Robert Abalos Real Estate Report

Parker's Ballroom Update

noreply@blogger.com (Robert J. Abalos) — Fri, 17 May 2013 09:36:00 +0000

Back in November 2012, the much beloved and historic music venue Parker's Ballroom in Shoreline, Washington was demolished without much public comment or notice.

I reported the reason this one-of-a-kind music gem seven miles north of Seattle was torn down was so the owner could store used cars on the site.

I was wrong. After visiting the site again I can say the owner is storing new trucks there.

Here is the site of Parker's Ballroom today.

The idea one of the most important music venues in the United States would be torn down after eighty years for this reason is cruel. The sad truth is Shoreline, Washington is filled with nothing but empty lots and abandoned stores. For example, I have never seen more derelict restaurants in one place than in Shoreline, or what the local residents and Seattle natives call BORE-line.

All of these abandoned restaurants are within one mile of the Parker's Ballroom site.

It is like everyone in the city ate out every night of the week and then they all instantly stopped.

If someone needed to store trucks, wouldn't any of these sites be cheaper and more suited? Tearing these decaying eyesores down is a public service, not a public crime.

The reality is all buildings, even historic ones, outlive their usefulness. But the goal should be to save historic properties at all costs, not demolish them at first glance. Parker's Ballroom was irreplaceable in the world of music and especially to the people of Shoreline where generations of residents lived their youth and often met their mates. The sadness of so many people over of all things an old building shows how wrong this teardown actually was.

Rich people who own historic buildings need to realize they share a stake in their future. Ownership extends to the history of the site, not just to the land under the building where all the action took place.

Historic buildings are money pits, yes.

But they are HISTORIC. I would suggest wealthy people who buy such properties regard them as such, treating the memories of the structure with the same reverence as what could, in theory, be built on the site. Is real estate just about profit? What about the prestige of historic preservation and unique property ownership?

Did one of the most famous and beloved music venues in the United States, one with a sixty year history of welcoming the greatest acts in music, have to die to park trucks?

REALLY?

Clement Vallandigham

noreply@blogger.com (Robert J. Abalos) — Wed, 24 Apr 2013 21:52:00 +0000

The Internet is filled with dumb statements. Someone affiliated with Code Pink or some left wing Blue State kind of organization posted this quote online obviously in an attempt to embarrass Republicans. I'm no fan of the Republican Party on most days but this quote is unfair.

"If you want to find your currency in a ruined condition, your Greenbacks worth thirty cents on the dollar; If you want the price of everything you buy to go up and everything you sell to go down vote for the Republican Party."

Clement Vallandigham
Speech to U.S. House of Representatives, January 14, 1863

Very clever. But I'm sure this poster and quoter never bothered to look up who Clement Vallandigham actually was. They likely would be shocked to learn he was an unapologetic racist and supporter of slavery.

He is also one of the most bizarre characters in all of American history.

An Ohio politician, he was elected to the U.S. House of Representative in 1856. He actually delivered the speech quoted above after being defeated for reelection in 1862. In other words, he was on the House floor just days before they threw him out of the body.

Vallandigham was a bitter foe of President Lincoln, the war against the Confederacy, and pretty much everything to do with the liberation of slaves.

In the very same speech quoted above, Vallandigham goes on to call the United States under Lincoln "one of the worst despotisms on Earth." Remember, it is Lincoln's Republican Party he is bashing.

He goes on this same speech to criticize the Emancipation Proclamation which had gone into effect on January 1, 1863---just two weeks before Vallandigham's spoke in the House chamber. "War for the Union was abandoned; war for the Negro openly begun" he shouted.

Vallandigham was once considered a Presidential candidate but his vehement anti-war and pro-peace stance made him toxic for both parties. He advocated an immediate ceasefire towards the Confederacy and a return to the status quo ante for slavery in the winter of 1863 when nearly all the country realized it was far too late for that solution.

When he returned to Ohio after losing reelection, Vallandigham immediately gave a speech denouncing "King Lincoln" and was ultimately jailed for his provocations by Union troops in the state. The entire Civil War history of President Lincoln suspending the Federal right of habeus corpus was to keep Vallandigham in jail. Others were imprisoned, but keeping Vallandigham confined was personal for Lincoln.

The U.S. Supreme Court case that affirmed the right of the U.S. President to suspend the constitutionally guaranteed right of habeus corpus is Ex parte Vallandigham, 68 U.S. 243 (1863).

By May 1863, President Lincoln was so sick of Vallandigham and took the highly unusual step of having the jailed Copperhead supporter DEPORTED to the Confederacy against his will.

On May 19, 1863, Lincoln had Federal troops escort Vallandigham to Confederate military lines where he famously declared "I am a citizen of Ohio, and of the United States. I am here within your lines by force, and against my will. I therefore surrender myself to you as a prisoner of war."

The notion of a "Man Without a Country" inspired author Edward Everett Hale to write his famous short story about Vallandigham and his strange fate. Published in December 1863, this tale of the exiled man with no national home to call his own is still a staple of high school English classes. I read it in 10th grade.

But the resourceful and always wily Vallandigham was not finished fighting Lincoln. After traveling to Richmond, the capitol of the Confederacy, to explain his personal circumstances, he made his way to Canada (via Bermuda!) where he declared himself a candidate for Governor of Ohio! Believe it or not, he won the Ohio Democratic nomination for Governor in July 1863---just two months after being deported from the USA.

Vallandigham lost the general election in a landslide. After all, he was running his entire campaign out of a hotel room in Ontario, Canada and was threatened with arrest if he campaigned or even set foot in the state of Ohio.

After the Civil War, Vallandgham continued his racist tirades against the newly freed black slaves, although his views did moderate since he made two more attempts to reenter Ohio politics. For a time he was involved with the Klu Klux Klan in a senior capacity but quickly found them too extreme and violent for a young man with political ambitions.

In 1871, Vallandigham was practicing law in Ohio and representing a man in a murder case. While attempting a courtroom demonstration to show how the victim accidentally shot himself and was not a homicide, Vallandigham went the actual mile for his client and indeed did prove an accidental shooting was possible. During his demonstration to the jury with a LOADED gun, Vallandigham accidentally shot himself and died of his wound. His client was immediately acquitted and released from custody.

Clement Vallandigham died at the age of 50.

The whole point of this story is simple.

Don't always believe what you read online, even if the quotation is 100% accurate.

Context is key.

Fateful History of Fannie Mae

noreply@blogger.com (Robert J. Abalos) — Mon, 15 Apr 2013 20:09:00 +0000

The history of the Federal National Mortgage Association has been told many times but never as compelling and riveting as before than in a new book by author James R. Hagerty.

THE FATEFUL HISTORY OF FANNIE MAE reads almost like a soap opera or mythical tale, filled with rich characters, bizarre situations, and most of all, Mr. Hagerty's pointed commentary on all the events. He slowly unwinds the tale of how a tiny Roosevelt Administration program to help home buyers get mortgage financing during the height of the Great Depression morphed into a hybrid public/private behemoth starting the year 2006 with $1 trillion of debt guarantees it could not meet.

The point of this book is not so much to point blame and make recriminations but tell the tale of how ordinary bureaucrats and career politicians usually with the best of intentions made one fateful decision after another, decade after decade, until Fannie Mae could not longer function as a viable entity. In the end, FNMA was held together by the proverbial spit and bailing wire, accounting gimmicks and oversight neglect. Any straw would likely have broken its back, someday. But the greatest real estate bubble in history had just burst and Fannie was helpless to even save itself let alone the housing market it was created to support.

Along with its baby brother Freddie Mac, taxpayers got a $154 billion lesson on business failure.

This book is filled with many photographs of smiling Fannie Mae officials over the years which gives them and their actions a greater personality, a welcome departure from much of the dry accounts of these events which focus more on numbers and budget entries than the people who actually put them on the ledger.

The tone of this book in some ways reminds me of the classic A NIGHT TO REMEMBER by author Walter Lord, where everyone knows before starting Page One how the book is going to end but readers are drawn into the story by all the cruel ironies and ignored warnings of disaster looming on the horizon. In Lord's book, the ship is much like a stage and the passengers all doomed to share one grim night are like actors playing roles in the evolving drama, which is precisely why we remember the names of Captain Smith and J. Bruce Ismay so well today. There is no suspense how the story of the ship ends, but there is much suspense in how each of the characters in the story fells along the way.

There is this same sense of eerie foreboding in THE FATEFUL HISTORY OF FANNIE MAE as critics of the never ending expansion of FNMA from its birth keep raising the alarm...but few pay attention...and more and more Federal guarantees seem to bless the supposedly private publicly traded entity.

One of many such warnings in the book comes in this form. Miles Colean, an economist who worked for the mortgage lending industry, wrote a brief to the President of the United States saying government intervention in the U.S. housing market was "improvised in a progression of crises" and "lacked a recognized settled policy. He said "no limit to the expansion of Federal jurisdiction is discernible."

Colean wrote this brief to President Eisenhower in 1952.

What I really liked about this book is the author's colorful commentary on the people and their events. He likes bold adjectives and clever phrases which makes reading an account of what could be a boring subject extremely interesting. For example, when he describes the testimony of a Treasury official up on Capitol Hill as "bland comments" we understand the frustration of listening to such nonsense in the room but also the implications for taxpayers in the future. For decades, everyone knew Fannie and Freddie were like ships slowly sinking, not by huge gashes torn in their sides but slowly, a popped rivet there, a tiny stream of water here. For generations the pumps held back the inevitable but in the end gravity always wins.

There are many accounts of the Fannie Mae disaster and many worth reading. This book by James R. Hagerty is the most riveting I know. MUST READ.

520 Ramps to Nowhere

noreply@blogger.com (Robert J. Abalos) — Fri, 08 Mar 2013 11:19:00 +0000

UPDATE, March 10, 2013: The response to this article has been phenomenal. Please see this new Facebook Page on the 520 Ramps to Nowhere with more information about them and new preservation efforts.

I recently read the State of Washington was going to demolish a local historical relic, a bizarre urban ruin people in Seattle call "The Ghost Ramps" or the 520 Ramps to Nowhere.

Pretty much everyone in Seattle knows these ramps, protruding into the air with nothing attached to them. Thousands of motorists see them every single day while crossing the Route 520 Bridge which gives the ramps their name. But I was not aware of the rich history of these ghostly relics now fifty years old until I visited the site and was amazed by their eerie grandeur.

First, a history and geography lesson.

Seattle is not a big city. On a map the city looks like the letter "Y" just a few miles wide at any given point. For those of you who know Seattle's Pike Place Market on the city's western shore, the eastern shore is less than three miles away. This little detail makes highway construction in Seattle extremely difficult. If you are going to build a north/south highway, how do you do it in such a narrow corridor?

In the 1950s, the civil engineers of Seattle had this very problem. Much like many older cities, Seattle at the time was serviced by one small main highway, Route 99, or today's Aurora Avenue. (Think Route 1 along the East Coast or PCH on the West.) If you arrived or departed Seattle by car you likely left via 99. As the interstate highway system reached across the United States and the old car highways like Route 66 were replaced by more modern freeways, the decision was made to bring Seattle into the modern age and build some roads.

But how? And where?

The decision was made in the early 1950s to ready Seattle for the 21st Century with three major north/south highways running straight through the city.

The first built was today's Alaska Way Viaduct, along the western edge of Seattle. Completed in 1953, this is today's Route 99. Since this was the simplest of the routes to complete it went up first. The Viaduct, as it is called today, is an elevated highway which made putting roadway above the existing city street a fairly straightforward project.

The second highway was not going to be so easy.

Building Interstate 5 through Seattle was going to require slicing a HUGE path literally up the spine of the city. A concrete ditch needed to be dug SEVEN MILES long and THREE BLOCKS wide
and everything in its path was to be destroyed. The oldest hotel in Seattle, one that had survived the Great Fire of 1888, met the wrecking ball. Whole neighborhoods disappeared under asphalt. Other communities found themselves severed in two, cut off from downtown with only occasional overpasses as links to the rest of the world. Local streets were converted into interstate cloverleafs.

Beginning in 1957, whole parts of Seattle were obliterated and covered in concrete. Thousands of residents had to be relocated. Hundreds of businesses moved or closed. The building of Interstate 5 through Seattle's was (and still is) the most disruptive public works project in its history. The few protests against the construction were mostly ignored because most people believed the interstate was needed for the city's future survival.

This last point is key. By the late 1950s, Seattle like many large urban cities was dying. Populations were falling as the giant postwar economic boom for the cities that was predicted never occurred. Instead, the growth was centered in the new suburbs as residents fled the downtown corridor for the charms and lures of backyard BBQs and single family homes. Seattle built Interstate 5 to save the city, not doom it to the excesses of the automobile.

By the early 1970s, the city was so economically depressed someone famously put up this billboard.

But in 1959 Seattle had one more highway to build according to its plan, the third and most eastern route through the city. This highway would be larger than the Viaduct but smaller than Interstate 5 but still a massive urban works project.

The R.H. Thomson Expressway was going to use the existing roadway known as Empire Way (now called Martin Luther King Way) and cut its way north to the Washington Arboretum, where ramps would take the highway across Lake Washington.

The highway was named after Reginald Huber Thomson, the famous civil engineer who literally built Seattle at the turn of the 20th century. Without Thomson, Seattle would have not been connected to the outside world via any means and even getting across town would have been next to impossible. It was Thomson who dreamed up the Denny Regrade, built the Lake Washington Ship Canal, and most of the streets and sidewalks of the city. Thomson built Seattle's famous Volunteer Park.

