Sunday, January 27, 2008

Bend Oregon: In A Depression Right Now

Well, I don't know if anyone else has noticed, by Ye Olde BendBubble2 blog has expended much virtual ink on the idea that there are people that need to be convinced that there is in fact a RE Bubble of unparalleled size imploding right now in our fair city. I've long talked that the nationwide implosion of wealth would be probably the most dramatic economic event in this country this decade (Or 2. Or 3), and it would probably be far and away the most important event in the history of Bend. So many previous posts were about convincing you that it was coming, and trying to guide people in a rational course of action, if you are caught in the Bend RE bubble. Hmmmm....that doesn't seem to be really necessary anymore.

If you can fog a mirror, you may have begun to perceive through the numerous obscure references to the US economy imploding before our eyes that have become de rigeur on The Nightly News & on the Presidential Cacophony of Bullshit, that The Shit Has Officially Hit The Fan. You may have started to notice a frenzied attempt to calm the masses with a large number of $600 checks. Yes, yes. That'll set things right. I'm looking at a $100K spanking on each of my 5 Bend spec homes, and by God, $600 will make it all better.

And as an aside, the Classic Stupidity of Liberals was aired on KTVZ, with respect to a "poll" asking locals what they would do with their refund check. The second person asked was a red-faced Bush hater, who responded, "I don't see how anyone can accept money from that... lying.... MAN!". Such vitriol for Bush is common, but ONLY KTVZ would have aired such an irrelevant liberal rant. Good call, dumbshits.

And so this blog must move to a new phase of chronicling the destruction, instead of convincing you about the depth & breadth of the coming horrors. The horror is here. And it's not leaving for the rest of our lives. It'll lead to a helluva recession in this country, despite protestations that it'll be short & mild. The government has NEVER predicted anything but short & mild recessions.

Bends fate is dramatically different though. We'll return to the Bend of Olde. Yes, when the dreadlocked set were easily employed for the Summer. When Bend teachers worked retail all Summer. 12% unemployment in February. You know, the good stuff, Depression era Bend.

Yes, I actually heard The "D" Word, by the abortion of Suzie Orman, Melony Hobson, on Good Morning America. Of course she said it would not happen in America EVER, but she actually defined what a depression is: 10% drop in GDP. I didn't know that. She said there has actually been a Depression since WWII, although she didn't say when. I'm guessing the early 80's.

Anyway, I've said often Bend is headed for a recession, which of course we are already in, right now. But that is sort damning our town with faint praise: We're headed for a Depression, in fact we are probably in it's beginning stages RIGHT NOW. And before it's over, DOWN 10% will look Damn Good.


So, with that I will try to temper my Predictions Of Doom, because it seems quite obvious to any sentient being that we are in the teeth of the most ravaging economic conflagration this town & the country will experience in the next 100 years.

So what's on the mind of our blessed commenters?

Well, there is one thread that sort of makes me chuckle, but lemme quote a wikipedia chunk on what an Alchemist is, first:

The best known goals of the alchemists were the transmutation of common metals into gold (called chrysopoeia) or silver (less well known is plant alchemy, or "spagyric"); the creation of a "panacea or the elixir of life," a remedy that supposedly would cure all diseases and prolong life indefinitely; and the discovery of a universal solvent.[1] Although these were not the only uses for the science, they were the ones most documented and well known. Starting with the Middle Ages, European alchemists invested much effort on the search for the "philosopher's stone", a legendary substance that was believed to be an essential ingredient for either or both of those goals. The Philosophers Stone was believed to mystically amplify the user's knowledge of alchemy so much that anything was attainable. Alchemists enjoyed prestige and support through the centuries, though not for their pursuit of those goals, nor the mystic and philosophical speculation that dominates their literature. Rather it was for their mundane contributions to the "chemical" industries of the day—the invention of gunpowder, ore testing and refining, metalworking, production of ink, dyes, paints, and cosmetics, leather tanning, ceramics and glass manufacture, preparation of extracts and liquors, and so on (it seems that the preparation of aqua vitae, the "water of life", was a fairly popular "experiment" among European alchemists).

Alchemy? What the hell sort of analogy is this about? Here's some guesses:

1) New Bend business transplant, International Environmental Technologies.
2) Bend real estate.
3) Bend, itself
4) Capstone turbines
5) The Shire
6) Tuscany Arctic Pine Butt Munkees
7) All of the above
8) Number 9

Yeah, my own guess is Number 8, which in fact leads to Number 9, which in fact leads to... confusion & nothing. Which, if you've been reading this blog for long, is pretty close to the mark. But, perhaps it is All of the Above.

Bend is built on the idea that you can convert an empty fantasy into something of substance. IET, is so perfect for Bend, it really is amusing. All the essentials are there:

1) Overly Impressive, yet meaningless name? CHECK!
2) Business Plan that defies the Second Law of Thermodynamics? CHECK!
3) Black box technology that somehow promises infinite wealth, yet sells zero units? CHECK!
4) Dumbfuck town willing to fund hucksters into the next century? CHECK!

As Brucey put it:

Whenever I hear about creating energy using extremely high temps, I start to wonder just how much net energy you end up with...

See, I was raised in a town where you burned your garbage in a big 32 gallon drum out back. NEVER did I get anything back, when I burned shit. But the alchemists at IET have totally bamboozled EDCO (ie Bend taxpayers) into sucking their corporate beanbag to relocate here. Here was Jeff Surma's (IET CEO) pitch:

Jeff: Roger Lee, how goes it? Dude, we have totally made a Magic Garbage Can, where you throw shit in, and out pops unlimited wealth! It's awesome!

Roger: Really? Cool! Cuz we need some big shit now that our previous Master Plan, "Double Down On Red", has imploded. What happens if I throw garbage in it?

Jeff: Dude, it totally produces this stuff, it's like plasma gas, that actually powers anything you want!

Roger: Really? What if I take a shit in my hand, and throw it in there?

Jeff: Dude, out pops a solid gold toilet! Seriously!

Roger: This seems to defy 9th grade physics though. Plus I've taken a shit in about 600 campfires, and never ended up with a solid gold toilet.

Jeff: Dude! That's old school, bullshit theory! It's 2008! It's Hammertime! This is the New Economy! Haven't you heard of Rumpelstiltskin? That shits in a BOOK! It's been proven in Estonian physics labs that this stuff works! Dude, just to prove how lucrative this is, here's a free coupon for a bottle of $4 wine at the Grocery Outlet!

Roger: Damn! It must really work!

And so forth. IET is exactly the sort of company this town attracts. Whether it's turning straw into gold, water into wine, or shit into solid gold toilets, Bend is your kind of town if you're in the grifting trade. You'll notice that water-to-wine, bullshit energy products make the rounds everytime oil pops up 50% "Gas additives" that boost your mileage to 300mpg? Yeah, every pop in oil. This is the same thing, it's just the Long Con for The Big Money.

And Bend is the Perfect Mark.

City of Bend On It's Way To Going Broke

An anonymous poster put the contents of this Bulletin piece in the comments, "Bend park board’s HQ on track as ball fields are slashed".

Pretty straightforward: Our fair City assumed that Doubling Down On Red was The Eternal Road To Riches back in the day, but unfortunately they didn't do 2 things first:

1) Read this blog
2) Think

So Big Fun, enviro-friendly, The Money Will Never End sort of projects, like Bend Pine Disneyworld are being scaled back to meth-den, gang-run Mexi-Cali shithole "parks", featuring parking lot & portable toilets, and the occasional raped jogger.

The scaling back on this particular project should give you pause about moving to, or staying in a city that is RIGHT NOW laying off cops: From $13MM, clear down to $2MM, or an 85% cut. THIS is just a hint of what's to come, and really happens to anyplace that sells it's soul to the devil or Brooks Resources: QUALITY OF LIFE GOES AWAY.

We made a Faustian Bargain that we'd do anything to be Number 1. Welp, the devil delivered, and now it's time to pay. Practically FREE SDC charges have transferred profits from the Citizens of Bend, to Mike Hollern, Randy Sebastian, and other shysters. Instead of parks, we have parking lots. Instead of cops, we'll have crack houses. Instead of handicap ramps, we have... nothing. Instead of mass transit, we got a junk yard.

And it's cold comfort that people like Hollern plowed their cash back into Fields of Dreams like Yarrow and Ironhorse, with a time to 100% absorption of 1 Human Lifetime.

Bankers Lament:

Who can forget the day I proudly posted The Plaza, as the first entry on our little RIP Hall Of Fame? Well, according to posts here and on BendBB, the $20.5MM note on The Plaza was sold by Umpqua Bank, possibly to make payroll, for $7MM.

