Elliott Pollack & Co weekly newsletter had some good news and some scary news.

Good News

On a local level, Arizona retail sales (September data) continue to grow at a reasonable pace. Retail sales were up 8.8% over year earlier levels. Strong growth was reported for automotive and building material categories. Car and truck sales had a good month in September. Existing home prices in the Greater Phoenix area continue to remain stable. While still below year earlier levels, September home prices were the highest since November 2010. Prices since December 2010 have been very stable. An upturn in prices is likely not far away. All of this, combined with gains recently reported in employment and a lower rate of unemployment bode well for continued modest gains in the State and Greater Phoenix area.

Scary News

The most disconcerting data was related to money supply. M1 now stands at more than 20% above year earlier levels and M2 at 10.1% above year earlier levels. The rate of growth has accelerated over the last few months.

Real estate has traditionally been an inflation hedge and I think one of the Arizona real estate booms in the 1970’s was largely caused by people switching their investments into real estate and away from assets that were losing their real inflation-adjusted value rapidly.

I certainly hope that doesn’t happen again. That high inflation caused a ton of economic pain.

When we finally get through this current real estate bust (and I can see the end of it from here), I sure hope it isn’t followed by another major economic shock like runaway inflation.

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