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Pain Is…Good?

admin 0 comments 08.09.2016

I am often asked about my opinion as to where home and other asset prices are headed. I promise this diatribe will lead to an economic conclusion applicable in today’s world. Where shall I begin?

We live in a generation of pain avoidance. Somewhere along the line, we decided that somehow we could shield ourselves from pain. It honestly started with my own generation. We did everything we could to spare our kids from pain or discomfort. I myself recall ranting to my kid’s teachers about some inequity bestowed upon my child in school. We wiped tears and cleaned the slightest of knee skins. We had nanny’s and gardeners to spare our kids (and u-hum, us) from having to take time from club soccer or volleyball to exercise our discomfort muscle and actually get our hands dirty. Of course a bottle of hand sanitizer was always handy just in case. We made our kids soft. For better or worse, it’s an undeniable truth.

The fictional Gordon Gecko once famously said, “…greed is good…”. While clearly that is preposterous on one level, it is still a natural part of the human psyche. A much more salient and astute statement may have been, “pain is good”. No one likes it, yet it exists for a reason. Pain keeps our hands from resting on hot stoves.   Pain keeps us from making the same stupid mistakes over and over. Pain is what turns busts to booms. Greed is what turns that tide. Enter moral hazard.

When I made my debut on Wall Street, the Dow was trading just under 800. Yep, that’s not missing a zero. August 12, 1982 will be indelibly etched in my mind forever.   After a decade of massive inflation and plenty of pain, then fed chairman, Paul Volcker began an easing of rates that would continue to this very day. With plenty of fuel to burn, this propelled high single digit GDP gains throughout the sweet spot of the 80s. Despite a rude intermission in 1987, this hyper-growth lasted past the turn of a new millennium. In another venue, I could write reams about that day on the trading desk, but I digress.

Irrational exuberance gave way to, you guessed it, moral hazard! The loose definition of this is the notion that the fed will always be there to save us from, well, another great guess, pain. Why is pain good? Ramped speculation gives way to huge economic imbalances. Our lawmakers as well as the “independent” federal reserve in all their wisdom decided they could spare us the pain. Social and economic engineering are both well intentioned and doomed for failure. From legislation in 1999 to make homes affordable to everyone, to massive bailouts once that didn’t work quite as planned, we have made it a practice of sparing ourselves pain.

For millennia, there have been economic cycles. Like the forest, which cannot sustain without the pain of wildfires, too the economy is destined to booms and busts. The Great Generation was great for a reason. They came of age at a point in history of unmatched economic pain. Yet, what became of them? Did they all lay down and curl up in the fetal position or did they get off their proverbial asses and put their noses to the grindstone to ensure their survival? Humans are much more resilient then we give ourselves credit for. The 1930s was the cornerstone of mental and physical toughness. Patriotism. Hard work for a day’s pay.   It cleared the markets of the speculative foolishness of the late 20s and then paved the way for generations of prosperity.

Until, it got too easy. Again. I say again because this is the natural long wave cycle noted by Russian economist Nikolai Kondrateiv (later shot by a firing squad under Stalin). It predates well before the Dutch Tulip bubble in the mid 1600s and likely back to the dawn of civilization. The basic idea is that these major market catastrophes occur about every average lifespan. This is due to the fact the it takes a generation to die off who remember what excess and complacency ultimately lead to. The CLEANSING mechanism once the speculative fever returns just so happens to be, pain. So how does this relate at all to today?

In essence, we put the wildfire out prematurely through impossibly easy monetary policy, massive bailouts for whom many had no business getting. Everyone was culpable yet not many paid. When zero interest rates didn’t work, they took it another step further through “quantitative easing”. In essence, our fed basically bought mortgage bonds to artificially force rates below the market clearing supply and demand level. To put it simply. THEY SPARED US THE PAIN. I seriously doubt we would find ourselves in this insane election we find ourselves in, had we not fooled ourselves into believing we could finally conquer the economic cycle. Well congratulations, we may have done just that. The problem is, 2% growth is not exactly what the fantasy envisioned.

It is said that economists have predicted 9 out of the last 8 recessions. It’s a cheeky way of saying that no one has a crystal ball. Not even the “experts”.   While I don’t wish to hold hands with the soothsayers, I do feel this has to play out in one of 3 ways. Either the false hail Mary forever cured us of long term pain, or….ok forget that one.   Let’s say there are 2 ways this likely plays out. The deficits that were a necessary tool in shielding us from the last wildfire,( the one that could have given birth to a GREATER generation) have consequences.

