Four weeks of losses for stocks

Although the stock market closed higher today, we have experienced four weeks in a row of losses for stocks.  However, we are stuck in a range between 1,300 and 1,350 on the S&P 500.  It is concerning to me that the market does not seem to be able to decide which direction to go.  I see the bias leaning to the downside, and still feel that valuations are quite rich.  If we break through 1,300, we should push hard and quickly to 1,250, which is the next support level.  Pending home sales dropped by 11.6% (April) from March, and 26.5% compared to April of 2010.  That is plain ugly.  We have received somewhat mixed real estate data, although for the most part, the numbers have been negative.  I think we could see another 15% to 20% of downside before we reach bottom, and don't expect to see prices bottom until late 2012 at the earliest.  As for stocks, I am cautious, and would feel much more motivated to risk new money below 1,250 on the S&P 500.

Stocks teetering

Continuing with our technical theme from yesterday, stocks are going to open lower this morning, with the S&P 500 coming ever closer to breaking another short-term support level at 1,300.  Like dominoes, once we start punching through these support levels, the momentum on the downside should build, pushing stocks ever lower.  Today's Durable Goods number (April), showed a drop of 3.6% for durable goods (stuff that last at least 3 years), mainly driven by aircraft (Boeing) and autos.  The autos numbers are probably down due to the disruption in component supplies from Japan, due to the earthquake, tsunami, and nuclear disaster.  Durable Goods numbers are really volatile, so I don't put a lot of weight into this report, but it gives stockholders an excuse to sell, which is all they need.

Stocks fail to find their footing

Stocks opened slightly higher this morning, after Asian and European markets rebounded overnight, driven higher by gains in commodities and commodity-based equities.  However, U.S. markets have faded as the trading sessions has unfolded, with the Dow now down 10 or so.

More importantly and on a technical basis, stocks have broken short-term support and are definitely trending down.  I am watching 1,250 on the S&P 500, which is a key support level.  if we break that level, we should trade significantly lower.

Wine and Weather: What we can expect this season - Published in the Santa Barbara News Press in March of 2011

Last summer during the growing and harvesting seasons for grapes, the weather was all over the place.  June and July were overcast, foggy, and downright cold, and we never really got to have a summer season.  Colder weather makes for a longer growing season, and a wetter growing season can be good for some varieties and not so good for others.

Throughout the season, we had a lot of cold, wet weather, but also some heat spikes and dry periods as well.  Growers were frustrated to say the least, although from most reports, were optimistic about the harvest, at least in terms of the quality of the fruit.  The tricky part was judging when to pick grapes, and how exactly to decide when the fruit should come off the vine. 

The cool ocean fog that comes in through the Santa Ynez Mountains and blankets the vineyards almost every morning provides excellent growing conditions for pinot noir grapes.  Santa Barbara wineries are well-known for pinot, although not everyone grows pinot and not all wines in the area are pinots.  Many of our local area winemakers purchase grapes from other growers, both in the area and from outside the area as well.  In fact, a quick trip up to Santa Ynez and visits to any number of our local wineries can offer access to just about any variety of wine imaginable with the exception of sparkling wines.

Given the strange and volatile weather last season, what should we expect in terms of the quality, availability, and pricing of wines this coming year?  The wine futures events and Vintner’s Festival (April 15^th through 17^th) are coming up next month, and I plan to attend some of the tastings and events both here in town and up in the valley. 

According to the Santa Barbara County Vintners’ Association, today, there are over 21,000 acres of vineyards planted in Santa Barbara County, many of those smaller, family owned properties. Oftentimes you’ll find estate wines that may even be crafted on the property, but just as often you are bound to find a vineyard designation on wines from many different producers. This all contributes to the tapestry of diversity and quality that makes our wine growing region so unique. The old adage that “the wine is made in the vineyard” holds true here, with vineyards being meticulously farmed by owners and vineyard managers and carefully assessed by a community of talented winemakers.

The unique nature of Santa Barbara County, with its microclimates and soils, provides local winemakers with grapes of the highest quality and widest selection. Many specialize in a varietal – the famous Chardonnays, Pinot Noirs, Syrahs and Sauvignon Blancs of the County, as well as boutique lots of unique wines like Albariño, Tocai Friulano, Mourvedre, Grenache Blanc, Nebbiolo and Dornfelder, as well as many blends.  The extreme changes in weather, and overall unseasonably cold and wet conditions last growing season, are sure to have a dramatic impact on yields, quality, taste, and availability of wines.