He loved to build so much his friends told him to relax and take a trip to Europe. While exploring the continent on vacation, he became fascinated on how to build European-style water treatment systems. When he returned, he built Seattle's public water system including parts of what is today Discovery Park.

Thomson had so much energy as a builder when retired from employment in Seattle he built bridges, water systems, dams, and roadways all over the Pacific Northwest. An example? Tompson built the water supply system of Bellingham, Washington.

While serving as Seattle's chief civil engineer, this marvelous bundle of energy also decided to become President of the University of Washington from 1905-1915. Tompson just loved to build and UW needed some building done.

So while overseeing the construction of much of Seattle's public infrastructure AND also running the University of Washington, Tompson then decided to also build the Port of Seattle and the Hiram M. Chittenden locks. Those are the locks below. Seattle residents still love them and tourists read about them in their visitor guides.

But "That Man Thomson" (as he was known around Seattle) was not done with public service when he retired from UW in 1915. He was a member of the Seattle City Council from 1916-1922. But he was bored with the job and decided not to run for reelection. He went and built hydroelectric dams in Eugene, Oregon and Southeast Alaska instead!

So in 1960 the voters of Seattle gave approval for the $11 million project named after Thomson. But right at the start there were problems.

The proposed route would again require the displacement of thousands of city residents and the destruction of hundreds of buildings and homes but this time, unlike I-5, there was a difference. The selected route went through the Central District of Seattle, home of the city's African American community. Some civic leaders, white and black, thought the R.H. Thomson Expressway was merely a veiled way to ELIMINATE the black population of Seattle. The Central District for half a century had been an Italian American enclave but those days were over. Wasn't it curious, even suspicious, the planned highway route would so devastate just one minority group? The ongoing I-5 construction and population displacement was the future of the Central District.

For those who know Seattle, the Thomson Expressway would have run two blocks east of Garfield High School, slicing the Central District in two. Here is the actual route of the proposed Thomson Expressway and its overleaf exchanges such as on Cherry, Madison, and Union Streets in Seattle

View Thompson Expressway in a larger map

By 1963, construction began on the easy section of the highway, building the ramps across Lake Washington inside the city's arboretum, itself a controversial act. But, once again, the engineers encountered problems. The wetland soil could not support the weight of the ramps without reinforcement.

None of this mattered in the end, obviously. By the late 1960s, fierce opposition from every quarter in Seattle forced the city to rethink the R.H. Thomson Expressway. In 1971, a citywide referendum on the project killed it once and for all. In the end, 71% of the city voted against the highway, leaving the few ramps in the arboretum as the only physical proof the idea ever existed at all.

And this is where the 520 Ramps to Nowhere have sat for the last fifty years with few people paying attention until Washington decided to demolish them.

Before this happened, I decided to take a look. I initially acting out of curiosity. But now I believe these beautiful relics need to be saved. I was overwhelmed by my visit and the experience.

For a fraction of the cost of their demolition, these ramps could be developed into a world class park. Seattle's experience with its now world famous Gas Works Park and the rusting ruins there should teach residents and city planners this fact. People love urban ruins and these ramps have a graceful irony about them. According to the specifications of their engineer designers, these ramps were meant to carry 45,000 cars ever day. But if these ramps stand 10,000 years they will never carry a single one. These ramps are pure 1960s, vintage in every way.

Remember the 520 Ramps to Nowhere and the Space Needle are the same age---and always will be.

The environmental trend today in civil engineering and urban architecture is called "adaptive reuse" and the Ramps to Nowhere are perfectly designed for this purpose. An excellent example of what is possible for the Ramps to Nowhere is Manhattan's High Line Park, built on the remains of an elevated rail line which had been scheduled for demolition. New Yorkers love this park and the same type of adaptive reuse could be planned for the Ramps with all types of plants and vegetables grown on and around them.

Chicago, St. Louis, and even Durham, North Carolina are attempting adaptive reuse of abandoned rail lines and urban infrastructure. Ten years from now I'd love to put Seattle on this list since reusing structures is GREEN and demolishing them is a dirty, dangerous, and landfill consuming business.

I loved everything about my visit to the Ramps to Nowhere and I bet thousands of tourists each year would as well. For me, it was a powerful and emotional experience. And also, lots of fun!

These relics are a testament to the demands of the automobile and our dependence on them. They are massive in size and still structurally sound. Breaking them up and hauling them away will be no easy or clean project. Moreover, the claims of "restoring the natural state" of the Washington Park Arboretum makes no sense given the fact the arboretum's land itself is man made, the remnants of a paper mill operation housed in the area for nearly sixty years.

The Washington Park Arboretum should save the Ramps to Nowhere as a monument to the birth of Seattle's environmental rights movement and its own prominent role in it. How many other arboretums around the world can claim they stopped a highway and have the proof? Not a planned highway, but an actual one already actually under construction?

On June 1, 1961, about 100 environmental activists began a protest against the Thomson Expressway. They carried signs which said BLOCK THE DITCH. They marched near the construction site of I-5 in downtown Seattle and warned this same concrete monstrosity and community devastation was coming to the eastern neighborhoods of the city just like it was obliterating the center.

By 1969, thousands of protesters were flocking to the Arboretum to protest the Thomson Expressway. The gates of the Arboretum were literally the battleground against the project.

Historians credit the environmental and community activism which doomed the Thomson Expressway as saving Pike Place Market from demolition in 1971. The fight to BLOCK THE DITCH led to the 1960's Seattle Freeway Revolt and a whole new attitude on the environment and historic preservation which continues to this day. The strong role of Seattle's local communities in the land use and planning process of today's city is a legacy of the fight against the Thomson Expressway.

I have no skills as a photographer but I took these photographs to demonstrate how the ramps could be incorporated into the landscape. These ramps offer a complete interactive experience for visitors, something most ruins cannot because, by definition, most are structurally unsound. You can walk on these ramps, climb on them, and even canoe and kayak to them. I see them being used as movie sets, concert venues, photographic backdrops, and more.

As Seattle once again decides on its relationship with the automobile, this park provides a valuable lesson for historians and the future. The decaying (and always free) Viaduct highway, the first built in the 1950s, is now being demolished and replaced with a toll tunnel far fewer people will use, pushing traffic it now carries onto surface streets downtown.

Interstate 5 now carries 250,000 cars a day through Seattle and cannot carry many more. So how does the city of Seattle in the year 2050 and beyond move its people? The answer to this question is still not clear and controversy surrounds the answer.

But the real emotional power of these Ramps to Nowhere is the Somewhere still in front of them.

I dare any person to stand at the top of the buried ramps and stare straight ahead into the neighborhoods of Madison Park and Madrona. EVERYTHING for the next seven miles would have been vaporized if the Thomson Expressway had been built.

EVERYTHING.

Allied carpet bombing against the Germans during World War II would not have cleared such a path.

See this spit of land? This is the terminus of the Ramps to Nowhere. This is where the land meets the ramps, where the highway goes into the air. All land in front of this spit would have been cleared.

Instead of those bushes and trees you see above, what you would see instead in that very spot is this scene below. A concrete trench seven miles long and four blocks wide. Much of the Seattle neighborhoods of Madison Park, Washington Park, Madrona, the Central District, and Leschi would have been destroyed. Whatever remained to the east of the expressway would have been cut off and relying on overpasses just like the scene below. Notice the sad little houses still standing on either side of the expressway in the drawing.

Hundreds of homes, stores, and city streets like these below would have been demolished. But with the loss of the homes and business and jobs would have been the loss of communities.

Friends lost. Families uprooted. Support systems for people like the elderly and the disabled obliterated along with their homes. The legacy of 1960s urban renewal programs would have been felt in Seattle with disastrous results. Famous Seattle architect and vocal foe of the Thomson Expressway Victor Steinbrueck put it best when he said the routes of I-5 and the R.H. Thomson Expressway went through poor people's neighborhoods. Rich people were not asked to move for their cars.

I find this image of citywide destruction on a catastrophic scale from the vantage point of the Ramps to Nowhere to be the most powerful anti-automobile monument I ever imagined. We love the independence of our cars but when you see the price of this freedom with your own eyes the image is sobering. The Ramps to Nowhere are a vivid reminder of what automobiles need to move people.

Most of all, these ramps can still fulfill their intended purpose in a substantial and meaningful way. The R.H. Thomson Expressway was supposed to be a memorial to Seattle's most famous civil engineer. Without him, the city literally would not exist today in its present form. Sadly, there is no real monument, statue, or building named after him in the city.

The 520 Ramps to Nowhere section of the Washington Park Arboretum should be renamed the R.H. Thomson Park. It is truly ironic and indeed fitting this should be the case since the ramps and the Washington Arboretum itself is on Lake Washington Boulevard, a road itself laid out and built by Thomson himself as Seattle's chief civil engineer.

It is also fitting the Washington Park Arboretum, managed (in part) by the University of Washington, also honor one of UW's own past presidents on this site. Thomson was obsessed with building infrastructure projects and he loved Seattle and especially UW. The Ramps to Nowhere can be his memorial and I'm sure the obsessed civil engineer who lived and breathed to build roadways would be positively thrilled with such a physical (and public infrastructure) monument bearing his name.

To visit the 520 Ramps to Nowhere, set your GPS or Google Maps to Lake Washington Boulevard and East Miller Street in Seattle. The ramps will be visible about fifty yards to the northwest. You cannot miss them.

I HIGHLY RECOMMEND YOU DO NOT VISIT THE RAMPS ALONE. The area is filled with homeless men and their encampments, some who live under and on the ramps. BE CAREFUL. You can walk around the ramps and see the large buried ones without breaking any laws. But in order to go out onto the water ramps you will be violating posted trespassing signs.

THE AREA IS PATROLLED BY POLICE. Or in this case, the Washington State Patrol who take trespassing a bit more seriously than the local Seattle cops or the King County Sheriff. Remember to follow all the traditional rules when visiting an abandoned place with NO TRESPASSING signs.

1. Have your ID handy at all times.
2. If confronted by police, always be friendly and respectful.
3. Do not carry weapons. Police will excuse trespassing if your motives are good but not concealed weapons.
4. Carry evidence of your research or reason for being there, such as books, articles, cameras, etc. Most police are fascinated with historical research even though you will get a lecture on trespassing before they let you go.
5. Always carry a cell phone.
6. Never go to such a place alone.

UPDATE, March 10, 2013: The response to this article has been phenomenal. Please see this new Facebook Page on the 520 Ramps to Nowhere with more information about them and new preservation efforts.

Adolph Alfred Taubman

noreply@blogger.com (Robert J. Abalos) — Thu, 07 Mar 2013 09:46:00 +0000

It's been cold and rainy in Seattle so I've been reading much more than usual. I'm lucky because I'm finding some awesome books. Here's another suggestion for you.

THRESHOLD RESISTANCE is the autobiography and personal memoir of real estate legend A. Alfred Taubman, one of the greatest developers of the 20th century.

Taubman literally invented the modern shopping mall and all the tricks and tips which made them the retailing powerhouse of the postwar era. A dyslexic Jewish kid from Detroit, Taubman would become a billionaire through real estate investment and also one of the most prominent socialites and philanthropists in America.

But a disastrous investment in the auction house Sotheby's would ultimately lead to a different type of notoriety. A Federal conviction for price fixing and, at the age of 78, a stint in Federal prison.

Many celebrity real estate memoirs (such as Donald Trump's) take a "Gee Whiz" approach to success, something Horatio Alger would have written about a century ago. It's not just about working hard and paying your dues, but having some intangible sense of the market others do not have or recognize. Lots of people can work hard. The successful few work hard in ways others are not.

Taubman's background was in retail, literally selling shoes. He could see how real estate design could assist in the sales process---or detract from it. His approach to retail real estate development was (and incidentally, still is) far more scientific. He thinks how the customer acts and builds a shopping mall around these movements.

The two story shopping mall was his idea. Read THRESHOLD RESISTANCE to understand why. The photo above is of Taubman's famously profitable mall at Short Hills, New Jersey.

This book is filled with Taubman's observations and advice on real estate. I like the focus is on how he made his money rather than how he spent it or gave it away, another weakness of some business memoirs. Taubman shares his theories and experiences and they make wonderful sense to me.

One of the best proofs of Taubman's legacy and timeless advice is he is the real estate designer of Apple's famous retail stores. When Steve Jobs wanted to put Apple stores in Taubman's malls, the mall owner and designer said yes if only they would change the design. The original Apple floor plan had a "waiting area" or reception space in the front of the store. Taubman himself said the design made no sense and retailing should start the moment the customer enters the space. Visit any Apple store today and see what he meant and why.

I highly recommend this book. An interesting and informative read filled with how-to and DIY advice for investors and developers, including unfortunately Taubman's cautionary tale of what happens when business gets ignored and things go wrong. Here's the link to THRESHOLD RESISTANCE on Amazon.com.

Affordable Bathroom Upgrades

noreply@blogger.com (Robert J. Abalos) — Fri, 01 Mar 2013 10:03:00 +0000

I read a great number of DIY and home improvement books. Most are good, some are great, and then some books are just about perfect.

AFFORDABLE BATHROOM UPGRADES is the new book by authors Steve Cory and his production assistant Diane Slavik. I just loved it.

Many home improvement books give you technical advice you need to know to get jobs done, such as how to install a new toilet or vanity.