The first scenario is that of the fate, yet to be fully played out in Greece and most of the EU. That is, a day of reckoning that brings on massive deflation. A depression that would make the 1930s look like a gentle squall. For those who aren’t paying attention, this is already playing out in Europe, as they continue to defer their pain. The second scenario which I believe we are smack dab in the middle of is that of accrued pain. That is several decades of poor job growth, weak GDP in the 0-maybe 3% range on a good year. The best way to understand this is to take the real pain that should have lasted 3-5 years and spread it over decades. Another way to understand it is, well, Japan.

Okay, so what does this mean for our future? Going back on my word not to make predictions, here goes. No matter who is president, no matter what these geniuses do, we have a price to pay. The big party is behind us. We have enjoyed a boom in asset prices due to the massive liquidity created by money printing. We will continue to monetize our debt. No matter what armchair quarterbacks are telling you, interest rates have nowhere to go but…….remain where they are. The fed is in a box. They indicate tightening under huge criticism for letting things get this out of hand. However, this is a symbolic gesture. They know that if they raise rates, they will endanger the already weak and deflationary environment. They will raise 1 more time this year. You can go back to last year to see that I predicted no more than 2 rate hikes this year. Higher rates would mean a still higher dollar since we are the best house in a very bad neighborhood. Exports, which are already pathetic, would decline further. Protectionism would ensue, which is already starting to play out. They can’t raise and they can’t NOT raise. Quagmire. So the aforementioned party is due its hangover. Instead of getting it over with, we decided to keep drinking the Kool-aid until it claims what it deserves.   Maybe there is a day of reckoning. Maybe not.. Maybe we just take a 5 year hangover and spread it out over 30 years. The latter is my personal view, but at some point the piper gets paid either way. Grandpa say sorry kids.

So how do we invest in this unparalleled climate? Do we run to cash as so many have as if cash is somehow the dugout in a tie game and there is no risk? If your team is down 2-0, staying in the dugout is not going to win the game. Cash is nothing but another asset. It’s a bad one too. With inflation running at an albeit tepid 2% or so, cash earns zero. Better put, cash returns negative 2% per year as of late. Stocks and real estate have lost some of their momentum. It doesn’t mean crash. It means, the stimulus is disappearing for the time being and assets are taking a break. Metals are on fire. Some think this is a predictor of inflation. I don’t think so.   It may support a mirage of rising assets prices, but real inflation, the kind made of wage push and an overheating economy is laughable. One thing you can bet on, our government will continue to both create and spend more money. This “stimulus” can keep it going, but has lost the punch of the mid 80s and will likely continue to do so.

We can’t live our lives in fear of the next doomsday. Most of my counterparts that went bust over my finance career did so because they thought they were smart enough to predict the end of the race and were perpetually predicting market tops. Wrongly. Costly. We have to go on. Optimism is good. Pain is good! The pain we were denied post 2009 is just playing out in different ways. A divided country. Divided races. Unstable world affairs Worse income gap, despite attempts to bury Adam Smith and engineer our way out. Loath a finance, real estate guy saying this, but maybe we just need to accept low returns and focus on something other than things. This may be a cleansing yet. Sometimes painful, but as humans have in the past, we too will overcome our mistakes.

So in conclusion, keep a well diversified portfolio of real estate, stocks, metals, bonds and you will do just fine. I believe in quality. Own quality real estate. Observe demographics. We live in the best there is. Own great companies. Own AAA bonds. Don’t be tempted to chase the allure of “high return” risky assets. I am not one to say this lightly as I have lived my life with a disproportional degree of risk taking both financially and physically (I have broken most of the bones in my body engaging in extreme sports), but it’s time to play defense. Play it safe. You cannot “hide” in cash as so many Americans are doing. It is just another bucket in a field of many and you are hiding behind your hands. There is really no “hiding” from consequences is there? Who knows, maybe we will wring out a new “great generation”. It may just take a little longer than we planned.

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Brexit, Rates, and Trends

admin 0 comments 25.08.2016

At the time of this writing, the Great Britain's vote to leave the EU is underway.

Should Britain leave the EU? At this moment, the early exit polls have it at nearly a dead heat.  While noble in their intentions to avert wars between neighboring nations, the EU has grown to an economic experiment that is bound for failure.  One cannot expect different cultures and vastly different economies to share the same economic course, let alone a single currency. The idea that stronger (relatively) economies like Germany should bail out the disastrous socialist policies of the likes of Greece where 2 of 3 workers is employed by the government, is as ludicrous as the free handouts our own government pledged at the taxpayer's expense. Against the poll numbers, I believe Britain should go. The Pound will take a..well, pounding, and world markets will likely not love it, but in the end, the bandaids our world leaders continue to put on the mortal wounds caused by reckless spending will eventually be too soaked to do any good. Sooner or later the piper gets paid.