According to Bryan Babcock of Babcock Winery, who was voted one of the ten best winemakers of the year and most courageous winemaker of the year by the LA Times, the key issue with the wetness was more specific to the fog, which tended to linger all day, rather than rain.  “June gloom turned into a very cold and wet July, and then into ‘Fogust.’  Mildew was a big concern, as well as fungus.  Then, in September, we had a heat wave that actually destroyed some of the crop, depending on the vine orientation.  Then we got rain.”   

Pinot grapes were ripe before the heat wave, so most growers picked their pinot grapes before the rain.  “Once it’s ripe, you don’t want rain,” stated Babcock. 

The fog wasn’t wet enough to provide the additional moisture that could be a positive for pinot grapes.  Babcock still had to irrigate to provide consistent and appropriate levels of moisture.  Babcock probably lost one-third of his crop, and his expenses were much higher to maintain the canopy, so with a lower yield, the higher expenses translated to costs per ton at about twice normal levels. “Pinot likes a cooler climate, especially through the beginning of summer, but the extra moisture causing mildew and rot was a big negative for us,” said Babcock.

By the middle of September most growers had already made any adjustments to try and open the canopy to get more sunlight, etc.  The heat wave with 100 degree-plus temperatures was unexpected and devastating for grapes still on the vine.  The fruit is moistly water so that heat sucks the fruit dry, dehydrating it to the point where there is nothing left to pick.

The effects on Chardonnay were probably about the same, according to Babcock, except the rot was perhaps a bit worse.  In the Santa Rita Hills, we have a pretty cool climate, whereas further inland we get more heat.  So, even when the sun comes out, the Santa Rita Hills really doesn’t warm-up.  Weather problems were very location-specific, says Babcock, and its impact on the crop had a lot to do with the grower’s experience.

Babcock relates that the market is very saturated with product, plus the recession’s impact is still being felt.  “We have higher costs, including fuel, with downward pressure on wine prices.”

California’s overall crop was down only by about 3% over the previous year, and Santa Barbara yields were down somewhat, but not by a huge amount.  Premium, higher priced wines are still holding up well, but they are more expensive and difficult to make and sell. 

There were still good wines that came out of 2010.  Babcock’s 2010 “Naughty Little Hillsides” Pinot Gris came out very well, according to Babcock, although there is not much available.  It may be a little more difficult to find really good wines this futures season, and some vintners may not have some of their best wines available for tastings, unless you are a wine club member – all the more reason to join some new wine clubs and do a little more intense tasting this year!

Comparing our conditions with those up in Napa Valley and Sonoma, it appears that the strange weather we experienced locally was also plaguing growers and winemakers in those markets.  Steve Heimoff, well-known wine expert and writer in the Napa market states; “I think the main things are: some wines, especially reds, got blasted by sunburn after vintners tore off canopies, in an effort to hasten ripening because the growing season had been so cold, and canopy management was very important, but there could be some stunning wines, especially Pinot Noir. It's going to be very site specific.”

It seems clear that the challenging weather conditions had a meaningful impact on the grapes and the wines from our local market.  One way to look at it is that the extreme weather conditions will separate the men from the boys so to speak, or the great winemakers from the also-rans.  With the surplus wine on the market, especially in the lower price points, the really exceptional wines will likely come in the higher price-points.  We may also want to look at the boutique wines coming from small growing areas with very specific weather conditions for the hidden gems of the season.

If you love wine, hopefully you will see the strange weather conditions and difficult growing season as a welcome challenge – a treasure hunt to find the true standouts from winemakers that have met the challenge and overcome adversity to produce some wonderful and exceptional local wines this year.

What “The Social Network” can teach us about building a successful business - Published in the Santa Barbara News Press in March of 2011

I recently watched The Social Network—the movie about Facebook and how it was built as a website and founded as a company.  Yes I know.  It came out back in October of last year, so I am a bit behind.  Being behind is the whole point of this week’s column really.  The movie was both a critical and commercial success.  Something like 96% of all critics who reviewed it rated it positively (261 reviews with an average score of 9 out of 10).  I thought it was brilliantly written and highly entertaining.  Beyond its entertainment value, however, I tried to understand what exactly Zuckerberg did that was unique to Facebook, and that made it so successful when so many other social networking sites were mediocre at best.

