We’ve all had those moments of pure attention, when it seems everyone in the room is attracted to your energy. Yet for many of us, that place is difficult to tap into. Your mind races with nervousness about something previously said and you worry about what to say next, each distraction lessening the power of your interaction.
The key to success in these moments is empathy. This ability to understand and relate to others is a powerful skill that takes work, but in mastering it, you can better both your personal and professional interactions.
Empathy is about establishing trust by outwardly recognizing what someone else is experiencing. It’s difficult for people to fully engage in any interaction if they don’t feel that they are being heard and understood.
Think about how free and open your interactions are with close friends and family. Your conversations are super productive because you have each freed yourself to fully engage.
However, at work or in our other day-to-day interactions, we are naturally cautious. We withhold information, we don’t ask the tough questions, and it’s much harder to make decisions or resolve issues. That generally leads to subpar outcomes.
Four Steps for Practicing Empathy
1. Observe: Pay attention to voice, tone, body language, and the situation.
2. Listen: What feelings and emotions are being conveyed?
3. Interpret: What needs are behind those feelings and emotions?
4. Share: Openly state what you think you understand about the other person and ask for feedback to make sure you’re right.
Straightforward, right? Not exactly.
Why Listening is Scientifically a Struggle
Being a good empathizer is largely connected with being a good listener.
Chris Voss, former FBI negotiator and author of Never Split the Difference: Negotiating As If Your Life Depended On It, explains that it’s a struggle to focus in attentive moments because listening is far from a passive activity. It is the most active thing you can do, and empathetic listening can power some of the most fundamental functions of your workplace.
If you struggle with listening, you are not alone. Renowned author and journalist Michael Pollan examined this difficulty in his recent book, How to Change Your Mind: What the New Science of Psychedelics Teaches Us About Consciousness, Dying, Addiction, Depression and Transcendence.
Pollan found that a major area of the brain known as the default mode network (DMN), which acts as an overseer keeping brain operations in check, is most likely the very operator that makes active listening so difficult.
How the DMN Works
The DMN is what kicks in when you have nothing to do. And it seems to be responsible for the construction of what we call the self or ego. It’s all that noise that comes pouring in when you’re in idle; the flood of thoughts about the past and future and myriad distractions that we often feel powerless to overcome. It can become who we are. It also leads to rumination and self-referential thinking, which is not conducive to empathy.
The DMN is powerful, but you are not powerless to resist it. Attention, focus, and active listening help quiet the ego, allowing you more effective listening.
Try this: Consistent meditation, even just 10 minutes a day, has been shown to decrease activity in the DMN, which then leads to better empathy.
Practicing Empathy in the Workplace
Empathy in the workplace is something I encourage the team at D Custom to actively practice. Here are some of the things it can power.
Empathy and Negotiating
While Voss’ FBI negotiations might not be the first place your mind goes in wondering where and how empathy might be better understood and applied, it is paramount in their field. As he notes, when preparing for a negotiation, it’s more important to concentrate on demeanor and state of mind rather than what you will say or do. This is empathy in all its glory.
Empathy and Trust
Empathy establishes trust, and establishing trust enables more productive working relationships. By practicing empathy in the workplace, you will expose goals and concerns more readily. And you cannot resolve issues until that comes from both sides.
Implementing empathy to build trust starts with recognizing people’s fears and validating them without passing judgment or offering a solution. If you do that in a consistent way as a team member or leader, you will get all manner of engagement from your team.
Empathy and Creativity
Empathy is about a genuine connection, and active listening is a gateway to thoughtful collaboration. Ideas come to light in a creative environment, and an attentive approach helps increase input so much that possibilities expand in a way they would not have otherwise.
Empathy can be a force for powerful relationships. From persuading groups to negotiating with terrorists to growing a fruitful community of coworkers, empathy emerges as an imminent provider of success. It’s wired into our psychology to the point that we can’t resist it. So be present and empathy will follow. From that, the possibilities are boundless.
As the government has been focused on crude oil and gasoline, diesel gas supplies have drastically fallen to dangerously low levels.
With diesel prices going up, it will cost more to transport consumer goods, which means that inflation won’t taper off anytime soon.
See list below for sectors and stocks most impacted by the shortage.
While a lot of attention has been directed toward the prices of crude oil, diesel gas suddenly appears scarce as we head into the winter months. The Energy Information Administration (EIA) has stated that the U.S. now only has 25 days’ worth of diesel supply left, which is a dangerously low level. The Russian invasion of Ukraine has drastically impacted global energy supplies as refinery closures and disruptions in the U.S. have recently caused issues with the supply of diesel gas at a time when demand is surging due to the changing seasons.
With diesel fuel and heating oil inventories running low, inflation will remain high for the foreseeable future. Since diesel is the primary fuel source for trucks, rails and vessels that transport most consumer goods, it’s looking like the prices of these transported goods will also increase.
What’s happening with Diesel right now?
Bloomberg reported that the U.S. diesel crisis is here and will spread across the East Coast, where there are transportation delays. Diesel inventories are at the lowest seasonal level ever, heading into winter. The Energy Information Administration (EIA) announced that U.S. distillate inventory (including heating oil and diesel fuel) had 106.2 million barrels in the week ending October 14, which is about 20% below the 5-year average and a 25-day supply.
There are colossal supply and demand issues with diesel fuel right now. Since diesel fuel is similar to heating oil, the demand will skyrocket as the northern hemisphere enters the winter months where people will need oil to heat their homes. Some speculate that if reserves aren’t built up by the end of November, there could be severe consequences — similar to the European energy crisis. The supply issues are being caused partly due to the embargo on Russian oil and because the refining capacity in the U.S. has dropped over the past few years.
The price of diesel hit a record high of $5.816 per gallon in June, and there’s a chance that it could go higher if we have a cold winter or if the European energy crisis gets worse — both of which are still undetermined as of the time of this writing.
Policymakers have been focusing on crude oil prices to fight inflation, but it appears that the diesel gas shortage could offset this. Goldman Sachs has warned that the government’s focus on fighting higher energy prices has only been on crude prices, even though that has little impact on what customers have to pay for. It’s also believed that refinery closures and disruptions are leading to this shortage of refined products like diesel gas.