I am humored by the plurality of backseat rate watchers still holding their breath for some wild spike in rates. Folks, the world is in a deflationary spiral and that is NOT the backdrop for rising interest rates. The fed, which will likely raise the fed funds target again this year, is only doing so to send a poorly crafted signal to the markets that they cannot be accomadative forever. The fed has transformed from a central bank to a market saver. Adam Smith knew very will, tinker all you want, the economy has a mind of it's own.  I am here to say, rates are going to stay depressed for quite a while.

Local markets have slowed. That scares some folks. Can you imagine we aren't gaining 15% again this year? That is terrifying! The word "slowed" is misinterpreted by some to mean declined. To others, an alarm sounding 2008 all over again. If something grows at 15% and now grows to 5% it has slowed. Is that really bad?? That does not mean crashed. It is quite typical after a generational crash for people to expect another one as soon as the rebound ebbs.  History has never born that out.  So before cashing in your chips to go back to earning .002% in a Bank of America CD, contemplate what you would do with that pile of cash. Yes, the market could flatten. The usual culprits are risings rates, which I say...not happening, or overbuilding. This is mildly the case in some areas outlined in prior letters. Either way, we live along the very the last western mile of the entire country, bound by a massive (and beautiful) body of water! Where exactly will they build once all the little ones are gone? If you are in it for the long run, hang tight and don't sweat the blips.  I predict home prices along the beach will be affordable for only the most wealthy of Americans at an increasing rate. They seem to be making more of them, but not a lot more coastline.   That is a formula for long term parabolic growth.  You couldn't pay me to sell my coastline real estate. If we see a move down at some point, and rest assured we always will, that will be nothing more than a chance to pick up Boardwalk and Park Place at a discount. Happy 4th!

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Are We in a Bubble?

admin 0 comments 06.01.2016

So where do we find ourselves now? The worry by many of a bubble in stock and real estate prices is rooted in the rapid rise in prices dating back to the 2009 lows. Their error lies in the fact that the rise occurred, not from an already rising market, but to the contrary, generational lows. Just as bubbles reach emotional extremes the ensuing crashes mirror this in the opposite direction. When the Dow hit sub 7000 in 2009, many, including myself felt that the financial system was literally imploding to a point of no return.  Since that year, the market has risen roughly 150%. Land value has risen anywhere between 30% and 100% depending on the area. OMG! BUBBLE!!!!  Actually no. Had these gains occurred from high starting points, I would be crying bubble along with those who are. However, they occurred from massively depressed, emotional lows. I would suggest that half of the gains of the last 6 years, were merely unwinding the anti-bubble, or to put another way, the artificially low prices brought on by fear and forced selling. What’s more, this run has been characterized by well qualified borrowers and cash buyers. Far from over-leveraged.

To further this point, let's look at the 15 year return of both stocks and real estate. Rather than cherry picking small time frames to make a case, it helps to look at longer, more normalized periods. On Jan 1, 2000, the Dow Jones Average stood at 11,473. With today's level of roughly 17,000, this represents a 15 year increase of roughly 50%. Not taking into account dividends, this equates to roughly 3% annualized gains. If you include dividends, you could argue the number is more like 6%. With the long-term norm of something closer to 10%, this is far from bubble behavior. Without getting too deep in the weeds, real estate gains have similar metrics nationally, albeit coastal land numbers fair better for obvious reasons. 

The reality of the situation is that despite unprecedented volatility, the last decade and a half have actually seen sub-par returns. We are actually now in a place that has normalized some of the extremes seen in the 21st century. Could we see a correction in these markets?  Of course! Can you time these by trying to sell high and buy low? Very unlikely. Wealth is created by investing in quality and avoiding the wrath of the tax man by holding for the long run. Ask Warren Buffet. If we are lucky enough to see a meaningful correction, and you are fortunate enough to have some dry powder (not the kind we are seeing in the Sierra's), take that cash and shop while things are on sale. There is no bubble. The world is not ending. America is still the best place on the planet in which to put your hopes and dreams, despite questionable leadership. Prosperity awaits anyone with patience, vision, and discipline. So forget the bubble scenario. Keep your eye on the ball. Live life without fear and trepidation and have an AMAZING 2016!