First I'll note that statements about a "30%" return are slightly off the mark. This would have yielded Umpqua a tidy $26MM, give or take. No, the real return was -66%. Remember the post about how the Number 70, seemed to be popping up more than normal? This one is another close call.

I will say right now, that you should go have a look at the Plaza units, and offer 30 cents on the dollar. Those are going to be some nice rentals. And at $120/sf, they might even pencil, if you defer maintenance, and really gouge renters on their deposits. Right Buster?

In addition to Umpqua's shellacking, CACB posted their "dismal" results for Q4. Someone posted rather extensive financial highlights in the comments. Here are some interesting ratios & figures (2007 vs 2006, and the % chg):

Return on average total shareholders' equity (book) 7.42% 15.93% -53.4%
Delinquent >30 days to total loans 0.47% 0.09% 450.6%
Non-performing assets to total loans 2.23% 0.16% 1302.1%
Non-performing assets (5) 45,696 3,005 1420.7%
Net loan charge-offs (annualized) 0.33% 0.08% 308.5%

Yeah. I guess that 1302% INCREASE IN NON-PERFORMING ASSETS caught my eye. Seems like a uncomfortable trend? I don't know, maybe I'm just alarmist. Although they also noted this about their Developer Loans:

As background, this portfolio represents loans made to developers for the purpose of acquiring raw land and/or for the subsequent development of residential lots. The nationwide downturn in real estate has slowed lot and home sales within the Company's markets. This has impacted certain developers by lengthening the marketing period of their projects and negatively affecting borrower liquidity and collateral values. Accordingly, at December 31, 2007, those land development loans adversely rated through our internal risk-rating process totaled approximately $151 million or about 48% of the land development portfolio. Generally when a loan is adversely rated, an elevated level of credit reserve may be allocated based upon current facts and circumstances. In part, the higher provision for the fourth quarter represents the outcome of this ongoing process.

Huh. I guess Paul-doh is lucky he did not bet HALF OF ALL DEVELOPER LOANS IN BEND ARE BULLSHIT, cuz I would have lost. Only 48% of CACB loans to developers are in trouble. Still manageable, but I think CACB exec's might wanna keep an eye on that, cuz that could go seriously wrong. Not today, and not tomorrow. But someday. But these guys are sharp. Look at this analysis:

At December 31, 2007, Customer Relationship deposits(1) were up 7.2% compared to a year ago but decreased 2.9% on a linked-quarter basis. This decline in part reflects the end of the peak summer and fall tourism and construction season wherein deposit balances typically ease through the winter quarter. However, management also believes a general slowing in real estate activity has contributed to this trend, as deposits in real estate related business accounts show a reduction in average and end of period balances as compared to the prior year and quarter.

"Management believes a general slowdown in real estate" is adversely impacting deposits. Wow. They nailed that to the wall. But, it's no biggie, right now. But again, a trend to watch. This leads me to another topic:

SMEAR IT OUT:

You ever notice that Elizabeth Taylor is always "smeared out". She's all fuzzy & big-tittied. She almost looks doable.

Well, of course she is horrible, which is why the Paparazzi never get her; a clear photograph would bust the lense. Same with Bend, the Horror That Is Bend RE, and Bend Media.

To the extent that they ARE even covering the RE meltdown (The biggest story in Bend history. Have I said that?), they are SMEARING OUT the facts as much as is possible to give us the Lizzy Taylor titty bang.

The Smear Across Time:
Unemployment? Well... it's realy not so bad, cuz it's WHERE IT WAS 5 YEARS AGO.

Smear Across Geography:
And unemployment in Deschutes, Crook, Jefferson, Baker, Wallowa counties when mixed with Uzbekistan is at a comforting 8%.

Right. When we can count on The Bulletin to cover things, they are SMEARING them out to an almost ridiculous degree. WHY? Of course, because if you average in ANYTHING that occurred in 2004-2006, it drags everything up. If you smear it across many counties, or even better, the entire Northwest, it's impossible to figure out how Bend is actually doing.

And after all, we are MORONS who can't scratch our way out of a wet paper sack, at least according to the Bulletin.

Affordable Home In Bend:

This one is classic.

Now, first I'll say that this place needs affordable homes. And on the face of it, the Wednesday Bulletin article, "Low-cost houses in Bend's future" looks good for Bend's affordability problem. But is it affordable, or is it another "Eagle's Landing" maneuver, where prices are lowered, but the PRODUCT YOU'RE GETTING is also dramatically downsized? Buster say:

"Work Force Housing", somebody smells federal work projects coming, note the word "Force", they say no federal aid will be needed, but the "Work" will be Federal, and the projects forced, but is this enough to rescue the City of Bend.

I also got this distinct feeling as well. This is LABORER SHIT SHACK HOUSING. My Lord, they even interviewed housing development expert & Cessna exec Doug Oliver regarding this:


Cessna spokesman Doug Oliver said he tended to agree. Oliver said he's not familiar with the Mirada project specifically, but the consensus at Cessna's Witchita, Kan., headquarters is that its Bend plant is destined for growth in its work force, and anything that makes it easier to attract workers from outside the area, if that becomes necessary, will help its future here.

This is just awesome! Classic Bulletin-fueled insanity. Some shithole patch of scrub has been downgraded to Crap Shack Development, so David Fisher IMMEDIATELY runs out to the airport to blow.... errr, uh, interview any Cessna exec he can get his lips on. Their response?


"I don't know shit about this, but the mothership is 100% for stuff that makes us money, including the reclamation of energy from crap, plowing over foreclosed land, cross-breeding alien monkeys with humans, green energy garbage cans, and porno's where chicks go ass to ass on giant dildos like Jennifer Connelly did in Requiem For A Dream. That is the sum total of our knowledge about this issue."

Good job, David Fisher.

Econo-Rocket RETURNS... WITH A VENGENCE!

BEM, smart dude extraordinaire, has just checked in with this nugg:

CACB:

As background, this portfolio represents loans made to developers for the purpose of acquiring raw land and/or for the subsequent development of residential lots. The nationwide downturn in real estate has slowed lot and home sales within the Company's markets. This has impacted certain developers by lengthening the marketing period of their projects and negatively affecting borrower liquidity and collateral values.

"Nationwide downturn." Yeah, right. In other words, "beyond our control," "out of our hands," "couldn't see it coming." Someone at BOTC's been talking to the lawyers...

OK, back to reality. What seemed more likely in 2005, mass hysteria aside:

Option A: that an isolated, small town with no significant economic base except homebuilding and tourism, over 100 miles from any Interstate, over 100 miles from any city with over 100,000 population, over 100 miles from any 4-year college, surrounded on three sides by hundreds of miles of open land, with a population topping 70,000 and a median household income of under $50,000, can sustain indefinitely a median home price of close to half a million dollars, and a property price runup of over 100% in five years is based on fundamental economic strength and is a trend expected to continue into the foreseeable future.

Option B: that when there's been a property runup of over 100% in five years and the median home price approaches $500,000 in a community as described above, a massive speculative bubble has been formed and asset values are unstable; a major devaluation of property prices is therefore expected.

2 things. First this gels with the short thread about Half, OR. If you've never been there, it is one of the more bleak-ass near-ghost towns at The End Of A One-Way Street. If you're looking for others, WALK OUTSIDE. Bend is The Premiere ONE WAY TOWN. People coming here, typically turn around 180 degrees when it's time to go. Typical of places with this characteristic is a 100% DISSIPATION BASED ECONOMY. Fairbanks, AK is such a place. Skagway AK is another. Walk about 100 yards beyond the TOURIST SHMEAR, and you find NOTHING. These sorts of places are hollowed out, gutted communities, filled with borderline catatonic inhabitants going out of their minds.

You can closely figure out THE BUST of such places by going to a local Wal-Mart: They bust the hardest when the auto department is FULL OF GASOLINE ADDITIVES. Why? These places are 100% dissipation economies that ARE EXPENSIVE TO GET TO, AND TO ADD INSULT TO INJURY, IT'S EVEN MORE COSTLY TO LEAVE THEM. Bend is 100% dependent on Cheap Gas, but with oil at $100/bbl, we are dead meat. Namely Bachelor is DEAD. Notice there has been NO MENTION about Bachelor in the Bulletin this year. Why? Of course, Bachelor has busted as hard or harder than RE.