What stocks are impacted by a diesel gas shortage?
A diesel gas shortage impacts many companies since the fuel is needed to transport goods across the country.
These are the industries most impacted by a diesel gas shortage:
Trucking and transportation. Since most of our goods are transported by diesel fuel, any company in this industry is facing the potential of low diesel supplies that could drive prices up.
Construction. Many power trucks and excavators use diesel, the increased cost of transporting raw materials, will drive home construction prices even higher when people already have to deal with soaring loan rates. This would also impact the mortgage industry since consumers will think twice about borrowing money, making everything more expensive.
Fresh produce. The prices of fresh produce will continue to increase as it’s becoming more costly to transport the goods promptly.
Other consumer goods. With all of our goods being transported by freight or truck, there could be issues with getting items into stores in time for the holiday season as we reach dangerously low levels of diesel.
It’s fair to say that stocks in any of these industries could be impacted by the diesel gas shortage if they can’t get the goods out on time or if they have to raise prices. Higher prices would only hurt consumer confidence as the threat of a recession looms large.
When we looked at stock market winners, we discovered that many oil companies were doing exceptionally well in 2022. We will be watching to see if limits are imposed on the export of U.S. oil and natural gas, as this would impact earnings.
What stocks are impacted by the diesel gas shortage?
Suncor Energy (SU)
Suncor produces synthetic crude from oil sands, a method that’s unlike conventional oil production. With diesel gas prices going up, Suncor stands to benefit as the stock is up almost 40% for 2022. Suncor has hiked up its dividend recently, making this an attractive stock for investors.
Valero Energy (VLO)
Valero is one of the top oil refineries as they manufacture and market transportation fuels. The company is also the second largest producer of renewable fuels, which means it will stay profitable if the world turns to renewable energy sources. Valero beat the earnings estimate for the third quarter, and the stock is up about 67% for 2022.
PBF Energy Inc. (PBF).
PBF is a petroleum refiner and supplier of transportation fuels, heating oils and other petroleum products. The company is working on producing renewable diesel by 2023 which would be a major game changer in this space. This stock is also up over 200% for the year while the rest of the market has continued to struggle.
Even though there’s a growing concern about switching over to cleaner energy sources, it’s important to note this transition won’t be quick.
What’s the impact of a diesel gas shortage?
While there has been plenty of buzz about the European energy crisis and the growth prospects of electric vehicles, we can’t ignore that diesel is the primary fuel source for power trucks, rails and vessels transporting consumer goods. If diesel prices skyrocket, then the prices of the goods transported will also increase accordingly. With the holiday season approaching, this would mean that we could expect further increases in prices.
Experts also worry that diesel prices could tip the economy into a recession. As the Fed continues to fight inflation by raising interest rates, other factors are causing diesel prices to go up, which would then impact the costs of everything that’s transported. This would mean prices would still go up and cause inflation to soar despite the aggressive rate hikes.
Diesel prices are going up right now due to simple supply and demand issues. There are also disruptions to the global markets being caused by the Russia-Ukraine conflict and the current lockdowns in China.
What’s next for diesel prices?
As the supply of diesel gas dwindles and the demand continues to surge, actions must be taken promptly. The Biden Administration has considered limiting fuel export to help with the supply and prices. President Biden recently announced that they would be releasing 15 million barrels of oil from the strategic reserve in December to increase the supply. However, there’s no clear indication this would solve, or substantively help, us with the diesel gas shortage.
It’s important to note that this fuel is used for heating and trucking, which is generally required to keep the economy going, especially in winter. Diesel keeps commerce and freight going because trucks, excavators, ships and freight trains need the energy source. If there’s a shortage of diesel, we would see higher costs for everything in the economy, from transportation to construction, at a time when the Fed continues its aggressive rate hike campaign.
What does this mean for investors?
With the stubborn inflation numbers causing stock market sell-offs as the Fed continues to raise rates to attempt to cool down the economy, it isn’t clear where to invest your money. With additional concerns of prices going up even higher due to a diesel gas shortage, there’s even more risk involved with investing in individual companies.
Many experts agree that soaring inflation will invariably worsen if fuel prices continue to rise. Although there has been a lot of attention on crude oil, diesel gas issues could hurt us as much or more. With Q.ai’s Inflation Kit, you could turn those inflation fears around with an Investment Kit that helps you profit from higher inflation. With our unique Portfolio Protection feature, you can protect yourself further against continued volatility and unforgiving downturns.
The bottom line
The diesel gas shortage could pose many challenges if the refineries don’t increase capacity or if we don’t find ways to replenish supplies. If diesel gas prices continue to go up, consumers will feel this impact as the prices of everything will continue to increase. We will continue to monitor the situation with diesel gas as it’s an urgent matter at this time.
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Members of Forbes Technology Council discuss smart and effective uses for digital twin technology. Photos courtesy of the individual members.
A digital twin is precisely what its name suggests: A digital copy of a physical object or system—even a human being. It may be a simple concept, but the potential applications are anything but. Through the ongoing collection and exchange of data, a digital twin can simulate and even predict the behaviors and reactions of its physical twin in a variety of conditions, providing invaluable insights to industries ranging from manufacturing to healthcare.
Digital twin technology allows businesses and organizations to test products and processes, study and predict how real-world conditions can affect physical objects and beings, and make well-informed, big-impact decisions with minimized financial and human safety risks. Below, 16 members of Forbes Technology Council share some of the fascinating ways industries and organizations are leveraging digital twin technology.
1. Minimizing Manufacturing Waste
We at Cuby use digital twin technology to make sure we produce 1-to-1 kits of the parts needed in our prefab construction process. It’s been estimated that up to 40% of the solid waste in the U.S. is construction and demolition waste. Manufacturing all the parts in advance allows us to reduce waste by up to 90%. – Aleksandr Gampel, Cuby Technologies, Inc.