Before I discuss all of the things Zuckerberg did that were instrumental in building a $50 billion+ company, I did want to say that when I watched the film, it made me feel like an idiot.  The idea for Facebook is so simple, so basic, that someone should have thought of it or something very similar, a long time before Mark Zuckerberg entered his dorm room at Harvard College for the first time.  He was born in 1984, the year I graduated from high school.  I’m sure I am not alone in feeling like I missed many opportunities throughout the internet boom.  With that said, Zuckerberg is a true genius (he earned a perfect 1,600 on his SATs), and was a computer programming prodigy as well.  You will notice I am just saying this to make myself feel better.  It seems to work well.

For those of you who haven’t seen the movie or don’t know the Facebook story, basically Mark Zuckerberg started the company while he was attending Harvard.  He wrote all of the code, along with a friend, in his dorm room between classes.  It started as a Harvard-only social networking site—you had to be a Harvard student to access the site.  He soon expanded the site to include Stanford, Dartmouth, Boston University and other top schools, and then eventually opened it to everyone on the planet. 

Just about everyone involved in making the movie or who was portrayed in the movie state that it is more fiction than reality, but I think the basic facts about how the company was built are pretty accurate.  Zuckerberg is portrayed as a loner, and frankly as a really insecure jerk.  From what I have read about him, he is neither of those things.  He is outgoing, very social, and is actively involved in many charities and organizations.  But, the movie is highly entertaining.

The exclusivity component was a key attribute of Facebook, which started with the Harvard-only aspect of the site, and was continued through to today—you have to be asked to join someone’s network before you can access their information, etc.  Zuckerberg immediately understood the importance of making the site exclusive, and this was a key reason why Facebook grew so rapidly. 

I think the underlying thing that drove Zuckerberg to build the site in the first place was his desire to meet girls.  Perhaps the simplest, most basic reason Facebook works is because people want to meet other people, and they want to know what everyone is doing, who they are seeing, where they go, who their friends are, etc.  In other words, human beings are naturally really nosey.  This aspect of Facebook was not lost on Ryan Seacrest; et al.—the creators of all of those reality shows that are so popular today.

Probably the most important driver for immediate acceptance and lightening fast subscriber growth for Facebook was and is that it is free.  If we are to believe the movie, Zuckerberg and the other founder, Eduardo Saverin, argued a lot about selling advertising on the site when it was very new.  Zuckerberg, again according to the movie, resisted the urge to make money from the site right away, and this undoubtedly contributed to its popularity.  Had they tried to monetize it early, or if they had sold it to Google or Microsoft, and those companies, in turn, had tried to monetize it by selling ad space, etc., Facebook might very well have failed or become un-cool. 

Google has actually used this same strategy, preferring to offer many applications for free to draw traffic to various areas of their site, and then they have been able to successfully monetize these new areas by selling advertising, etc.  Facebook has continued to use the free access to content strategy, inviting programmers to build applications within Facebook.  In 2007, Zuckerberg announced Facebook Platform, which is a development platform for programmers to create social applications within Facebook. Within weeks, many applications had been built and some already had millions of users. It has grown to more than 800,000 developers from all over the world.  Also in 2007, Zuckerberg announced a new social advertising system called Beacon, which enabled people to share information with their Facebook friends based on their browsing activities on other sites. In 2008, Zuckerberg announced Facebook Connect, a version of Facebook Platform for users. 

Some of these applications and site features have been more successful than others, but what they have in common is that they were all offered free of charge for Facebook members. 

The success of Facebook and other sites, such as Groupon, a “deal of the day” site, and so many others, proves that Internet-based businesses are every bit as viable as brick and mortar companies, and increasingly, in many cases, more compelling.  Timing, as they say, is everything.  In the case of Facebook, it certainly wasn’t just timing, or just any one thing, but good timing certainly contributed to the success of Facebook. 

Zuckerberg was able to launch Facebook at a time when the Internet was gaining broad acceptance, not just in the U.S. but in many developed countries around the world.  At the same time, the Internet was still very early in its development, when it was much more difficult to build even the simplest of websites.  These days anyone can use a free template (another service provided by Google, as well as many other web-based companies) to create a new website, with no programming skills required.  This was certainly not the case when Zuckerberg built Facebook.  Had he waited, it is highly likely that someone else would have beaten him to the punch.