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The Fed Is Not The Grinch

admin 0 comments 07.12.2015

THE FED

For those of you who read my August letter, you will recall that despite a widespread belief there would be an interest rate hike in September, I gave it ZERO chance as the emerging markets and Europe were doing their best impression of USA 2008. Now that things have stabilized, I am prepared to accept the likelihood of a rate hike.

What does this mean?  First, understand the Fed Funds rate (the rate institutions lend to each other for overnight balance squaring) is basically zero.  In 2007, when the Fed began lowering rates to combat deflation, it was 5 1/4 %. In 1979 it was 20%. The normal range is between 2 and 5%.  The Fed is likely to raise from zero to 1/4%.  This is far from a reason to panic.  As a matter of fact, it is a signal that the fed believes the deflation risk is subsiding and that the economy will return to it's targeted inflation rate of 2% (a little inflation is a good thing).  Mortgage rates trade freely in the open market.  While Fed Funds do not directly dictate mortgage rates, they can influence them and other rates.  Mortgage rates are not likely to budge much from historic low levels and the risk to the economy, capital and real estate markets in minimal at best. Over the next year, expect a bias to slightly higher rates, yet still far below historical norms.



SAVERS

There are still a large number "savers" in this country, shell shocked from a generational crash that have yet to put their cash to work. Some people have a perception that cash is a "safe" asset. Shockingly, the amount of deposits held nationwide is at an all time high of over 8 trillion dollars.  What these people fail to grasp is that their money is not earning the .001% indicated on their bank statement. In fact, these "savers" lost close to 2% this year, 2% last year and will lose 2% next year.  Compounded over a decade, this "safe" asset would return a 30%+ loss as a result of inflation eating away the purchasing power of those dollars. For this reason, a diverse portfolio across different asset classes is the only way to build wealth and counteract the inflation effect, albeit moderate at present.  Real estate should be a major part of that portfolio. They aren't marking more of it, particularly along the coast where tear-downs are becoming more scarce and vacant land is long a thing of the past.



2016 MARKET

While my last newsletter indicated a top in the market, I should qualify that to say we have seen a subsiding of the buying mania. This does not mean we are due for a correction of any sort. There is still a shortage of inventory and there are still plenty of buyers looking for homes. The leveling off we saw over the last few months was due to several factors. First, the world stock market declines made headline news putting some nervous buyers on the sidelines. Second, sellers of late have been demanding prices that in many cases were above market which resulted in longer "days on market" stats. Last, seasonality of course comes into effect this time of year.  Barring any major economic disruption, 2016 should see gains more akin to historical norms. A quick drive around town will reveal a fair amount of new construction coming to market, yet there is still demand to absorb that inventory. Additionally, El Nino may slow construction not yet past the framing stage, by a few months. Slightly upgrading my prior prediction, I see local gains in the low single digits for the coming year. So when you find the present under the tree with "Yellen" written on the tag, don't fear that 1/4 point.  It is given with care and forethought. The market can easily absorb it and may actually benefit by not overheating, otherwise creating a bubble.... Wishing everyone a happy and safe holiday season!

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Market Tops

admin 0 comments 01.11.2015

So here we are. Halloween just gave us a fun scare, but should we be fearful of the future? In my last 3 newsletters, I have been warning that we were nearing a top. For those of you who read my features, you will recall that I predicted lower rates and slowing sales. To review, this had to do with the collapse of emerging market economies, continued slowing in Europe, and the simple fact that trees do not grow to the sky. Time for a breather. Alas, here we are. Home sales here and nationwide are in a transition for a sellers market to a balanced market. The price of a tear down (dirt value) even in Manhattan Beach has fallen in the last 30-60 days. This is a leading indicator, as developers begin to see slowing demand for their new homes, they become more frugal for what they will pay for dirt. While some will blame seasonality, I can say, this is the end of the manic bull run. I am never short on words, nor am I bashful about offering my opinion. When I managed a special situations portfolio for Jefferies & Co, I was able to capitalize on the plentiful data that pointed to a collapse in 2008. In short, there were millions of variable mortgage resets coming due in 2007. This data was available to anyone who dared pay attention. The collapse was inevitable. THIS IS NOT THE SAME THING. What we are experiencing is simply a supply/demand curve that is finding equalibrium. The shortage of supply is ending as there is always a price that will draw sellers out. Prices for sure have softened. This has much more to do with the "high water mark" being set by frothy panic buyers who had bid prices above intrinsic values. Let me make an analogy. Consider a cup of coffee with foam on top. As the cup is poured and the coffee is at its hottest point, the foam bubbles up and creats a high water, rather a high coffee mark. When the froth settles, the level of the coffee has not fallen, yet the high water mark has. This is where we are in the present market. There are some high comps that represent the bubbles, the froth. However, the core prices are holding farily steady. The takeaway is that sellers can no longer depend on the froth to get a premium over the fair market value from buyers panicked to "get in". This does not fortell a collpase as I mentioned before. It simply means that sellers will now have to negotiate with buyers and perhaps lower list prices to meet the level which buyers still await. Next year should see continued balance, with a small risk of moderate price declines should the world economy continue to falter. The good news is that equity markets have bounced back and confidence is returning. Sanity is also returning. A balanced market is good for everyone in the long run. As I mentioned in my last newsletter, amatuer flippers (analogous to day traders in the stock market) should be worried. There will be some casualties. Seasoned investors, long term holders and home owners with equity in their homes have nothing to worry about. 10 years from now, prices will be higher as they will even more so 20 years from now as the population continues to explode. All for now. Have a great holiday season!