2. Building Resilient Supply Chains
Businesses are increasingly using digital twin technology to build resilient and responsive supply chains. The digitization of supply chain processes provides businesses the opportunity to increase organizational efficiency by predicting serious problems and deceleration. In fact, it is estimated that by 2025, 80% of participants in industry ecosystems will rely on digital twin technology. – Radhika Krishnan, Hitachi Vantara
3. Mitigating Disruptions Due To Weather And Climate
Businesses are using digital twin technology to mitigate climate-related disruption. By combining data from public sources, such as weather data, with data from suppliers and partners, leaders can see how an unplanned weather event might impact the flow of goods across their supply chain, then use this insight to quickly pivot orders, routes or suppliers to limit waste and meet demand. – Rohit Shrivastava, Anaplan
4. Studying And Refining Processes
Process mining combined with simulation gives reliable visibility into as-executed processes (versus relying on what somebody thinks is happening) and the ability to do “what-if” analyses. This is effective because it allows one to see what’s really happening and simulate changes before making them. Often, changes do nothing or create a bigger problem elsewhere. Simulation and mining prevent that. – Michael Nyman, iGrafx
5. Making Data-Driven Manufacturing Decisions
The utilization of digital twins in the manufacturing industry has seen large growth. Digital twins increase productivity and reduce costs by combining the physical and digital worlds to make data-driven decisions, prolong asset life cycles and minimize unexpected maintenance disruption across assets. This modernizes the sector by moving from the “break and fix” approach to proactive maintenance. – Cindy Jaudon, IFS
6. Testing Health Intervention And Engagement Strategies
Health outcomes improve when patients are confident, connected and engaged. Digital twin technologies provide healthcare organizations the option to test drive new interventions and engagement strategies. This lowers the risks of rolling out new programs by testing hypotheses through a simulated pilot while also enabling cost-conscious innovation. – Trisha Swift, PricewaterhouseCoopers
7. Improving Patient Outcomes
A digital twin enables accurate and continuous monitoring. That data flow can inform data-driven decisions. For example, doctors are using an individual’s genetic makeup to model new organs for transplant. Because these processes can leverage a populationwide data set of digital twins, they can replicate an individual human body’s internal system to improve treatment outcomes for all. – Nicholas Domnisch, EES Health
8. Expanding Professional Services Capabilities
Knowledge-rich professional services firms are building digital twins of accountants, advisors and auditors using graph-based intelligent automation. These are distinct from previous technologies, because the decisions these professionals make are complex, contextual and nonlinear. In a world where there are big skills shortages and raging inflation, this form of IA is closing the gap. – James Duez, Rainbird Technologies
9. Onboarding And Knowledge Sharing
A digital twin use case that is an easy entry point and can provide quick ROI is training or onboarding. In areas where experienced employees are preparing for retirement, where there is high turnover or where there are general labor shortages, having a prerecorded “virtual” expert that can walk you through the instructions in real time can be a game changer and is much more effective than a giant paper manual. – Samantha Williams, Sonoco
10. Providing Safe Training
Today, manufacturing organizations are leveraging digital twin technologies to replicate machinery that would typically put employees in harm’s way. Here, a virtualized version of the original piece of machinery can be used to give employees training experience with the virtual machinery without also putting the employee’s health and safety in peril. – Marc Fischer, Dogtown Media LLC
11. Understanding Multidimensional Problems
Digital twin technology shines the brightest when it helps companies better understand a multidimensional problem—one that is too complex to easily solve. Because it is a way to visualize and make better decisions, the technology has become extremely effective for everything from product design to diagnosing medical issues to better understanding variables that affect business expenses. – Josh Dunham, Reveel
12. Improving Manufacturing Efficiencies
A very interesting field of application is manufacturing. Thanks to a digital twin of a production plant, with all its different lines and machines, we can launch simulations to generate greater efficiency or to detect potential bottlenecks. Simulating the manufacture of new products or variants of existing products is also a very useful application. – Miguel Llorca, Torrent Group
13. Developing And Training Self-Driving Vehicles
Without digital twin technology, it would be impossible to develop self-driving vehicles at the scale and with the reliability we are witnessing nowadays. Billions of simulations on a “virtual road” by a “virtual car” allow for training machine learning models to forecast accidents and plan not just the fastest, but also the safest, routes so that drivers can entrust the actual driving to robots. – Aleks Farseev, SoMin.ai
14. Budgeting And Financial Planning
Financial and operational data is the lifeblood of a company, but it’s difficult to “see all of it” and understand it in real time. Digital twins offer real-time, big-data-enabled simulation modeling that can be particularly useful for budget and financial planning. The technology can streamline tasks such as procurement, case management and capital resiliency and deliver powerful insights for finance leaders. – Nicola Morini Bianzino, EY
15. Managing Traffic
Digital twins are already effectively used by urban planning councils in many U.S. cities for efficient traffic management. They help in simulating real-world congestion at junctions, predicting what may get worse when and where, and they can be used to test multiple mitigation techniques by leveraging the best mix of ML and city know-how. Dashcam-backed digital twins are explored alongside junction twins. – Pramod Konandur Prabhakar, Pelatro PLC
16. Simulating Real-World Conditions
One way businesses are leveraging digital twin technology is by using it to simulate the physical world. For example, a company can use a digital twin to simulate a real-life situation so that they can predict how their product or service will behave in that environment. Another way is by using it to understand how their customers use their services and products. – Leon Gordon, Pomerol Partners
To explain what Digital Twin means in simple words, it is a digital replica or a representation of a physical object (e.g. aircraft engine, person, vehicle) or an intangible system (e.g. marketing funnel, fulfillment process) that can be examined, altered and tested without interacting with it in the real world and avoiding negative consequences.
Think of it as an online platform for testing, creating and altering objects that are based in reality, without engaging with them in the real world itself. Technologies similar to this one have been used in various industries long before this concept was created, however, this new definition of the technology has much more potential, power, and scalability that can replicate, monitor and test virtually anything you can think of.
The rise of the Internet of Things (IoT) has complimented the adoption of this new technology, as IoT has resulted in its cost-effective implementation. Virtual twins have become imperative to business today, consistently named as a strategic technology trend in recent years. The complexity of technology has led to many questions within the industry. One of the most important ones is how is it changing the way design, planning, manufacturing, operation, simulation, and forecasting is traditionally functioning?