Other books are filled with creative ideas, or how to find materials for projects at thrift stores and rummage sales. Think how to make shabby chic look regal and expensive.

This book offers ideas on how to do both at the same time. Every page of the text is filled with ideas on how to make the most ordinary bathroom look exceptional with inexpensive materials and the minimum amount of labor possible.

Want to install a bowl sink on a new vanity? The complete instructions are here. If I can follow them, even a child can. There are full color photos on every page, step-by-step everything.

According to Steve Cory's website, he's been writing home improvement books for twenty years under the trade name D.I.Y. Writing Inc.. I can't wait to find and read some more of them.

Bathroom remodels are the cheapest way to build home equity. Kitchen remodels are more effective but also cost much more money.

HIGHLY RECOMMENDED BOOK. Here is a link to Affordable Bathroom Upgrades on Amazon.com.

Washington Coliseum

noreply@blogger.com (Robert J. Abalos) — Thu, 21 Feb 2013 09:59:00 +0000

The Washington Coliseum in DC today is an abandoned ruin. But in its day it hosted some of the greatest concerts, sporting events, and political speeches of the 20th Century.

The venue will always be known as where The Beatles played their first U.S. concert after first appearing on the Ed Sullivan show. Their gig was held here February 11, 1964. Malcolm X spoke here. Bob Dylan and Patsy Cline sang here. Red Auerbach and the Washington Capitols played some of the greatest basketball in history here. Ice skating queen Sonja Henie performed on this floor. Rocky Marciano and many other champions boxed and bled here.

Someone on YouTube put together this awesome tribute piece to the old Coliseum. Absolutely brilliant work. I'd like to shake their hand.

There has been talk for the last twenty years about redeveloping the site into a performance art center. Here is one prospective drawing above. I remember visiting the old building in the late 1980s and thinking the place was doomed. The last time I saw the building garbage trucks were parked inside.

The venue was built in 1941 as an ice arena for professional hockey and was originally called the Uline Arena. The exterior of the building clearly shows this classic arched style.

Well, the Coliseum is still hanging tough, although I would bet it one day soon will meet the wrecking ball. The neighborhood surrounding the venue is rough and the crowds which would be drawn to shows there tend to be nasty. The Coliseum is near Union Station in DC up on Capitol Hill and even with all the recent gentrification it is still a dangerous place to be out and about at night.

Union Station itself recently lost its multiplex movie theater for the very same reason as I believe no one will develop the Coliseum site. Rough rowdy crowds (often unfairly pegged as African American youth) made watching movies there impossible.

I hope I'm wrong about the Coliseum. Imagine bringing this room back from the dead.

Fake News Stories

noreply@blogger.com (Robert J. Abalos) — Sun, 20 Jan 2013 17:51:00 +0000

I have witnessed a growing trend in the media to publish what I call "fake news stories" along side their genuine news. Fake news stories are really paid press releases to promote some kind of new project, venture, development, building, business, or whatever. You see them all the time, especially in online media such as through local virtual newspapers.

Fake news stories are not human interest stories or items which are not "news" or timely events.

They are non-news stories, or really advertisements in disguise. Real estate developments like new condo buildings, apartment complexes, and shopping malls use these puff pieces all the time to attract interest in their new offerings. The only problem I have with these commercial inserts into the news is they are just that---not objective journalistic articles but purposely slanted editorials not disclosing precisely who paid for the insert or even if it is one at all.

Remember in the old days paper newspapers would label such inserts with the words PAID ADVERTISEMENT printed at the top of every page? Online newspapers don't do this. Some promoters go as far as to create fake newspapers which do little but print fake news stories.

In my local media market of Seattle, Washington I'd guess about 10% of the "news stories" I see are not really news at all. They instead read like marketing copy right out of an episode of MAD MEN.

I don't know for sure but I'll bet the story below from the Tacoma (WA) News Tribune is a paid insert masquerading as a news story. There is no real news in the piece except a glowing description of a new apartment building. Notice the photograph and the writing copy are from staff employees of the newspaper. This suggests to me an official fake news story, or a press release wrapped in the legitimacy of a newspaper editorial. Again, what is troubling is not knowing why this article was written or if the newspaper was paid to write it exactly the way it did.

Here is the website for the Pacifica Apartments in Tacoma. It looks like a nice place, very new.

I know this neighborhood of Tacoma. Here is a street view from Google Maps. You can actually see the Pacifica Apartments being built in the background. I would describe this part of Tacoma as solidly lower middle class. Residents drive older cars and pickup trucks far more than luxury sedans or Chevy Volts.

View Larger Map

The Pacifica is across the street from the troubled Tacoma Mall, probably best known for the attempted mass shooting that took place there on November 20, 2005 where a crazy man walked through the mall with a MAK-90 (the Chinese version of the Russian AK-47). Curiously, a real tragedy was averted when a mall shopper with a handgun shot and wounded the psycho killer before he could hurt more people. (Note to NRA.) Sadly, for this heroism he was shot and paralyzed for life.

I'm not sure I would want to live across the street from the Tacoma Mall. It is a scene of noisy political protests, shootings and drug activity, and acres of empty parking lots which draw crime. But some people do so here is the article on the Pacifica. It's 100% positive. Not even the laws of physics are this perfect.

*******************************************************

Pacifica part of an investment in Tacoma's booming rental market

From the sixth floor of Tacoma’s new Pacifica Apartments, residents can take in broad views of the Northwest’s wilderness landmarks: the Cascades, the Olympics and Mount Rainier.

JOHN GILLIE; Staff writer

Published: Jan. 20, 2013 at 12:05 a.m. PST — Updated: Jan. 20, 2013 at 7:10 a.m. PST

Casey Sawyer will be able to move into his new top-floor apartment at Pacifica Apartments next week. Allyson Reed is Pacifica’s new general manager. (PHOTOS BY PETER HALEY / STAFF PHOTOGRAPHER)

From the sixth floor of Tacoma’s new Pacifica Apartments, residents can take in broad views of the Northwest’s wilderness landmarks: the Cascades, the Olympics and Mount Rainier.
In the foreground, views are much more urban: Sears, Macy’s and Nordstrom.
The upscale apartment structure, whose initial tower opened just this month, is literally at the doorstep of Tacoma Mall adjacent to the Pine Street entrance of the retail complex.
This nontraditional residential setting, its developers say, will prove an asset both to the 177-unit, two-tower, mid-rise development and to the mall itself.
Pacifica is the largest Tacoma apartment development built since the recession began four years ago. It represents a growing trend in urban America where developers are laying wagers that the synergy of close-by shopping and dining as well as a well-developed infrastructure will make the new housing a magnet for residents.
So far, interest in the new structures has been encouraging, said Allyson Reed, Pacifica’s new general manager.
In the two weeks since Reed took her new job, dozens of prospective tenants have visited the first tower.
So far, 13 of the units have been rented. That’s a good result, said Reed, considering construction activity is continuing on the second tower and final work is still happening on some floors of the first. That second tower is scheduled to open this spring.
The developer, Gig Harbor’s Rush Companies, has even raised its rental rate because of the show of interest.
Rates at the Pacifica are somewhat above those in nearby complexes, but the finishes, amenities and views are superior to those of the competition, said Reed, a veteran of years in the apartment rental and management business.

AMENITIES FIND APPEAL AMONG TENANTS

The buildings’ offerings range from studios at $845 a month to two-bedroom, two-bath units for $1,475 a month. Those rates put the Pacifica in competition with apartments in more traditional locales such as Thea’s Landing on the Foss Waterway and the Copperline Apartments nearing completion near Point Defiance.
The most expensive, largest top-floor units are the most in demand, said Reed. Those have the best distant views of the mountains.
Casey Sawyer, who works at a nearby Discount Tire store, made his decision quickly after viewing the apartments Monday night. By noon Tuesday, he’d made a deposit and was preparing to move in to his one-bedroom unit on the building’s top floor. Mount Rainier is clearly visible from the apartment’s living room and deck on a cloudless day.
Sawyer, who commuted from Olympia, said his lease was running out there and he needed to find a place closer to work.
He was impressed by the apartment’s granite countertops, stainless appliances and lofty ceilings. The apartment’s bath also is considerably larger than the usual apartment offering. The unit comes with in-unit stacked washers and dryers. His rent is $995.
Reed said the tenants who’ve signed up so far are a mix of ages and occupations. Two work at the Tacoma Mall. Some are retired couples. Others are military families stationed at JBLM.
She said she expects the buildings will fill with an eclectic mix of singles and marrieds, workers and retired, young and older.
Reed said she expected the apartments’ location at the west entrance to the mall off Pine Street might be a challenge, but so far, tenants consider that proximity to be an asset.
The building sports covered parking for an extra $65 a month, a large exercise room, an expansive resident’s lounge and an area equipped with Wi-Fi as a business center. The landscaped outdoor pool is nearing completion. An outdoor kitchen will be located near the pool for barbecues and other events.
Unique to the Pacifica, the buildings have a concierge on staff to assist residents with entertainment and other issues. That concierge, Cookie Ford, previously worked at the Marriott at Sea-Tac.
“We want our residents to feel pampered, to feel that we’re taking good care of them,” Ford said.
She’s arranging in-house cooking classes, massage therapy and package and dry-cleaning pickup services.
The towers will have an on-site maintenance manager, Mike Shannon, to ensure that the building’s mechanical and electrical systems are working well.

TAX INCENTIVE DRIVES DEVELOPMENT

Part of the lure for developers to build near the mall is a tax incentive offered by the city of Tacoma in mixed-use zones in the city. That incentive offers an eight-year tax abatement for market rate housing and a 12-year reduction for lower rate buildings. Of the city’s 17 mixed-use zones, the area surrounding the Tacoma Mall is the second largest after downtown’s.
The mall area zone is generally bounded by Interstate 5 on the east, South 35th Street on the north, South 48th Street on the South and South Puget Sound on the west.
Other mixed-use zones are clustered around city business districts such as Sixth Avenue, Portland Avenue and South 38th Street east of I-5.
The idea of the tax incentive is to encourage in-city living in areas where multi-unit housing and retailing can create a symbiotic mix of retail and housing.
City of Tacoma Senior Planner Brian Boudet said the incentive was designed to foster development in already developed urban areas instead of suburban and rural areas where creating new infrastructure would be expensive for government.
The Pacifica isn’t the first large development to locate on the mall’s periphery. Olympia developer Mike Cohen built the two-tower Apex development near the north entrance to the mall before the recession. Though originally envisioned as a condominium development, the complex is now mostly rental units.
Cohen is the principal developer of Point Ruston, a $1-billion-plus mixed use development on the site of the old Asarco copper smelter near Point Defiance Park. That development will include a multiplex cinema, grocery, restaurants, offices and retailers along with apartments, condos and single-family homes.

NOT UNUSUAL FOR LOCATION

The idea of pairing traditional enclosed malls with housing has caught on in other cities.
In Seattle, for instance, the new Thornton Place residential development abuts Northgate Mall’s south side complementing the refurbished mall.
In Renton, a huge apartment complex borders the new Landing commercial complex just southeast of Boeing’s Renton 737 plant.
In other cities, near-mall residential development has helped revitalize tired, aging malls. In Surrey, near Vancouver, B.C., for instance, the ’60s-era Central City Mall was revitalized by nearby housing developments, new public buildings including a satellite campus of Simon Fraser University, a hospital, a new city hall and an attached office building all accessible by the city’s Skytrain transit system.
While the residential development near the Tacoma Mall isn’t as comprehensive or as ambitious as those efforts, developers are hoping the combination will prove a logical pairing to ensure the continued growth of Tacoma’s largest retail area.

New CFPB Mortgage Rules

noreply@blogger.com (Robert J. Abalos) — Thu, 10 Jan 2013 10:51:00 +0000

The Consumer Financial Protection Board has issued its new mortgage rules and, as expected, the new focus is protecting mortgagors from themselves.

After all, the CFPB asserts the recent real estate bubble was caused by "excessive lending" rather than the more accurate "excessive borrowing." I guess when a borrower cannot pay their own mortgage the fault is on the lender who loaned the money rather than the person who promised to make the payments on time after looking at their own finances and employment prospects.

Here are the new CFPB mortgage rules. (There is a link to a PDF of the actual new CFPB rules in the second paragraph of this news story.) The CFPB has ended about twenty years of real estate mortgage practice in one fell swoop. R.I.P. no doc loans, for example. No more teaser rates. Extreme limits on interest only loans due to negative amortization concerns.

Expect these rules to have three effects.

1. Fewer borrowers, obviously.
2. Higher mortgage rates.
3. Lower home ownership rates in key middle class demographics, like blue collar married couples.

Watch this video with CFPB chief Richard Cordray testifying before the House Banking, Housing, and Urban Affairs Committee for some idea on how CFPB itself views the impact of these rules.

These CFPB rules make it clear the recent 2001-2008 real estate bubble will be the high water mark for home ownership in the United States for at least the next fifty years.

If you are an investor buying bread-and-butter homes as part of a retirement plan, it is worth considering who will buy your inventory when you plan on selling them. The net effect of the CFPB rules will be many traditional first-time buyers will merely skip the starter home in their 20s and go directly into the classic second "trade-up" home when they hit their 30s.

Parker's Ballroom Shoreline Washington Demolished

noreply@blogger.com (Robert J. Abalos) — Sat, 22 Dec 2012 11:11:00 +0000

Just one month after I wrote about the impending destruction of legendary Northwest music venue Parker's Ballroom near Seattle, Washington, it happened. The author of this sign I found on the back entrance of Parker's when I visited the site unfortunately could not have been more wrong.

