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Tuesday, July 15, 2014

The Loggers of Hollywood

Went home for lunch yesterday, and walked in on my two littlest (ages 9 and 5) and another 9-year-old watching Rio 2, a colorful movie about a bunch of birds fighting for the jungle...against, you guessed it, a bunch of bad guys logging illegally with huge chainsaws and graders. Here's the plot, as its given in Wikipedia...

"Blu and Jewel enjoy life in Rio with their 3 kids, the oldest and music-loving Carla, book smart Bia, and the youngest and mischievous Tiago. Meanwhile, Blu's former owner, Linda Gunderson and her ornithologist husband, Tulio are on an expedition in the Amazon and eventually discover a quick-flying spix's macaw that loses one of its feathers. When word gets out about this through television, Jewel believes that they should go to the Amazon to help find the blue macaws.
Meanwhile, the leader of a group that is in a line of illegal logging named Big Boss, discovers Linda and Tulio's expedition to find the macaws and orders his henchmen to hunt them down to avoid disruptions to their work...While searching for the macaws, Linda and Tulio are eventually trapped by the loggers...Blu visits Tulio and Linda's site, where he discovers a broken CB Radio. After discovering the loggers are destroying the jungle, Blu sends Roberto (who followed Blu) to warn the flock as he saves Linda and Tulio. Blu persuades the macaws to defend their homes, and they easily outmatch the loggers with help from the Scarlet macaws and the other animals. Big Boss tries to blow up the trees as a back-up plan, but Blu steals the lit dynamite...[Finally] Big Boss is eaten alive by a boa constrictor." 
Good old family fun. I happened to walk in right when the loggers were chasing Linda and Tulio with their saws. The kids were glued, eyeballs wide as silver dollars.

That's how Hollywood sells movies these days. I'd be willing to guess that Corporate World has been the "bad guy" in 90% of the action movies since 1970. That makes at least two generations, now, that have been raised on a steady diet of producers killing the world.

It wasn't always this way. Movies, at least movies put out by the government, used to promote technological advances in industry as good things, to be aspired to and worked at. We saw one of them about two years ago in a great short about woodworking in the 1940's.  Here's another in the series, an excellent look at logging in 1940. In it, you'll hear that yes, logging and related practices were once wasteful and hard on the land...but that America had awakened to the danger and was now (as of 1940!) practicing productive, sustainable professional forestry. It's pretty much been just as depicted in the video, for the past 75 years!




Which is why we now have as much standing timber as we had 150 years ago. We adjusted our harvesting to sustainable practices, and the forest recovered after having supplied the wood for every city, town, and home in our booming country.

The next to last line of the movie is a pretty succinct statement of what foresters have been trained since, well, forever...
"If you do go into forestry or one of the industries, you will be part of work that has a future, for the aim of all foresters and far-sighted owners of timberlands is a perpetual supply of products through proper management."
Modern portrayal of the logging profession and timber industries paints the whole barrel in the same light as the occasional bad apple, and extrapolates the negative impact to mean permanent deforestation the world over. Which will happen, I suppose, about the time that Richmond, Virginia, becomes a coastal resort. My 5- and 9-year-olds will not let that happen. They will save the world, right along with the millions of others that don't seem to understand that demand must have a supply to be met, or things will get ugly. Ironic, isn't it, that the Battle of Rio to save the rainforest is set in a country that today has riots in the streets as people starve in massive ghettos.

I started to walk out of the room after watching a few minutes of the birds battling the loggers. But I couldn't resist turning back and saying to the kids, "You guys know loggers really aren't bad guys like that, right?" To which my son replied, "They're chopping down all the trees!"

"Well, loggers only chop down enough trees for us to use to build things out of wood. And then the forests they cut down grow back..."

The 9-year-old neighbor girl cut me off at the pass. "They're going to build a city there!" she exclaimed, her eyes bright with passion. "But they wouldn't build a city in the middle of the jungle," I kindly explained. "Yes, they're going to cut down the whole jungle!"

I was defeated, right along with Big Boss and his Amazon loggers, and retired to do battle another day.

I retreated back to my home office, where, while pondering this exchange, I happened upon the following video. It's an excellent, high-quality story produced by the BBC about the story of the forest ecosystem...how a fish feeds trees, and how insects feed Canadian lynx.



