here. My all time favorite novel, absolutely at the top of the list, is The View from Pompey's Head. Hamilton Basso wrote it back in 1952 and it made the New York Times top ten bestseller's list for forty consecutive weeks. I first read it in college in the mid 1960's.Basso was a contemporary of William Faulkner, Sinclair Lewis and Thomas Wolfe; he called them all friends. He was a pallbearer at Thomas Wolfe's funeral. But whereas you will find the rest of them covered in any decent college lit class today, Basso has since somehow slipped through history's cracks. That's really a shame. They made the movie in 1955 with Richard Eagan playing the part of Sonny Page and the stunningly beautiful Dana Wynter as Dinah Blackford. If any of you have heard of either of them and are foolish enough to admit it here in public, you have just given away your age. I read years ago that DeForest Kelley, later to become famous as "Bones" in Star Trek, had a bit part in the movie. So what's it all about? The setting is the fictional Deep South town of Pompey's Head, South Carolina. It was here that Anson Page, Sonny to his friends as a boy, was born and grew up. But now it's the spring of 1950 and Anson has spent the past fifteen years of his life in New York. He has married, started a family, and has become a successful senior partner with his law firm. It's then that big trouble arises concerning one of the firm's most important clients, and that client, as chance would have it, lives near Pompey's Head. Anson is sent back to his old home town to see if he, with his boyhood contacts and with his understanding of the South, can deal with this very delicate situation. What a great story; I have read The View from Pompey's Head many times over the years. Here is a southern novel written by a southerner that is full of all the nuances and intrigues that always somehow make the South, well, the South. It's still available in paperback at Amazon and I recommend it to you.

Sonnypage