On November 15, 2012 Parker's Ballroom was demolished and with it nearly eighty-five years of irreplaceable music history. The site today is a vacant and will be developed into a used car parking lot for the auto dealership next door. I shot this video of the site being cleared after one of my Twitter followers from Shoreline told me Parker's was literally being torn down as he was writing to me.

I took these photographs of the site being cleared. The contrast of what I saw just weeks ago with the wreckage and debris in front of me was hard to stomach. The fact you can hear the timbers of the club snap on the video proves after more than eighty years they still were strong.

This is what Parker's Ballroom looked like to me just three weeks before the demolition.

It is hard to describe the long history of Parker's Ballroom with words.

It's best to use music because this is why Parker's existed and why it will be remembered for generations to come. But first, a little bit about the town where Parker's came to be built in 1928.

Shoreline, Washington today is a small city of 54,000 people located nine miles due north of Seattle. The local residents of SHORE-LINE describe their sleepy bedroom town filled with daily commuters "BORE-LINE" because, quite frankly, even today there is not much to do in Shoreline. The city was hard hit by the recent recession and is a collection of abandoned fast food restaurants, strip malls, and not much else. It is a beautiful city right on Puget Sound with a great waterfront but other than sleep and buy groceries there is not much to do after 8:00PM. These are photographs of downtown Shoreline today. NO JOKE. The heart of Shoreline, Washington in 2012.

So you can imagine what the city of Shoreline, Washington (or what would become Shoreline) was like way back in 1928 when local meatpacker Dick Parker decided he wanted to build a massive dance hall on a five acre building site literally in the middle of nowhere.

Shoreline did not even become a real incorporated city independent of Seattle until 1995.

Parker had no experience in the music business but he knew a prime real estate location when he saw it. His corner lot at the intersection of 170th Street and today's Aurora Avenue was ideal for the 20,000 square foot ballroom with a huge domed ceiling for a full musical orchestra he envisioned.

Shoreline was also the perfect place for a Prohibition era roadhouse, outside the proper and recognized Seattle city limits where local police did enforce liquor laws and even regulations about how men and women could dance together. This is a photograph of the Seattle Police Department's "Dry Squad" in 1921 or about one year after Prohibition officially began on January 17, 1920.

As a legacy from the early days of its founding, for nearly thirty years after the repeal of Prohibition in 1933 Parker's Ballroom did not serve alcohol. Instead, it was known as a "bottle" bar. Patrons would bring their own liquor and Parker's would sell them glasses, mixers, and ice. Parker's did not begin selling alcohol until 1961 in anticipation of the Seattle World's Fair of 1962 when Seattle substantially relaxed its vigorous liquor and morals laws to please the hoards of incoming tourists.

Parker's Ballroom opened in 1930, just as Prohibition was ending. In other words, the sole reason for the club's existence was obsolete its opening night. Putt Anderson and His Dixieland Band played the first night and the dance floor at Parker's was full. It was almost always packed, even to the club's last days. Visitors to Parker's in the early years would remember the scene of local "cowboys" working on the nearby farms dressing up in their Sunday best and visiting the ballroom for dancing and, of course, lots of drinking.

Fights and scuffles were always part of the tradition at Parker's but the crowd was usually well behaved in the end. After all, Parker's Ballroom was always little more than a rural roadhouse bar despite the elegant name. But the place had class, it was where you took your best girl to show her a good time. A strongly enforced dress code even into the 1960s made it clear Parker's was to be part fantasy, not your ordinary drinking place but something special.

In the 1930s, Parker's welcomed the best of the Big Band era, national and local acts like Frankie Roth, Jan Garber, Jackie Sounders, and the most famous of all, Guy Lombardo and His Royal Canadians. People of my generation remember Guy Lombardo for his New Year's Eve renditions of "Auld Lang Syne" but forget Lombardo and his brothers Carmen, Lebert, and Victor sold more than 300 million records from 1924 to 1977.

The photograph above is of Jan Garber, the "Idol of the Airlanes" taken in the early 1940s when he was a regular at Parker's.

These performances below of Lombardo and Garber were filmed in the 1950s and 1960s and not the 1930s but you get the idea of what Parker's played when the ballroom first opened.

The Great Depression did hit Parker's Ballroom. Business got so bad by 1932 the dance floor was frequently converted into a roller skating rink. It was Parker's Ballroom (or Pavilion) on the weekend but Dick Parker's Roller Rink during the week.

Sadly, meatpacker and founder Dick Parker died in 1940, just before the tenth anniversary of his ballroom. His wife, Dodie, followed him soon thereafter. From 1940 until the last days of Parker's Ballroom, the place was managed by family members starting with the sisters of Dodie Parker who treated the memory of Dick and Dodie with almost a religious devotion. Parker's was not just a business but a family business with the reputation of the name Parker on the line each day.

But Parker's was a profit seeking enterprise and anything REASONABLE to fill the seats and sell admission tickets was par for the course.

Dance contests were a regular feature and promotion at Parker's Ballroom from the early days, the equivalent of today's American Idol. Some contests were based around form and who had mastered the best dance techniques, others were marathons where the winner was the last person to collapse. Here are two contestants from a dance marathon held at Parker's soon after the ballroom opened on June 14, 1931.

In the 1940s, the slow melodies of the big bands gave way to wild swing music. Acts like Duke Ellington and Tommy Dorsey stopped in at Parker's along with many local regulars. Ellington was a Seattle regular and even played the University of Washington's junior prom dance of 1941 at the Seattle Center armory. Dorsey performed with Frank Sinatra at this time and taught "Old Blue Eyes" the breath control the singer's legendary vocal delivery required to succeed.

It's unclear if Sinatra ever played Parker's---but he could have because he played everywhere else with Dorsey until it took a Mafia gunman to break his contract. (The incident Michael Corleone describes in the film, THE GODFATHER, about Vito Corleone and Luca Brasi making a bandleader "an offer he can't refuse" by putting a gun to his head is a true story. Tommy Dorsey was the bandleader, Sinatra the singer wanting out of his contract, and notorious New Jersey hoodlum Willie Moretti was the gangster with the gun.)

Big band and swing music continued to fill Parker's Ballroom into the 1950s. Local musicians like the Max Pillar Orchestra played on Friday nights to the greying crowd of cowboys who still brought their best girls for dancing and courting. But a whole new wave of young musicians were filling the dance halls and night clubs around Seattle and the music business had changed. Max Pillar and his days at Parker's ended just around the time this LP was released in 1962 and so did orchestra music there.

Eventually, big band orchestras at Parker's were replaced by rhythm and blues combos such as when Johnny Otis played the club in the middle 1950s.

Rock and roll had come to Seattle. But many of the best known Seattle rockers just happened to be black and Seattle was still a segregated town. In the early 1950s, there were two local chapters of the American Federation of Musicians ("AFM"), the major labor union which regulated music at the local night clubs and downtown hotels. AFM No. 76 was for white musicians and "white"venues like the ritzy downtown hotels while AFM No. 493 serviced the black musicians and the clubs catering to the "colored" people of Seattle such as the African Americans of the Central District along famous Jackson Street.

One of the hottest local musicians was Dave Lewis, today still remembered as the Godfather of Northwest Rock and a legendary rhythm and blues performer. Lewis was black but white kids all over Seattle loved his music and flocked to see him wherever he played with name acts like Ray Charles, Little Richard, Roy Orbison, and The Platters. It is hard to remember Lewis was just seventeen years old and still attending Seattle's Franklin High School at the time! But his Dave Lewis Combo was in high demand the day Parker's Ballroom booked him and another black act, Billy Tolles and The Vibrators, to play the club. And not just for a normal Saturday night gig but for a live television broadcast by KCPQ-TV (Channel 13) in Seattle!

But Parker's had a problem. AFM No. 76, the white musician's union, handled the bookings for Parker's and they did not represent black artists. AFM No. 76 union officials firmly told Parker's management if they did not cancel the Dave Lewis and Billy Tolles bookings the club would face picket lines the day of the concert and television broadcast.

Parker's brave and shocking reply ended musical racial segregation in Seattle forever.

Parker's management told the union boss from AFM No. 76 he would ignore the hiring of black musicians or Parker's would no longer hire any white union musicians and become a black themed club! The union quickly caved and Dave Lewis took the stage at Parker's and the rest as they say is history.

AFM No. 76 and AFM No. 493 would soon merge into one labor union since race was no longer a barrier to bookings in Seattle. African American musicians for a generation remembered the stand taken by Parker's management and even today the gutsy decision to take on a powerful labor union over racial discrimination is still celebrated as a pre-1960s victory over unfair segregation based on race.

Incidentally, AFM Local 76-293 still exists and today books musicians for local Seattle music venues but nothing is said about the union's notorious racial segregation history on its website or how the union local in Seattle still goes by two names to this day.

By the time rock and roll music reached Parker's, big band and swing orchestras were dying. When Parker's Ballroom reached the age of 25 in 1955, rock music had become a staple. All the big name acts of the 1950s began to trickle into Parker's.

One of the most famous nights in all of Parker's long history was February 21, 1959 when the Fleetwoods and the Frantics were hired to open for Bobby Darin who played a scorching set for 1,200 screaming teenage girls.

But soon thereafter a rock and roll madman named Jerry Lee Lewis played Parker's and he decided to dance on the club's brand new piano as part of his riotous set. Kelma Shoemaker, Dodie Parker's sister and club manager that night, was so outraged by his stage antics she rushed out on stage with a broom and scolded him in front of the crowd for his disrespectful treatment of HER ballroom piano!

Rock and roll acts were banned from Parker's for nearly a year after the Jerry Lee Lewis fiasco with Parker's management vowing they would never return.

But when a local band, The Viceroys, begged the management for a gig and promised the crowd and the band would behave themselves, Parker's decided to give rock acts another try. The audience this night, well aware of the fact they and their young music were on probation, were the models of decorum and caused no troubles so rock and roll returned forever to Parker's. From then on, Parker's Ballroom would become one of the premier rock and roll venues of the Pacific Northwest. It was The Viceroys, now a forgotten local band from Tacoma overshadowed by a more famous band with the same name, which likely saved Parker's Ballroom from oblivion.

When the California Surf Sound became popular on the beaches of Los Angeles, Parker's brought the bands up the Pacific coast. The Beach Boys and The Ventures played Parker's in the early 1960s.

When the British invasion touched the United States and The Beatles played Seattle, Parker's brought The Dave Clark Five and Them (featuring a young singer named Van Morrison) to Shoreline. The Dave Clark Five will forever be known as the band that knocked The Beatles' "I Want to Hold Your Hand" off the top of the UK singles charts with their hit "Glad All Over" and the second British invasion band featured by Ed Sullivan on his show. (You can guess the first.)

Even Bobbie Vee, the Justin Bieber of his day, put in an appearance at Parker's which is still today remembered by the teenage girls who swooned over him that day. (Some trivia for you music buffs. When Buddy Holly, Ritchie Valens, and "The Big Bopper" J.P. Richardson were killed in an air crash on February 3, 1959, the so-called "Day the Music Died", they were headed to a gig at the Moorhead Armory in Moorhead, Minnesota. It was Bobbie Vee who had the grim task of playing as a replacement that night to the broken hearted and devastated crowd.)

But Parker's Ballroom is forever cemented in local rock and roll history not for bringing in foreign acts or national singers but by allowing local artists from Tacoma and Seattle to perform and prosper. In the early 1960s a large number of local bands and musicians were coming to define what would later be known as the Northwest Sound and Parker's was a touring stop for all of them. Their names now read like a Who's Who of 1960s Northwest rock. The Wailers, The Frantics, The Dynamics, Little Bill and the Blue Notes, The Viceroys, and Tiny Tony.

You may never have heard the term "Northwest Rock" but I bet you know its most famous song.

Ever see the movie "Animal House"?

The song "Louie Louie" with the notoriously impossible to understand lyrics was a huge hit for Portland, Oregon's The Kingsmen, who ironically seem to have played every venue around Seattle but Parker's. For generations, this silly song has come to define early 1960's Northwest rock. But there were many other artists following behind them.

Jimmy Hanna and The Dynamics would later go on to record an album at Parker's Ballroom. This is what the south entrance of the club looked like in 1961.

(Some trivia for you jazz buffs. The guitar player of The Dynamics on this track below is none other than Seattle native, UW graduate, and international jazz legend Larry Coryell who played on-and-off with The Dynamics for a year when he was just nineteen years old.)

One of the most famous of the Northwest sound bands was Paul Revere and the Raiders, a Parker's regular for many years. People know them for a variety of songs from the 1960s and 1970s but few recall they did their early gigs at Parker's surrounded by 2,000 rowdy teenagers with lead singer Mark Lindsay jumping out of a giant Crisco shortening can! (Their big hit at the time was called "Crisco Party.")

Likely today the most famous of the 1960s Northwest music bands and Parker veterans were The Sonics, a raw act from Tacoma, Washington with a sound nothing like the sweet melodies and romantic lyrics of The Beach Boys or the folk music artists starting to gain popularity in the middle 1960s.

The Sonics sang songs about evil girlfriends who behaved like witches and had Satanic kisses which tasted like strychnine. Their fierce guitar licks would serve as inspiration for generations of rock and rollers to the present day.