A physical twin that was replicated on a virtual platform is a near real-time digitized copy of a physical object. It is a bridge between the digital world and the physical world. Its core use is to optimize business performance, through the analysis of data and the monitoring of systems to prevent issues before they occur and prevent downtime. The simulations that are produced will help to develop and plan future opportunities and updates within the process or product.
The benefits of virtual twin technology are astronomical, with industries such as agriculture, government, transportation and retail experiencing rewards from the technology and benefits going forward. Companies must find methods to prevent the risk of potential product defects among their assets and future products. This piece of tech allows production costs to be minimized, as companies will save expenses when products are right the first time.
There is no need for expensive physical tests or updates to the products or process. Research with manufacturers has found that this concept will enable the reduction of development costs of the next generation of machines by well over 50%. The features of the tech also provide added confidence to boost product performance and aid complex decisions, preventing costly downtime to robotics and machinery.
The core benefit of why most companies started twinning their processes, products, and services via simulations is due to their efficiency. Businesses are racing to market their product faster than their competition, and having the ability to virtually simulate scenarios where a product is tested for failure via multiple angles helps the situation immensely. Not mentioning the fact that the development and testing costs are usually reduced hundreds of times.
This technology will be able to anticipate how the product and process will perform through digital simulations and analysis. The accessibility of reliable and consistently updated information provides the assurance needed to make faster decisions and increase the speed of production to overtake competitors. Here is a use case infographic we have presented in our workshop about understanding virtual twins – find event information here.
We can see how a virtual twin simulation is used to replicate and optimize machinery that regulates water flow in a factory. By doing this, developers can see every moving detail on the screen and then make the calculated decision to upgrade, optimize or make positive changes accordingly. Offices that adopt this technology early will attract innovative and leading talent. Offices will be able to incorporate interactive features to improve employee satisfaction and productivity using data-driven simulations.
Employees who will use digital twin technology will be able to expand their engagement with online tools, such as interactive maps to locate colleagues on the floor, book meetings and complete tasks with more diligence and accuracy. Managers will also be able to supervise remotely with the tool that will be similar to a 3D map that will be created using virtual online platforms that are based on simulations.
It is evident that the digital twin concept will benefit many people within the supply chain. Combining this disruptive concept with IoT technology is an incredible opportunity for businesses to improve. Ultimately, it will also allow stakeholders to improve the overall efficiency and cost of their business, and improve many aspects of work for employees….
Burned by a hot housing market, some frustrated home buyers may have hoped that sky-high listing prices are finally coming down to earth. Well, they are – sort of. It just depends on where you live.
To better understand the housing affordability situation, Fortune magazine reached out to Moody’s Analytics to get access to its latest proprietary housing analysis. Researchers at the financial intelligence firm calculated how home prices are likely to shift in 414 regional housing markets between the fourth quarter of 2022 and the fourth quarter of 2024.
Among the nation’s 414 largest housing markets, the Moody’s Analytics forecast model predicts that 210 markets are on the verge of seeing home prices decline over the coming two years and 204 markets are poised to see home prices rise over the coming two years.
The prospect of a big drop in house prices is becoming more and more likely as home sellers give in to the mounting pressure on affordability posed by June’s rapid mortgage rate hike.
Nationwide, home prices increased 18.3% year over year in June 2022, compared with June 2021, marking the 125th consecutive month of year-over-year increases, according to CoreLogic, a data analytics provider. Though annual appreciation was still strong, it slowed from the previous month for the second consecutive month, reflecting reduced buyer demand in part due to higher mortgage rates and worries about a slowing economy.
Lawrence Yun, chief economist at the National Association of Realtors, points out that the housing markets that have experienced price gains may find themselves at a pivotal moment.
“What I can say is that those markets that boomed were driven by strong local job creations and from new residents moving into those regions, including as retirees,” he said. “So, for places like Phoenix, Tampa and Boise, you may or may not see any meaningful price decline. They could also be primed for even more price gains.”
Yun added, “I cannot say, given such an extraordinary price growth in a short duration. But even if there were to be a price decline in these markets, it would not do any local economic damage given the strong housing wealth conditions of many local homeowners who had purchased many years ago. Even some renters may want to jump back into buying if there was a price decline.”
He said he would be more concerned about housing markets being able to weather the storm where job growth is not occurring and where they are losing remote workers to other locations.
“For white-collar workers earning high salaries, remote work is a huge financial boon,” said Redfin senior economist Sheharyar Bokhari. “It enables them to move from a tech center like San Francisco to a more affordable part of the country like Boise or Salt Lake City, get more home for their money and save some for a rainy day. It can have the opposite effect on locals in those destinations–especially renters–who are watching from the sidelines as home prices skyrocket while their income stays mostly the same.”
“Partly because of soaring home prices, Phoenix and Miami have some of the highest inflation rates in the country,” added Bokhari. “That will eventually diminish the financial advantage of moving to these places for out-of-towners. High inflation also cuts into budgets for locals, who are spending more on things like food and fuel and saving less for an eventual down payment.”
Home prices shot up over twice as fast as home buyer incomes in Boise, Idaho, rising 53% to $485,000 from December 2019 to December 2021, according to a Redfin analysis of mortgage data. Prices rose 48% in Austin, Texas and Cape Coral, Florida.
While local incomes rose and home prices skyrocketed in 2021, housing markets in many of those pandemic boomtowns are faltering as high mortgage rates and unsustainable price growth tame demand.
Redfin reports that Boise, Austin, Cape Coral, Phoenix, North Port, Florida and Tacoma, Washington are among the 20 housing markets that cooled the fastest in the first half of 2022. And Boise, Cape Coral, North Port, West Palm Beach, Miami, Stockton, California and Salt Lake City are among the 25 housing markets most susceptible to home-price declines if the U.S. enters a recession. But although they are susceptible to a recession-driven downturn, these places are unlikely to see housing market crashes because home buyers there have relatively high incomes.
“People are still moving in from California and they still have enough money to buy nice homes in desirable neighborhoods, sometimes with all cash,” said Austin Redfin agent Gabriel Recio. “But the days of homes selling for 25% over asking price with multiple offers are over. Buyers are no longer as eager now that mortgage rates are up and there’s buzz in the air about the slowing housing market. Local buyers–and even buyers coming from out of town–now have a chance to take their time and buy a home at asking price or even under asking price.”
