Monday, March 31, 2008

10 Ways To Prosper In Bend's Coming Housing Depression

Let's take a short trip in The Way Back Machine, shall we?

It was last November, the air was crisp, Paul-doh was bearish, "TimToe" was not yet "Timothy", and duncan asked an innocent question over on BendBB...

duncan: Did you guys remove that last message or did the writer? Just curious.

Hmm. What was the message? If it was the one about the lesbo strap-on movie, it was probably me. Sorry.

It was a long message with writer being a guest with name Becky Breeze
I did not delete it.

bendbb: I removed it. It's okay to post anonymously under a handle or a nickname, but it's not okay to post under someone else's name.

That was a very legitimate letter, It was written by Becky I assure you.

Nope, it was clearly written by a troll. If you're that easily fooled, I've got a bridge in Portland to sell you.

not John Melton:
Your heavy handed redaction is getting old. What evidence do you have that the post was not legitimate?

It WAS real. Don't worry, you'll see it again.

Here's a picture of the bridge for sale:

Retail price is $3,000,000, but I have a special deal for you, only $1,999,999.

Say what you want, I know the source... it's legit

Is it posted on your blog, Paul? I didn't get to read it.

My mother works for Becky, it was indeed written by her.

Let me get this straight -- are you saying Becky Breeze posted that message on this bulletin board? And are you saying you know Becky Breeze?

Why don't you just put the post back, so we can all judge for ourselves? We don't need BB being our censor. Instead of deleting a post remove the username or any signature.

If you don't like how this bulletin board works, nobody is forcing you to read it and you're free to leave. For those who have trouble remembering the concept of not posting under someone else's name, I've added a reminder in the Welcome topic under the General category.

Welcome to the bendeconomy bulletin board… Participation is open to everyone. I'll contribute to the discussions when I have something relevant to say, but my opinion is just one of many here. Everyone's opinion is welcome.
That is, unless your opinion is that censorship isn’t wonderful.

Your opinion that you don't like censorship is fine, but you also need to recognize that there's no absolute right to post anything anyone wants anywhere on the Internet. If someone wants to participate on a bulletin board or blog where there are no rules there are plenty of them out there. That's not how this bulletin board works though, so if you're going to post here you need to follow the rules.

What rule did Becky break?

TimToe: The rule is that a person posting under a known name has to be that person. We get people all the time pretending to be other people. I'm sure if Becky signed up, she could post as she likes. It's easy to be skeptical when people post as guests.
Having said all that, WHAT DID THE DAMNED POST SAY? Was it a claim that everything is all fine and dandy? Or an admission that the Plaza is a disaster?

Are those of us who read it allowed to post a summary here or would that be against the rules? I would never claim to know who wrote it--I have no idea--but I saw what it said.

Posting a summary isn't against the rules.

TimToe is right, if Becky Breeze registers she can post as she likes.

becky breeze:
Know how to do this blog stuff. ADMINISTRATOR Please re post my response that I provided under guest before. My smart systems guy Tarris is standing over me and showed me how register and respond properly. The administer will know @ not worry it was me. Dealing with a possible 'real demise' of Ovarian cancer starting 2 years ago this coming Jan, this all seems weird. Just remember when you are all being tough on each other most people are just like you in a lot of ways. No one in this life gets by on a free pass. Stay healthy and get as much happiness out of each day as you can. Come by and see me anytime you want and I will talk face to face with anyone that wants to. It is always good to meet a new friend. It kind of makes me sad that the guy that posted the blog said 'I told her not to do it' There was only one person that said that to me and he knows who he is. That person was told a million times not to do almost everything in his life and has gotten some success from just trying everyday and has avoided financial demise many times by just persevering. Some people want to get theirs and not want anyone else to get anything. Thanks again for all the nice responses you posted that Tarris showed me. One last thing, if people really want the small developers to fail only the big rich good old boys get the products in the sales. If you dislike a few people running your city now and setting their rules then it will be even worse when only a few big guys own everything. It is bad enough now in this small city. I do not understand why anyone would want failure of all the projects mentioned or anyone. We all reflect on each other financially city wide. If a lot of people loose their homes in an area then everyone is affected. I started real estate when % rates were in the high teens and low 20's. For all of you under 50 you may not remember those dark days of empty store fronts and people loosing everything. Tough times and no one except a few people again with the big pockets get richer during those times. Today rates are low, there is tons of loan products and prices are low. These are the best of times for buyers with decent credit. Do something good for yourself and the economy. Buy a home. You do not even have to buy from me. Just buy a home. In a couple of years you will be glad you did. Thanks for reading Becky

Can I get a better deal on that bridge BB?

bendbb what in her first post and now second post makes you think it's not Mrs. Breeze?