In the 1990s, Nirvana, Soundgarden, and Mudhoney would all credit The Sonics as "The Godfathers of Grunge." In the 2000s, bands like The White Stripes, The Hives, The Cramps, and The Flaming Lips would all cover Sonics' songs and celebrate their early work as the "first punk band in history."

It is amazing those many gigs at Parker's would create a sound each generation of musicians seems to adopt, in part, as their own. Listen to this first song and ask yourself if you hear Kurt Cobain and Nirvana somewhere in the beat. Check out this early and experimental rock video for the song "The Witch" (featuring a very young Rachel Welch as a go-go dancer!) and understand why The Sonics were nothing like Seattle or the country ever heard before.

Other acts which played Parker's in the middle to late 1960s included The Buckinghams, The Righteous Brothers, The Byrds, The Young Rascals, Johnny Rivers, The Box Tops, Joe Cocker, and one of my favorites, Koko Taylor.

Here is a sample of what the kids at Shoreline High School got to see on Saturday night for about $5 a ticket. To this day many remember how lucky they really were.

As much of the 1960s music scene grew psychedelic, so did Seattle's. The Northwest Sound eventually became acid music and the influences of bands from San Francisco like The Grateful Dead and the Jefferson Airplane began to influence what Seattle listened to on Saturday nights. Seattle had an extremely active acid music scene in the 1960s with acts like Pink Floyd, Iron Butterfly, The Doors, and Canned Heat all playing local venues like the Eagles Auditorium.

Local Seattle groups like the Steve Miller Band and It's a Beautiful Day began to make their national mark. (Some trivia for you. The ultra famous hippie song, "White Bird" by It's a Beautiful Day actually concerns a white bird sitting in a tree in Seattle's famous Volunteer Park. Violinist David LaFlamme personally acknowledged this fact when I met him and asked him about the song in 2007. He lived across the street from Volunteer Park at the time the song was written and yes, there really was a white bird on a winter's day in the rain---but no golden cage! For the record, the bird was alone....)

In an effort to try to capitalize on hippie acid music, the management at Parker's changed the name of the club to the "Aquarius Tavern." The reason? The Fifth Dimension song, "Aquarius/Let the Sunshine In", was a Number One hit at the time.

But no one really ever called the club by any other name than Parker's. The Aquarius Tavern named was quietly dropped in the 1970s but not before Parker's Tavern hosted some of the greatest names in 1960s rock and roll and rhythm and blues. Here is a photo of guitarist Neil Young taken at Parker's in 1967 when his band, Buffalo Springfield, played the venue. (Notice he's wearing the same fringed leather outfit in the photo at Parker's and on the TV show!)

At the age of forty years, Parker's Ballroom in 1970 would see its glory years still ahead.

Things were just getting started.

All those singers and bands fans would pay hundreds of dollars to see at sports arenas and football stadiums from nosebleed seats in the 1990s would play Parker's for a few dollars on a Thursday night from ten feet away. Parker's began to settle into a time when a Who's Who of Rock and Roll Royalty would stop in and play.

Everyone from A to Z. America, Aerosmith, and AC/DC to Warren Zevon.

Stevie Wonder showed up one night and played a surprise gig and amazed the dumbstruck crowd. If you visited Parker's Ballroom in the 1970s you saw all these acts and many others. The music never seemed to stop at Parker's in what could be called the glory days of the venue.

Two sisters from the suburbs of Seattle would get their big break at Parker's Ballroom and later record part of an album there before achieving international rock and roll stardom. Ann and Nancy Wilson of Heart played Parker's multiple times and the entire band still has fond memories of the place from the 1960s through the 1980s.

It seemed the music would just keep coming and coming to Parker's. And into the 1980s it did. The now fifty year old wood frame ballroom built in the middle of nowhere to host sedate big band dance orchestras for local cowboys was now regularly hosting the best name acts in music from all over the world. Here is just a small sampling of the music Parker's Ballroom in isolated Shoreline, Washington offered its residents during the 1980s and early 1990s.

When the world discovered MTV in the 1980s, so did Parker's Ballroom which began to bring the video stars of the television network to sleepy suburban Shoreline, Washington and the lucky teenagers there.

Typical examples are Crowded House and Simply Red.

But the times were changing, especially in the music industry. Musicians used to tour to sell records. It was the sales of vinyl 45s and 33 LPs which made the studio and artists their money. Tours were used to promote record sales. But the dynamics of the industry were changing. Artists began to use records to promote their concerts. In other words, the music money was being made in live performances not prerecorded ones. When this dynamic shifted, the amounts venues like Parker's needed to pay artists to perform began to skyrocket. The losses of one poorly attended concert could wipe out the profits of ten profitable gigs. To make matters worse, crowds began to resent the rise in ticket prices further cutting into sales.

Live music was no longer profitable for small venues like Parker's. A change sixty years in the making unfortunately had to come.

On October 17, 1993, Parker's Ballroom hosted its last live music concert ever. Local favorites Paul Revere and the Raiders headlined the event. Everyone at that last show thought it was just a matter of time before live music would return to Parker's. No one believed it was the end of an era.

After all, Parker's Ballroom had hosted live music continuously without a break for 63 years.

But there would never be a return. Parker's Ballroom, now renamed Parker's Restaurant, became a sports bar and card casino for the next nineteen years. (It officially became Parker's Sports Bar and Casino in 1990.) It was popular in the area but always regarded as somewhat seedy when compared to the more modern and glitzy small casinos found up on Aurora Avenue near Parker's. An example is the Club Hollywood Casino in Shoreline built just three blocks from Parker's today.

People still came to Parker's to have fun, but the numbers began to dwindle....

As these Yelp reviews on Parker's from 2010 show, people were going to the club for the $2.99 steak and egg breakfasts and not much else.

In 2011, Parker's was sold to a new owner who failed to notify the State of Washington there had been a change in ownership of the facility and especially the club's gambling license. The license was suspended in April 2012 which effectively put Parker's out of business. The state also began to collect past due taxes from the new owner, meaning any help of financial assistance for the club was being siphoned away.

This sign went up on the back entrance of Parker's sometime in the early summer of 2012.

It was still there when an auction was held stripping the contents of the ballroom for souvenirs and memorabilia in September 2012.

The sign was still there when I visited Parker's in October 2012, just weeks before Parker's was leveled to the ground.

Today, Parker's Ballroom is only a memory. Whatever vision Dick Parker had in 1928 for a grand dance ballroom on the lonely and empty road between Seattle and Shoreline finally came to an end on a cloudy day in November 2012 when the still sturdy wooden building came crashing down into piles of rubble and debris. His ballroom and the literally millions of people who walked through its doors and celebrated some of the greatest music of the 20th century are now part of history but his wild dream still lingers in the memories of many people who like me will never forget Parker's Ballroom.

What makes the death of Parker's so sad is it brings an official end to an era.

Parker's Ballroom was the last of the old rock and roll roadhouses that once ringed Seattle, places where local amateur musicians could practice and play and grow into greatness. Parker's was the sole surviving roadhouse of the 1930s still standing, long past all the rest which had met their fate decades ago.

Incidentally, you probably already know the name of the most famous Seattle roadhouse of all time because of the legendary Seattle guitarist who made the venue the subject of one of his hit songs.

The Spanish Castle was an ornate roadhouse in the sleepy little village of Des Moines, Washington, about as far south of Seattle as Parker's Ballroom was north, about nine miles. It was built in 1931 just outside of Seattle for the same reason Parker's went up on Shoreline. (Two words: Prohibition enforcement.)

A young guitar player from a low income housing project in central Seattle with a wild style of playing was a regular at The Spanish Castle in the early 1960s, perfecting his craft and making music unlike any ever heard before.

The guitarist was Jimi Hendrix. His song was "Spanish Castle Magic."

The Spanish Castle was town down in 1968 to make room for a gas station and parking lot. Here is the site today. At least The Spanish Castle was made famous by a song before it met the wrecking ball.

No one yet has written a song to the memory of Parker's Ballroom. I wish someone would.

The city of Shoreline needs to build a memorial for the one place in the entire city worth remembering.

Anyone wanting to build a tribute website to Parker's Ballroom can contact me for help and support at robertjabalos@gmail.com.

I'm glad I got to see Parker's one last time before it was gone forever. It is rare to literally touch history and it is heartbreaking when these irreplaceable icons are destroyed before your very eyes for, of all unjustifiable reasons, a used car parking lot.

Home Price Rise in Perspective

noreply@blogger.com (Robert J. Abalos) — Fri, 14 Dec 2012 10:00:00 +0000

In 2012 home prices in most major U.S. cities rose 10-12%.

But put this amount in perspective. If a home fell 50% in value over the last five years it would take a 100% price rise just to break even.

So a 10% price rise on this same home is one-tenth of the way back to zero.

Put another way, at this rate of double digit price rises an underwater homeowner will see daylight and break even in just about a decade. Or the year 2021.

Japanese investors talk about their Lost Decade.

American investors have their own nugget of conversation.

Short Sale Seller Cash Incentives

noreply@blogger.com (Robert J. Abalos) — Thu, 15 Nov 2012 14:00:00 +0000

The Feds have changed the rules for sellers receiving cash in short sales.

Common sense in DC has finally prevailed. Some help is okay but not excessive amounts.

Parker's Ballroom

noreply@blogger.com (Robert J. Abalos) — Thu, 11 Oct 2012 10:25:00 +0000

Parker's Ballroom is arguably the most important music venue in the United States. For nearly eighty years this dancehall and nightclub in Shoreline, Washington right outside Seattle has welcomed all the greats of the music world. The list is so long if I started here this blog post would be seven miles long.

Unfortunately, Parker's now has a date with the wrecking ball. It is scheduled for demolition to make way for a used car parking lot. So before Parker's Ballroom is no more I decided to check out the old club and see if any of the talk by historical preservation advocates about saving the place is possible.

What makes Parker's Ballroom so unique and special is its long and varied history. The club was built in 1930 by Dick Parker, the owner of a meatpacking company. He specifically chose the isolated location on what was known then as the "New Seattle-Everett Highway" (now Aurora Avenue) because it was outside the Seattle city limits. In other words, unregulated territory during Prohibition.

Even today, the building is huge to behold, more than 20,000 square feet in size.

When the club called Parker's Pavilion opened in 1930, it hosted all the greats of the Big Band and swing era. Guy Lombardo and His Orchestra, Tommy Dorsey, Jan Garber, and many others. But what would define the long history of Parker's Ballroom, as music tastes evolved so did Parker's.

In the 1950s when rock and roll was born, Parker's hosted Bobby Darrin, Jerry Lee Lewis, Rick Nelson and all the contemporary greats of the day.

In the early 1960s, it was Paul Revere and the Raiders, The Kingsmen, the Dave Clark Five, The Ventures and The Beach Boys with their California surf sound.

When the late 1960s brought psychedelic rock to Seattle, so did Parker's. So many "hippie" acts began playing the club the name was changed (sort of) to the Aquarius Tavern. A who's who of rock and roll royalty began gracing the stage. Badfinger, Albert Collins, Koko Taylor, Eric Burden and the Animals, and the Righteous Brothers. Buddy Miles was booked to appear one night and for some reason never explained he just didn't show up.

In the 1970s, Parker's was the place to see the best acts in the business, literally from A to Z. Aerosmith, America, AC/DC to Warren Zevon. Stevie Wonder put in a surprise show one night.

Ann and Nancy Wilson of Heart got their first big break at Parker's. You can hear one of their early shows at Parker's on Heart's Magazine CD.

Al Stewart, George Strait, Muddy Waters, the Guess Who, and The Byrds played the then nearly fifty year old venue.

In the 1980s it was Blue Oyster Cult, Ray Charles, Joe Cocker, B.B. King, Joan Jett, Tina Turner, Marshall Tucker, Santana, George Thorogood, and many many others.

By the 1990s, the music scene had drifted south into Seattle and Parker's became a casino, a gambling joint which occasionally hosted musical acts. But the place still rocked. Here is one of my all-time favorite guitar players, Robin Trower, performing at Parker's in 1990.

Here is Nokie Edwards, the lead guitar player of The Ventures, performing at Parker's in 1992.

But Parker's Casino and Ballroom unexpectedly closed about two years ago. Now, as these pictures below show, the site is an abandoned ruin.

Rumors are circulating in historical preservation circles here in Seattle Parker's Ballroom has days, if not weeks, to live.

I spent about an hour at the site last week, peeking in the windows, checking the foundation and roof lines, doing what I could to inspect the place. The bones of this old dancehall are solid. I saw no structural issues precluding an brand new rehab of the place. All Parker's Ballroom needs is a gut job, some new lights and equipment and another fifty years of music could be enjoyed there.

But, I know in my heart, this is unlikely to happen. Seattle does not have a good track record of preserving its history. Parker's Ballroom is likely to become a memory before spring.

I have visited many doomed historical sites in the past and this one made me sadder than most. To destroy such a remarkable piece of music history for, of all things, a used car parking lot makes no sense, especially when the area around Parker's is FILLED with spaces to store parked cars.

I'm hoping against hope someone with a vision just like meatpacker Dick Parker steps up and saves this gem from destruction. Once its gone, a place like Parker's is never coming back again.

Facebook Charm Offensive

noreply@blogger.com (Robert J. Abalos) — Tue, 02 Oct 2012 01:29:00 +0000

Facebook executives have been all over Wall Street and the media over the last few weeks, all attempting to reassure investors and employees over the future of the company. And, of course, to justify the company's still rich valuation at nearly 77 times next year's earnings.