Selma Hepp, interim lead of the Office of the Chief Economist at CoreLogic, sees the markets that Moody’s model predicts will experience the biggest drop in house prices as the same markets that CoreLogic’s market condition indicators model shows as exceedingly overvalued. “These markets have seen considerable home price appreciation over what local income suggests would be affordable,” said Hepp. “Thus, pulling of home buyer demand, due to higher rates and perception of overvaluation, as more new construction becomes available may lead to price discounts and resultant price declines.
Also, these markets have seen considerable in-migration from other states, mostly in the Northeast, and Baby Boomers retiring. Those incoming buyers may now look at other locations where they perceive prices as more affordable, which would dampen demand and may lead to some price discounting on the part of builders.”
Mortgage rates may be historically low, but so is home buyer morale these days, says George Ratiu, Realtor.com’s manager of economic research. He said the big issue at the moment is that real estate markets are moving through a reset transition, away from the chaotic pace of 2020-2021, following a sharp increase in mortgage rates in the first half of 2022, which compounded home prices breaking new records.
“The rising costs of borrowing have created an affordability ceiling for many buyers, who are finding that their incomes are no longer sufficient to cover much higher potential mortgage payments,” said Ratiu. “As a result, with demand cooling considerably, the number of homes for sale are sitting longer on the market and motivated homeowners are resorting to price cuts to close deals.”
In June, Realtor.com’s inventory data showed that about 15% of listed homes showed price reductions, double the share from last year. These trends are particularly visible in metropolitan areas that have seen an influx of residents and capital over the past couple of years, especially in the Sun Belt. Markets like Austin, Texas; Raleigh, North Carolina; Phoenix; the Lakeland-Winter Haven metro area in Florida; and Stockton, California are posting some of the highest gains in the number of homes for sale with price cuts.
Ratiu said, “Many of these markets experienced strong price appreciation during the pandemic, but with inflation eating away at most people’s incomes, the ability to keep paying more has disappeared. As wages fall behind prices, and with rates significantly higher than a year ago, we can expect these markets to continue to see adjustments in sales and prices through the remainder of 2022 and into next year.”
Susan Wachter, the Albert Sussman professor of real estate and professor of finance at the Wharton School of the University of Pennsylvania, said Moody’s prediction of price declines points to overpriced housing markets based on income.
“That is how these markets differ,” she explained. “Some of the markets are supply constrained. Some like those in parts of Florida are less so. It is reasonable to expect that markets with elevated prices based on historical ratios will be at risk in a growth slowdown. What is not addressed here, is what happens after income growth slows or declines, that is, in recovery. What is missing in this calculus is the identification of amenity-rich supply constrained markets where price rises will likely pick up in the aftermath of a recession. With long-term income increases, these markets are destined to be hot again.”
On Sunday 1 February 1970, senior politicians and gas executives from Germany and the Soviet Union gathered at the upmarket Hotel Kaiserhof in Essen. They were there to celebrate the signing of a contract for the first major Russia-Germany gas pipeline, which was to run from Siberia to the West German border at Marktredwitz in Bavaria. The contract was the result of nine months of intense bargaining over the price of the gas, the cost of 1.2m tonnes of German pipes to be sold to Russia, and the credit terms offered to Moscow by a consortium of 17 German banks.
Aware of the risk of Russia defaulting, the German banks’ chief financial negotiator, Friedrich Wilhelm Christians, took the precaution of asking for a loan from the federal government, explaining: “I don’t do any somersaults without a net, especially not on a trapeze.”
The relationship would benefit both sides: Germany would supply the machines and high-quality industrial goods; Russia would provide the raw material to fuel German industry. High-pressure pipelines and their supporting infrastructure hold the potential to bind countries together, since they require trust, cooperation and mutual dependence. But this was not just a commercial deal, as the presence at the hotel of the German economic minister Karl Schiller showed.
For the advocates of Ostpolitik – the new “eastern policy” of rapprochement towards the Soviet Union and its allies including East Germany, launched the previous year under chancellor Willy Brandt – this was a moment of supreme political consequence. Schiller, an economist by training, was to describe it as part of an effort at “political and human normalisation with our Eastern neighbours”.
The sentiment was laudable, but for some observers it was a potentially dangerous move. Before the signing, Nato had discreetly written to the German economics ministry to inquire about the security implications. Norbert Plesser, head of the gas department at the ministry, had assured Nato that there was no cause for alarm: Germany would never rely on Russia for even 10% of its gas supplies.
Half a century later, in 2020, Russia would supply more than half of Germany’s natural gas and about a third of all the oil that Germans burned to heat homes, power factories and fuel vehicles. Roughly half of Germany’s coal imports, which are essential to its steel manufacturing, came from Russia.
An arrangement that began as a peacetime opening to a former foe has turned into an instrument of aggression. Germany is now funding Russia’s war. In the first two months after the start of Russia’s assault on Ukraine, Germany is estimated to have paid nearly €8.3bn for Russian energy – money used by Moscow to prop up the rouble and buy the artillery shells firing at Ukrainian positions in Donetsk.
In that time, EU countries are estimated to have paid a total of €39bn for Russian energy, more than double the sum they have given to help Ukraine defend itself. The irony is painful. “For thirty years, Germans lectured Ukrainians about fascism,” the historian Timothy Snyder wrote recently. “When fascism actually arrived, Germans funded it, and Ukrainians died fighting it.”
When Putin invaded Ukraine in February, Germany faced a particular problem. Its rejection of nuclear power and its transition away from coal meant that Germany had very few alternatives to Russian gas. Berlin has been forced to accept that it was a cataclysmic error to have made itself so dependent on Russian energy – whatever the motives behind it. The foreign minister, Annalena Baerbock, says Germany failed to listen to the warnings from countries that had once suffered under Russia’s occupation, such as Poland and the Baltic states. For Norbert Röttgen, a former environment minister and member of Angela Merkel’s Christian Democrat Union (CDU), the German government bowed to industry forces pressing for cheap gas “all too easily”, while “completely ignoring the geopolitical risks”.
