INTERNATIONAL

The largest international issues in my opinion are North Korea a nuclear country being run by a nut job – or the nut job's inexperienced son – with a major power, China, as its best "friend" that won't rein them in, and the potential collapse of the European Union. Not that I think the North Korea affair is a less important issue than Europe but personally I am more worried about the European Union falling apart and the economic damage that such an event could have to the international banking system.

NATIONAL

Consumer confidence as measured by the Conference Board fell this month as more people worried that the job market is worsening. Holiday spending went up but the index fell to 52.5 from 54.3 in November.

The chart above is the Consumer Confidence Index from the past 10 years which I use frequently to judge what the "consumer" thinks about his/her situation. This quarter, I am going to put three indexes on the website to study.

The Present Situation chart gives us a look at what the same people think their current situation is like. Note how much lower it is than the first chart.

Now compare the Expectations chart to the first two, especially the Current Situation. If we can put any weight in the third chart's data set, we should be more optimistic about the near term future. The first chart is averaged by the second two.

There are five questions asked of the 5,000 households that get the survey each month. Different households are chosen for each month.

1. Respondents' appraisal of current business conditions.
2. Respondents' expectations regarding business conditions six months hence.
3. Respondents' appraisal of the current employment conditions.
4. Respondents' expectations regarding employment conditions six months hence.
5. Respondents' expectations regarding their total family income six months hence.

Personally, I think the current economy is all about the jobs!

ENERGY

Crude oil continues its slow trend up as the economy shows strength.

But natural gas remains in the range of $4.00 mcf. Historically, the ratio between crude and natural gas is about 7:1. So using the norm, crude should be selling for under
$30.00 per barrel or natural gas should be in the $10.00 mcf range. There has been a huge amount of new supply brought onto the market because of the Barnett Shale and other discoveries using the same technology. I think this represents the disconnect.

Speaking of the Barnett, Chesapeake's White South #1H well in southwest Arlington has taken the lead as the mother of all monster Barnett wells. In September, the well
produced more than 17.8 million cubic feet of gas per day, surpassing all other wells in the field to date. A more normal Barnett well produces 3 million to 4 million cubic feet per day. Chesapeake disclosed that the company expects to drill over 350 wells in the Barnett next year.

According to Pulitzer Prizing Daniel Yergin of Cambridge IHS Cambridge Energy Research Associates, the USA which is the world's biggest gasoline user, is about to
start a long-term decline in gas usage. Yergin believes that we will consume at least twenty percent less gasoline in 2030 than today even as millions more cars are on the road. Consumption has declined for the last four years.

JOBS

The unemployment figures remain above 9%. The lack of employment has hurt the economic situation more than anything else. It is hard to be considering purchases if
you don't have a job.

HOME MORTGAGE RATES

After rising for five weeks in a row, residential mortgage rates slipped right before Christmas but they are still at the highest level since late spring. As of December, thirty
year rates were being quoted at 4.81% by Freddie Mac.

RETAIL REPORT

• Black Friday, the day after Thanksgiving, saw decent traffic in the stores. It was about the same as last year. But Cyber Monday sales were strong. Are we about to see a big decline in retail sticks and bricks and a resulting increase in on-line sales?
• Christmas sales were up strongly also. The stores were filled after Christmas with buyers, not just people returning gifts. It is estimated that this Christmas will show the largest growth since 2006.
• Sprouts Farmers Market will open its second Tarrant County store at Hulen and Interstate 20 next month. Sprouts will back-fill the old Albertson's Grocery space. The fast-growing Phoenix natural food chain should do well in this upscale community.
• In-N-Out Burger, a California burger icon is making a big push into DFW. The company has 210 stores in CA, 27 in AZ, 16 in NV and 8 in UT. It plans to get
  eight stores open in DFW in 2011 and more the following year.
• Babe's Chicken Dinner House is opening in downtown Arlington on N Center next to the Arlington Music Hall. If history is any indication, Babe's will cause a
  huge increase in the amount of consumers visiting the area.
  

BANKING

A number of Texas banks are struggling, in particular some of the smaller community banks. But the pain is not limited to the little guys. SWS Group, the regional holding
company that controls Southwest Securities FSB, attempted a stock offering of convertible senior notes of $95 million and no one wanted the instruments. The offering
failed and the stock of the holding company sank to new lows. The offering was pulled. But while some institutions are struggling, others rise to take their place. Texas Exchange Bank was formed and opened during the economic crisis.

TEXAS

The big news in Texas this quarter was the results from the census. Texas' population jumped over 20% the last ten years. This will result in four additional House seats in Congress. The total growth was about 4.3 million people which results in approximately 25.1 million people residing in the state. But our growth slowed down the last quarter of the year much like the rest of the nation.

DFW/NORTH TEXAS REGION

Although we have seen some strengthening in the fourth quarter, foreclosures are still hurting the local regional economy. Foreclosure postings reached the highest level in 22 years in November. Residential postings continued to trend higher this month and commercial filings also reached a two-decade high. As the banks are able to realize their bad loans, the postings will increase. We are now starting to see some trophy, Class A commercial properties being posted also.

FORT WORTH

• Fort Worth is finally seeing some definite strides forward in its attempt to assist the West Seventh Street area. The vision for the urban revitalization is really taking off. Once the street work is complete and one can get into and out of the neighborhood easily, the retail activity in the immediate area will be even greater. The growth shows that sometimes public incentives for private projects do work.
• The city has been working on funds from the federal government to assist it in restructuring Tower 55, the massive rail yard to the west of the CBD, for years. In October the Feds announced an award that is just short of the requested $38 million for the huge rework.
• The toll road between the Fort Worth CBD and Cleburne is well underway. And it has a new name – Chisholm Trail Parkway. The twenty-eight mile road will help direct growth south.

NORTHWEST FORT WORTH AREA

Texas Health Resources has begun work on the full serve community hospital that it is building on the south side of Golden Triangle east of Interstate 35 West. The forty-acre facility is expected to cost over $90 million when complete.

MANSFIELD

The Mansfield Economic Development Corporation promised twelve annual grants of $500,000 each to Klein Tools, a 153-year old Illinois maker of hand tools, if Klein meets employment and investment targets in opening its new facility on Heritage Parkway west of Highway 287. Additionally the company will receive $2.8 million from the Texas Enterprise Fund. The project will bring much needed jobs to the Mansfield area.

SUMMARY

2010 can only be described as shell-shocked. While some users of real estate did start coming out of the trenches, the junior box retailers are still hunkered down. If they are doing anything, it is back-filling vacant boxes in the 10,000 square foot to 35,000 square foot range. All we can do at this point is work to keep our properties looking good and cater to the users, mainly restaurants and a very few banks, that have an interest in our pads. We must be creative in our approach to any inquiry and try to make any deal that will bring value to our projects.

Additionally, it looks as if some of the lenders that are taking back projects from foreclosure are finally beginning to dispose of the assets. This could lead to some buying opportunities for well-located properties that might be acquired at below replacement cost. I feel that we need to reposition ourselves for the next wave of growth with those assets that will turn into income generators sooner than less well located properties. Lenders are beginning to start putting their reserves to work again. So we
are working our existing projects and looking for new opportunities to balance the portfolios.

Happy New Year!