First, Facebook was getting into the search business against Google.

Second, Facebook Gifts.

Third, Facebook's new mobile strategy.

The problem is all these are FUTURE ideas which may or may be accretive to FUTURE earnings.

When you buy any equity you want to buy CURRENT earnings, not future ones. When you are betting on what may happen you are speculating, not investing.

There is nothing wrong with speculating on Facebook shares. But I doubt any of these latest ideas are going to have merit over time. Facebook is not designed to be a search engine beyond looking for high school friends and college sweethearts. Do you search for the best price for precision machine tools or the most delicious pizza in Cleveland after 2:00AM on Facebook? Will you ever? Why?

Facebook has tried selling physical goods before. The idea flopped.

And I'm not even going to discuss Facebook's mobile strategy. Shouldn't the company have had one before the IPO? By the way, the new mobile idea focuses on companies buying FB Likes---and hoping each of those likes will eventually lead to a sale. One step too many for me.

I use Facebook all the time. As a user, it's wonderful. But the disaster for investors continues and now the exodus of Facebook employees to other high tech startups is noticeable.

Good luck here but BE REALLY REALLY CAREFUL.

Facebook Can Meet Its Valuation, Havas CEO Says by Bloomberg

Warren Buffett is Selling

noreply@blogger.com (Robert J. Abalos) — Wed, 26 Sep 2012 00:47:00 +0000

Recently released 13F filings for Berkshire Hathaway show Warren Buffett and his new team of successors are currently sellers of equities, including some like JNJ, PG, and KFT which you would never expect him to sell.

Ask yourself one simple question. If Warren Buffett is selling equities, why are you buying them?

BRK is adding to energy positions like PSX. This should give curious investors where his thinking lies.

QE3 Expanding Soon

noreply@blogger.com (Robert J. Abalos) — Tue, 25 Sep 2012 01:15:00 +0000

Officials at the Fed like San Francisco President John Williams are dropping hints QE3 may be expanded to include other asset purchases beyond mortgage backed securities.

Already the program just announced has grown from $23 billion to $40 billion per month and has no definite end date. It will continue until it is no longer necessary.

The Bernanke Put rally driving the DJIA higher on word of QE3 has already popped. While QE3 will certainly benefit sellers of mortgage backed bonds like PIMCO's Bill Gross, QE3 will not create jobs which is the central drag on the U.S. economy with no end in sight.

I wish the Fed would watch the above video at its next FOMC meeting. Please send Helicopter Ben out for doughnuts (his job while a Professor at Princeton during staff meetings) and vote to end this dangerous nonsense once and for all.

Buckle your seat belts. Double digit inflation rates are coming soon. INVESTORS BEWARE or TAKE NOTE, depending on your trading strategies.

Obama Definition Full Time Employee

noreply@blogger.com (Robert J. Abalos) — Tue, 18 Sep 2012 19:50:00 +0000

Since writing about the Obama Administration 18 page definition of full time employment under the new ObamaCare regulations, the actual link has been deleted in a large number of articles and periodicals across the Internet. Very strange, and a bit suspicious.... But it is an election year so who knows the reason?

Here is a permanent link to the ObamaCare definition of full time employment which is one of the worst cases of regulation drafting I have ever seen. Read it to disbelieve it.

QE3

noreply@blogger.com (Robert J. Abalos) — Thu, 13 Sep 2012 18:07:00 +0000

Helicopter Ben Bernanke announced QE3 today, pledging to spend at least $23 billion PER MONTH of YOUR tax money to buy mortgage backed bonds to prop up the flagging U.S. economy.

Correction, actually. He's going to borrow $23 billion per month from China to buy mostly underwater paper in an attempt stimulate consumer demand by driving real interest rates below zero.

This economic madness comes as no surprise to me. I predicted QE3 in this blog post from August 18, 2011.

Not August 18, 2012. I said QE3 was coming THIRTEEN MONTHS ago.

And unless fiscal matters change, QE4 and QE5 are already in the planning stages.

The Fed reminds me of the country bumpkin who keeps pouring gasoline into the tank of his car even though the excess fuel is spilling all over the ground. He thinks the reason the car won't go is because the fuel tank is empty. The problem is the engine in the front of the car is broken and no one wants to fix it.

All this underscores a major recession is coming in 2013. Unless Congress solves the fiscal cliff issues, this downturn will make 2008 look like a speed bump. But I suspect a recession is coming nevertheless. INVESTORS PREPARE.

Full Time Employee

noreply@blogger.com (Robert J. Abalos) — Tue, 11 Sep 2012 17:42:00 +0000

If you are an employer or working for one you likely have a pretty good definition of what "full time employee" really means.

Try this definition I just made up.

"A full time employee is one that works for any single employer for at least forty hours per week."

Sound reasonable?

Well not to the Obama Administration which has just released its EIGHTEEN PAGE definition of what is full time employment under Obamacare medical regulations.

You have to read the actual Obamacare definition of full time employment to really believe it---or not.

Most importantly, full time employment is now just 30 hours per week, surprise to many employers and workers who always thought even 32 hours was still part time. This definition, aside from bringing many new part timers into Obamacare for taxation and penalty purposes, now means the Administration can claim an increase in full time employment merely by changing the commonly accepted meaning of the term.

But the legalese and boilerplate in this definition is beyond belief. As one observer quipped, "it's scary." Whoever came up with this madness should be tarred and feathered right before being exiled from DC for life.

Read the new regulations for yourself but stop when your eyes begin to fall out of your head.

Robert J. Abalos Facebook Page

noreply@blogger.com (Robert J. Abalos) — Sat, 08 Sep 2012 15:53:00 +0000

The official Robert Abalos Facebook Page has a completely updated look. New cover, photos, everything. Thanks to Suzy for the new visuals and design.

And also thanks to all of you. The feedback I have received on Facebook has been wonderful.

https://www.facebook.com/robert.abalos.seattle

My website, InvestingInLand.com, also has a new Facebook Page. If you have an interest in land investment and development please check it out.

https://www.facebook.com/Investing.In.Land

I post a great many news stories on Facebook, often in sectors beyond real estate. When I see information or read news stories that can make my readers money, I post the links. It is up to you to read between the lines and figure out how. But for the most part the process is easy due to the most important axiom of all investing which no one with money in the markets can ever forget.

THE TREND IS YOUR FRIEND.

Please stop by the official Robert J. Abalos Facebook Page and say hello. It will be a pleasure to meet you.

Priory Hall in Dublin

noreply@blogger.com (Robert J. Abalos) — Fri, 07 Sep 2012 19:34:00 +0000

I have read and heard many tragic stories since the real estate bust of 2008 but this case from Dublin, Ireland is the worst I can imagine.

Priory Hall is a large and now abandoned apartment complex surrounded by chain link fencing. In October 2011, the local city government declared the entire building a fire hazard and ordered all 256 residents in 187 apartments to leave on just 48 hours notice. The Dublin City Council has already spent more than $2 million housing the now homeless residents and is refusing to pay any more for their upkeep.

But here is where the problems just begin.

The vacant apartments have now become overrun with squatters and vandals who are destroying the property while the legal residents are prevented from returning. Priory Hall is rotting, infested with rats, mold, and garbage.

Of course, all the residents still have to make their mortgage and tax payments on their condemned, vacant, and deteriorating units.

But here is where the story gets strange.

The developer of this mess is Tom McFeely, a former IRA hunger striker from Northern Ireland (please do not confuse the two Irelands!) He went from urban terrorist who spent 53 days without food in 1980 to support the IRA to real estate developer and a $12 million home in Dublin. Now his home is gone (foreclosure), he has been sentenced to jail for not making repairs to Priory Hall, and even forced into bankruptcy against his will.

For construction aficionados this property's building reeks of incompetence. Windows were installed backwards so every time it rained apartments flooded. Pipes burst on a routine basis filing the complex from the parking garage to the units themselves with feet of water. The building was so dangerous that the Dublin City Council moved its 26 tenants out of the building in 2009 after declaring the building a fire hazard BUT allowed those who owned their apartments to remain!

The facts of this case study are UNBELIEVABLE. I'm only scratching the surface here.

What makes this case so sad is there are more than 2,000 ghost developments across Ireland today.

What makes this case so dramatic is Ireland is the size of the state of Indiana. Very small.

Stock Market Overvalued

noreply@blogger.com (Robert J. Abalos) — Thu, 06 Sep 2012 20:26:00 +0000

Multiple stock indexes in the United States hit multi-year highs today.

This market is overvalued using every metric. RIDICULOUSLY overvalued. Read this excellent analysis on stock market valuation metrics for guidance on the current market conditions.

jFor example, check out this analyst report on the absurd expectations on 2013 corporate profit margins.

There is a major recession coming in 2013. I'm not the only one saying this. Check out the CBO report on the projected 2013 recession. Excuse me, but where does the margin expansion come from?

If Romney wins, there will be a bull rally going even higher. My advice?

SHORT

Facebook Worth $5 Per Share?

noreply@blogger.com (Robert J. Abalos) — Wed, 05 Sep 2012 17:52:00 +0000

Is Facebook really worth just $5 per share.

This author makes a compelling case. I have had an $8 price target on Facebook since the day of the IPO and wrote a book warning people about Facebook AS A STOCK.

It's a fun company as a user ("free and always will be") but it is a disaster for everyone else involved.

What I completely agree with is the author's analysis that FB would radically jump in price if Mark Zuckerberg would resign as CEO and instead bring in a real grown-up from Wall Street to run the firm.

This author suggests a jump in intrinsic valuation (not stock price) with new management and I agree. Some on the Street are calling for his resignation as CEO and they may be right.

Facebook today announced a $2 billion stock buyback to soak up some shares in an attempt to not increase the public float. Nice how the same company buying shares at $18 said these same shares were worth more than $40 just three months ago. Wall Street is not amused by these games.

Despite today's buyback announcement, Facebook's latest SEC Form 8-K filing clearly says more than 800,000,000 NEW Facebook shares will be unlocked and potentially up for sale by the end of 2012.

EIGHT HUNDRED MILLION NEW SHARES.

How many do you want to buy?

John Beck Owes the FTC $113 Million

noreply@blogger.com (Robert J. Abalos) — Wed, 05 Sep 2012 01:16:00 +0000

The FTC has won a final judgment against famous "Pennies on a Dollar" guru John Beck. I wrote about the FTC's preliminary victory in a previous post.

The case is Federal Trade Commission v John Beck Amazing Profits, LLC et al, U.S. District Court for the Central District of California, 09-cv-04719

John Beck is individually liable for $113 million. The other real estate gurus involved in this case are Jeff Paul and John Alexander.

The final judgment was issued on August 23, 2012 by U.S. District Judge Jacqueline Nguyen in Los Angeles.

Sad story. I always admired and liked John. A great writer and teacher, at least a long time ago.

Escalation Guide for Contracting Parties

noreply@blogger.com (Robert J. Abalos) — Mon, 03 Sep 2012 17:05:00 +0000

I do a great deal of government bashing on this website but not all bureaucrats are fat and lazy. This analysis below from the Bureau of Labor Statistics on how inflation indexing and especially the Producer Price Index ("PPI") is designed and can be used in long-term contracts is EXCELLENT. Utterly fascinating and helpful work---and that is no joke.

***********************

Escalation Guide for Contracting Parties

Business firms in search of effective methods of coping with inflation often employ price adjustment (escalation) clauses in long-term sales and purchase contracts. A conservative estimate is that contracts with a lifetime worth of $200 billion are currently escalated using the Producer Price Index (PPI) family of indexes, either alone or in conjunction with other sources of economic data. 1

Because they measure price changes objectively, both in general and for particular products, free from possible manipulation by either of the contracting parties, the producer price indexes calculated by the Bureau of Labor Statistics (BLS) are widely recognized among business people, economists, statisticians, and accountants as useful in price adjustment clauses.

This guide provides guidance on the development of escalation clauses in contracts that are to be tied to PPI data. Such clauses should be written with great care to avoid serious problems when contract adjustments are implemented. The information in this guide is based upon BLS staff experience in handling issues that have been brought to their attention in connection with actual escalation clauses.

The role of the BLS is to provide requested data and to explain their underlying methodology and limitations. The Bureau does not encourage or discourage the use of price adjustment measures in purchase and sales agreements. The Bureau does not directly assist in writing contracts nor does it provide advice on disputes arising from contract interpretation. Because index methodology and publication conventions could be crucial in developing escalation clauses, this guide is intended to alert users to potential problems arising in these areas. 2

This guide is divided into three sections. First, an overview of the PPI system describes the major categories and groupings of the several thousand indexes that are published each month. Then, guidelines for assisting in the development of escalation clauses are outlined. Finally, a practical example of provisions that might be incorporated into a contract is presented, based upon the guidelines discussed, along with an example of the price adjustment calculations that would be needed to implement these provisions.

The structure of producer price indexes

Producer price indexes measure the average change in prices received by domestic producers of commodities in all stages of processing. A PPI is an output price index, that is, it measures price changes received by manufacturers or service providers. It is neither a buyer's index nor an input price index, that is, it does not measure the cost of producing that item. PPI data are based on selling prices reported by establishments of all sizes selected by probability sampling, with the probability of selection proportionate to size. Individual items and transaction terms from these firms are also chosen by probability proportionate to size sampling methods. PPIs are based on a monthly sample of about 100,000 quotations, resulting in publication of about 10,000 different indexes each month.