The video is a full hour, and I suggest you watch when you have the time. But I want to take you to a sequence beginning at 24:30, where begins an interesting explanation of the relationship between the Canadian lynx, the snowshoe hare, and the spruce budworm.

The British host tells an interesting story of the Canadian lynx, and his preference for a tasty snowshoe hare now and then. And how the hare depends on low-growing forage and cover, that wouldn't be there if it weren't for timely infestations of the spruce budworm. He explains...
"Now...the springtime assault by these caterpillars is bad news for the trees...but for other inhabitants of this forest, these caterpillars are heroes." 
"Whilst these dramatic natural events might be a catastrophe for the established trees, for anything trying to grow on the forest floor, they're an absolute bonus. In here where it's dark, there is little, very poor diversity, just some mosses and a few ferns. But as soon as there's a break in the canopy, and the sunlight can flood in, well, look at the difference.  Lots of wild flowers, there's a young maple coming through here, there a mountain ash, and most importantly of all, regenerating spruce and fir.
Now, the hares essentially need these regenerating conifers as shelter. And of course, what's good for the hares, is good for the lynx...And that's why the lynx needs the caterpillar." [Cut to shot of deer grazing in an open meadow. Point proven.].
Now, any resident of Maine and Quebec can tell you that a little spin is being applied here. The story infers that the spruce budworm is a convenient forest pest, one that opens nice little openings in the forest floor that shelter bunnies and feed deer, thereby creating a link in a cozy little natural cycle of life.

The reality is slightly different...
"Bob Wagner, a University of Maine forestry professor, describes Maine’s upcoming spruce budworm infestation as a slow-moving hurricane. The state’s large landowners, forestry experts and policymakers know it’s coming and can track its path south from Canada. They estimate the pest will start destroying forest stands in northern Maine within the next two to four years. And they know from previous experience that the damage to the forest products industry and, therefore, jobs could be extensive."
- Bangor Daily News, 12-29-2013 

So, in essence, the spruce budworm is poised to be, as it has been in past cycles,  a reason for forest devastation on a massive scale, magnitudes of order larger than any modern logging operations. And yet, the BBC can tell a pleasant story about the budworm opening a nice little opening in the forest canopy, while a logging operation that accomplishes the same ecosystem effect on a controlled basis, is demonized by Hollywood.

We have to get past the idea that if man does it, it must be bad. Millions of little minds, and their future means of having a good life, are at stake.

The birds won't be able to save us from misguided education and entertainment. Let's turn the story around.

Thursday, July 10, 2014

"It Never Happened Before" - The Crazy World of Real Estate Markets

On the way into work this morning I caught an update to the "ghost city" situation in China. Hint: It's not getting better.

Consider some of the stats. Last month, prices fell in 79 of 100 cities surveyed by a regional real estate company. Land sales have dropped 30 percent. In Wuxi, subject of this morning's NPR story, has experienced a drop in prices of 15 to 20% this year.
"There's nothing you can do," says Huang Jiqiang, an agent with Central Plains Real Estate here. He says supply and demand are completely out of whack.
"Now all the new housing complexes are dropping their prices and doing promotions because there are just too many homes. There aren't that many buyers and the pool of buyers is getting smaller and smaller. Homes are still under construction out there."
 - www.npr.org 
One comment in the story especially caught my attention. A finance professor in Shanghai states matter-of-factly
"Since the beginning of this year there is a kind of switch of the mood. People have become more cautious. It never happened before."
That comment reminded me of our situation here in 2008-2010, when housing prices were falling all over the country. Much was made of the fact that people had invested in real estate, even at what seemed to be exorbitant prices, for the simple fact that home prices had never before fallen significantly in our history, certainly not on a national scale. It never happened before.

First of all, the statement is silly. Certainly, real estate prices have crashed, cities have dried up, all over the world, as the ebb and tide of history takes its toll. Sure, real estate prices have increased over the centuries, but I've never seen a definitive study that shows real estate outpacing natural inflation over long periods of time. And wherever people move away from, or where local economies have tanked, home prices have fallen. In some cases, dramatically. Here's an interesting story of six ghost towns in North America, including our own Pennsylvanian town of Centralia.

But the scale of, and the reason for, the people-less cities in China is unprecendented. That's what makes it an interesting story to continue to watch. It's not just the ghostly feeling of being in a deserted place...but the disquieting notion that perhaps, this greatest of all real estate booms is likely to be followed by the greatest of all financial crashes.

