2006. The party would never end. Banks were giving away money to anyone who could legibly write down a number with 6 or more figures on a loan form that would be checked by a college intern. Those were the days. But along came 2007. Those pesky variables resets for those who raced to buy the cheapest teaser 3-7 years prior. No one saw it coming. Well, not entirely true. Working as a money manager for a large institution, I and most of my colleagues saw the writing on the wall. Some of you reading this letter may recall my urging to de-lever and move from risky assets.The infinite wisdom of congress had mandated every American should be a homeowner. Never mind if they made $8.75 an hour at your favorite fast food restaurant. Let's find them a loan that they can afford and get them a home! Well, we all know how that ended. It turns out big a party usually leads to a pretty bad hangover and a big mess to clean up. Enter Ben Bernanke and President Obama. Together, with a two pronged approach, they could do the impossible. Turn the worst asset crash in 75 years and make it last shorter than the average mild recession. Does that concern anyone? The administration forgave debt from victimized borrowers who had no idea they couldn't afford a 2 million dollar home on a 5 figure income. The fed lowered rates to zero to no avail. Then....then they came up with a great solution! Buy all the bad debt up and just make it go away!!!! Boom! Back in action! The only problem with "quantitative easing", a fancy term for shifting all the private sector debt to the public, is that the debt remains. So who pays it? You, me, our kids, our grandkids, their grandkids, you get the idea. So why are stock, bond and real estate markets so darned hot? The same reason they were in 2006! The only difference is that the middle class is participating in a totally different reality. Unintended consequences indeed. For a group of folks who wanted to close the gap between poor and rich, it sure isn't turning out that way! Now the "rich" have all the buying power and the middle class is now a class of renters again. For affluent communities like ours this means price increases as there is excess liquidity in the economy. The wealth effect is back and dare I say....so is irrational exuberance. I cannot say with certainty when the buying panic will end. But sure as death, taxes and economic cycles, it will at some point. When talking real estate and people say again and again, isn't it crazy? The answer may be yes. Or....is it? With so much money sloshing around, you would think we would have massive inflation. To the contrary, GDP growth is slow and inflation as measured by the fed, is almost non-existent. However, take a look at inflation as measured by ASSET prices. Stocks, bonds, real estate are all up triple digits over the last 5 years. This is a form of inflation. You want to own "STUFF". Millions of Americans still have money parked in bank accounts earning .0000001 %. With core inflation in the 2+% range, they are LOSING money every day. The bottom line is that real estate and other asset classes have had an amazing fed fueled run. As the fed embarks on a soon to be implemented tightening campaign, a bit of the helium may seep from the balloon. However with the lack of leverage in the private sector, a 2008 style crash is unlikely. Far more likely will be a cooling off period followed by more tepid markets. For now, things are flying off the shelves. Let's keep the party going until the cops come. Then turn the lights out, take a breather and wait for the next one. There will be booms and there will be busts, but last time I checked, they aren't making more coastal frontage. So invest wisely and don't forget location is EVERYTHING.