Indexes are organized in three major structures:

(a) Stage of processing (SOP) — products are organized by class of buyer and degree of fabrication, that is, finished goods, intermediate goods, and crude goods;

(b) Industries and their products — products are organized by producing industry as defined in the North American Industry Classification System (NAICS); and

(For a more detailed description of these three index structures, see the appendix.)

Indexes are available at different levels of aggregation and detail within each of the three major structures. There are broad SOP, industry, and commodity groupings, and there are indexes for specific product groups or individual items, for example, electronic components, diesel fuel, or raw cotton.

Guidelines for developing escalation clauses

(1) Establish the base selling price subject to escalation.

The item whose price is subject to escalation should be specified as precisely as possible. State whether the base price refers to a per-unit quantity or a certain volume of units. Give the effective month or year of this base selling price; this time period is often called the base period. Indicate the length of time it will remain in effect. (Note that BLS no longer publishes any dollar unit prices for any item within the PPI system.)

(2) Select an appropriate index or indexes.

The Finished Goods Price Index may best indicate the general trend of inflation for goods sold in primary markets. The PPI for finished goods excluding foods may be more appropriate for users wishing to exclude the effects of volatile movements in food prices. The Intermediate Materials Price Index or the Crude Materials Price Index may best indicate price trends for semifinished or raw materials in general. Again, indexes excluding food-related materials may be more appropriate for many applications. Indexes for commodities or detailed commodity groupings may best indicate price trends for specific commodities.

Contracting parties may want to escalate the base price of a product by a single PPI series. Often, however, users may prefer to escalate on the basis of several data series, including some from other government statistical programs, to reflect changes in costs of a variety of inputs. In some contracts, for example, costs of major materials and supplies are escalated with one or more PPIs, while costs of labor are escalated with other BLS series such as the Employment Cost Index. 3 In such cases, the escalation clause should specify the percentage weight given to each index in calculating the total escalation amount. (See detailed discussion under guideline 9d.)

Contracting parties should choose an index or indexes representing the costs for providing a particular product or service, rather than an index for the product itself. For example, if an apparel manufacturer were contracting for long-term purchases with a producer of finished fabrics, it would be more advisable to tie the escalation clause to a PPI for synthetic fibers than to a PPI for a type of finished fabric. Otherwise, the parties may find themselves in a serious problem that could be difficult from which to escape. 4

Regarding the level of index aggregation or detail that might be chosen, it should be understood that while detailed indexes may target costs more specifically, they are also more likely to be permanently discontinued by BLS, or to have occasional gaps in data. Contracts should provide for these contingencies, and may minimize them if they cite a commodity index that does not go below the 4- or 6-digit level of detail, or a product code (industry-oriented) index that does not go below the 7-digit level. 5

Even with the PPI program's full coverage of the mining and manufacturing sectors, not all products are included directly in the sample or published in the PPI system. Sometimes indexes must be chosen as proxies to estimate the price movements of materials or products.

(3) Clearly identify the selected index and cite an appropriate source.

The escalation clause of a contract should identify the index selected by its complete title and any identifying code.

Please note that there is no single index entitled "The Producer Price Index." The term "Producer Price Index" refers to a family of indexes compiled by the Bureau of Labor Statistics. A specific index should be cited in the contract by referring to "the Producer Price Index for..." followed by the exact title and any identifying code number.

The clause should also cite an appropriate source for the index selected. The primary official BLS source of PPI data is the monthly periodical, PPI Detailed Report. It contains all indexes and is available online the day each month's data is released (www.bls.gov/ppi/ppi_dr.htm).

Current PPI data in print may also be obtained from the Producer Price Index News Release, and the Monthly Labor Review (MLR). The Producer Price Index News Release is available without charge through an e-mail subscription on the BLS website (subscriptions.bls.gov/accounts/USDOLBLS/subscriber); however, it contains only a limited number of indexes. The MLR contains aggregate rather than detailed PPI data and is posted about two weeks after the PPI data are first available. The MLR may still be a convenient data source if a very broad aggregate PPI category is called for, other BLS series are also included in the escalation provision, and quick availability of data is not necessary.

PPI data can also be obtained from LABSTAT, the BLS online data retrieval tool (www.bls.gov/ppi/data.htm). One-Screen Data Search and Multi-Screen Data Search are form-based query applications for both Industry Data and Commodity Data designed for users unfamiliar with the PPI coding structure. These applications guide a user through the PPI classification system by listing index titles and does not require knowledge of commodity or industry codes. Data retrieved are based on a query formulated by selecting data characteristics from lists provided. Two options are available to create customized tables, depending on a user's browser capability. The one-screen option is a JavaScript application that uses a single screen to guide a user through the available time series data. The second option is a multiple-screen, non-Java-based application. Both methods allow a user to browse the PPI coding structure and select multiple series codes. Users can modify the date range and output options after executing the query using the reformat button above the data output table.

Contracting parties should not cite table numbers and/or table titles in their escalation contracts because they are subject to change. BLS sources are preferable to secondary sources such as other government publications or private firms. If contracting parties agree to accept updated index values on the telephone from BLS staff members, the escalation clause should specify appropriate procedures and whether subsequent verification from a published source is necessary.

(4) Specify whether seasonally adjusted indexes or unadjusted indexes are to be used.

In general, seasonally adjusted indexes are not appropriate in escalation agreements. Because price adjustment clauses usually are intended to capture actual price changes, contracting parties normally would not want to remove seasonal price movements from their adjustment calculations.

(5) State the frequency of price adjustment.

The escalation clause should specify whether price adjustments are to be made at fixed intervals, such as quarterly, semi-annually, or annually, or only at the expiration of the contract. To conform to the procedure described in guideline (9), price adjustments have to be calculated over an interval whose beginning point is the contract's base period. (This is the time period associated with the chosen base price; for a discussion of base price, see guideline (1).)

Difficulties will be encountered with those contracts which do not designate a specific frequency for price adjustment, but rather state that the latest data available as of a certain date should be used for adjustment. In this case, or for any other case that does not cite a specific time interval, problems will arise unless the designated procedure corresponds with the version of the data to be used, and the date on which the price adjustments will be made. Guideline (7) expands upon these issues.

Note that PPI data are published as monthly indexes and as annual averages for calendar years. Monthly PPIs are representative of the entire month and do not refer to a specific date of the month. Avoid wording such as "the index for aluminum mill shapes as of September 30," since several different and equally plausible interpretations are possible for such language. It could mean the index that was available on September 30, which would be the August figure; it could mean the September index; or it could mean the October index, since the September index would be based on information supplied to BLS before September 30.

(6) Provide for missing or discontinued data.

Occasionally any given PPI may be unavailable for a particular time period, usually because price information was not supplied by a sufficient number of survey respondents to meet BLS publication standards. Highly detailed indexes are more susceptible to this problem than indexes for broader groupings. For example, the Producer Price Index for laminated veneer lumber, code 08-22-01-07 was temporarily unavailable from March 2007 to December 2007; during that period, contracting parties had to use data for the product class prefabricated structural members, code 08-22-01, or some other series of their choosing. Escalation clauses should provide procedures to be used when required data are missing.

Sometimes an index is permanently discontinued when a commodity declines in market importance; this most commonly occurs as a result of periodic resampling by BLS of industries and their output. Escalation clauses may provide for successor indexes if original indexes are discontinued, or for contracting parties to renegotiate a successor index. A default provision that calls for using the next higher-level series might be included in the contract.

Note that if BLS merely changes the title or recodes an index, it is considered to be the same series and therefore, presumably, should not necessitate any contract renegotiation. The monthly periodical PPI Detailed Report routinely provides lists of recoded indexes each time there is a sample change; normally, these lists appear in the January and July issues each year.

(7) Specify that calculations of price adjustments shall always use the latest version of the PPI data published as of the date specified for such calculations; this requires that contracting parties explicitly agree on the date the price adjustment calculations are to be made.

Adherence to this principle and its implications should prevent many potential problems. Contracts that fail to incorporate this guideline will instead need to specify which version of PPI data should be used, because: (a) BLS routinely revises PPI data 4 months after initial publication; (b) PPI data are rebased at infrequent intervals; and (c) on rare occasions, PPI data may be corrected.

Among other advantages, following guideline (7) should resolve any ambiguities arising due to the fact that all PPI data are routinely subject to revision once and only once, 4 months after their original publication, to reflect late reports and corrections by respondents in the PPI survey. Revisions are usually small at the higher levels of index aggregation, but may be relatively large for detailed indexes. The version of any PPI published 4 months after its initial publication is considered final and will not change again (barring corrections, and rebasing — a separate matter addressed in guideline (8)). It is not appropriate to refer to the first-published version of a PPI as "preliminary," and neither the first-published nor the final version of a PPI should be labeled "actual," a term that might mean different things to different contracting parties and which has no official meaning in PPI terminology. 6

To follow guideline (7) effectively, it is essential to specify the date on which the price adjustment is to be made. Currently, PPI data are usually first published between the 9th and the 18th day of the month following the reference month in question. Thus, the earliest day for price adjustment that a contract ought to specify needs to be after the 18th day of the month following the designated data month. All first-published indexes for a given month, as well as final indexes for the fourth previous month, are considered officially published and are available on the day of release of those data. The contracting parties' selection of the date on which the price adjustment is to be made should be made only after they have agreed on, first, the reference month and, second, on whether their calculations are to be based upon the first-published version or the final version of that month's index. The date for calculating the price adjustment can then be selected so that the desired data will be available.

It is vital to address these matters before a contract is ready for signature. Otherwise, disagreements may arise when the first-published and final versions of the selected index are different, and there will be no criterion for selecting either version.

If contracting parties do not specify an exact date for making price adjustments, the contract should at least specify whether first-published or final data should be used for calculations. If this is the case, the final version of the data should be specified whenever feasible, because only final data will be rebased retroactively whenever BLS may update the PPI reference base.

Any procedure that departs from guideline (7), by failing to specify the version of the data or the date when the price adjustment is to be made, needs to be constructed so that it will be in harmony with the frequency of price adjustment, as specified elsewhere in the contract. This is discussed in guideline (5).

A contract should not refer to an index value associated with a base price, but instead to its month and year alone. That is, what should not be written into the contract is language such as the following: "Divide the current index value by 103.9 (which is the value of the index for the base period January 2010) and then...." Rather, it should be written: "Divide the current index value by the index value for January 2010, which represents the base period, and then...." Contract clauses that incorporate specific index values will become problematic when the PPI reference base is later changed by BLS; the index value incorporated into the contract will be incompatible with current official data after BLS has implemented the rebasing. (Guideline (8) discusses reference base issues.)

(8) Avoid locking indexes used for escalation into any particular reference base period.

Contracting parties should simply follow the principle of guideline (7) by calculating percent changes using indexes expressed on the reference base period in effect when the contract escalation is carried out. For example, if a contract called for a price adjustment to be made in December 1987 (just prior to the rebasing that became effective on February 12, 1988), then indexes expressed on the old reference base of 1967 = 100 would be used. In general, relying upon a new index reference base period as set by BLS should not affect calculations (except for rounding differences), as long as all percent changes are derived solely from indexes expressed on the official base period. Because rounding may indeed make a substantial difference when the dollar amount of a contract is very large, it will be doubly important for such contracts to rely only upon official data on the current base as determined by BLS.

Comprehensive base period changes in the PPI system have been routine although infrequent. The switch to the current standard reference base period of 1982 = 100 in early 1988 was the first such rebasing since BLS adopted 1967 as the standard in 1971, and that in turn was the first rebasing since the 1957-59 base was adopted in 1962. Previously, the standard reference base period was updated roughly every 10 years. 7

When the new 1982 = 100 standard reference base was adopted, BLS advised contracting parties and other PPI data users to calculate index percent changes using officially rebased data. As with all other changes to new standard reference base periods, BLS had taken all PPI final data that had been expressed on the 1967 base and officially released these figures retroactively on a 1982 base. Tables of official historical data for each PPI series from its beginning to the present on a consistent 1982 = 100 are available from BLS via LABSTAT.

Official PPI data for current time periods are not available on previous reference bases after a base change has been implemented by BLS. Further, as a general rule, estimating a conversion of PPI data to an old base for the purpose of contractual price adjustment is inadvisable because such a method could well be challenged for referencing something other than official government data.

Rebasing factors are only made available by BLS to convert data on the current standard reference base period to the immediately preceding one. Thus, for example, there are no official rebasing factors to convert data on the 1982 = 100 base back to 1957-59 = 100 base.

Rebasing is not considered "revising," because the relative movements of any series over time are not affected. Users must recognize that the absolute level of any index has no intrinsic meaning other than relating a measurement to the base year, which is itself arbitrary to a degree.

Older contracts may already specify use of originally published indexes, particularly since this was recommended by BLS in the September 1979 version of this guide (BLS Report 570). BLS is now strongly discouraging such language in escalation contracts, in accordance with guideline (7) recommending that the latest available version of index data be used. In addition, BLS does not generally maintain records for originally-published indexes. As a result, no official rebased versions of such originally published indexes may exist.

(9) Define the mechanics of price adjustment.

(a) Simple percentage method. One method of price adjustment is to have the base price changed by the same percentage as that calculated for the selected PPI. To illustrate, suppose that the contract escalation clause refers to the Finished Goods Price Index. Also suppose that the Finished Goods Price Index was 110.0 when the base price was set. A year later when the first adjustment is made, the figure is 115.5. This represents an increase of 5.0 percent in the Finished Goods Price Index as shown.