I began working with truss plants here in Pennsylvania at precisely that peak in the market, fall of 2007. (Hopefully that is ironic coincidence, and not cause/effect). I've watched and worked with truss and building component manufacturers as they've struggled with the realities of the downturn. This week, my visits to a few plants revealed a guarded optimism based on order files that have extended from a few days, to a few weeks.

But housing starts, both single-family and multi-family, took a significant downturn in May. The National Association of Homebuilders is still forecasting a sharp upturn in starts (which coincidentally, they have been doing for several years now) that will see a 50% increase in starts to over 1.5 million starts by 2016. This in spite of the fact that they also forecast a 1.5% increase in mortgage interest rates over that same time frame.

However, in stark contrast, noted financial market analyst Martin Armstrong, who has made a life's work of constructing an artificial intelligence (AI) model to forecast global economic trends with stunning accuracy, posits that the global real estate business cycle is a 78-year cyclical wave that peaked in the third quarter of 2007. From that peak, it fell into a trough that bottomed out in 2012, and the world is now experiencing a mild real estate recovery. But his data and models foresee the current recovery lasting only until the third quarter of 2015, after which the global real estate market will be in a free fall until the end of the 78-year cycle...in 2033. At that time, we will have been in a global real estate market contraction that will have lasted 26 years, and will take us back to the level of demand last experienced at the beginning of the 78-year cycle, that is, back in 1955.

Interestingly, my own analysis of housing starts potential back in 2009 forecasts a similar downturn scenario for precisely September of 2015. You may remember the following graph, which I've shared in the past.

Source: Penn State Wood Operations Lab, 2009-2014

The blue line is the number of actual, total housing starts. The purple line represents the "official" forecast in the summer of 2009. It was calling for a strong rebound, which would have normally happened in previous cycles. The pink line, which I labeled "worst case", is my own formulation of housing starts based on indicators as I read them at the time. The yellow line I calculated as a "moderate case"...in reality, a compromise between my own forecast and what mainstream economists were forecasting.

The actual housing starts have fallen between my own "worst case" scenario and the compromise model I calculated. In other words, much worse that the official forecast of the time, but not as bad as my own, thankfully. The interesting point, with respect to today's subject matter, is that these forecasts all contained a cooling-off period after the recovery. The official story was that we would have a strong run-up until fall of 2012, a one-year cool-off until fall of 2013, and then a more gradual but steady increase thereafter.

My own forecast, the pink line, was for a much more modest recovery until September 2015, to be followed by a two-year decline. At the time of my original work, I wasn't aware of Mr. Armstrong's long-cycle data, so my analysis then forecasted a modest recovery from late 2017 into the future. Much of that, I reckoned, was due to the fact that I believed we would probably be realizing the impact of policy changes brought about by the demands of the electorate in 2016.

However, Mr. Armstrong's analysis tells a story of a world in crisis, created by global government policies aimed at creating wealth out of thin air, or should I more correctly say, out of devalued money. Which is why the Chinese real estate market is so fascinating.

Consider this quote from a recent Business Insider story.
"...it's important to remember, too, that the ghost city phenomenon in China is partially due to how local governments are forced to finance themselves. Local governments in China are in a perpetual cash squeeze because they have to hand over a bulk of their tax revenue to the central government and because the central government often orders localities to build all sorts of infrastructure projects but Beijing often neglects to help with funding. Because the Party owns all of the land in China, local governments solve their funding problems by seizing land from their poorest residents, giving them a paltry sum in return, and then they sell the land to developers, essentially flipping real estate on a massive scale. Of course this has the added benefit of raising GDP figures, increasing the chance that local leaders will be promoted within the Party."
-Rob Schmitz, quoted in Business Insider, June 9, 2014 
Hmmm. This scenario which once might have been viewed as an oddity of China's version of party politics is starting to sound slightly not so unusual. Might the snowballing market backlash against this reality-blindered governance be a precursor of a global downturn so bad it will make 2010 look like the good old days?

Let's hope not. But just in case, I'll examine the issues, and logical actions wood businesses can take to prepare for the possible alternative futures, in upcoming posts.

Wednesday, July 2, 2014

The Fruit of the Earth: Reality and Religion

Here's a follow-up to the post on "How to Build a Wildlife Habitat Snag".