In February this year, German Green economic affairs and climate action minister Robert Habeck said that gas storage facilities owned by Gazprom in Germany had been “systematically emptied” over the winter, to drive up prices and exert political pressure. It was a staggering admission of Russia’s power to disrupt energy supplies.“I was wrong,” the former German finance minister, Wolfgang Schäuble, says, simply. “We were all wrong.”
In recent weeks even Frank-Walter Steinmeier, the German president, a totemic figure of the Social Democrats and greatest German advocate of the trade “bridge” between east and west, has recanted. He admits he misread Russia’s intentions as he pursued the construction of a new undersea gas pipeline. “My adherence to Nord Stream 2 was clearly a mistake,” he told German media in April. “We held on to bridges that Russia no longer believed in, and that our partners warned us about.”
This is an extraordinary admission for a man who acted as chief of staff to Gerhard Schröder, the Social Democratic chancellor from 1998 to 2005 and thereafter a lavishly rewarded, and much reviled, lobbyist for Vladimir Putin. Steinmeier was also foreign minister under Chancellor Merkel, and a great evangelist for Wandel durch Handel, the concept that trade and dialogue can bring about social and political change.
How did Germany end up making such a blunder? Some argue that Merkel should have seen that Putin was taking Russia in an authoritarian direction when he announced his return to the presidency in 2011. After Russia’s invasion of Ukraine in 2014, Germany made no move to stop importing Russian gas, and although Merkel threatened to introduce crippling trade sanctions, German industry convinced her to hold back. But some blame a more persistent misjudgment stretching back 50 years, based on a fallacy that authoritarian countries can be transformed through trade.
The Social Democrats have now set up a review into whether the policy of Ostpolitik – first laid out in a landmark speech in July 1963 by Egon Bahr, then the closest adviser to West Berlin’s mayor and chancellor-to-be, Willy Brandt – became deformed over time, especially after securing its great achievement, the fall of the Berlin Wall.
What is extraordinary, retracing the history through memoirs and contemporary records, is how frequently and determinedly Germany was warned, by everyone from Henry Kissinger onwards, that it was making a pact it might live to regret. Kissinger wrote to Richard Nixon on 9 April 1970: “Few people, either inside Germany or abroad, see Brandt as selling out to the East; what worries people is whether he can control what he has started.” Over 50 years, Germany fought numerous battles with a series of US presidents over its growing dependence on Russian energy. In the process, Germany’s foreign office developed a view of American anti-communism as naive, and a belief that only Germany truly understood the Soviet Union.
From the late 1960s, the Federal Republic of Germany tried to open its own direct line of communication with the Soviet leadership, even though its interest in reunification created tensions with the US. When it faced criticism from the US, Germany was wont to cite its unique status. “I cannot imagine there is anyone more interested in being allowed to continue working for detente and balance in Europe than the German people who are forced to live in two states,” Hans-Dietrich Genscher, then the foreign minister, told the German Bundestag in January 1980, to great applause.
But after the fall of the Berlin Wall in 1989, why was Germany still so reluctant to listen to others? A sense of guilt for the atrocities committed against the Soviet Union during the second world war may have played a role. Pride, too, that – through Ostpolitik – it had mended its relations with Moscow. Germany, in a sense, became a double prisoner of its past – bound both to the horrors it had committed, and to its belief that its response to those horrors was correct.
The conflicts between Germany and the US in the 70s and 80s, involving two very different presidents, Jimmy Carter and Ronald Reagan, were some of the most rancorous transatlantic battles since the second world war. “The disputes were all part of West Germany showing independence in foreign policy during the cold war, and that became uncomfortable for some American leaders,” the historian Mary Elise Sarotte said to me.
Carter and the German chancellor Helmut Schmidt had little respect for each other. Carter found Schmidt moody, while the chancellor, in his autobiography, dismissed Carter as an idealistic preacher, who knew nothing of Europe and was “just not big enough for the game”. The two leaders did not just grate personally, they disagreed on issues of substance – including how to protect human rights in Russia. In 1979 Schmidt and Carter came together to jointly adopt the so-called dual track decision, by which Nato would upgrade its nuclear weapons based in Europe, while actively seeking an arms control agreement with Russia. But in other ways their approach was very different.
Schmidt never lacked self-confidence, but like many Germans of that era he carried a deep sense of shame arising from painful war memories. He also believed that the stability of the eastern bloc was in the interest of West Germany, given Russia’s nuclear capability. In his autobiography he wrote that he had wanted to develop trading relations with Russia, in order to foster “a greater Soviet dependence upon European supplies”, in turn leading to “more European influence” on Moscow’s policies. And following the 1973 oil crisis, Schmidt became convinced that the Soviet Union represented a more reliable supplier of energy for Germany than the Gulf states.
Carter, by contrast, saw withholding trade as the better way to influence the Soviets. In July 1978, responding to Moscow’s imprisonment of two Soviet dissidents, Aleksandr Ginzburg and Anatoly Shcharansky, Carter restricted US exports of technology for the exploration and development of the Soviet oil and natural-gas industries.
Yet, collectively, European business went in the opposite direction. Even after the Soviet invasion of Afghanistan in 1979, a large German business delegation went ahead with a visit to Moscow. The Soviets (Soyuzgazexport) and western Europeans (chiefly Ruhrgas and Gaz de France) completed negotiations on a new giant gas project, a 4,500km dedicated pipeline from the giant Urengoy field in West Siberia in late 1980. This deal was projected to increase Germany’s dependence on Russian gas from 15% to 30%. When German ministers reviewed the security implications, they concluded there was no danger of Russia misusing its potential stranglehold. Their reasoning was simple. “Long-term disruption would be against the self-interest of the Soviet Union,” the ministry decided.
In a phone call with Carter on 5 March, Schmidt explained his support for the pipeline by telling the US president, “Those engaging in trade with each other do not shoot at one another.” It was a restatement of Norman Angell’s famous pre-first world war theory that the new interdependence of economies made war unprofitable and thus irrational. According to a note in his diary, Carter responded: “It is not beneficial for the Europeans to expect us to provide the stick and for them to compete with one another about providing the biggest carrot.”
