30 May 2009
 
The Bottom

(Case-Shiller Graph depicting decline of key regional real estate markets from 2006 peak)
 
I would have to go back and check, but I recall vividly the moment that I knew that Barak Obama was going to be the President of the United States. It was not one of those moments when you saw a young articulate man speak at a convention and said to yourself: “Hmmm…this guy is sharp. Maybe he has the horses to go all the way.”
 
I think it was in April of last year when Hillary was still incredulous that her campaign appeared to be coming off the rails. Certainly the math on the primaries was starting to look certain by May. It was the moment when I was ready to make a predictive call. I am not prescient, but there are times that enable you to sense the mega-trend a little ahead of the crowd.
 
I got a whiff of that when I talked to some Realtor pals a month or so ago. I was prepared to commiserate with them, and they were actually pretty upbeat. One had multiple contract offers on a property that were at the asking price.
 
I should have done something right then.
 
There was a long spell here where no one would admit to having a license to sell real property. The corruption that fueled the bubble, and which was the cause of my personal tribulation in Tunnel Eight at the very top of the bubble. That is a haircut waiting to be taken, and one that fills me with dread.
 
I suppose it is a little like President Obama feels about the ballooning debt; it might be crippling, but it is not the wolf nearest the Presidential sled, and worry can be deferred.
 
I have been fearing the inflation that must follow this extravagant printing of money to kill the debt incurred in the Bubble. I don’t fear it in the same way I worry about the North Koreans getting something nasty into a sub-orbital profile headed this way. The prospect of that has a certain immediacy. I put the inflation fear closer than that of the assault on the Bill of Rights.
 
At least it is something I think I should personally do something about. Paul Krugman of The Times this week assured me that the talk about inflation was political in nature, not economic. He cited the cases in the last century where the massive spending of imaginary money did not lead to mega-inflation. In the Japan of the 1990s, for example, the central bank bought debt on a massive scale and prices still went down.
 
Krugman argues that the smart people at the beginning of the Great Depression warned about the threat of inflation even as the factories continued to shut down. It did not happen, of course,
Krugman is writing in the context of GM going to Chapter 11, the manufacturing base still shrinking, and places like Detroit falling apart.
 
He quoted a fellow named Ralph G. Hawtrey about how this all works. Hawrtey was a buddy of Lord Maynard Keynes, and was knighted in 1956 for his insight and influence on policy.
 
Krugman quoted him as saying that it is only “after depression and unemployment have subsided that inflation becomes dangerous.”
 
I completely agree. In a lot of places it is clear that the abyss is still beckoning. But despite the recent glut of oil and gas on the market, that is a finite commodity, and China and India are still growing in demand.
 
What will happen when that pressure starts to kick in this year and next? The price at the pump is already creeping back up.
 
Maybe we are at a turning point, the one that Hawtry described?
 
I had one of those moments yesterday that made me think we might have passed a critical milestone, at least here in Washington.
 
We don’t build anything here except hot air and currency, and it looks like we hit bottom. There may be nowhere to go but into the upward pressure on the dollar.
 
I was talking to Cathy about Rolling Thunder. She is a formidable woman with a bright personality and small children. Her chestnut hair was done up with those two chop-sticks in the back that framed a determined jaw and merry eyes.
 
She has been riding on the back of her partner’s Harley Softtail for several years, and is just about ready to take it over so he can get a bigger machine.
 
“I am comfortable enough to stand up on the pegs while we are moving to take pictures,” she said. “I think I want to drive myself. I wish I had more time to do it.”
 
I asked her what she meant by that. She moonlights as a settlement officer for a local title company, and I thought that industry was dead as a doornail.
 
“My God, no,” she said, shaking her head. “There are only seven of us in the office and we are completely booked. We are all getting stressed out. I was at one of the suites we use to do closings yesterday, and I had to scream to get a table to do the paperwork. First time that has ever happened to me.”
 
“So you are busy?”
 
“Beyond belief.”
 
“Is it like it was in the Bubble?” I asked, incredulous.
 
“No,” she said. “That was pure madness. That will never happen again. People  are supposed to be happy about buying a house. Back in the Bubble they came to closing bitter about getting their fifth choices. They were not doing home inspections, and the sellers were arrogant to the point of cruelty. But now the business is brisk, and people are doing business.”
 
“Shoot,” I said. “I should have bought something at the bottom of the market.”
 
Cathy nodded. “It is just hard to know when that is, isn’t it? My husband is thinking about buying one of those new Harley’s- you know, the V-Rod Muscle with the cool pipes. Then I would get the Soft Tail.”
 
She smiled at the prospect, and went on about her business, but it got me to thinking. Despite all the bad news, it might be as simple as that. If people are thinking about cool pipes, maybe it is time to get back in the market.
 
Over to you, Sir Hawtry.

Copyright 2009 Vic Socotra
www.vicsocotra.com