Second, there is an EXTREMELY well-written opinion piece in todays Bulletin, that made me speculate that I have AGAIN, identified who BEM really is. So I'll end this weeks post, with this incredibly smart piece about Bends decline, where the words "Motherfucker" and "smelly cunt" are not even used once:

Bend’s short-sighted planning will have far-reaching effects
By Alistair Paterson / Bulletin guest columnist
Published: January 26. 2008 5:00AM PST

As a transplant to Bend from Kauai, Hawaii, I am struck by the similarities between the two communities. Both are about the same size, have approximately the same number of people and face the same growing pains and challenges, i.e. a rapidly expanding population base and an infrastructure struggling to keep pace with it. Additionally, they pride themselves on their natural beauty and their numerous outdoor athletic activities. Indeed, the prose in their respective tourist publications is so similar one might easily suppose it’s generated from the same source.

What puzzles me is why these wonderful places are so willing to surrender all the qualities that made them so special. There’s still hope that Kauai may retain some of its rural appeal, but Bend, based on its recent past, appears committed to a never-ending stream of new “community” housing developments. Even the most casual observer cannot help but note the large number of cheaply constructed tenement-style row houses that will certainly deteriorate into the slums of the future.

Somehow, developers have convinced the powers that be that these poorly conceived communities serve Bend’s best interest. While the real estate market was booming, their heavily promoted product was quickly snapped up by a naive audience of buyers easily persuaded that this would be their last chance to jump aboard the real estate express. With the continuing downward spiral of the market, however, these same developers are being forced to significantly discount their product. The result is that they cut even more corners in the building process and subsequently market the homes for substantially less money than they persuaded buyers to pay for them over the past few years. Potential buyers would have been well advised to remember the adage “the bitterness of poor quality remains long after the sweetness of low price has disappeared.”

The situation has deteriorated so dramatically that across the nation Bend is perceived as having been vastly overbuilt and on an inventory versus population ratio, the amount of unsold homes on the market is among the highest in the country. It’s well past due that the overactive promotional glands of the visitor’s bureau, the chamber of commerce and the City Council be tempered by these facts. Any more development is not only ill-advised but practically suicidal, at least until current inventory levels have been significantly reduced and infrastructure improvements catch up with the recent population explosion. To even consider allowing Juniper Ridge to proceed under the current conditions is essentially nothing short of criminal.

Yes — planning for future growth is prudent and appropriate, but it’s also essential that the city take off its rose-colored glasses and accept the reality that Bend has a crisis on its hands. The visitor’s bureau spends $250,000 on its most recent advertising campaign but ignores the fact that, thanks to this thoughtless development frenzy, there is no longer even an attractive approach to the city. Anyone driving into Bend — according to current promotional materials the land of blue skies, powdery snow, elegant fare, snow angels and sleigh rides — will instead face clogged roads, urban sprawl, commercial strip malls, enormous billboards, a downtown with the worst festive lighting display of any resort area, and a city sharply divided between the haves and the have-nots.

In more than 30 years of general real estate, I’ve never observed such a lovely community with so many red flags waving at the same time. The current proliferation of gated communities is one of the first signs of a city in crisis, as these only serve to further polarize and divide a community that is increasingly losing all sense of its original appeal and ambiance. I know the people who live in these enclaves will object to this description, but it’s quickly obvious that the vast majority of their residents are recent transplants who escaped to Bend only to work toward the destruction of everything that drew me here originally. If indeed the tourist bureau’s promotional material is to be believed, why are gated areas a requisite at all?

The impact of such short-sighted planning coupled with a nationwide real estate crunch will have far-reaching effects for the city of Bend. I believe it will be at least four years before the median real estate prices return to those of 2006. It’s vital to remember that sooner or later, you reap what you sow, and if there is not an immediate perspective adjustment at every level of planning and promotion, then the only thing requiring more money will be a minor name change and new entry signage stating “Welcome to Bend — a gorgeous little community until greed took the lead.”

Alistair Paterson lives in Bend.




Monday, January 21, 2008

Bend Oregon: Real Estates New "Britney"

OK, here's a chart of 3 data points. Imagine it's the sales for 3 different stores. Which store would you rather be?

USA (yellow), Oregon (red), and Bend MSA area (blue) unemployment rates from 1990 to Now. (y-axis inverted)

Welp, it's actually the unemployment rate for Deschutes County (blue line), Oregon (red line), and the US (yellow line), going clear back to 1990, the first year all three stats are available.

A few things become obvious right away.

First, and by far the most important, is the wild cyclicality of Bend. Some of those years in the 90's swung from about 11% on the bad side, to 5.75% to the good. You see Oregon doesn't swing nearly as much as Bend. And the US as a whole does not swing nearly as wild as Oregon.

This goes to the point I made repeatedly on this blog, and way back on BEM's: Bend is extremely "high beta". When things are going poorly, or even if they are going so-so, Bend is in the shitter. Look at that initial 4 year plunge starting in 1990: From just about 4% unemployment, and then a series of lower lows & lower highs, culminating in 11.1% unemployment in Feb 1994.

Now look at the Good Times: In 2000, unemployment reached a low of 4.5% in September, before beginning a relatively brief "2 cycle" ratchet lower to 9.6% unemployment in Feb 2002. Notice also that when unemployment is relatively low, it "compresses"; the swings from high to low have less amplitude.

The beginning of the graph is more indicative of the severe drops that have been experienced by the Old Timers (aka Duncan). That 1994 swing appears to be the largest in the past 17 years, although I'll bet there were times in the 80's when the swings were wilder, and the figures got far bleaker.

The reason I ask if you could choose one, and act as if it's a store, is to bring out that point that The Severity of the swings, is probably going to be more important than the absolute levels.

This is what I find interesting about Duncan's store in particular vs Bend: He runs an almost pure fad business (at least as faddish as you'll find alive around here), but he has diversified into several fads. He's employed a "portfolio management" approach to managing his store. You can sense it in his yearly updates & store rules:

  • Carry all the classics, cult, personal interest/and/or books you like.
  • If you've ever been in my store, you know what my focus is on -- inventory, inventory, inventory.
  • But what I carry, and how much? Totally under my control, baby.

Same goes for managing a stock portfolio: Buy a little of everything, and all the little wild swings of the individual components cancel each other out. Which leads to Paul-doh's rule of running a town, a store, or a stock portfolio:

DIVERSIFY

If you do not diversify your "stock", be it shares in a company, comic books, ski resort, an entire downtown area, or what have you, they will ultimately carry you out.

That's why I was sort of surprised that Anime Mountain lasted so long: They took a "1 stock" approach to a fad business. And realize that MOST BUSINESSES ARE FAD BUSINESSES. There are exceptions like GE and Johnson & Johnson. But most successful businesses have a definitive End Date.

And you can measure the Faddishness of Bend by looking at it's wild swings in unemployment. And being fad-based is EXTREMELY EXPENSIVE. Every year, you MUST layoff Good People, suffer thru the Hard Times, and then ATTEMPT to hire back the good ones again, usually unsuccessfully. All that mind share just goes away every year, and you have to hire a new crew.

In some industries, like Hospitality & Restaurants, this is less important. They expect high turnover. But in Real Live Businesses, it's INCREDIBLY EXPENSIVE. Look at Pegasus itself: Retail isn't exactly an industry breaking down the doors with Intellectual Property, but you can already tell that Dunc is getting used to living the "Pat Lifestyle", and losing him would be hell. Although it's clear much of the hard-won experience of running Dunc's business is embodied in Duncan himself.

How do you think it'd be in other industries like accounting, software, law, and other higher level intellectual property-based businesses. In the most extreme circumstances like real estate, the people ARE THE BUSINESS. You should never, EVER buy a business like that when 100% of the intellectual property walks out the doors at 5:00.

And therein lies Bend's Biggest Liability: We are wildly high beta, which means we are wildly expensive in an area that is probably more important than just cost inflation: The most valuable asset in many businesses are forcibly blown out the hatch each year, and we then start ALL OVER the next Summer, all training & knowledge-based experience, LOST.

But WAIT. Look at the graph! We're having some sort of Bend Renaissance! Our unemployment actually went BELOW the national average for the first time EVER, in recent history! That's gotta count for something, right?

Maybe. Maybe it would had we followed Paul-doh's single rule for running a store, town or stock portfolio. What's that rule again? Oh right:

DIVERSIFY, DAMMIT!

Unfortunately, we did not follow this rule, and we in fact did the opposite: We doubled down on our winner with each and every bonanza. And we did it to hella good effect, too. Bend probably actually is a far more vibrant town that it would otherwise be, had we plowed money back into industries with lower interim returns than RE. So our doubled-own mentality has worked.

