Now It's Getting Interesting

As promised, the charts for Southern California real estate sales have been updated based on the DataQuick report for May that was released yesterday. We'll soon be headed to the mountains - look for the next post sometime early next week.

Historically, May is a very strong month for both sales volume and price appreciation, but that was not the case last month - it really is starting to get interesting now, as high interest rates, high inventory, and lower sales volume put more pressure on prices.

About the only positive comment that DataQuick could muster regarding the 27,286 new and resale homes sold in May contained a rare typo:

While last month was the slowest May since 1999 when 25,404 homes were sold, sales were still above the May "average" May of 24,857 (going back to 1988). The strongest May was in 2002 when 32,391 homes were sold, the slowest was in 1993 when 15,001 were sold.

That is, unless "May "average" May" has some special meaning to those in the real estate business that is not obvious to others. When looking at the median prices by county, the much hoped for "leveling off" in prices can be clearly seen in recent months - the real question is what happens next?

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When looking at the trend in the year-over-year price change, a completely different picture emerges. Four of the six counties now show single digit annual increases with Los Angeles County now barely above that mark. San Diego appears once again headed for negative territory in the coming months, but it has shown a miraculous knack for staying above zero on the y-axis going back almost a year now.

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The year-over-year price change in Ventura County, where this blog originates, has been dropping like a rock in recent months, now registering only a three percent annual increase. The local paper reports that this is due to the mix of homes sold, and that it should be closer to seven percent.

It will be interesting to read the commentary in the months ahead if current year-over-year trends continue - looking at the first chart, the median sales price in Ventura County is down over six percent from its peak last fall with what is shaping up to be a difficult summer for sellers.

Take a look at your local Realtor.com listings and it's easy to spot the motivated sellers - they're the ones with prices $30-$40K below all the others. In an environment where the number of sales continues to slow dramatically, it is the motivated sellers that determine where the real estate market goes.

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Time for a Break

Considering the long and still growing list of items on the To Do list prior to the year's first camping trip this weekend, a short break is deemed necessary. Save for a quick update to the Southern California real estate sales charts after DataQuick releases fresh stats for May (probably later today), look for the next missive to appear here early next week.

Off to the Sierra Nevada Mountains again for some quiet time away from computers and crowds, we'll try to remember what it was like before so many hours of the day were spent so close to so many electronics - maybe even read some fiction.

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Yesterday, the Wall Street Journal took note of some comments posted in this space. They were sent a suggestion last week when the story of How Not to Fight Inflation was published, but its tone toward the dismal practitioners may have been a bit too harsh - they opted to note the sympathy expressed for poor Ben Bernanke yesterday instead.

Any mention is appreciated, however, with full knowledge of a break nearing, yesterday's post was really not one of the better efforts offered here - readers directed from that source are encouraged to return after your humble scribe's mind, fingers, and eyeballs have had a bit of a R&R.

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It really does crack me up to see the name of this blog in print in places like this - when the name was conceived, there was no consideration given to how it might appear when others referred to it.

Recall that last summer, during the Alan Greenspan send-off in Jackson Hole, the Washington Post saw fit to provide a link back here that stood in stark contrast to remarks by former Treasury Secretary Robert Rubin. It is believed that this earlier inclusion was of the automated variety, as opposed to David Gaffen's note above, but you never know.

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This week's Economist cartoon (sometimes it doesn't arrive until Monday):

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Maybe Hubris

After surgery of some sort, Alan Abelson returns to his post at Barron' s offering this commentary($) about crashing markets, rising prices, settlements in space, monetary policy, and Ben Bernanke's gastrointestinal goings on.

The most popular notion as to what touched off the wave of selling that swept markets the globe over was that Ben Bernanke, who succeeded Alan Greenspan as chairman of the Federal Reserve, had discovered inflation. And since Mr. Bernanke never went to obfuscation school (from which Mr. Greenspan graduated, summa cum laude) -- or cut classes if he did -- he failed to mumble "inflation" with sufficient inaudibility or at the very least find an ambiguous euphemism for the repulsive noun. Instead, he said it out loud and in a public place yet. Imagine!