In 1980, Schmidt wrote: “To speak of the Federal Republic’s economic dependence on Moscow to a degree large enough to affect foreign policy indicates ignorance or malice.” Given Germany’s plight now, those words look hopelessly misjudged.
Schmidt faced a more challenging opponent in Carter’s successor, the traditional anti-communist Ronald Reagan. In Reagan’s eyes, German trade with Russia was in direct conflict with western security. Reagan’s view was informed by a CIA assessment submitted in July 1981, which noted a clear trend: from 1970 to 1980, Soviet gas exports to western Europe had risen from 1 billion cubic metres (bcm) a year to 26.5bcm annually.
The CIA warned Reagan that the Urengoy gas project would not only accelerate Soviet economic growth, but provide the Soviets with $8bn in hard currency, facilitating a further military buildup. Far from giving Germany sway over Soviet thinking, “it would provide the Soviets one additional pressure point they could use as part of a broader diplomatic offensive to persuade the West Europeans to accept their viewpoint on East-West issues”.
In arguments that echo today’s debates, the US ambassador to the UN, Jeane Kirkpatrick, complained: “We consistently find in our talks the allies are already significantly dependent: France for 15% [of its] gas, Germany for 30%.” Schmidt assured the Americans that Germany “can go six months in the event of a Soviet cut-off”. The forecast now is that, in such an eventuality, Germany would have to go straight to a form of energy rationing.
Despite various US efforts to persuade Europe to adopt a voluntary ban, including offering alternative sources of energy, in 1981 Ruhrgas AG and Soyusgazexport went ahead and signed a contract for annual imports of 10.5bcm of Soviet gas over a 25-year period. Unemployment in Europe was close to 9% at the time, and European industry needed to boost its energy supplies. At the same time, the US argument about security was dismissed as a veiled way of promoting the US oil industry.
When Moscow backed the imposition of martial law in Poland on 13 December 1981, Reagan thought such a shocking event might persuade Germany to put the pipeline on hold. In a private note to Margaret Thatcher, sent on 19 December 1981, he urged her to back tough sanctions against the Soviets, stating that “this may well be a watershed in the history of mankind. A challenge to tyranny from within.” Unusually for her, Thatcher vacillated, advising Reagan that the Germans “cannot and will not give up the gas pipeline project”.
The US responded to the Soviet intervention by banning US companies from helping with the pipeline. In the summer of 1982 Reagan tried to force European firms to stop working on the pipeline by imposing secondary sanctions on them. Such sanctions are now a commonplace in the US foreign policy armoury, particularly over Iran, but then, they were seen as an incursion into European sovereignty. Thatcher bridled, telling the Commons “it is wrong” for “one very powerful nation [to] prevent existing contracts being fulfilled”.
By November, Reagan had abandoned the attempt to impose sanctions. In a trial of strength in which Europe sided with Germany, the world’s superpower had lost. The new pipeline started pumping on 1 January 1984.
The German advocates of change through trade had won. The US position on Russia was further weakened when the Berlin Wall fell in 1989. The peaceful collapse of communism was trumpeted as a vindication for those that had championed dialogue, and engagement through trade. In a speech to the Brandt Foundation in March 2008, Steinmeier gave full vent to this view: “What Ostpolitik in fact achieved – as is now recognised also by those who criticised it at the time,” he said, “was to make peace in Europe, despite the difficulties, a degree more secure. For the democracy movements in eastern Europe it created new possibilities, new scope for action. It was a key factor, too, in finally ending the confrontation between the two blocs.”
Olaf Scholz, Germany’s current chancellor, remains an adherent of this view, arguing last year that it contributed to the fall of the Soviet Union and laid the basis for democracy and EU membership for much of eastern Europe. The SPD co-leader, Lars Klingbeil, has also insisted that Ostpolitik “was the basis for reunification and the end of the cold war. As a result, there has been a consensus in the federal republic for decades that conflicts can be defused through dialogue. We won’t let that be bad-mouthed.”
Yet a number of historians and writers believe that this rosy picture of Ostpolitik is misleading. “The idea that Willy Brandt’s policy of detente towards Moscow led in a straight line to the fall of the iron curtain and German unity is at least an over-simplification,” says the historian Jan Behrends. German journalist Thomas Urban, author of a new book critiquing Ostpolitik, believes its role in the fall of the wall and German reunification has been exaggerated:
“It was military buildup by Reagan and the flooding of the market with cheap oil that led to the collapse of the Soviet Union,” he told me. The Russian government budget had grown so dependent on energy for its revenue, he said, that when the price of oil plummeted in the mid-1980s, Russia’s lifeline to external capital dried up. “Gorbachev could no longer fund the overseas wars and the Soviet Republics,” he said. “But this argument was entirely missing in the German debate, especially on the left.”
Urban argued that Ostpolitik’s theory of change suffered from two basic misconceptions: the belief that political change in eastern Europe could only come from engaging with the elite in power, rather than from civilian movements, and second, that “security must be the key to everything”. By the turn of the century, the advocates of change through trade were in their pomp. Chancellor Schröder, with growing confidence, promoted the idea of a strategic partnership with Russia. He invited the new Russian president, Vladimir Putin, to address the Bundestag in 2001, where he won over his audience by giving the speech in fluent German and declaring “the cold war is over”.
Schröder, at the time of Putin’s address, saw a perfect confluence of interests between Europe, Germany and Russia: peace, stability, multilateralism and economic growth. Putin, Schröder was convinced, “wants to transform Russia into a democracy”.
In this favourable political climate, pro-Russian German lobbyists such as Klaus Mangold, chairman of the powerful German Committee on Eastern European Economic Relations, pursued the construction of yet another gas pipeline, this time taking gas from Vyborg under the Baltic Sea to Germany – the first Nord Stream. The scheme was especially controversial since it would bypass Poland, Belarus and Ukraine, reducing those countries’ incomes, weakening their bargaining power and depriving them of badly needed transit fees. The €7.4bn pipeline construction costs were to be borne by the private German companies BASF and E.ON, and the majority Russian state-owned Gazprom.