One thing that Zuckerberg had working in his favor was that he wasn’t really trying to build a business, or to make money.  He just wanted to build a website that allowed people to interact and connect, mainly so he could meet girls.  Too often as entrepreneurs, we need to generate immediate profits from our business endeavors, which puts heavy pressure on cash flows and often results in the business failing before it has a real chance to succeed.  One of the things I run into often, when writing business plans for clients, if this very problem – the business owner has high monthly expenses and needs to draw a sizable salary from the business, from day-one.  Banks don’t really like this and usually won’t lend money to someone in this position.  Further, it is really difficult to make the financial model for a company make good sense, when there is a significant draw on cash flows from high salary requirements.

To summarize, what we can take away from Zuckerberg’s success with Facebook is that there are certain critical factors that many business ideas share that significantly contribute to the potential for success for the business.  It is usually the right combination of these critical factors, along with a lot of hard work, good timing and a little luck that makes the difference between success and failure, and even between success and mediocrity.  By studying successful business ventures I have learned much over the years.  I still haven’t found my own Facebook, but I am always looking and I believe it is still out there waiting for me to discover it and make it my own.  Your Facebook is out there too.  It’s up to you to find it and make it happen!

Transition House Brings Commerce to Santa Barbara - Published in the Santa Barbara News Press in March of 2011

We are fortunate to live in a city that, despite its relative small size and population, supports so many non-profit organizations.  In fact, there are roughly 1,000 charities registered in the area, which, on a per-capita basis, is very impressive.  Normally we think of a charity as an organization that depends on the financial support of the community to cover its operating costs.  As a result, many may feel that having charities in their community is a drain on the financial resources of the area, especially during tough economic times.  However, many charities draw a significant amount of their funding from sources outside the community, employing local residents, and spending those funds in the local community.

Transition house enjoys tremendous support from the local community, and depends on the generous donations of many local individuals, businesses, and foundations for its annual operation budget, which is approaching $2 million.  As the president of the board, I can state that we simply could not provide the much-needed services to help homeless families with children (we only work with families that have children) regain their self-respect, dignity, and financial footing, without local support.  We also receive significant support each year from the city and county, as well as the state of California. 

Although Transition House is a non-profit, we contribute to the community, as do all charities, by employing local residents and purchasing goods and services within the community.  We have also undertaken significant construction projects, like our emergency shelter renovation, completed in November 2006.  Our shelter renovation was a $2.7 million project, including architecture, fundraising, furnishings, etc., with direct construction costs of $1.9 million.

Kathleen Baushke, who became our Executive Director in 2003 after serving as a longtime volunteer, board member, and our Assistant Director, has been searching for a way to finance the renovation of our Mom’s property.  I have been on the board for about 8 years, and throughout my tenure, Kathleen has been actively searching for a way to fund the Mom’s renovation. 

Mom’s Italian Village Restaurant was owned by the Signor and Giovanacci families and was open for 62 years, from 1933 through 1995.  A severe storm caused the closure of the restaurant in 1995, and Transition House bought the property at 421 East Cota Street along with the building next door at 425 East Cota, in 1999 with the help of the city of Santa Barbara and many others.

Prior to 2006, our shelter renovation project had to take top priority.  The old shelter offered only an open sleeping arrangement, which necessitated the segregation of men and women, which meant that fathers and mothers were separated, and children were only able to sleep with one parent.  The shelter renovation now provides individual rooms for families, maintaining the family unit, has a much more functional floor plan, improved access, and generally feels like a lot happier place. 

Once the shelter renovation was completed, Kathleen redoubled her efforts to find a way to push the Mom’s renovation forward.  Unfortunately, we could never seem to find the right combination of factors that would allow the project to work.  And then the economy and financial market imploded.  Since late 2008, most charities have had to completely rethink their options for capital projects, and some have been forced to close their doors.  This has, regrettably, been experienced by local charities as well.