Until now. We made a bargain with the Devil that we'd give our souls to be the bleeding edge, top of the heap town for 3 years, and now it's time to pay. Check the graph: Our "high" on this recent cycle was lower. We will make a new low next month, we always do. And December is already lower, so the cycle of lower highs & lower lows has begun. The devil wants his money, NOW.

Poor Bend, we are not only stricken with vicious yearly cycles, but "long-wave" cycles; waves within waves. Just draw a line thru the middle of our yearly cycles. You can see that the 90's were a giant bowl shaped cycle. The swings get hella wild (ie EXPENSIVE) on the lows, and when things turn up as they have in the past 6 years, the swings become tempered, and we approach, dare I say it, normalcy. There's a feeling of an Economic Renaissance, where the vicious cyclicality of the past is banished forever, and Bend becomes a Real Town, not a giant T-shirt shop.

A town where people's intellectual capital survives The Yearly Cycle. A town where workers are valuable ALL YEAR, not just when it's warm. A town where half the businesses owners DO NOT consider closing up shop. A town where you can actually pay your bills in January. A town where half the Winter income is not paid in Bachelor barter exchange.

Then apply this yearly swing, to the longer waves. There is a periodic purge of Bend on longer time scales, where entire industries are blown away. Timber first. Now we have a behemoth RE industry, built on the premise of DOUBLING DOWN NEVER LOSES. Unfortunately, this is wrong. Doubling down ALWAYS loses, it's just a matter of when. Well, it's now.

I think some people think we'll do a short cycle down, and pop right back up the New Highs. Well, maybe if we'd had Duncan running the show -- maybe. But we are The New Britney. Or should I say, we are the older, dumpier, lip-synching, snatch-flashing, coked-up Britney.

We are past our prime, unfortunately. The Old Britney, dead-smokin hot in a Catholic schoolgirl out fit, just isn't coming back.

We're on The Long Wave down, I'm afraid. Lower yearly lows, and lower highs. Wasted human capital, a condition that just gets more severe every year.

And not to rub salt in the wounds of the True Believers, but do you recall Paul-doh saying that the imploding RE market would infect every corner of our economy to a degree not seen in modern history? And I don't want to remind everyone that I don't think it'll stop at a mild recession, then we're on to bigger & better things. I think that the US itself will be supplanted as The World Superpower. Time to learn Chinese...

Look at the frantic Fear In Their Eyes:

  • George Bush reschedules an economic press conference forward 10 days, because it CANNOT WAIT 10 DAYS.
  • Citigroup (and others) goes begging in the Middle East for capital TO KEEP THE DOORS OPEN.
  • Not just banks, but ALL financially leveraged companies are imploding towards bankruptcy.
  • Stock market plummeting

Look at this chart of MBIA, bond insurer extraordinaire:


From $70/sh to damn near $7 in 3 months. These guys are in the perilous business of paying off debts when others default. I won't bore you with another CACB chart showing a 67% loss in the past year.

So what's the Bad News? Well, we've started a Long Wave down in Bend, which is simply lower lows & lower highs. And I say again: There is NO INDUSTRY IN BEND immune from it's deleterious effects. A rising tide carries all boats, but a falling tide grounds them all too. Mark my words, we'll see 12% unemployment one of these next 5 Winters. We doubled down, and now they'll carry us out.

The Good News? Bend's yearly cyclicality ends in February, mercifully. Things are about to do their yearly upturn.

But we WILL NOT hit the recent peaks again. FOR YEARS. If you are having troubles now, you ain't seen nut'n yet. If you own a business with a lease coming up for renewal, and you're doing some major 401K-to-payroll transfers, you'd better think hard about whether you want to squander your retirement on a Dream. Look at the Unemployment Chart ONE MORE TIME. It's gets DAMN BAD HERE WHEN IT GETS BAD.

Can you survive, is the question. I know a LOT of people who watched the money pile up over the past 3-4 years, and have a decent slug in the bank, and are plenty comfortable waiting out this "temporary slowdown", having enough to easily make it 2-3 years. But what about a long, protracted Depression, lasting WELL OVER 10 years?

This is Bend's specialty: Running your 401K down to NOTHING, while you wait for the Sun to Come Out Tomorrow. If you want Real Advice, FUCK THIS BLOG, go talk to someone who hasn't just survived 1 or 2 LONG WAVE tsunami's, but damn near all of them.

In response to Buster, Duncan say:

My dear boy,

This is nothing. If you had walked up to me on the sidewalk in 1992 and blown in my face I would've fallen over.

15 years ago, I was operating with no assets, huge debt, and sales dropping in half. Half, I tell you! It was a near business death experience, which it seemed I fought my way back from one inch at a time.

Not to mention the wasteland that was downtown Bend from 1982 - 1987.

Or the second time sales dropped in half from 1995-1997.

No. This is like having been on the Russian front for a few years, and coming back to the National Guard for storm duty.

I'm only worried that I won't make the profits I was hoping for. Profits that would make me feel much more secure about my next lease negotiation.

January 18, 2008 8:48:00 PM PST

BUSINESS TURNS DOWN IN BEND. Always has, always will. Try to divorce from your mind that BendBust or I are trying to Scare You Outta Bend. Is Duncan trying to? I'm not trying to scare anyone, but I'm trying to ask people to reassess their own financial situation: Can you & your business (and by extension, your job) survive an Extended Long wave DOWN?

Assess whether you will take the tsunami head on (RE, development, mortgage, etc), or get pounded by the far less severe secondary waves (upscale restaurants & "boutiques"), or the far less damaging tertiary waves (basic necessity providers, medical, and must-have business supplies).

Here's my advice:

If you are in the Tsunami Head On group, Get Out. Or you will end up like the people who thought they could "beat" St Helens exploding and hunkered down. You can't "beat" this thing. It is an overwhelming force. It will carry you out, no matter your resources. It will scour the ground clean, and your corpse will simply be floating in the ocean in a year or two. Get Out Now.

If you are in the second group, look at your personal finances. How many years (months?) can you survive at a permanently lower level of sales, with constant or possibly HIGHER expenses? How bad do you REALLY want to dissipate your savings to wait for a Long Wave top that may be 15 years away?

The third group should simply hunker down. Some will not feel much of a beating, medical being the biggie. Entertainment is another. But they WILL feel something. EVERYTHING will. This thing is country wide. It's just going to be extraordinarily severe here.

DIVERSIFY

Deep? You're Dead.

Bend Medical Center? You'll live.

Downtown Art Gallery? Dead.

Dandy's Drive In? Alive.

Sisters? Dead.

Regal Cinema? Alive.

Half the retail at The Old Mill? Dead.

Overly targeted faddish bullshit retail? Dead, bigtime.

Pegasus? Bruised, but alive.

Downtown Redmond? Dead.

Grocery Stores? Alive.

Upscale Shoe Stores? All dead.

Normal people shoe stores? Alive.

You can survive, but you'd better realize that NOW is the time to HUNKER DOWN. Eternal Optimism will leave you DEAD ON THE SLOPES OF EVEREST. Even if you are hunkering down, The Largest Threat to your survival is the Delusional Perceptions Of Your Landlord. Some are pricing downtown like it's The Ginza in downtown Tokyo. Of course, most will DIE ON THE SLOPES OF EVEREST by doing this. In the process they'll simply kill half of downtown.

We're in the long wave down folks. We're the New Britney. How many Britney albums would you buy if they cut the price in half? That's just a weird question, as it assumes dropping price will have some ability to put Britney back on top. It won't. She is over, and you could give away her shit, and there'd be few who'd ever expend the money to drive to the store to pick it up for free. Here's how BEM put it:

With the number of houses on the market today, sales of 74 houses in December means that BUYERS ARE WISE that you'd have to be a fool to pay anywhere NEAR asking price for ANY home in Bend. 74 houses sold out of 1500+ offered means that very, very few people are saying "let's just buy this place. Sure it's a bit more expensive than we'd like, but we love it."

Realtors like to describe this situation as "buyers on the sidelines" or "vultures circling." That's actually optimistic, I think. I think that there's no one on the sidelines and no vultures anywhere near. I think if you lopped 50% off of the price of all real estate in Bend, it would still take MONTHS to sell. People (including lenders) have caught on to the notion that we're in the early stages of a MULTI-YEAR downturn.


This exactly our situation. Cut price 50%, and almost nothing would happen. And I've put it out there, that due to The Cult of Bend, and the Kool-Aid factor that No One Will Lower Their Price. This is only half the picture.

