Watching California: The National Yard Sale Begins

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Posted: Oct 15, 2008 12:01 AM
Watching California: The National Yard Sale Begins

SAN DIEGO -- "License to Chill" glides by a wonderful sight in San Diego harbor. Hundreds of sea lions, basking at leisure, occupy their own private resort, a long dock that is anchored out in the harbor. Respectful pelicans, cormorants and gulls mingle carefully, searching for inconspicuous resting spots.

Not far away, the "sausage defense" protects a portion of the naval base. It's called the sausage defense because it is a long chain of large inflated objects with a strong resemblance to ... sausage links. Think of it as the Jimmy Dean anti-terrorist ring. Looking toward the city we can see the skyscrapers of modern San Diego, the constant arrivals and departures from the airport, and the amazing bulk of the aircraft carrier Nimitz, now being restored. This is a beautiful bustling harbor.

Less than a month ago, my wife and I were sailing that boat, a Hunter 33 from the Harbor Island Yacht Club. It's a club for sailors who don't own boats. Instead, you can rent anything from a 22-foot Catalina to a 39-foot Beneteau by the afternoon, day or week.

The weekend we arrived, Merrill Lynch had been sold to Bank of America. Lehman had filed for bankruptcy. And AIG had become an $80 billion government investment. But stock markets around the planet had yet to tank.

Life seemed almost suspiciously normal. That Sunday afternoon, we still had to wait to get a table on the ocean terrace at George's at the Cove in La Jolla. The valet parkers outside were still shuffling Bentleys, Porsches, Mercedes and Beemers. The bar at La Valencia was packed. And lots of people were carrying shopping bags.

So you have to wonder. How will all this unwind? How will this glossy society adjust?

It won't be easy. Here's a quick tour of coming "adjustments."

The pursuit of bodily perfection. Like many city-based publications, the San Diego Weekly Reader has lots of ads for plastic surgery and whitened teeth. Unlike its peers, however, ads in the Reader let you know exactly how much it costs for every imaginable procedure. A "5-Minute Nose Job" costs only $499; immediate load dental implants, only $1,900; beautiful lips, only $249; and one-hour teeth whitening, only $199.

Beneath many of the ads the small print says "Major credit cards accepted."

Today, the limits on those cards are going down, and the interest rates are going up. The age of cosmetic surgery is heading for heavy duty reconstruction.

Status cars. Often leased, offers of leases are disappearing. Loans to buy cars are requiring actual down payments and higher interest rates. Whether it's fancy or muscle that moves you, the out-of-pocket cash and monthly payments are going up. As I suggested last year in "The Coming National Yard Sale," cash buyers are going to find great bargains.

The customers' yachts. In the marina, I encounter a gathering of abandoned boats. Clustered together and ranging from 24 to 60 feet in length, nine boats have been impounded for non-payment of slip fees. Boats are abandoned in any kind of economy, of course, but walking the docks reveals that about one boat in five has been left to molder like a forgotten relative in a nursing home. No visitors. No care. With monthly slip fees running about $500 a month, you have to wonder how many more boats will be impounded when owners start to look for ways to cut spending.

Impounding, it turns out, is just the beginning of the problem. Cars and houses, even those in bad shape, can be auctioned off. But derelict boats are a different story. It takes an age for a marina to get title. Then, they often have to pay thousands of dollars to have the boat hauled away for destruction.

Shelter. The Real Estate Book, a home listings publication, now shows "bank owned" and "short sale" properties as well as houses with major price reductions. So far the reductions only take prices down from insane to ridiculous. San Diego homes, like houses in virtually all of California, are still priced way over paychecks.

Help from government? Finally, there is the problem of government insolvency at the state and municipal level. The state of California is seeking a federal loan because the municipal bond market has frozen. Meanwhile, sales and income tax collections are sinking as real estate assessments are falling. The city of San Diego, much like the entire country, is facing future pension expenses that aren't covered by its pension fund and exceed its ability to tax.

Bottom line: If you're thinking about catching falling knives, start with really small ones.