Transition House also had to start with a clean sheet of paper to try and find a way to fund our Mom’s renovation.  Our primary goal is to provide additional affordable housing for our clients.  In addition to our emergency shelter, which is our first stage of our three-stage process to help homeless families get back on their feet, we have room for six families in our Firehouse property.  We also own 26 low-cost apartments where our families can live for up to 2 years and receive services including: career monitoring, case management and educational enhancement. At the end of the two years, the family reaches an income level that enables them to afford market-rate housing. The family returns to self-sufficiency, and contributes to the community in a positive and meaningful way.  The problem is that we still need more housing.  We have a pressing need at each stage of our three-stage process for additional space for families in need. 

Despite all of the economic setbacks and the demands of running the day-to-day operations of a large organization, Kathleen never wavered in her commitment to finding a way to get Mom’s done, (even when some of us on the board started to doubt if we would ever see the property rehabilitated).  Kathleen just kept pushing and never lost her faith in the viability of the project. 

Finally in 2010, she was able to put together a competent team of consultants and with the help of the City of Santa Barbara, Montecito Bank & Trust, the California Tax Credit Allocation Committee, and many, many others, a funding package was structured that made economic sense, and that allows the agency to build 8 new housing units, renovate our existing 8 units next door, to add a 25 baby infant care facility, and to provide the tenants of Mom’s with same valuable services we provide for all of our families at Transition House.   

In addition to the obvious benefits to our client families and to the community by helping take families in need off of the street and provide them with hope, dignity, and a chance to re-enter the community on their own financial footing, the Mom’s project will bring approximately $4 million of direct spending into our community.  Our construction budget alone is about $3 million. 

We are acutely aware of the continuing support Santa Barbara provides for Transition House.  In short, we couldn’t do what we do for our families without that support.  Whenever possible, we want to help our community through spending and hiring locally.  To that end, we have contracted with Melchiori Construction Company as our general contractor.  Of the 26 subcontractors Melchiori will use, all but a few will likely come directly from the Santa Barbara area.  Montecito Bank & Trust will provide construction financing.  We are working with Allen & Kimbell for our legal work.  We will spend an additional $300,000 or so on the renovation, as well as on fixtures, furnishings, lighting, etc, as well as additional staff time to support the project (all of our staff members live locally).

With the current state of the economy, the cutbacks from the state, the budget deficits we have experienced, and the high unemployment throughout the county, large projects like our Mom’s renovation provide a much-needed cash injection into the local community.  Because we are such a small city, a $4 million project is significant and impactful. 

This project will take up to one year to complete.  Over the course of this time-period, the Mom’s project will support local jobs, not only through our direct spending on construction, but through supporting the jobs of the construction workers, our staff, the employees of all of the business from which we buy supplies, construction materials, etc., and also indirectly through all of the spending of the employees that the project directly supports, as they go about their daily lives.

There is a significant multiplier effect with projects such as Mom’s, as the dollars we spend are re-spent multiple times within the community.  This multiplier effect supports additional employment as local businesses increase their revenues and therefore can support additional employees. 

Other charities in town are also actively supporting Santa Barbara – some in small ways, simply by employing our local citizens, and others in somewhat larger ways, through capital projects such as Mom’s.  The relationship of charities with their host community is symbiotic – the community supports the charity and the charity, in turn, supports the community, through employing locals and spending the money they so generously receive from the community for their operations.  It is truly a wonderful experience to live is such a given, nurturing, supportive community.  Thank you Santa Barbara for allowing Transition House and so many other charities to help people and support so many important causes.

Nuclear Crisis May Provide Opportunities for Local Companies - Published in the Santa Babara News Press in March of 2011

The past few weeks have been filled with strife, catastrophe, unrest, panic, and devastation.  We witnessed one of the worst earthquakes on record, one of the worst tsunamis ever, both in terms of loss of life and the financial costs, probably the second worst nuclear accident in history, and multiple uprisings in various countries throughout the Middle East. 

As is often the case, when there are serious problems, especially in developed countries such as Japan, there are significant dislocations in the financial markets.  For every dislocation, however, opportunities develop for other areas of the global economy.  Because the Santa Barbara area has a strong focus on alternative energy, these recent events, though tragic on a massive scale, could offer some positive, strategic opportunities for local businesses focused on alternative energy.

On Friday, March 11^th, at 2:46 p.m. local time in Japan, a massive 9.0-magnitude earthquake rocked the northern region of Japan, followed within minutes by an enormous tsunami that inundated large areas of the country.  The Sendai region seems to have felt the worst of the impact from the tsunami, which left probably more than 20,000 people dead and millions more without electricity, water, roads, food, and in many cases, their homes.

