Here’s the other factor that I rarely see brought up on this board, which I think is another huge chink in the armor: the retail economy in Southern California. Consumer spending has driven the entire US economy for the past 10 years, making up approximately 70% of GDP. Most of that spending has been fueled by home equity loans, particulary in the bubble markets of the country. This is really evident in SoCal. All one need do to see the evidence of this is take a look around on the freeways and see the number of Bimmers, Lexus’, Mercedes, and other luxury vehicles on the road here compared to non-bubble markets of the US, then compare the median incomes of those same areas. Case in point, my main residence and business is in Des Moines, where the median income is $45k and the median home value is $175k. San Diego has approximately the same median income but the median home value is $500k. Obviously a huge disconnect exists. Now, as it relates to consumer spending, the paper home equity runup that has fueled huge consumer spending in SoCal is now exhausted and, in fact, is backsliding, which means retail spending shuts down just like the residential construction game has. In San Diego the percent of GDP made up by consumer spending was probably somewhat less than the 70% level nationally due to the inordinate contribution of homebuilding to the local GDP, but it’s still very significant. The next shoe to drop then comes in commercial real estate, particularly retail because the health of retail tenants will deteriorate rapidly. At that point, the whole thing can unravel pretty quickly and move from the bottom up. When Joe America stops spending money, which he has, even the CEOs with the places west of the 5 are going to get stretched.
I really see the perfect storm on the horizon here. Anyway, that’s what I’m waitin’ for.