Primarily the history of people posting under other people's names. I think it's prudent to verify that Becky Breeze is actually the person posting these messages, rather than taking it on faith. Becky, if you're the person who posted the messages in question please respond to the email message I sent this afternoon asking for confirmation.

I was really getting to appreciate bb filtering out the comments I don’t need to see, but now my confidence is shattered- he can’t distinguish a troll from a genuine person making heartfelt comments. It almost makes me question the benefits of arbitrary censorship.

becky breeze: Tarris said some of you asked for stats on the MLS sales in affordable housing in Bend. Here it is and I will be happy to talk face to face with anyone that has questions. All of these stats are from our local Multiple Listing Bureau as of about 3 minutes ago.
Today in BEND residential only(no condos, townhomes, businesses, land,lots,or even residential w/acreage is not included. So remember that for the next numbers provided
Today 366 homes are for sale in Bend priced from $154,250 to $300,000

Since Jan 1 O7 to today (same price as above only 1K to 3K)
440 homes closed sale and 48 are pending for a total of 488 sold and pending 07
2006 605 homes closed and 46 went pending 1K to 3K

2004 1710 sold and 48 went pending (same 48? no) 1k to 3k only
2003 1471 sold and 48 went pending 1K to 3K only
2002 1266 sold and 44 went pending 1K to 3K only

total dollar volume of each year SOLD
2007 $113,900,514 million CLOSED VOLUME
2006 $161,337,700 million CLOSED VOLUME

2004 $355,335,929 million CLOSED VOLUME

2003 $283,074,314 million CLOSED VOLUME
2002 $230,599,099 million CLOSED

For the person hoping for 2002 2003 and 2004 prices. DON'T
Look at these stats hard. This is sad stuff for people who want to sell their homes. Forget the developers and builders. Think about yourself owning a home and just being transferred or having to go into an assisted living place. Think about all the guys who want to work in the trades. It is gruesome out the upside is it IS the best BUYERS market I have seen in 28 years. It all has a ripple effect and it can effect you no matter who you are.
I got an email from someone from this site and I told them it was me and to re post that first response. So here we go.
Thanks Becky

Becky, Out of the last 205 price changes that this bulletin board has listed, 202 were down and only three were up. Why wouldn't a buyer wait? If there is the slightest concern they'll miss an upturn, then need only watch the list and if, let's say 25% go up, THEN start looking.

Agreed. You say "Buy a house now"... are you glad you jumped into the development business when you did? You own 38 "houses"... are you glad? Seriously. "Buy a house, you'll be glad you did." is advice that does not seem to be working. Prices went to levels that are unsustainable, IMO. WHAT IF prices go down 30-40%, and STAY THERE. I'd be happy to BUY at those prices, but I'd be quite upset to buy today & lose so much that I'm underwater. Especially if I HAD TO sell & move. That amount would wipe out many, many people. And why BUY a house for $2500-3000/mo mortgage, when you can rent it for $1,100, and invest the difference? That financial equation will NEVER make sense. I agree that "buying" a house HAS ALWAYS been a dominant investment in the past -- leverage works for you, and prices seemed to steadily inch higher. No more. This thing will be a bloodbath. And not to be facetious or cruel, but honestly, you own 38 residences... are you "glad you do"?