The human toll is incalculable, and extreme, and it is impossible to understand the extent of the psychological damage that has occurred, or the time it will take to heal the Japanese citizenry.  The financial toll is also difficult to understand.  The Japanese government has already stated that this will be the most expensive natural disaster in history, and many have put the price tag at over $100 billion already.  That figure is sure to rise, and does not include all of the indirect costs associated with lost business, both short-term and permanent, that will surely result.

Japan is a huge supplier of technology, especially components that are used in just about everything sold today throughout the world that has any kind of technology included in the product, from cars, to computers, to garage door openers and just about everything in between.  Some industry experts have estimated that parts shortages may reduce global automobile production by about 30 percent. 

If parts plants affected by the quake don’t return to operation within six weeks, global auto output may drop by as much as 100,000 vehicles a day (the industry produces 280,000 to 300,000 vehicles daily).  About 13 percent of global auto industry production is down right now and production of about 320,000 vehicles has been lost, mostly in Japan.  The worst case scenario could see lost production of up to 5 million vehicles. 

Honda Motor Co., which just extended closings at two car assembly factories until April 3^rd, is one of the most exposed carmakers.  Honda has 110 suppliers located in the earthquake zone, and about 10 of them cannot say exactly how long it will take for them to recover. 

Toyota, the world’s largest automaker, has shut down all vehicle assembly plants in Japan until at least March 26^th. The company said it will resume production of three hybrid models in Japan on March 28^th.  General Motors has idled two compact-car plants in Europe and a pickup factory in Shreveport, Louisiana, because of parts shortages.  GM executives sent out a memo on March 18^th asking employees to limit travel and expenses to only essential business. (Ford has not experienced any disruptions as of yet.)

General Electric (GE) was also hit initially, along with the entire stock market, since they supplied 3 of the 6 reactors at the trouble Fukushima plant, operated by a private firm—TEPCO (Tokyo Electric Power Company).  Shares of GE dropped from a close of $20.36 on Friday, March 11^th, to a low of $18.60 intraday by Tuesday the 15^th, or by about 8.6%, before rebounding to about $19.50 this week.  Uranium stocks and basically anything related to nuclear power got hit very hard immediately following the disclosure of the nuclear crisis.  The S&P 500 Index dropped to around 1,250 from 1,320, or by 5.3%, although it too has rebounded almost back to where it was prior to the crisis.

Japan’s Nikkei Index dropped 6% on Monday, March 14^th, and then another 10.6% on Tuesday the 15^th, as the nuclear crisis intensified.  European markets also suffered during this time-period.  Any companies that purchase parts from Japan, especially technology companies, also saw their stock prices decline significantly during this time-frame.  

At the same time the Japanese fall-out was occurring (pardon the pun), oil prices were (and still are) driving ever higher, based in large part on the continuing unrest in Libya and other Middle Eastern countries.  In fact, we saw oil top $106 per barrel this week (West Texas Intermediate), which does not bode well for the summer driving season, which is almost upon us.

I am an optimist, so I always look for the silver lining in every cloud.  There has been a widespread, negative global reaction to the nuclear crisis, with many communities that have nuclear plants in close proximity demanding closures, updates, more regulation, greater safety requirements, etc.  This broad-based movement has significant political and financial ramifications for the industry. 

President Obama has earmarked $36 billion in incentives (government loan guarantees) for the development of new nuclear plants in the U.S. in the latest 2012 Department of Energy budget.  Obama also cut the allocation to the Fossil Energy Office in half, underscoring his commitment to have the U.S. generate at least 80% of all electricity needs from “clean” sources by 2035.  Of course this was before the nuclear disaster in Japan had occurred. The Fossil Energy Office budget is set to shrink from $928 million to $511 million and several programs will be eliminated.  The DOE and the Interior Department recently announced $50 million in projects over five years to develop off-shore wind power on the Atlantic coast.  Obama’s proposal would provide new money for energy research, including three new "hubs" for battery and electric grid research, $550 million for Advanced Research Projects Agency-Energy (ARPA-E) and increases in budget authority for promoting renewable-power projects.

The proposed 2012 budget would devote $3.2 billion to energy efficiency and renewable energy, a $1 billion, or 46%, increase over the fiscal year 2010 appropriation. That would include a "ShunShot" initiative to sharply lower the cost of solar cells.

