Question: You've been watching the markets for more than 50 years. Explain their behavior over the past few months.
Answer: We are getting back in the direction of some imbalances. But I'm not on the side of people who say this thing is overblown again, like it was in 2000, and now we're headed for some calamity. I'm more on the positive side of the market.
Q: But with reservations.
A: On the broader economic level, real estate pricing has become a monumental concern. Money is too cheap and available. Mortgage rates are low. California itself is too valuable. It's too nice to live here. If you pay in San Diego, Orange County or Los Angeles three times what you pay for the same acreage and house in Texas, there's a reason for that.
Q: So all the factors out there the budget deficit, the trade deficit aren't going to come home to roost anytime soon?
A: I'm not worried about the real estate bubble at this point. But there are some things that are of concern. There's a stock that just went public, Baidu.com, an Internet search engine stock from China. It went public with 4 million shares at $27 a share and it's been traded at over $100. That's just a little example of how the market is behaving strangely. There's another major change: financials have gone worldwide. The numbers tell us that the amount of foreign exchange every day, measured in U.S. dollars, is $1.9 trillion. It was a fraction of that 10 years ago.
Q: We're all tied to a global economy. That's no big surprise.
A: Well, what that tells me is that no matter how stable we think real estate prices are here, something can happen somewhere else in the world and it could have a domino effect and we could have a dramatic reversal.
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