I'm pleased to report that Becky Breeze replied to my email message and confirmed that she registered on the bulletin board earlier today. She requested that I repost the message I deleted earlier in this topic, so here it is.
The article for my demise is kind of weird. A wonderful guy Tarris Rogers who has been with my company for 12 years told me to look at this BLOG you have on your site. There were some nice things said in yesterdays BLOG and some bad things. You BLOGGERS do NOT know I was diagnosed with ovarian cancer a few months into the Plaza project. Miss Healthy here, who never gets sick ,what was that? Then I learned that prostate and ovarian and breast cancer has nothing to do with diet. AND the PAP smear has nothing to do with diagnosis because the PAP smear is a viral situation and Ovarian cancer is not detectable unless a good doctor like Dr Mary Ellen Coulter is able to find it in an examination or by a pelvic ultrasound. WOW what a bummer that was, and chemo and two major sugeries NOW THAT IS DEMISE! My wonderful husband not only stayed at my side through 2 major surgeries & chemotherapy he had to deal with keeping the Plaza going to be the best built 130,000 sq ft building in Bend. Super guy and I love him more every day. It is strange to me that a Blog Person would hope for my demise in a business deal (no big deal there will be another one if this deal it REALLY does not work out because of our present market. If BLOGS were around when Bill Smith was begging for money from Les Schwab & Matt Day in the original days of his dreaming of an extension of town in the middle of an old abandoned mill site, DEQ disaster, fixed, now known as the Old Mill. Thank goodness Blogs were not around then. He would have been on your hot plate. Blogs were not around to call for Haydens demise for his BLUFFS above the REED MKT round about that has been selling product for 5 years, OTTER RUN on the market for 6 years, OLD MILL QUARTER or any other product. ALL of these projects have their struggles but never had BLOGS to call for their demise. For all of the BLOGGERS, please come by any day of the week to see THE PLAZA. To the Blog that said we had, cheap anything, finishes they are confused with other products on the market. We are all custom, and gorgeous. No plastic inserts or plastic anything. Bathrooms & kitchens are all custom finishes. But only you can see for yourself. Remember if you come by it is the BRICK BLDG on Bluff Drive next to AMERITEL INN not THE BLUFFS above the REED MKT round about. You do NOT have to buy one if you come and see it, I promise, but you should have the real knowledge. By the way, this is my first BLOG so I hope I did it right. I am 58 years old last October 24 and have been working since I was a kid every day for my up keep with no gimmees from anyone. I love my life here in Bend (19 years now) and I love my grandbabies. I love my job and my health which is hopeful. I even like all the bloggers because we are just people trying to get by and live through the day whatever the day gives us. You all take care and stay healthy. BB

And Becky, I know you want people to buy now. But the Case-Shiller S&P housing futures predict a national downturn in house prices until 2011. When you tell people to buy now, you're giving advice that's contrary to some of the smartest people in the world betting big money. The country went from 61% to 69% home ownership. It's obvious that many of those people couldn't really afford the houses they were being shoveled into. Those poor people were done a great disservice and they AREN'T coming back to buy houses soon. We've run out of suckers. You tell people to buy, but there are no more buyers. Sure, investors could buy, but they aren't dumb enough to buy when YOU tell them to buy.

There follows a tedious enumeration of the evils of censorship, but this thread does illustrate 2 things of particular interest:

1) First, that "censorship" in whatever form is inherently BIASED. Is it WRONG? I'm not sure how to define that, or if it's even relevant. But when you CENSOR people, you are typically working from pre-conceived notions that can terribly misplaced, as you can easily see above.

Is BendBB the worst offender around? Hell no! Cascade Business Buttbangers will go down in my book as the most ridiculously biased rag to ever grace our scrub. The Bulletin & KTVZ are a (distant) second.

But unfortunately this thread & another regarding the tracking of IP's for the sake of "banning" marked my quiet departure from BendBB. Again, it wasn't a Virtual Walkout or anything, it just became quite apparent that BendBB had a wholly different philosophy than I did about what gathering opinions, making decisions, and voicing your thoughts on this place. No one really wrong or right, just different philosophies.

You can say whatever you want here, uncensored, and I don't track fuckin' IP's. I don't want to know who you are (unless you're like Dunc, and you want us to know), and know full well that technological attempts to do so are riddled with impossibilities.

2) You see the bias inherent in people's own opinion's with "Becky's" repeated encouragements for you to "buy a house now"! As a quick aside, let's see how this advice works out.