In pursuit of putting more electric cars on the road, Obama proposes $588 million, (an 88% increase), for helping communities that invest in electric vehicle infrastructure. He would also alter the $7,500 tax credit for buyers of electric vehicles, making it a tax rebate available immediately at the point of sale.

All proposals in the President's budget will face tough congressional scrutiny in the coming months, especially in light of the crisis in Japan and the reaction of the public to the crisis here in the U.S.  If the proposals make it through the appropriations process, existing and proposed nuclear plant loan guarantees would total $54.5 billion. According to a statement by DOE, that amount could support 6 to 8 new power plants.

Given the nuclear disaster and the relatively weak position of the President (with Republicans controlling the House or Representatives), funding for nuclear projects, at least in the near-term, will likely be non-existent.  As a direct result, other alternative energies, such as wind and solar, could get a healthy boost, especially with regard to government funding on the national level.  If we couple this potential for additional funding with the very high price of oil we are experiencing, the environment for alternative energy companies, at least in the short-term looks very favorable. 

We have a significant concentration in our local community in wind, with Clipper Windpower, Continental Windpower, and others, and in solar, especially coming out of UCSB.  This appears to be an advantageous time for local alternative energy businesses to aggressively seek funding to support the expansion of their product development and operations.  It would certainly b nice to see some good come out of such a terrible human and financial tragedy; the likes of which we all hope we will never again see in our lifetimes.

No end in sight for real estate slide

The most recent figures showed a 1.1% price decline for real estate prices in March (Zillow), and that 21% of all mortgages in LA are under water - the borrower owes more than the house is worth.  Until prices bottom, we are not going to see an end to defaults and foreclosures.  Inventories will remain high, especially in places like Utah, Vegas, Arizona, Florida, and anywhere else where builders overbuilt.  Every market is unique, so price declines from current levels on a local basis will depend on the characteristics of that local market.  In Santa Barbara, we didn't overbuild because there is no supply of new land that hasn't already been built.  This somewhat shields us from the oversupply issue.  We have a bigger problem however, in that prices spiked so much that we have more room to fall, both on a percentage basis as well as a dollar basis.

Still more pain to follow!

Stocks rally on jobs

Stocks are rallying strongly on today's employment data, which showed the U.S. economy added 244,000 new jobs in April.  The Dow is up about 160 points at the moment, or about 1.27% for the session.  The unemployment rate actually increased to 9% from 8.8% last month.

This optimism may be a bit premature however, since we just saw last week's jobless claims number jump up dramatically to 474,000 people applying for first-time jobless benefits.

Volt No Va

A long time ago Chevrolet tried to sell the Nova in Mexico.  They just couldn't understand why it sold really well in the U.S. and other markets, but would not sell in Mexico at all.  Some genius finally realized that no va in Spanish means "no go."

Chevrolet is about to release their new all-electric Chevy Volt.  Reviewers are raving about how the car can go 1,000+ miles on one tank of gasoline.  Fantastic!  The only problem is that the car costs an estimated $44,000 -about twice what  Prius costs.  Keep in mind that the Volt is a true electric car - it has an electric motor, with a gas engine there only to recharge the batteries (not to propel the car), while the Prius is a hybrid - it has a gasoline engine that propels the car with an additional electric motor that kicks-in under certain driving conditions, and which increases gas mileage.

Let's look at some math:

Let's say we can save, on average $50 a week with the Volt.
That's $200 a month, or $2,400 a year.
To make the math easy, let's say you could get a Prius at $20,000
This means that the Volt is $24,000 more than the Prius
This also means that, at $50 a week savings on gas, it would take 10 years to break-even
This assumes that maintenance was equal (not likely when comparing a Toyota product with a Chevy (sorry Chevy owners)

Ten years is a very long time for any car to last, especially one that gets driven enough to generate $50 a week in gasoline savings.

The bottom line is that, although I appreciate GM's willingness to spend the money on development, the Volt is simply not a viable product.  My hope is that it will lead to more development, so that eventually regular cars and trucks that the average person wants and can use will contain some good electric technology that will increase gas mileage significantly.

Until someone develops a cheap, effective battery system that can store large amounts of energy in a small, light-weight package, we will not see any real progress on electric vehicle technology.