There is the even worse circumstance of MANY in Bend who CANNOT lower their price. They do not have the assets to cover a short sale, and going BK means 10 years of FICO bad luck. F'd if they do, and F'd if they don't. I believe I've heard this mantra before. Who was it? Oh right, Buster:

Bend is FUCKED

I know, it's easy to dismiss this as the ravings of a lunatic. Maybe that's because that's sort of what it is. But that don't mean it's wrong. He's dead right. Dammit. There is no better way to summarize the plight of this town. Half WILL NOT do what has to be done to jumpstart our economic engine. The other half CANNOT do it. Hence, we're headed for the WORST OF ALL WORLDS: Stagflation. The stagflation the US will suffer will PALE in comparison to what will happen to Bend.

Our city coffers are damn near bare. We are FIRING COPS because we wanted homes, and to hell with REALISTIC SDC charges. We can't patch the potholes. Our vast unfinished developments are damn near 100% VACANT. We are on the hook for millions in improvements, mainly in the JR area. Jump starting that are will take a MINIMUM $200 MILLION. We ain't got $2 million. "Bend is fucked", is dead right.

We're the New Britney. We're Flint, MI. Marking down price won't do shit. We're headed for the tsunami hit. Not lasting for a year or two. Decades. Your ENTIRE ADULT LIFE. It's time to REALLY REASSESS if you are willing to sacrifice IT ALL to stay here, because you will have to.

Ask yourself: Where are you in the path of the tsunami? If it'll hit you head on, are you going to uproot everything, move on, and survive, or will you take the hit, and watch EVERYTHING get stripped away?



What does a bursted has-been bubble look like 10 years hence? Well, kinda like this.


Monday, January 14, 2008

Bends Mayor Arrested and Jailed For Embezzlement

Yup, that's my next prediction for little old Bend.

Well, it's just a variation on my October 15 post, when none of this Inn of The 3rd Rock - Pape - Cascade Bookkeeping business had come public. I think I put it pretty eloquently:

SOME DUMBFUCK IS GOING TO JAIL FOR FELONY FRAUD.

Prediction:

One or more Bend City Councilors will be perp-walked out of City Hall in the next 3 years.

Anyone who's been in Bend knows that local government & local business is so incestuous, that they will ultimately co-mingle their interests to such an extent that someone will hang, IF it ever leaks. And leaks happen when the feeding trough goes dry. It's dog-eat-dog time, and the jackals are turning on each other. During the Bubble it happened, of course, but Kool-Aid was flowing in such volume that they were all comfortably numb. To wit, the Ridgewater small-scale HOA scam by Cascade Bookkeeping (pdf):

October 11, 2006
To: All Ridgewater Home and Lot Owners
From: Ridgewater Board of Directors
Subject: Dues increase for 2007

At the October 10, 2006 Board meeting, the Board voted to raise the dues $4.00 per
month. To help all homeowners understand the need for this dues increase, the following information has been provided to you. This increase will be effective for the 2007 Fiscal Year that runs from January to December and will be payable with the June 1, 2007 billing.

HISTORICAL INFORMATION
In 2002, when Ridgewater was formed as a HOA, the dues were set at $40 per month.
Shortly after the formation of the HOA, the dues were decreased to $36 where they have remained through 2006. The dues were structured so that $28 was for operations and $8 was for reserve funding.
At the February 2006 Board meeting, the first meeting of the current Board, we
discovered that the Reserve funds were not present in any cash account in the amounts
expected for the time period dues have been collected. The past management firm,
Cascade Bookkeeping, was allowed by the past Board to co-manage the checking and
reserve funds. As a consequence, Cascade had occasionally transferred cash from reserve funds to operations. The major reason for these transfers appears to be the extraordinary expenses for Cascade Bookkeeping’s services, averaging close to $1000 per month for the first 4 months of 2006. As best can be determined, the reserve funds were short about $10,000.
For this reason and others, your Board terminated the services of Cascade and began to run the HOA day-to-day affairs internally. We also hired the services of Peterman Inc to do our bookkeeping/financial management with strong Board oversight.
Besides carefully managing expenses, the Board setup a Money Market Fund for reserve funds that required a majority vote of the Board to use any funds from this account. At $8 per month per lot, the reserve funds should have around $4900 per year contributed each year.
To begin to recoup the expended $10,000, the Board decided to contribute 35% of 2006 dues to this reserve account that amounts to a total contribution of around $7700. At this rate, we would recoup about $2800 each year. In other words, in about 3 to 4 more years (beyond 2006) we would recoup the $10,000.
Also during the February 2006 Board meeting, the Board voted to monitor our cash
position and expenses to determine if a dues raise would be necessary rather than raising dues for the current 2006 fiscal year. In the next section, this review is summarized.
CURRENT FINANCES
Using historical costs for the last year, your Board prepared a pro-forma budget (Table 1) that indicates at the current $36 dues, we would be in deficit about $3700 for the next year. Since that is an untenable situation, the options were:

1. Cut expenses
2. Raise dues
3. Reduce contributions to reserve funds

The Board viewed as unfeasible options numbers 1 and 3. Expenses have already been
cut to the minimum and maintaining the additional catch-up contribution to the reserve
funds was seen as crucial for future years. For example, this next month we will seal
cracks in the streets. While this only will cost $425 within 3-5 years we will need to do seal coat on all the streets. By doing this, we hope to have our pavements last 30 years.
However a seal coat currently costs about $13,000-$15,000 for our streets. The cost of oil products will determine the actual cost at the time a seal coat is needed. Other items to be paid from reserves include, repairing or replacing the commons fence, the mail kiosk, and irrigation system.
By raising the dues to where they were at the start of 2003 ($40 per month) and
maintaining the reserve contribution at $7700, the Board estimates that the deficit will be $1230. The Board feels that this is manageable since if certain expenses, such as snow removal, catch basin services or legal expenses, do not come in as high as predicted, then the budget will be close to balanced. The Board selected this option and voted unanimously to increase the dues to $40 per month ($480 per year). The billing time will be the same as currently done in June.
As previously noted, the Board is providing you with this information so that you can
better understand the facts leading up to this decision. By our By-Laws, the Board is
authorized to raise dues up to 20% by simple resolution and a vote of the Board.

Ahhh yes. The usual Central Oregon Shuffle. How many accountants are actually jailed for embezzling funds around here? 50%? Seems like it.

Ridgewater is some penny-ante neighborhood that wanted to start an HOA, and figured they'd do things right & hire a bookkeeping firm with connections. Little did they know that CONNECTIONS COST MONEY, and one of the side-effects of having the Mayor do your taxes, is that he steals from you.

All in a days work in Bend, Oregon.

What's sad, is you can see in this letter, that Cascade has ripped these people off for HALF of their yearly revenue. Do you know any business or entity of any kind that pays HALF their revenue for "Accounting Services"? I owned a business and considered 2% of revenue to be outrageous.

50% was for "extraordinary expenses" for Cascade Bookkeeping, like Linda Johnson throwing a Botox party for local developers after giving away millions in taxpayer land, such as prime downtown parcels where Lava Court apartme.... errr, condos, will go.

Again, this sort of thing has been happening in this 2-horse shithole town FOREVER. It's just that now, there ain't no wildebeests anymore, so the jackals are going to eat each other.

And if you know ANYTHING about the US Justice system, you know the outcome is usually determined BEFORE anyone sets foot in the courtroom. It's about money, pure & simple, and Pape's got it, Friedman don't, so he'll go down, HARD. We can only hope Linda Johnson goes with him.

And I guess there were some errors in who owns what, and then the requisite whaling... my philosophy is that errors are OK as long as you try to self-correct them, or at least acknowledge that in a forum of this type, they'll get rooted out & "exposed". Better that than what we have now, which is egregious lies knowingly spread by local media. Why "knowingly spread"? Cuz they NEVER correct glaring errors. "Most of The Plaza units were sold"? "Franklin Crossing sold out"?

This blog is about getting to the truth, and I myself have been waxed when I've made errors. Waxed HARD. Don't take it too hard Brucey. Even when you're right, BendBust will let you have it if he's been to Silver Moon for an evening cocktail. Nature of the beast I suppose.

I owe you a burrito

Speaking of egregious errors, I bet BendBB that we'd see medians in the $200's by years end. Alas, it did not come to pass.

See, I picture Bend RE like a big co-op bazaar: Vendors (Realtors) selling goods made by others (home sellers). Now, my bet was that the Vendors would act in a profit-maximizing fashion, and ratchet prices lower, in response to dramatically lower demand when the financing went away.

Well, the financing & demand DID go away, but the high price remained. Why?

The Cult of Bend. The idea, spewed forth from every person & institution for years, that Bend Is Special & The People Of Bend Are Special, And That We Therefore Must Not Accept Anything Less Than Absolute Top Dollar For EVERYTHING, Most Especially Our Homes.

