Chuck Ponzi February 26th, 2007

The slow news days the past few days in SoCal has given me an opportunity to take a trip around the area. This last weekend I failed to post because I was visiting locations in Orange County, Riverside, San Bernardino, and Victor Valley. Needless to say, for me it was busy.

For real estate in SoCal? Not so much, especially when sewage backups in Tijuana are basically front page news. Isn’t there constantly sewage coming across the border from TJ? Sorry, no references to immigrants please. The place is just dirty, and is constantly polluting San Diego beaches because the Mexican government fails to do just about anything about environmental protection besides limiting ownership of land by non citizens. Pretty much sums up the problem with the Mexican government (er, politics)anyway… does nothing.

Which, sometimes isn’t all that bad.

For example the former Fed chairman Alan Greenspan (a politician, but alas not currently with the US government) declared today that we might slip into a recession later this year. This was as much of a contrary indicator that fellow blogger Barry Ritholtz of the Big Picture could take. It might make him change his economic forecast since Al has been wrong on so many occasions. Of course, the change in opinion was made in jest (I think), so there’s little chance of a major rally (or is there?).

It seems that too often, people espouse one idea, and desperately seek to find information to support their assertions. This is true of both housingheads and bubbleheads alike, but moreover, it’s human nature. If we constantly second-guessed our beliefs, we might just be chomped by a sabre-toothed tiger. So much for a rational anlysis of facts. Case in point is a book I recently read by Harry Dent. Yes, that Harry Dent. It was some book about how the housing bubble will roll back into the stock market and cause the mother of all bubbles from 2006 to 2010 or some such idea. The book’s title is The Next Great Bubble Boom: How to Profit from the Greatest Boom in History: 2006-2010. Which title kind of reminds me of DL’s book, Are You Missing the Real Estate Boom?: The Boom Will Not Bust and Why Property Values Will Continue to Climb Through the End of the Decade - And How to Profit From Them.

Most people have staked their credibility on a specific claim. If outside circumstances change the outcome (but not the forces driving it), is the predictor all that wrong? For that matter, another blogger, Mike Shedlock, believes strongly in deflation based on research of Japan’s bubble economy of the 80’s and 90’s.

Many other bloggers believe strongly that we will see substantial inflation.

Bill Fleckstein (one of my favorite reads) was amazingly accurate about the subprime and lending implosion currently underway. However, even he isn’t sure about the economy’s larger fallout. Could it become a contagion throughout the entire economy?

What will really happen? Nobody knows, but with as much liquidity as is floating around in local, national, and global markets, it appears that where its final resting place is, noone is certain of or able to predict.

Which makes one wonder, what is different between our forecasts and those of Gary Watts? Well, for one, we use broad-based economic indictors that have proven robustness (such as affordability, local economic structure, and relative business attractiveness measures such as income) instead of slanted, irrelevant, and cherry-picked demographic moves? For example, what good does a retiring baby boomer generation do for housing in general? Absolutely none if household formation does not promote it, or savings provide for the ability to actualy buy a non primary residence home. (which Boomers are largely guilty of)

One thing is certain, though, housing prices in Southern California will be lower in the future. Until then, there will be quite a few slow news days.

• Bubble , Contrary Indicators , Mean Reversion , SoCal