This time, protests against the pipeline did not just come from the US, but from the states that had recently emerged from Soviet rule, such as Poland and Lithuania. Radosław Sikorski, then Poland’s defence minister, notoriously compared the plan to the 1939 Molotov-Ribbentrop non-aggression pact between Nazi Germany and the Soviet Union, which paved the way for the invasion of Poland.
Yet on 8 September 2005, 10 days before the election in which Schröder’s Social Democrats lost to Angela Merkel’s conservatives, the Nord Stream 1 contract was signed in Berlin by representatives of Gazprom, E.ON and BASF. Putin stood alongside Schröder at the signing ceremony.
Schröder has since been singled out for his role in creating Germany’s dependence on Russian energy, and getting very rich in the process. But the distinguished former German diplomat Wolfgang Ischinger recently argued that Schröder should not take the blame for giving the go-ahead to Nord Stream 20 years ago: most German politicians, he told the New York Times in April, did not question whether they were getting into an unhealthy dependence on Russian energy. In the article, Schröder made the same case: “It never occurred to anyone that this could become a problem. It was just a way of procuring gas for Germans, for Germany’s heavy industry, and also for the chemical industry, with fewer problems and disruptions.”
Thereafter it seemed, whatever the setbacks in German-Russian relations, nothing could shift the faith in trade – not Russia’s “peace enforcement operation” in Georgia in August 2008, not the Russian disruption of the gas pipelines in a dispute with Ukraine in January 2009, nor the news that Putin was planning to return to the presidency in 2012, replacing Dmitry Medvedev, in whom Frank-Walter Steinmeier had placed his faith. In 2011, the year Nord Stream finally opened, German total trade exports to Russia rose 34% to €27bn.
Then came the Russian invasion of Ukraine in February 2014. Initially, Russia’s incursion seemed to mark a turning point. Merkel’s condemnation was clear: the annexation of Crimea was contrary to international law. Sanctions were duly imposed, and German exports to Russia fell.
Following the 2014 invasion, serious German media such as Frankfurter Allgemeine Zeitung published lengthy articles looking at the options for how Germany could wean itself off its dangerous dependency on Russian energy. Many of the proposals, such as new liquid gas terminals to allow Germany to import gas from other countries such as Qatar and the US, are the same ones under discussion now, which shows how little actual diversification was achieved. When I spoke to a Qatari energy official last month, he recounted how they spent five years trying to break into the German energy market, only to find their route blocked at every turn.
Some German sanctions on Russia continued for many years, but the advocates of change through trade gradually re-established their ground. It seemed nothing Russia could do would shake their confidence. On 4 September 2015, at the Vladivostok economic forum, with Putin in attendance, an agreement was signed for the construction of the Nord Stream 2 gas pipeline on the Baltic seabed, which would vastly increase Germany’s reliance on Russian natural gas. Gazprom would also take over Germany’s gas storage business, thereby handing control of German energy reserves to a foreign power.
Various theories – some grubby, some metaphysical – have been proposed to explain Germany’s dogged refusal to see the dangers in its dependency on Russia. One argument places the blame on SPD politicians and civil servants who were allowed to move seamlessly between public office and Putin’s employment, and worked hard to manipulate the EU and German regulatory environment to suit Gazprom.
Then there is the question of the German-Russian industrial lobby, as symbolised by the German-Russian Forum, which was closely linked with, and partly funded by, German companies active in Russia. (The Forum was suspended after the invasion of Ukraine.) Its board of trustees consisted mainly of business people, often with economic interests in Russia. Its chairman, Matthias Platzeck, the former SPD minister president of Brandenburg, seemed genuinely shocked by Putin’s invasion: “I was wrong because until recently I thought what happened was unthinkable.”
The historian Sarotte said there is no clear evidence that business had exerted greater influence in politics in Germany than in other countries. Nevertheless, over the years, Russia showed an ability to suborn, and in some cases corrupt, the German political class. The Polish foreign minister, Zbigniew Rau, on a visit to Berlin in late May, called German Ostpolitik a “fiasco”. German rhetoric around the political value of interdependence, he said, crudely boiled down to gaining a competitive advantage through cheap energy.
Thomas Urban, examining the psychological roots of Ostpolitik, pinpoints two emotions in Germany’s relationship with Russia: nostalgia and guilt. He described to me “the memory of Bismarck, who saw the alliance with Russia as an anchor of stability in Europe. But then there was also the feeling of guilt because of the German attack on the Soviet Union in 1941, with millions of dead. It meant it was difficult to criticise the Red Army or the Soviet repression since to do so means you do not recognise the greatest crimes in history. It makes Germany blind to the black side of the Soviet Union. It also permits Putin’s propaganda by talking only of the Russian war dead, and not those that were killed in Ukraine and Belarus.”
Much of Germany’s belief in trade with Russia was born of wishful thinking. It led Steinmeier as foreign minister, for instance, to look constantly for signs of reform, ignoring foreign office advice that he needed a plan B in case Germany’s faith in Russia turned out to be ill-founded. In 2016, Steinmeier gave a deeply sincere, almost elegiac speech at Yekaterinburg University asking whether Germany and Russia were still capable of listening to one another. He admitted the annexation of Crimea had been a low point, but hoped dialogue was still possible, urging both sides not to turn their backs on one another.
It was the speech of a man who sensed the tide was going out, and who feared his belief in dialogue no longer matched the spirit of harsher times: “In political discussions, we sometimes hear opinions expressed by people who are not interested in the slightest in understanding others; people who have already made up their minds about the other side; people who don’t even bother reading because they think they already know the answer.” What he described as the “supposed antagonism” between the west and Russia, he feared was becoming entrenched and ideologically driven, running counter to the pursuit of diplomacy and peace.
Now, as Germany’s president and head of state, Steinmeier has been told by Ukrainian officials that his record as the promoter of Russian interests in Germany means he is not welcome in Kyiv at this time. It seems a shame. There would be no need for him to fall to his knees – as Willy Brandt did in Warsaw in 1970, apologising for his nation’s wartime crimes – but he could give a sober reflection on what precisely went wrong with Germany’s eastern policy for so long. For, one way or another, a reckoning is still needed.