They asked us to believe this myth so persistently and for so long that it literally has become part of the ethos. It is unquestioned.

I assumed rationality & free-market behavior would out when I made my bet with BendBB. Wrong. That simply doesn't work when you are in a cult. People were asked to drink the Kool-Aid, and they did. Now Jim Jones is asking them to do something counter to their brainwashing, and they are balking.

And so we have arrived at the current state of affairs: 78 residential homes sold in Bend in December, probably one of the lowest per-capita figure EVER.

Now, I haven't really seen final price data for December, but I'm willing to concede that BendBB got the better of me on this one, and won this bet. But he isn't saying much about it. And I'll just guess that it's like this: I bet we'd be overwhelmed by a volcanic eruption, and he bets No, and ultimately he is right, because there is a tsunami instead.

One sort of disaster didn't happen, but another did, and it seems that maybe the second disaster is actually worse. And this is the reason:

Would you rather place a $1 bet on a coin flip & get $2.20 if you're right, or bet $1 & roll a dice and get $4 if you're right?

I'd take the first, despite the fact that the dollar payoff is smaller. Bends housing market is like the latter bet: People are ASKING high prices, but precious few are actually cashing in. (If you are in fact deluded, and believe that you are Special & in some way immune from The Odds, you would take the second bet, because the dollar payoff is higher, PERIOD. THAT is the current state of the Bend RE market.) That's the "Months Of Inventory" equation. Technically BendBB won our bet, but even he seems to realize that determining a real "market clearing price" is damn hard when volume dries up. From a June 15 post (sorry, I only go there via anonymous proxy anymore, so I can't grab a URL):

Bay Area home sales continued their downward slide in May, with fewer properties changing hands and the mix of sales tilting toward higher-priced houses.
...
"Sales are really low; you'd have to set the clock back 12 years to find another May with lower sales," said Andrew LePage, an analyst with DataQuick.
...
The rising median does not mean that home values are on the upswing. Instead, it shows that the proportion of high-end sales is increasing, while comparatively fewer lower-cost houses are selling.

So I guess I lost this bet. But I think even BendBB may think it's a Pyrrhic victory: Medians in the $200's would probably actually be preferable to what actually happened; a market in the doldrums at multi-decade lows in terms of volume.

We'll see medians drop, no doubt. But I guess it'll be predicated on how long it'll take the Programmers (Bend media, Realtors, etc) to deprogram the Bend zombies. And look no further than the Complete Failure of the Fake Auctions around here, and you see the aftereffects of The Kool-Aid are still in control. It's taking longer than I thought. So I guess I owe BendBB a burrito.

Norma DuBois: Still Shoveling Shit

A few weeks ago I went to Typhoon to have lunch (really good, but WAY too expensive for what you get...), and I picked up Norma "Sold Out Again" DuBois' flyer for the commercial space in Franklin Crossing. Now, it's been well established that Norma is a lying sack, but she also has a flair for the Idiotic. From her flyer:

Just four streets define Bend Oregon's most precious asset -- it's popular Downtown District. Between Greenwood and Franklin, and between Wall St. and Bond, the indefinable spirit of Bend (both past and future) becomes visible.

Any given day, you can see the mix of business and bohemia, the blend of tourists and locals, the mindset of a mountain town driving an agenda for global business.

Seriously, I have to stop reading at that point because it's so ridiculous.

Our "most precious asset"? Awesome. Right, it's the "Downtown District", which MUST be capitalized, as it is equivalent to being it's own country. Maybe if we suffer from some sort of mass-extinction ala I Am Legend, Norma will see that without any humans, that the Downtown District isn't quite as vibrant.

I like how the INDEFINABLE becomes VISIBLE downtown.

Q: "Holy Shit, do you see that?"

A: Yeah, it's like some sort of Indefinable Spirit that has become visible in Bend's Downtown District!"

And it's both PAST and PRESENT. My Lord.

"... the mindset of a mountain town driving an agenda for global business."

Ummm, what? Were you in front of an art gallery, an overpriced sushi restaurant, t-shirt shop, or a shoe store, when you saw our "agenda for global business", Norma? Illusions of Grandeur. Or is it Delusions?

This Eyes Bigger Than Stomach phenomenon is still widespread amongst Bend's Bubble Elite. They still believe Bend is something it ain't. They honestly do.

We're a town of about half to 3/4ths redneck contractors with a 6th grade education that stumbled into a once-in-a-lifetime Bubble, and have mistaken 12 wins in a row betting red for talent, but we just lost it all on Lucky 13 are in the throes of having our winnings forcibly returned.

We ain't a a hub for Global Business.

We're a town at the end of a dead end drive that takes a minimum of 3 hours from anywhere, a drive that costs about 500% more than it did a few years ago. And our Biggest Industry of Selling Unneeded Homes to Tourists at 500% than a few years ago, has just imploded. Family wage jobs are the only thing imploding faster than the RE trade. And we're just waking up from The New Math, where 2 + 2 COULD equal 9. But now, without the leverage, without the Kool-Aid, and without the money for implanting DD's on every 50 year old skank, it ain't so great to be here.

Well, it's OK. It's just not as great as it was for that short span a few years back when everyone was a genius, everyone ate fillet mignon & drove Hummers and the silicon implants still held.

It's called Reality. And unfortunately, when it hits, all of a sudden 2 + 2 DOES equal 4 again, and we all have to get by without the punch bowl. And those with brutal hangovers seemed to be blaming those of us without, for their own indulgence:

Besides, since you are just a loser renter, this blog IS your life. Please keep it up. It is fun entertainment laughing at losers.

A comment from last weeks entry, someone obviously upset that they are suffering brutal losses, or cannot sell a home to save their life. My response:

But you're right, I'm pretty angry.

Angry that instead of blowing $3K/mo. on the house I'm renting, I blow $1K, and put the rest in the bank, so I can buy your shit shack in 5 years after you've lost EVERYTHING.

Yeah, I'm real angry about that.

I'm actually socking away more money than I have in my life, thanks to Renting In Bend. I've said ad nauseum, that I thought Rent And Invest the Difference is far and away The Best Investment ANYONE could make in Bend. And as an addendum, just so I'm clear: When I say "Invest the Difference", I DO NOT mean invest the difference in Bend real estate.

As BEM said long ago: There is NOT an affordable housing issue in Bend. There is PLENTLY of cheap, "decent" quality housing if you want to rent. In fact, factoring in what will almost certainly be exorbitant maintenance costs of upkeep for the shoddy quality of what has been built, Renting In Bend is damn near the Only Option. If you bought ANYTHING built in this town after 2003, then you know what I mean. And by "decent" quality, I mean you can rent it Brand Spanking New for the first 3-4 years for 1/3rd the cost of buying, and then abandon it & move on to another brand new rental once the first starts falling apart.

Rent And Invest The Difference: The Only Thing I'm Totally Sure Will Work Here Over The Long Haul

And finally, I guess it's becoming brutally clear that the housing-led implosion of the US economy is moving to the forefront of national attention. It is now THE leading issue in the run for President. It is constantly in the national news. It is #1 on any online media business outlet. It's not a question of "IF" anymore, but "HOW BAD".

Strangely enough, it is hardly mentioned locally. Real estate pieces that proliferated like rabbits when the Bubble was in full-swing, have all but disappeared. The Bulletins Saturday stand-by, "What's Going Up", which used to cover mega-commercial ribbon-cuttings, has been reduced to covering 2-unit condo starts.

I know we'll see The Bulletin cover last years RE performance, and there'll be some small measure of gloom. But there will be far more misdirection & unfounded ebullience, if they stay true to form. Look for it. And realize that it is this sort of misguided "We'll Market Our Way Out Of This" Kool-Aid induced catatonic embolism, that will keep Bend from recovering for many, MANY years to come.

You can easily see that people are so used to perceiving that news SHOULD BE spun for the benefit of some chosen few, that I got this sort of comment last week:

Q: Are you willing to comment about your holdings or business goals? Without that info, it doesn't add up that you're trying to help Bend homeowners.


I'm neither trying to help or harm anyone... I just don't think that's possible. I ~think~ I can give people a much clearer & less biased view of what is happening in Bend RE, that they certainly are not getting from local mainstream media. I am trying to mitigate the institutionalized spin that is firmly entrenched in this place.

I don't really benefit from any sort of collapse in Bend RE, and do not expect to own here ever, because I will ONLY buy when it is very compelling from a personal finance standpoint, which I doubt will happen in any relevant time period. Bend will literally have to collapse overnight for me to buy. I can buy today... but I won't because it is financial suicide. I like fattening my bank account every paycheck, not some mortgage company.