First, NOD's filed:

Nov 07 - 80
Dec 07 - 70
Jan 08 - 91
Feb 08 - 109
Mar 08 - 113 through 3/27 (nine on 3/27 alone)

Or units sold? Again, MST:

Sept. 113
Oct. 112

Nov. 94

Dec. 79

Jan. 72
Feb. 55

OK, so maybe prices are better? Hmmm... from "MST" over on BendBB:

Sept. $330k
Oct. $320k

Nov. $340k

Dec. $339k

Jan. $312k
Feb. $315k

And the latest medians that I am "hearing" are in the high $200's.

Becky's pleas for you to purchase a home last November seem.... uh, wrong. Why? She is an expert in Real Estate right? She & others just like her are interviewed with nauseating regularity in our local media, as Real Estate Experts, right?

The first, and most obvious reason, is a point covered with pendulum-like frequency here: This town employs "three times" the state average in the real estate trade, a figure so laughably low I have to chuckle every time I see it. Real Estate IS Bend. Take away the RE Bubble, and what do you think this town would be? Sleepy little mountain town, no Trader Joe's, no Bend River Promenade (oh God), no STD's... just a little town without many economic prospects.

This town is literally run by RE-slanted Boss Hogg's. You can see it in the predisposition of the COBA-fueled nightmare; they assumed that firing up an onslaught of biased PR was How You Got Things Done. "We'll run real stories, national in scope and negative in opinion, off the local front page, by unleashing a torrent of Good News written by Us". They saw & to this day, see no problem with such tactics. Bias is their tool of choice.

But second, these people literally cannot see any other point of view. I think that Becky, God bless her, in her heart of hearts BELIEVES that real estate is a Great Idea And You Should Buy, and that she will believe that to the bitter end. She believes it at $340K medians, she believes it today at $285K medians, she will believe it in the future at $195K medians. She isn't wearing rose colored glasses; they've been lasik'd to her eyeballs.

Now I just love Becky and think she's a sweet gal, and BendBB is probably a good guy & if I met at a bar, we'd probably be exchanging sweet, sweet man love in the back of his BMW after a six-pack of Abyss, and Costa & Hollern are also probably good guys, too.

But folks, these people DO NOT have your best interests, nor mine, at heart. They do not give a fuck if you live or suck dirt. They are out for themselves, like most, and cramming a fuckin house down your throat AT ALL COSTS is what about 50-60% of Bends economy is geared towards.

When you read something along the lines of "Who could have predicted things would get this bad...", you are reading the thoughts of the SELF-DELUDED. I have now seen this phrase used in virtually EVERY Bend Bulletin issue for months. It's been in the national media even longer. Bernanke says it all the time, this countries top economist, local economists, Economic & Finance professors, Realtors, our President, our Chamber members, and on and on.

This country is STILL deluding itself EN MASSE about just exactly what is going on. This IS NOT like all the other "slowdowns". It is so radically different, this country will NEVER BE THE SAME when it's over. NO ONE wants you to think that; that's like screaming "Fire!" in a crowded movie house... or is it screaming "Movie!" in a crowded fire house? Anyway, NO ONE is going to be "made whole" if Armageddon actually happens. No one, not me, not you. It'll be hell.

Wonder how BAD it'll be & why this is The Big One, and you ain't never seen the Big One before? Ok, ask yourself these questions:

1) Did you ACTUALLY lose money in the 1987 crash? That was a Big One, but I don't know many people who lost a "lot". In fact it was a few short years before the Dow was at new highs. Hell, I actually made money in Eastman Kodak puts!

2) Did you get hurt during the Gulf War fall? Again, this was a short-term up & down affair.

3) What about the Thai baht collapse or Long-Term Capital collapse? Nothing here, and I don't know anyone who personally suffered big losses.

4) What about the collapse of the NASDAQ bubble? I DID have friends who suffered some substantial losses on this one. But nothing permanent. They had other assets, and besides they were young & their future income stream was really their biggest asset.

5) Who do you know that will be negatively affected if their home price is CUT IN HALF?


Bend is headed for a 50% off sale. The rest of the US, is probably not going that far.