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The Fed That Can’t

admin 0 comments 01.08.2015

As I mentioned last month, there would be no rate hike in September. While the imputed odds from the interest rate futures market were 1 in 4 as the meeting began, I gave it 1 in a million. No way should the fed tighten until emerging markets economies pick up. Why is the Fed holding steady as critics continue to argue (wrongfully) that they are behind the curve? The answer is not China. The answer is not Greece. The answer is.......Japan! Japan has been in a multi-decade depression brought on by a real estate and stock market bubble that popped in the 80s. Ever since, their interest rate policy has bobbed and weaved with every sign of strength and weakness in the economy. In 2001, Japan essentially invented quantitative easing. Simply put, this is bringing real rates below zero by buying mortgage backed securities. One crucial mistake they made along the way was raising rates on and off when signs of any strength appeared. The fed knows this is a recipe for disaster, which is why they have not raised rates in almost a decade. 2015: Just when our economy started to show signs of growth, the "emerging market" bubble popped. The world now finds itself in a DEFLATIONARY environment. While the USA is still hanging in there, there is no way the Fed can risk joining Europe and China and other emerging markets in a deflationary spiral. If this has been too technical, let me put it in plain english. The Fed can't and won't raise rates until the world economy is growing again. Despite all the talk, rates will stay low for a long time. What are the implications? For borrowers it is good news. If you have been unable to refinance , you still have plenty of time. For flippers and short term holders, your variable will suit you just fine. Even if the Fed is pressured into a 1/4 point rate increase at some point, rates will stay subdued for some time. For real estate prices this is good on the surface, if rates were the only factor in pricing. One leg of the stool is being pulled out as we speak. The foreign money that has added to demand here at home could quickly evaporate for several reasons. 1. Oil rich countries such as Russia who have been huge buyers of US real estate are hurting as oil has plummeted 75% from the highs. 2. The strength of the US dollar is making our goods and services more expensive hurting our exports. This could have a negative effect on our economy and our job growth. 3. The strength of the US dollar makes our real estate more expensive to holders of devalued currencies. The conclusion I draw is simply this. Trees do not grow to the sky. Most real estate booms end because of a spike in rates. Low rates should continue to support present prices. However, as the stool has lost a leg or two, don't be surprised to see a slowing of the mania that has fueled this recent real estate bull market. I am not talking 2008 or even 1993, both brought on by massive leverage. I will stick my neck and say a combination of less foreign money and a slower world economy will at the very least bring supply and demand into balance. 2016 will likely be a flat year, which after all isn't a bad thing. We do not need another bubble like 2006 to end as badly as 2008. A soft landing for the recent real estate mania seems to be the most likely scenario. Real estate and stocks remain the path to wealth building for the long term thinker. That is unless you think your .00001 return on your bank deposit will support a comfortable retirement. It has been an amazing run, time to stop and take a little time to breathe.

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August-2015

admin 0 comments 01.08.2015

No doubt you have heard much about world economic events. ANOTHER Greek bailout. The China miracle becoming a bit less miraculous to say the least. Europe as whole, fighting to fend off their recession from reaching depression status. The US dollar soaring to multi-year highs.