Index at time of calculation ................................... 115.5
      Divided by index at time base price was set .............. 110.0
Equals ......................................................... 1.050

This means that the base price should be increased by 5.0 percent. To proceed:


Base price ..................................................... $1,000
      Multiplied by ............................................  1.050
Equals adjusted price .......................................... $1,050

In later years, this procedure would be applied again by taking the current index value and dividing by the index value at the time the base price was set, and then proceeding just as described above.

(b) Escalation of a portion of the base price. Another procedure sometimes employed changes the base price so that only part of it is escalated by a selected PPI, while the balance remains fixed. This may be done by changing the base price by a certain dollar amount for each 1-percent movement in the selected index.

To illustrate, suppose that an item has a base price of $1,000, of which $700 is to be escalated by the index while the other $300 remains unchanged. To determine the "certain dollar amount" that is needed for citation in the contract, simply divide the designated variable portion of the base price ($700) by 100, which in this case would yield $7. The escalation clause is written so that it provides that the base price of $1,000 shall change $7 for each 1-percent movement in the index.

Using this approach, the base price would rise to $1,035.00 for a 5-percent rise in the finished goods price index as shown:


Base price ..................................................... $1,000.00
       Plus 5.0 times $7 ........................................... 35.00
Equals adjusted price .......................................... $1,035.00

(c) Index points. Relatively few escalation clauses which rely on PPI data adjust contract prices on the basis of changes in index points. (In the earlier example, the index-point change would be 5.5.) When prices are adjusted by a percentage on the basis of a change in index points, the value of an index point will fall in percentage terms as the index level rises, and vice versa. For example, a 1-point increase in an index from 105.5 to 106.5 represents an advance of 0.9 percent, but a 1-point increase from 205.5 to 206.5 represents an upward movement of only 0.5 percent. Conversely, a 0.9-percent increase in an index of 205.5 would raise the index 1.8 points to 207.3.

Thus, if the base price is adjusted by a dollar amount according to a change of index points, the procedure is then vulnerable to changes in the index base period. Index point values would differ for an index rebased to a later year or expressed on a 1967 = 100 base.

In contrast, adjusting a base price by a percentage change in an index, as in approaches (a) and (b) above, will not result in these discrepancies.

(d) Composite indexes. Some contracts describe construction of a composite index based on several PPI series. The advantage of a composite index is that it may more accurately identify the appropriate change for a base price (see guideline (2)) since it will refer to several of the costs involved in producing the product or service in question. However, a composite index entails more calculations at the time of adjustment than the simpler procedures described earlier. Composite indexes constructed by the contracting parties are not official BLS data.

One procedure for specifying a composite index is illustrated by the following steps:

(i) Choose the indexes that will represent the different costs involved in producing the item (such as a fuels index, a machinery index, or whatever is appropriate);

(ii) Choose the appropriate weights for these indexes, in accordance with the proportion of the production budget which may be devoted to these various categories. The list of chosen weights should sum to 100 percent.

(iii) Clearly specify the time period that these relative weights are supposed to represent. The weights should be chosen to represent the time period associated with the base price. (This will be referred to as the base period.)

(iv) The first step necessary for the calculation of the special index is to rebase all of the original index data to the contract's base period. This is done for each series by dividing the indexes by the index value for the base period, and then multiplying the result by 100. (For this and following steps, note the detailed example at the end of this guide.)

(v) Then derive values for the composite index by multiplying the relative weights by the rebased index values for each index series and summing the results. (This calculation must be done for each month, or other time period, needed for determining the current adjustment.)

(vi) Using the composite index values created in step (v), calculate the current adjustment in standard fashion, that is, by using the procedure described in (a).

(e) Limits for price adjustment. Escalation clauses sometimes contain a floor, a ceiling, or both, to limit the total price adjustment during the life of the contract. If the upper or lower limit is reached, the parties may renegotiate prices for the duration of the contract. Some contracts specify that no price adjustments are to be made until a minimum change in the selected index has taken place. Contracts may also provide that an escalation is to apply in both an upward and downward direction, or in one direction only.

Example of escalation procedures

Suppose a manufacturer of widgets enters into a long-term sales contract with a customer. The buyer and the seller agree to include an escalation clause which will adjust the selling price once a year to account for changes in labor and materials costs. The following is an example of the terms which might be incorporated into such an escalation clause. The example assumes the use of the special index method, discussed in section (d) of guideline (9).

(A) The base selling price for a lot of 10,000 type A widgets is set at $768,450.00 as of December 2009, to remain in effect for 1 year. December 2009 is hereafter called the reference base period.

(B) The base selling price shall be adjusted in accordance with the percent changes of the special index which is described in (D) below. The special index shall be derived from the following index series:

(i) The Employment Cost Index for total compensation, private industry manufacturing, not seasonally adjusted, as it appears in the periodical Monthly Labor Review as published by the U.S. Department of Labor, Bureau of Labor Statistics; this series shall be referred to as the labor index.

(ii) The Producer Price Index for special industry machinery and equipment, commodity code 116, not seasonally adjusted, as it appears in the PPI Detailed Report as published by the U.S. Department of Labor, Bureau of Labor Statistics; this index shall be referred to as the materials index; and

(iii) The Producer Price Index for number 2 diesel fuel, commodity code 057303, not seasonally adjusted, as it appears in the periodical,PPI Detailed Report as published by the U.S. Department of Labor, Bureau of Labor Statistics; this index shall be referred to as the fuels index.

(C) The selling price shall be adjusted on February 20 of each subsequent year, based upon the percent changes (whether up or down) in the special index specified below, between the reference base period December 2009 and December of the most recent year. All calculations for the special index shall be based upon the latest versions of the Producer Price Index and Employment Cost Index data published as of February 20 each year.

(D) The special index shall be derived in the following manner:

(i) The values for the current period for each of the three BLS index series specified in (B) above shall be rebased to the reference base period December 2009; this shall be done by dividing the current value of each index by its value for the reference base period, and then multiplying the result by 100.

(ii) The rebased labor index shall be assigned a relative weight of forty (40) percent; the rebased materials index shall be assigned a relative weight of forty (40) percent; the rebased fuels index shall be assigned a relative weight of twenty (20) percent; these relative weights represent the base period of December 2009.

(iii) Multiply the rebased current value for each of the three indexes by its relative weight.

(iv) The sum of these three figures shall be the value of the special index for the current time period;

(v) Multiply the current value of the special index by the original base price, and then divide by 100; this final figure shall be the adjusted price for the current time period.

(E) If December ECI data are not available for any year, the ECI for the immediately preceding September shall be used as the basis for adjustment of the labor index. If December PPI data are not available for any year, the PPI data for the immediately preceding November, October, or September, whichever is the most recent month which has published data, shall be used as the basis for adjustment of the materials and fuels indexes. If no ECI or PPI data have been published for those months, then the contracting parties shall agree upon substitute series by February 20.

With these terms in effect, table 1 shows some hypothetical data and calculations which might have been made on February 20, 2011 to determine the new selling price for a set of 10,000 type A widgets as of December 1, 2010.

Table 1. Example of calculation procedures

	Labor	Materials	Fuels	Composite
Base price = $768,450	-	-	-	-
Current period series values (December 2010)	110.0	190.2	259.2	-
Divide by the base period series values (December 2009)	107.0	189.5	205.1	-
equals:	1.028	1.004	1.264	-
Multiply by 100 to yield the converted series values	102.8	100.4	126.4	-
Multiply by assigned weight (Labor 40%, Materials 40%, Fuels 20%)	41.12	40.16	25.28	-
Add the three figures to get the current value (December 2010) for the special index	-	-	-	106.6
Multiply by original base price ($768,450)	-	-	-	81,916,770
Divide by 100 to yield the adjusted price	-	-	-	$819,168

Pitfalls to avoid

Vague citation of "the Producer Price Index" rather than a reference to a specific index by its title and any identifying code number.See guideline (3).
Citation of the all commodities index or the industrial commodities index rather than an index that does not include multiple counting of price changes. See the discussion of commodity indexes in the appendix.
Use of unofficial estimates derived from rebasing factors rather than relying upon official BLS data. See guideline (8).
Ambiguous reference to dates ("index as of May 30"). See guideline (5).
Lack of a provision for a successor index should the designated index be dropped from the PPI program, or if it should become temporarily unavailable. See guideline (6).
Locking index into a specific base period. See guideline (8).
Using ambiguous terms. For example, referring to "actual" indexes. See guideline (7).

Appendix: Three Index Structures: A Brief Overview

Stage of Processing (SOP) indexes

The Finished Goods Price Index measures price changes for goods that will not undergo further processing and are ready for sale to the final demand user, either an individual or a business firm. Consumer foods include processed foods such as bakery products and meats. Other finished consumer goods include durable goods such as automobiles, household furniture, and appliances, and nondurable goods such as apparel and home heating oil. Capital equipment includes producer durable goods such as heavy motor trucks, tractors, and machine tools.

The stage-of-processing category for intermediate materials, supplies, and components consists in part of commodities that have been partly processed but require further processing. Examples of such semifinished goods include flour, cotton yarn, steel mill products, and lumber. The intermediate goods category also encompasses nondurable, physically complete items purchased by business firms for their operations. Examples include diesel fuel, belts and belting, paper boxes, and fertilizers. Several sub-category indexes are available, such as an index for intermediate goods less foods and energy.

Crude materials for further processing are products entering the market for the first time that have not been manufactured or fabricated and that are not sold directly to consumers. Crude foodstuffs and feedstuffs include items such as grains and livestock. Examples of crude nonfood materials include raw cotton, crude petroleum, coal hides and skins and metal scrap.

Industry indexes

The entire output of various industries is sampled to derive price indexes for the net output of industries and their products. Such indexes are grouped according to the NAICS and Census product code extension of the NAICS. Industry price indexes are compatible with other economic time series organized by NAICS codes, such as data on employment, wages, and productivity. This is especially convenient if indexes reflecting cost inputs other than PPIs also are used in the escalation procedure.

Commodity indexes

The commodity classification structure evolved over many years; its greatest usefulness is the availability of a large amount of historical data. The coding system used for these indexes is unique to the PPI program; no other governmental statistical program uses it. Commodities are grouped according to similarity of material composition and end use, regardless of the industry of origin.

Unlike SOP indexes, some of the traditional commodity grouping indexes such as the all commodities index and the industrial commodities index exhibit a multiple counting problem in reflecting price changes. This occurs because many products go through successive stages of fabrication or processing and have their price changes counted separately at each stage. SOP indexes largely offset the defect of multiple counting of price changes.

Multiple counting of price change can arise as follows: Suppose that a price for steel scrap results in an increase in the price of steel sheet and then an increase in the price of automobiles. The all commodities index would increase as a result of all three changes, whereas the typical end-use purchaser would only note the price increase for automobiles. The grouping of products by stage of processing eliminates double counting of commodity price changes as they pass through different stages. The SOP structure would reflect the increase in the price of steel scrap only in the Crude Materials Price Index, the rise in steel sheet only in the Intermediate Materials Price Index, and the rise in automobile prices only in the Finished Goods Price Index.

Footnotes

1 See, The BLS Industrial Price Program: A Survey of Users, Report 509 (Bureau of Labor Statistics, 1977).

2 Data requests and technical questions concerning the PPI may be addressed by the PPI Section of Index Analysis and Public Information. They can be reached at telephone number 202-691-7705, or by e-mail at (ppi-info@bls.gov). Please refer to the desired series by title and code number, exactly as cited in the contract.

3 The Employment Cost Index (ECI) is based upon a quarterly survey and is available only for the months of March, June, September, and December each year. Because the ECI has relatively little industry detail at present, data users may have to use a higher level of aggregation than they do with PPI data. However, the Employment Cost Index is a highly useful measure of labor costs because it covers all workers (not just production and nonsupervisory workers) and because it includes not only wages and salaries but also employer costs for employee benefits. Like the PPI, the ECI is a fixed-weight index and this is not influenced by employment shifts among industries and occupations with different wage and benefit levels. But unlike the PPI, ECI data are final when they are first published and are not subject to revision (except on a seasonally adjusted basis).

4 From the seller's point of view, a contract which escalates the price of a product based on the change in the PPI for that same product might not provide an appropriate basis for changing the base price. In those cases where most companies reporting a product's price to BLS are tied to escalation clauses using the PPI for that same product, these firms would be unable to raise their price until the PPI advances; there could be no advance in the PPI until the companies are able to raise their price. From the buyer's point of view, a reverse circularity is evident when the price of a product purchased is escalated by the PPI for the same product. A rise in the contract price may be reflected in a rise in the PPI, which would trigger yet another rise, etc.

5 Sometimes, however, government agencies, laws, or regulations may dictate which index or level of detail must be cited.

6 As an example of PPI practices, first-published PPI data for December 2010, as well as final data for August, were released on January 13, 2011. Final data for December were released on May 12, 2011 with the first release of April data. Final data for all indexes appear in each issue of the PPI Detailed Report and are available online through LABSTAT. Contracting parties who want to use other BLS series for escalation in addition to PPIs should be aware that each BLS program has its own revision and correction policies.

7 For SOP and most commodity indexes, the base year currently is 1982; indexes introduced into the system since then are based on the month they were first calculated, usually either December or June. Industry and product indexes currently have no standard base but are based on the month of their first publication.

Last Modified Date: May 14, 2012