But is it safe to say that the evaporation of $5-10 TRILLION dollars of wealth from 67% of this countries population is an absolutely unhearlded event that we have never even come close to witnessing?

You're damn right it is.

I don't want it to happen, I just see absolutely no other rational outcome. I keep hearing about this being the unfolding of the worst possible (and most unlikely) scenario unfolding in a serial fashion, each financial event even less likely to recur than the last.

Let me say this: It's NOT done.

We're having a little respite from the Bear Stearns plummet, and everyone seems to be coming out with Rosy forecasts galore, Maria Bartiromo saying ad nauseum that It Is Over, Bear Stearns marked The Bottom, and it's up and away from here.

This is a fundamental MISUNDERSTANDING of what is going on. This is chalking THIS phenomenon up to Business As Usual, and every negative financial event is a reason to Buy Stocks, Cuz Stocks In The U.S. Go Up, and anyone who violates that rule Gets Punished.

Bartiromo attests that each financial setback "rhymes" with all the others in U.S. history, and that the thing to do has always been BUY.

Folks, this one does not RHYME with anything. It is totally unprecedented. NEVER before have SO MANY stood to lose SO MUCH. This is not Wall Street that is losing. It is you & me, and virtually ALL the people we know. People at work, people in your neighborhood, people on this blog, me, Timmy, BendBB, Buster, Becky Breeze, Norma DuBois, Prineville, Sisters, Oregon... this fiasco is literally uncontainable.

The Fed has purchased junk bonds to shore up Friends Of Bush, but it's STILL JUNK. It will still go into default. But instead WE own it, not Bear Stearns exec's. This is our Minsky Moment.

The US is headed toward a fundamental shift in it's economy; the aftermath of this bubble bursting will go on for what amounts to the rest of our adult lives. Japan's bubble is still collapsing, almost 2 decades later. This will not be short, and it won't be pleasant.

What do I want to know?

Is there a way to mitigate losses, and even do well DURING this thing?

Well first, I would avoid purchasing a house at all costs, unless you are prepared to make, in economic terms, nothing for at least 20-30 years. Rent & Invest The Difference is my #1 Investment Thesis... maybe you've heard it before :-)

But Invest where? Well, if I definitively knew that, I wouldn't be writing this, but one idea that people seem to be flocking to seems bothersome to me: US Treasuries. There is massive flight-to-safety buying of treasuries, and yields are incredibly low now.

I do NOT see this being the case in 10 years. We have gone the STAGFLATION route in "solving" this bubble bursting problem, and I see treasuries as one of the WORST investments for the next 1-2 decades.

Of course, debt in general is completely toxic for the moment.

Stocks? This actually looks OK, given the horrible alternatives. Within sectors I would look for stuff as non-cyclical as possible, with ZERO debt. Pharma... Food & Beverages...hell, even take a flyer on commodity inflation & buy some gold stocks.... just a little though.

But real, large scale fortunes will be made in catering to The Great Unwashed, those who finally had to "Walk Away, and Not Pay". There will be MILLIONS of these debt-addled zombies walking the streets in the decades to come. Getting these people into homes, getting them cars, food, and life's other necessities will be Big Business.

"Bad Credit is OK" type businesses. Bartering. Day Laborer outfits. "Work For Food". My God, who knows what people will come up with to accomodate these people just surviving.

And remember: This WILL NOT be some small, insignificant "fringe" group; there will be MILLIONS AND MILLIONS of these people. They will be like blacks & women have been in past millenia: A huge addition to the workforce, that if utilized, will bring untold wealth "back" into our mainstream. Mark my words: There will come a day when broke ass Whitey will be implored by our Goverment (hopefully Obama, for the maximum cruel irony) to "come back to work", after being SOL & marginalized for years.

The stigma of being a deadbeat will eventually mostly go away.

Just remember this when you are reading pieces like the recent "Region's still growing, just not as quickly", from the Bulletin. Wonderful News, yes? We're Top 5 still, and all is well.

Hmmm.... but they buried the fact that we are 17th for the last year measured, which ended LAST SUMMER. A more recent survey of movers show a recent reversal and a VAST OUTFLOW from Central Oregon.