I have to dispute the idea that MY own holdings somehow shed light on my motivations. I don't really have any motivations for "moving the market" because as I've said many times, I think that's impossible. This thing will collapse of its own accord. But if it helps you, I'm largely in cash.

In fact, the point of this blog was to air views regarding real estate that are not HEAVILY influenced by some media agenda. Maybe there are people with some pre-determined agenda posting on here, but they will be thrown into the pot with everyone else. ALL views are aired here, from the ludicrous to well-spoken, and all in between.

I'm sick of being SOLD THE NEWS. Tell me the news, STOP selling me a condo, STOP printing RE PR, stop the BULLSHIT, stop the SPIN.

If Bend media would stop spinning for the benefit of a chosen few, this blog would probably go away due to lack of interest.

Believe it or not, I don't make money from this blog. I know, unbelievable. And I NEVER expect to buy a house in Bend. I think that by the time medians hit some sort of free-market price & I find a house I would actually WANT to buy, that the local economy will be in such sad shape that I and many others will have fled.

It's a Catch-22: We need affordable homes on a massive scale AND we need living-wage jobs. Our economy has been skewed so massively by Bubble-nomics, that I'm not sure we'll EVER be able to achieve both in some time period relevant to many people who live here. The financial contagion spawned by the Bust will infect every corner: look no farther than a chart of CACB to see the impact of this spreading plague. And note Patty Moss' change in tone, from the 3rd quarter to the 4th:

Q3:

Cascade Bancorp President and CEO Patricia Moss highlighted the positives, noting that the bank has avoided much of the financial damage inflicted on more aggressive players in the residential mortgage markets.

“In an environment of slowing real estate activity that triggered recent turmoil on Wall Street, Cascade continued to deliver solid financial results,” Moss said in the press release. “I am pleased to report the company does not have direct exposure to the highly publicized subprime mortgage issues because it neither originated nor purchased such assets in its loan or investment portfolios.”

In a phone interview, Moss said the bank’s continuing deposit and loan growth is a sign that its long-term growth prospects remain strong, despite the drag from residential real estate.

“We are in such fabulous markets, with Bend, Medford, Portland and Boise, over the long term we think we are positioned better than anybody,” Moss said. “... We have the number one growth footprint in the Northwest.”

Q4:

"The softness in our real estate markets has worsened in the past quarter, putting increased pressure on cash flows of developers and builders of new homes and subdivisions," said Patricia L. Moss, CEO. "While we are disappointed in reporting this action, we feel strongly that it is prudent to be assertive in recognizing the heightened risk in this segment of our loan portfolio." She added, "Despite the immediate cost of these steps, Cascade remains a solidly profitable and well-capitalized institution serving some of the best growth markets in the nation. I am confident that the long-term strength of our markets and our experienced management team will enable us to effectively navigate this downturn in the real estate cycle."

You see Moss, despite being slapped upside the head with Reality, is still is bobbing for apples in the Kool-Aid vat.

The Cult of Bend: It'll be the death of us all.

Monday, January 7, 2008

Take off the Beer Goggles, and Start ta Chewin'

Addendum:

Bend Median and Average Price per square foot drops to lowest level in 2 years:

Prices drop below $200/sf, first time in almost 2 years, down 18% from June 2006 all-time high.

Damn! Another week where the desperation meter on the housing market seemed to redline all week! The fear was palpable, and was best manifested in the absolute plummet in Cascade Bancorp shares. CACB lost 25% in the last 9 trading days, and 50% in the past 3 months. Here's a 3 year chart:

If I had to choose some sort of "leading indicator" of Bend's economy, this would be my #2 choice. The tentacles of CACB's financial grip on this area make its share price a pretty damn good indicator of the area's financial health, in my mind.

"What's the most important indicator of Bend's financial health?", you ask? Well, I'm glad you asked, and if you'll just shut up for 2 seconds, I'll answer. It's this:

Months Inventory, Bend OR. Y-axis Inverted

Anybody who is even a remotely regular visitor to this blog, should know well that I consider Months Of Inventory to be THE primary indicator of RE health in the area, and further that RE Health = =~ Total Economic Health, at least in the Bend area.

And I inverted the axis, mainly because "rising" graphs are most easily associated with "Good Times", and falling with "Bad". Now, the final data point in December 2007, are estimations: the data won't be finalized until later this month. But I used 1,275 actives, and 74 sales to make the computation. I got the 74 solds from a post on BendBB, and the 1,275 is a low-ball estimate from my own "vague recollection" of running a query on COR, and getting a number in the 1,320's. So I lowballed my own estimate by about 50 homes.

And look at that leading plummet in Months-of-Inventory vs that CACB chart: It's like that baby had eyes! Months of Inventory led the stock markets own best guess about the financial health of CACB, arguably one of the most important companies in Central Oregon, and one hell of a bellweather.

If you compare that plot of Months of Inventory vs home prices, you see an almost pathological correlation: Prices ain't moving, while inventory is skyrocketing! If this was a store, it would be a ghost town with inventory piled up in the aisles. And you might wonder WHY the collective behavior of a group of people could be so oblivious to such an obviously rapidly deteriorating condition?

You need look no farther than the recent editions of The Bulletin, as usual. The Jan 4 Business headline, "Why relocate to Central Oregon? Companies cite region's quality of life, relatively low cost of doing business".

Wow! Whoa! We're finally going to get some nice, rock-solid reasons that the Big Boys have shrugged off the clearly wrongheaded advice of this blog, and are running headlong into Central Oregon, right?

Huh. See, you'd think that, given the title of the article. But it's funny. Seems David Fisher named the article FIRST, and did interviews SECOND. Cuz when you actually READ THE ARTICLE, you read quotes by execs from Integrated Environmental Technologies, saying things like:

"... currently Bend is comparable to other places, but I don't think I would characterize it as overly favorable."

Whoa! Talk about your ringing endorsement! What's next?

"I am indifferent between relocating my company to Bend and the smoking caldera of a volcano."

And with a name like Integrated Environmental Technologies, you'd think we are hitting the Big Time, right? Ummmm, no. IET, it seems, makes garbage cans where they burn garbage. OK, fine, they make real kick-ass garbage incinerators that burn the hell outta garbage, sort of what I did when I was a kid when I threw aerosol cans into burning garbage cans. Except they charge millions, and got "scientists" studying this stuff. It's companies like this that make me feel smart, cuz they pay big money to guys to figure out the scientific niceties of the aftermath of pyromaniacs like myself.

So, we have this company that rates Bend about a "4" on the business scale, why are they moving some of their office operations here?

"... the ability to recruit."

Whoa! Again, we have found a braintrust that has clearly done their homework. The ability NOT to recruit in Bend has been hashed over ad nauseum in this blog, so I won't do it again, but if you are moving to Bend because of the favorable recruiting atmosphere, you are an idiot.

Then later in the article we get this nugg, courtesy of Roger "Bait-and-Switch" Lee, EDCO muckety-much:

"EDCO gave IET's board a sales pitch on the advantages of Oregon's tax structure and utility rates, Lee said. Other than that, the company's (sic) executives toured the area on their own and made the call to move here. "We didn't have a chance to sell them on the community at all, " Lee said."They went shopping and sold themselves on it."


Ahhhhhhhhh. These geniuses "went shopping" to figure out whether to relocate here, or not. See, I wanna know where they went, in their quest to figure out whether to relocate their company here. Victoria's Secret? Safeway? Wal-Mart? Where?

Now, I'm not saying you should do this, but when IET does their IPO, I might not buy shares. Because if you make business decisions on where you're going to relocate your company based on a visit to Home Depot, you aren't going to get any slice of Paul-doh's humble retirement pie.

OK, OK. So maybe IET is a statistical outlier. They are barely making any sales of their kickass garbage cans, and figure a visit to an adult bookstore in Bend will hold the answers. Clearly David Fisher winnowed out some Real Winners that are picking up & making the important decision to move their operations, logistical, manufacturing, marketing, and finance divisions to Bend, right?

You're damn right! The Bulletin is all about brass tacks reporting, and giving it to us straight, and there IS a company that is moving it's considerable bulk to Central Oregon, and frankly I don't know why it wasn't picked up by the Wall Street Journal. I don't want to steal Fishers thunder, so I'll just quote the piece:

"That was pretty much the case with Kristen Smith Ehlers, who moved her designer dog wear business, Beau Neuveau, from St. Petersburg, FL, to to Redmond last year.