So, who cares? How does this affect me? First, the good news. The deflationary pressures on the world economy have helped to keep interest rates at or near historic lows. While the fed has indicated that it will soon bump rates by a quarter, it is unlikely that there will be a pronounced rapid increase in rates. Now, the bad news. As the dollar soars, US goods become less attractive to foreign nations. Not just goods. Think REAL ESTATE. One of the hallmarks of the recent surge in real estate prices has been "cash buyers'. Many of these cash buyers were foreigners smart enough to hedge their portfolios with assets backed by a strong currency.

But now the currency has become so strong, it is massively more expensive for foreign nationals to convert their falling currency to dollars to purchase real estate. For these reasons, Florida has seen an abrupt slowdown in activity. Latin American buyers are drying up as are Russian and Eastern European buyers. While that is far from here, Asian money is drying up as well. That does not bode well for US exports, which could very much affect our economy.

How about South Bay real estate? Is it driven by foreign money? For the most part, no. However there is a trickle down effect. Just 13 miles north, Santa Monica income real estate has been dominated by Russian money. Don't expect that to continue. All of this has a spill over effect. I cannot say when. I would be disingenuous if I said I could. But the bullet train will need to make a stop to let a few passengers off.

Locally, we have seen less cash buyers, less multiple offers in the last 3-4 weeks. There are more properties listed. The "shortage" of inventory is beginning to balance out. That is good news for buyers. By no means, are prices declining. To the contrary, prices are still rising, albeit at a seemingly slower rate. As I have mentioned before, we are not approaching another 2007, which was caused by massively loose lending standards and sub, sub sub prime borrowers. However, we are due for a cooling off, and there are beginning to be signs that it may come sooner than later.

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June-2015

admin 0 comments 01.06.2015

2006. The party would never end. Banks were giving away money to anyone who could legibly write down a number with 6 or more figures on a loan form that would be checked by a college intern. Those were the days. But along came 2007. Those pesky variables resets for those who raced to buy the cheapest teaser 3-7 years prior. No one saw it coming. Well, not entirely true. Working as a money manager for a large institution, I and most of my colleagues saw the writing on the wall. Some of you reading this letter may recall my urging to de-lever and move from risky assets.

The infinite wisdom of congress had mandated every American should be a homeowner. Never mind if they made $8.75 an hour at your favorite fast food restaurant. Let's find them a loan that they can afford and get them a home! Well, we all know how that ended. It turns out big a party usually leads to a pretty bad hangover and a big mess to clean up. Enter Ben Bernanke and President Obama. Together, with a two pronged approach, they could do the impossible. Turn the worst asset crash in 75 years and make it last shorter than the average mild recession. Does that concern anyone? The administration forgave debt from victimized borrowers who had no idea they couldn't afford a 2 million dollar home on a 5 figure income. The fed lowered rates to zero to no avail. Then....then they came up with a great solution! Buy all the bad debt up and just make it go away!!!! Boom! Back in action!

The only problem with "quantitative easing", a fancy term for shifting all the private sector debt to the public, is that the debt remains. So who pays it? You, me, our kids, our grandkids, their grandkids, you get the idea. So why are stock, bond and real estate markets so darned hot? The same reason they were in 2006! The only difference is that the middle class is participating in a totally different reality. Unintended consequences indeed. For a group of folks who wanted to close the gap between poor and rich, it sure isn't turning out that way! Now the "rich" have all the buying power and the middle class is now a class of renters again. For affluent communities like ours this means price increases as there is excess liquidity in the economy. The wealth effect is back and dare I say....so is irrational exuberance.

I cannot say with certainty when the buying panic will end. But sure as death, taxes and economic cycles, it will at some point. When talking real estate and people say again and again, isn't it crazy? The answer may be yes. Or....is it? With so much money sloshing around, you would think we would have massive inflation. To the contrary, GDP growth is slow and inflation as measured by the fed, is almost non-existent. However, take a look at inflation as measured by ASSET prices. Stocks, bonds, real estate are all up triple digits over the last 5 years. This is a form of inflation. You want to own "STUFF". Millions of Americans still have money parked in bank accounts earning .0000001 %. With core inflation in the 2+% range, they are LOSING money every day.

The bottom line is that real estate and other asset classes have had an amazing fed fueled run. As the fed embarks on a soon to be implemented tightening campaign, a bit of the helium may seep from the balloon. However with the lack of leverage in the private sector, a 2008 style crash is unlikely. Far more likely will be a cooling off period followed by more tepid markets. For now, things are flying off the shelves. Let's keep the party going until the cops come. Then turn the lights out, take a breather and wait for the next one. There will be booms and there will be busts, but last time I checked, they aren't making more coastal frontage. So invest wisely and don't forget location is EVERYTHING.

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