What's happened? Right, THEY went ELIZABETH TAYLOR on us, and smeared the lense with vaseline on some OLD ASS DATA. They want you to NOT PANIC, ALL IS WELL.

What's TRAGIC, is this strategy is backfiring; people are buying this line of BS and refusing to lower their asking prices. So no homes sell. Because there is no money. But Costa & Co do NOT understand that, and are relying on the past rhyming with the future.

"We did this last time & got the greatest explosion of local wealth EVER... we'll by God, do it again!".

Costa, you fuckin idiot, it is DIFFERENT NOW. The money is gone. Your pie-in-the-sky bullshit is burying this place. Nothing will sell until prices COME WAY DOWN. Why? Again, THERE IS NO MONEY left. Read about the money multiplier if you do not understand why.

Do people want to buy? Yes.

Can they buy at these prices? OF COURSE NOT!

Until the vast Bend RE complex REALIZES this Fundamental Truth, we are headed for an economic quagmire. We will NOT ESCAPE until there is some balance between INCOMES & HOME PRICES, AND we have built a diversified economy not utterly dependent on the extreme cyclicality of RE.

I know you have Good Intentions Becky, Norma, Pam, Hollern & the Rest, but Pollyanna scenarios cannot & will not happen here AGAIN. We had our shot, and instead of bringing sustainable industry of some sort, we doubled down on REd, and now we're screwed. OK, we're in the shits, and there's nothing to do about that.

BUT, we can End This Thing as quickly as possible. Stop trying to convince everyone that Bend is different. You are convincing sellers TOO, and they will NOT lower their expectations OR prices, and hence the quagmire continues.

Be straight. Stop REDACTING reality. We Can Take It. Your LIES only make things worse and they make it last LONGER. Stop saying there is ALWAYS A SILVER LINING in Bend, there is NOT. COBA is NOT going to change the fact that NO ONE can borrow ANY MONEY, no matter whether this is the Best Buyers Market in 20 Years, or 1,000 YEARS, and no matter whether rates are 5% or 0%. None of this matters anymore.


Well, Buster complains I'm not "local" enough... too much video... so here's what I thought was the most forward-looking piece I could find about the future of Cent OR:

Back to the farm for jobs

Laid-off workers line up for limited number of spots

By Lauren Dake / The Bulletin

Published: March 29. 2008 4:00AM PST

MADRASIn two weeks, the water will come.

Sucked up from the irrigation canal, it will spew out through the wheel-line irrigation system on Martin Richards’ Fox Hollow Ranch in Madras, softening the cracked soil.

Thirty-year-old Madras resident Walter Rivera will make sure the thirsty land on Richards’ farm receives the necessary water. Rivera was hired to help during the irrigation season on Richards’ farm this year. A laid-off Bright Wood worker, he was one of many searching for farm jobs this spring but one of the few who has actually found one.

Recent layoffs — at Bright Wood Corp., Contact Lumber in Prineville and the wood products manufacturer in Warm Springs, to name a few — are hitting the Jefferson County economy especially hard. The county also saw the indefinite postponement of the 1,223-bed, medium-security portion of the Deer Ridge Correctional Institution and the jobs that would have come with it. And last year, the Culver operation of the boat manufacturing company Seaswirl Boats Inc. closed, eliminating around 170 jobs.

For farmers, that has translated into an inundation of laborers looking for work.

“Two years ago, if I said I need 14 people by Monday, it took me two weeks to drum up bodies,” said Rob Gallyen, co-owner of Williams Land and Livestock in Madras. “And right now, heck, if I wanted 20 people I could probably have them here by this afternoon.”

At Bright Wood, Rivera earned $12.25 an hour, plus benefits. Now, he’ll be working longer hours, for $10 an hour, and without benefits.

“Ag jobs are at the bottom rung of the ladder,” Richards said. “Industry jobs are preferable, construction or Bright Wood, that pays better and it’s easier work. ... Farm work is dusty and dirty, and people look at it as menial. You use your brain at Bright Wood a little more.”

Farming in Jefferson County

The county’s climate is ideal for high-value seed crops — carrot, radish, garlic and grass seeds do well in the High Desert’s sunny days.