Even so, we think the rush to put the blame on Ben, boys, is silly, and all wet, to boot. Wall Street's corps of professional kibitzers (aka "strategists") -- who are the last to know just about anything -- for months before Mr. Bernanke took over at the Fed had been making a hullabaloo about new Fed chairmen inevitably demonstrating their machismo by taking a poke at inflation.

So how could anyone possibly be surprised when Ben decided to show a little muscle in that time-honored fashion? Ben may yet drop money from a helicopter to get the economy going if -- or, rather, when -- it stalls, and he does favor face hair, but that's the extent of his unorthodoxy. More to the point, he wears a nondescript suit, an unthreatening tie and a benign expression -- in other words, he's the epitome of tradition.

No, Ben knows all about inflation and how he's supposed to harrumph at it. What we're not entirely clear on is why, having done time at the Fed -- and surely aware that Mr. G. was leaving one heck of a mess stuffed as much as possible under the rug -- he was so blamed eager to take the job. Maybe hubris -- he thought that tidying up would be a cinch for someone with his smarts. Maybe -- and this is worse -- he didn't realize just how big a mess he was inheriting.

The long and short of it is that we don't credit the idea that the world turned upside down, that spectacularly emerging markets became spectacularly submerging markets faster than anyone could say "Sell!" and that bourses from one end of the planet to the other all suffered severe indigestion because Ben burped. Any more than we believe that his subsequent comments that inflation may not be rampant now, but just you wait, sent the markets scooting back up the latter part of last week.

Indeed, Mr. G. did leave one heck of a mess and it is perplexing that anyone would willingly accept the task of taking over where he left off as Ben Bernanke did. As commented on in this space before, it seems anyone accepting the position as successor to Alan Greenspan as Chairman of the Federal Reserve should have been immediately disqualified for the post for either of the reasons cited by Mr. Abelson, or some combination of the two:

• He thought he could actually fix the mess
• He didn't understand how bad the mess was

As more and more news stories contain the words "inflation" and "rising prices", some reporters favoring more alliterative phrases such as "pain at the pump", whatever the thought process was that compelled him to yearn for and ultimately secure this top spot at the top central bank in the world, it's hard not to feel sorry for Ben Bernanke.

Rising prices, it seems, are now showing up in all kinds of places that no one thought to look when Mr. G. was sitting in the big chair mumbling about one thing or another while energy and imports were cheap and many asset classes stood at the ready, waiting to be inflated.

Nor is the insidious rise in inflation, it might be noted, restricted to licit activities. Comes word from the AP that smugglers of undocumented Mexicans into this promised land have raised their asking price to $3,000 for every person carried across the border; that's up from $2,000 a fortnight ago and $300 back in 1994. Like all of us working stiffs, smugglers have to make a living, and gasoline is a major expense item. And just like us, they worry about the future, too: The more circuitous routes they'd be compelled to travel if an extended wall is constructed along our southern border would significantly hike their cost of doing business. Although, as one Mexican-American comedian wonders, if some of the more severe deportation measures that have been proposed are adopted, who'd be left to build that wall?

The principal engine of the global inflationary surge is, it's no secret, China. And the latest data from that monstrously growing economic dragon shows it's still breathing fire at a fantastic rate. Last month, the country's industrial production rose an astonishing 17.9% and in the first quarter of this year, GDP sprinted ahead a blazing 10.3%. Besides an unshakeable thirst for oil, China has been bolting down industrial commodities at a truly awesome pace. According to Morgan Stanley's Steve Roach, in '05, it accounted for 50% of the growth in aluminum consumption, 84% of the rise in demand for iron ore, 108% of the increase in consumption of steel, and 115%, 120% and 307% in the growth of worldwide demand for cement, zinc and copper, respectively. How do you say "wow!" in Chinese?

And despite Beijing's solemn vow to cool it, the 19% jump in the money supply in May suggests otherwise. We remain skeptical that the folks in charge of China's so-called command economy have all that much interest in cooling it and all that might portend for a huge restive and grossly underemployed population. The only thing that will truly cool the red-hot Sino economy, we fear, is implosion. That'll happen, but not tomorrow or the day after. Which means the odds strongly favor a fresh lease on life for the boom in commodities...and their prices.

So ask not why Ben's antsy about inflation. He should be.

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