After a short segment on fighting birds away from their cherry tree (with that great view of Mt. Ranier in the background), Wranglerstar gives us an update on the wildlife that has moved into his snag. It's a great lesson on the forest food chain...from plant, to bug, to bird, to carnivore.

And then, he takes us on a trip into his back forty, where he had been working a small fireline around a brush pile that had escaped its intended spot. As he does so, he gets into a discourse on the realities of hands-on forestry that you might find interesting. In more ways than one.



Wrangler demonstrates that he really understands well the concept of forest management, at least from an ecological standpoint. But his short discourse beginning at 9:00 against "modern logging practices", which he calls  "an abomination against this earth, and an abomination against God" is where his practical knowledge of the subject, and his religious intuition reveal an inner turmoil that he hasn't yet been able to reconcile.

I won't get into the war raging in people's psyches between Mother Earth and Father God. But I would like to say that in this particular discourse, Wrangler exhibits a belief shared by many folks...that individuals are better stewards of the earth than companies that use its fruits for the benefit of mankind (and, to make a profit along the way).

Certainly, Wrangler is a shining representative of the notion that individuals, given a piece of land, a good education, and a strong work ethic, can manage that land sustainably and produce good outcomes from their effort. This stewardship model, perhaps first best codified in America by Aldo Leopold in his A Sand County Almanac and his numerous other writings, works well on a personal level, and it's not hard to see how folks like Wrangler who "return to the land" adopt those values. I relate to them myself, on my own tiny corner of the world.

But it is in criticizing other models that folks often go awry in their thinking, and wind up "conflicted", as Wrangler so obviously is in the final moments of the video. He can see how the techniques he uses work for his family on their land...but those techniques are not very productive, in terms of the number of people they support per acre. Therein lies the conflict.

Timber companies, like commercial fisherman, industrial farmers, mining companies, and energy companies, have to produce vast quantities of natural resources from the small portion of the earth that they manage. In order to do this, they have developed techniques, technology, and labor systems that allow them to produce and harvest more per acre than you or I would given the same amount of land. The visual impact of these systems can be stunning, and many folks have felt that sense of stunned outrage when they happen upon a large clearcut...or even when they view one from fifty miles away on a mountainside.

The emotional response felt in those moments is the source of the conflict. People's minds tend to frame the vision in terms of personal impacts...a clearcut forest is far beyond the physical impact one can cause, and so its magnitude is overpowering. Our mind has a difficult time processing the scene...we see devastation, and imagine dead birds and rabbits laying under all the dead trees. Bad...bad.

But professional foresters and loggers see something different, because they have experienced the long-term cycle of forest re-growth. They understand that those large, beautiful trees are, in essence, a mature crop, ready to be harvested for conversion and use by millions for homes, heat, and hutches. And the millions who will benefit from that harvest don't have the blessing of their own patch of woods to produce their own...they rely completely on the experience and work of the timber company to provide that wood.

Further, they understand that the scene that Wrangler calls "an abomination" in fact produces a thriving new forest in an incredibly short period of time. One that supports a far wider range of wildlife, with far higher rates of growth, than the mature forest just harvested. And all that new growth contributes to and  thrives on the carbon cycle, the key process in sustaining life on earth. It is difficult to see how a process that drives life can intelligently be called an abomination.

True, harvesting practices have not always been as good as they could have/should have been. But in the more developed countries, they certainly are getting pretty good. And it is difficult to point to damage even in the less developed countries that is resulting in permanent or irreversible damage to the forest. In that sense, the earth has shown an incredible power to recover from even the worse humans can do to it.

The 1,660 square miles of the Chernobyl Exclusion Zone has now become one of Europe’s largest wildlife preserves.
Source: https://www.asme.org/engineering-topics/articles/nuclear/chernobyl-25-years-later
So, yes...Wranglerstar would not want a timber company clearcutting his land. Most of you would not want that. But that does not make their business of timber harvesting on land managed for that purpose an abomination, any more than miles of wheat harvested in Kansas, million of chickens grown in East Texas, or tons of coal mined in Alberta is an abomination.

A true abomination would be returning to the Dark Ages (or the 1930's Soviet Union), where only the wealthiest or well-connected had homes and good food, while the rest of us huddle hungry in our makeshift huts. Which is where we will be, if the industrial producers of the world are prevented from performing their business of providing for the world.