Ehlers shopped for locations along the West Coast last year partly to save on shipping costs. Her products are manufactured in China, then shipped to her warehouse to be distributed to her customers thoughout the World.


... The cost of doing business in Central Oregon, compared to other places on her list (with California crossed out) was "about a wash", she said, which left her to be sold on Central Oregon's beauty and recreation.

It's been tough to assemble even a small staff of reliable employees, Ehlers said -- the biggest downside she's found in the region -- and she's renting a home in Bend, rather than buying in what she considers a high-priced housing market."

Now, I quote the word "warehouse" because that's what the piece says, but clearly the correct term is "house". Her warehouse is probably her kitchen, basement, or possibly a 5'X5' storage space, running her $20/mo. And the quote 'Ehlers shopped for locations along the West Coast', entailed this woman submitting rental applications to untold property managers, after telling them she has 2,000 cats & will be running a meth lab out of the thing. Someone in Bend accepted.

Again, we have multiple RINGING ENDORSEMENTS about why a divorcee running a part-time "business" has slapped a restraining order on her stalker husband, threw all her work-in-progress , inventory, bookkeeping records, office supplies, and clothes into 1 cardboard box, threw it in the back of a 1978 Mercury Grand Marquis rust bucket, drove like hell across the country to butt-fuck Egypt and took up residence in a vast rental MANSION in Bend: Because of the difficulty in hiring helper monkies that aren't smoking meth on the job 24/7 and sky high home prices.

And true to form, she characterized Bends cost of doing business as ON PAR with California, a place she immediately CROSSED OFF her list. It was "a wash", so she busted out a dartboard, threw a dart, chose Oregon, and probably aborted a hysterical pregnancy while she was at it.

Again, when her leather dog collar business starts issuing shares, I will probably NOT go all in.

Yes, David Fisher has put together yet another ROCK SOLID piece on why the vast hordes of this countries business behemoths are flocking to Central Oregon: Our costs are on par with the highest cost state in America (California), and hiring meth-smokers is dead easy.

Now, there is another piece, this time by Jeff McDonald in he Jan 2 Bulletin, that really shows why you should relocate here, "PV Powered seeks room to grow. Solar company would like to stay in Bend, but time, location pose challenge".

You should know IMMEDIATELY what is going on, simply by reading the title: PV Powered execs have begun to BLACKMAIL Bend city councilors, and are threatening to move if their operation are not subsidized ad infinitum. That's all.

They simply have observed that whenever ANYONE presents Bend City Council with some sort of ultimatum, be it BAT buses, Les Schwab's hostile takeover of Juniper Ridge, or mob-style extortion by Knife River for 1,000% markup gimp-ramps, that City Council folds like Grama on laundry day. That's ALL you have to do to have local government offer to GIVE YOU LAND (Lava Court Apartments), or waive all taxes until the year 3000 (everyone else).

That's all this piece is: straight blackmail against borderline retards. Now you might think that PV Powered put together some elaborate scheme to pull one over on the city. Hell no! They are actually putting it out there that they are looking at the old Workensport location, possibly the stupidest location in Central Oregon you could possibly move an industrial company. Again, we find EDCO at the source of this small-scale ripoff:

"Economic Development for Central Oregon, whose mission includes recruiting new businesses to the area and retaining existing ones, has been working with the Oregon Economic and Community Development Department and the city of Bend to keep PV Powered in Central Oregon."

Again, this is straight extortion, and it will most likely succeed. Our city is run by retards who have no problem spending $1,000,000 to keep a single unskilled minimum wage job in Bend. All you have to do is threaten to leave within earshot of Roger Lee, and they will practically dump money on your doorstep.

Unbelievable.

These "flowery" pieces, jammed packed with lies and ludicrious headlines, make me wonder if there is not ENORMOUS pressure being put on the Bulletin to produce ALL IS WELL IN CENTRAL OREGON news pieces. Look at the graphs above. Things ARE NOT WELL. Things are imploding, and are already at levels that can only evince EXTREME ALARM. 74 sales in December? My God, you'd have to go back to the Stone Age to find monthly sales that low. And that's exactly what they said about Novembers number, which was 91.

Folks, these are PUMP-N-DUMP pieces. The Big Boys KNOW it's over & are pumping every idiot in sight to get them to buy their imploding dogs. That's what these & many other pieces are about.

If you DID NOT buy into the out-of-control Ponzi Scheme that was Central Oregon real estate for the past 3 years, and acted responsibly, then now is the time to bask in the horror. It may get close to as good as it got in the past 3 years (about 30 years from now), but it will NEVER get as bad as it is going to get in the next 5-10 years. We are RIGHT NOW in the teeth of a cascading implosion that will change the face of this place FOREVER.

If you DID buy into the insanity and doubled down on red for the 13th time & lost, then it is Coyote Ugly Time. It's time to remove the beer goggles, focus, and look over at the mega-skank that is lying on your arm.

Bend Housing Market, as seen through Beer Goggles, circa 2005

Yeah, it's time to start ta chewing your arm off. See, what looked like this in 2005 when you bought it...

Your 2nd, 3rd, 4th, and 5th home in Bend, circa 2005

... now, in 2008 without your financial beer goggles, looks like this:

Same homes, circa 2008

What you got to do now, is clear: Start ta chewin'.

You think that skank is going to get better with age? She ain't. You made the sad, sad mistake of putting on the real estate beer goggles, against the onslaught of advice by those that advised VIGOROUSLY AGAINST IT, but you had to do it anyway, and now you got a beer-goggled skank, but probably more like 5 or 6 coyote uglies lying on your arm. Now, I have every right to lambast you, say I told you so, and give you detailed instructions on what you gotta do, but a picture is worth 1,000 words:

Bend home flipper chews his way out of 4-way with meth shacks bought with $0 down & $0 income

Bitch, it is time to start chewin'! You gotta drop price till at least 2 limbs fall plum off. Seriously. When have you ever woke up to Coyote Ass Ugly, and things got BETTER over time? When? NEVER, that's when. This is NOT going to get better. It is getting worse geometrically AS WE SPEAK. The time to get out with your diginity intact is long gone. It is time to face facts. You got your motherfuckin arm caught in the corn thresher cuz you a greedy-ass bitch who can't think for themself, and now your stupid ass has to start chewin', and ain't nobody going to feel bad for you who DID NOT put their greedy ass arm in the corn thresher.

YOU JUST STUPID, OK? Now you gotta pay. So shut the fuck up, and drop price until you get some sort of low-grade brain damage, cuz it's either going to happen now, or later. And it sure as hell ain't going to get better.

EVER.

The Bulletin is a prime conspirator in Boss Hogg's little pump-n-dump scheme, but sadly it is too late for that, as the idiotic RiverWild "auction" proved. NO ONE is buying the Kool-Aid anymore. The ass-ugly imploding nature of Bend's RE market is clearly visible in high-relief for all to see, and no amount of bullshit shoveled into the locals gullets will change that. They've done it a million times before to good effect, and the Bulletin still believes that we can "market our way out of anything", but obviously we cannot. IT IS OVER.

Keep your eye on Months Of Inventory: THAT will tell you when it's over. When we get a 3 month average below 6, IT IS OVER & YOU CAN BUY. Until then, the carnage will continue, and if you own one or more meth-cracker ass cracker shacks, ain't nothing going to stop the pain, UNTIL YOU START TA CHEWING, and roll your stupid ass away from them coyote ugly bitches you call homes.

Friday, January 4, 2008

Cascade Bancorp pre-announces bad earnings

ADDENDUM:

CACB hits $11.97, DOWN 10% in 2hrs

Form 8-K for CASCADE BANCORP


4-Jan-2008


Material Impairments, Financial Statements and Exhibits


Item 2.06 Material Impairments

On December 28, 2007, management determined that there was an adverse development with respect to certain loans in the Banks loan portfolio. Accordingly, on January 3, 2008, Cascade Bancorp pre-announced it expects to record a provision for credit losses of approximately $7.5 million (pre-tax) for the fourth quarter of 2007 to increase the Company's level of reserves primarily related to its portfolio of residential land acquisition and development (A&D) loans and to record approximately $3.8 million in net charge-offs, a majority of which is against loans affected by the real estate downturn. With these adjustments, the Company estimates fourth quarter 2007 net income at approximately $5.4 million or $0.19 per diluted share, and full year 2007 net income at approximately $35.2 million or $1.23 per diluted share. In addition, Cascade also pre-announced higher non performing assets and a compression of its net interest margin.

http://biz.yahoo.com/e/080104/cacb8-k.html

That's -50% in 3 months.

Sorry Patty Moss, get your resume ready, you & CACB go on the RIP board.