Chuck Ponzi February 7th, 2006

It’s good to be back in the US from my stops in Europe last week; the next week leaves me going to Asia, which typically has better internet access, so I will continue to post.

I spent the time training others in new skills. Training others helps to see how many different people can come to many different explanations for the same phenomenon; and many of them wrong.

See, people see the world in a certain way and have perceptions, past experiences, and information from a variety of sources to draw conclusions from. Rarely, however, does a person understand the core of a subject without getting that ONE THING. You know what I’m talking about; it’s the essenct of the topic. For accounting, it’s double-entry. For systems, it’s the structure of the objects, and I’m sure for many other topics, there is a core set of ideas upon which the entire engine runs.

You might ask yourself, what is that one thing that the US Economy runs on? Well, much like those who stand at one end of the elephant and describe it’s trunk or tail, I would say that it runs on optimism.

When you’re happy and optimistic, you buy. This is what drives America’s consumers, and the businesses that provide for the consumers. Conversely, when you’re pessismistic about the future, you hoard. And, by the looks of it, we are just past the tipping point of optimism.

I don’t believe that this is a simple answer; see there are always optimists and pessimists; but there are a great number of fence-sitters who are swayed by public opinion, personal experiences, and groupthink. For the past 3 years, these middle-of the roaders have been wildly optimistic. They were buying and going into more debt than you can shake a stick at. (and we can shake a stick) You might want to check out the paper Living with Debt from Lending Tree for the gory details of how we have overconsumed our way into a scary finance-everything society.

As with any large swing in a direction, the travel back tends to be painful; the farther it swings one way, the harder and faster it swings the other direction. Just a year ago, things seemed rosy; the war in Iraq was just needing a good mop-up; the deficits were big but manageable; and there were new cars and houses on every block. In the last few months, the sense of danger and financial fear has crept in so quickly that it seems almost palpable.

On that line, you might compare the articles about San Diego aptly named Canary In Coal Mine for National Housing Woes and Tumble with Mike Shedlock’s description of Shanghai’s bubble popping (The prices are down already 50% in some hotspots, and consumers are taking to the legal avenues because they were duped into buying) and with the description of the UK’s bubble popping as well with news that the number of bankrupt UK families hits an all-time record.

Any way you look at it, San Diego is on it’s way to a very painful real estate correction and is being preceded by some pretty hot global regions as well.

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