In the Willamette Valley, farmers fight the weather. The rain can hinder both the harvest and planting season. But in Central Oregon, the cloudless days lead to longer hours spent irrigating.

It depends on the farmer, the acreage and the crop, but most farmers prefer to hire seasonal labor to plant their crops and oversee irrigation to relying on machinery, Richards said.

“You have more quality control,” he said.

Mike Macy, of Culver, has around 1,600 acres of carrot seed, bluegrass seed, peppermint, wheat and potato crops. In past years, he’s replaced some manual labor with machinery.

“Two years ago, we bought some machines to help plant carrot seed; it requires one-fifth of the people we used to need,” he said. “And the main reason we did that was because two years ago we had a rough time finding people. Now, there are people everywhere.”

Long lists

Macy, of Macy Farms, Stan Sullivan, Kip Light, Jack Ickler and Phil Fines all have something more in common than being farmers in Jefferson County.

Each of them has a waiting list of farmworker hopefuls who stop by their property on a daily basis looking for work.

“They drive around, it’s been that way since I was a young kid,” Light said. “They knock on the door, or they see you out working and ask if you have any work.”

Gallyen said he has a list of around 70 people. And most farmers say they have two or three people stop by on a daily basis.

“Unfortunately, I can’t hire 240 people,” Gallyen said.

Many of the farmers, such as Gallyen, may eventually hire a few extra people when carrot seed planting goes into full force. But, for the most part, they keep the same crew they’ve had for the past 10 or 15 years.

Jefferson County has a short growing season and less labor-intensive crops than other areas, said Bart Eleveld, a professor at Oregon State University in the Agricultural & Resource Economics Department. That could translate into a tougher time finding farm jobs than other places in the state.

“I think people looking for jobs in that sector, well, there isn’t a huge backlog or a number of unfilled jobs,” Eleveld said. “In the Willamette Valley, or some places in Central California or orchard areas like Hood River or The Dalles, there is more hand labor required in agriculture, but I’m not sure if Central Oregon is bleeding in this area.”

Lucky break

There is one area, Eleveld said, where he has heard that Jefferson County farmers consistently need seasonal labor.

“One thing farmers use shorter-term labor on is irrigation,” Eleveld said. “Moving pipes and whatnot, but there isn’t a shortage of people in those positions.”

And Rivera had a connection.

His brother-in-law is Richards’ only full-time employee. On Feb. 25, Rivera received his last paycheck from Bright Wood, his employer of two years. With it came a pink slip. For two weeks, Rivera spent his days driving from farm to farm.

He applied for jobs online. He drove to Terrebonne, Redmond, Bend and Prineville. His name was one of the 70 or so on Gallyen’s list.

Rivera said he’s more relaxed now that he has an income again.

“As long as I’m making money,” Rivera said. “It’s not as big of a problem.”

But with a $500 truck payment, $900-a-month mortgage, two kids and an unemployed wife, money is tight.

At the Rivera residence, Sami Rivera, 36, explained how she hurt her back working at Contact Lumber in Prineville. Once she felt better and tried to get her job back, there was no job to get back.

“I had good credit,” she said, “but it’s taken a nose dive. I’m worried about the house. If we sell it, will we be able to get another one? We could lose everything. I’ve heard of people losing everything.”

The phone rang in the Rivera household, interrupting Sami.

“Not today,” Sami tells the creditor. “I’m not able to pay it today.”

She paused.

“Not for a while,” she said.

Still looking

Since most agricultural work is seasonal, farmers can’t afford to offer their employees benefits and therefore don’t report numbers to the employment office. So finding data on agricultural jobs is difficult and leads to mainly anecdotal information.

“Every shoe store, every dry cleaner, every staffing agency reports their employees to us,” said Mary Lewis, a monitor advocate for farmworker services with the Oregon Employment Department. “But federal unemployment insurance law doesn’t require every agricultural employer to participate in the unemployed system. Therefore, they don’t report to us. From the data perspective, it makes the data in agriculture different.”

Employment numbers for the county, however, are far from anecdotal.

The county saw a 9.9 percent unemployment rate for February, the highest February unemployment rate since 2001. The Bright Wood layoffs have not yet been factored into the unemployment rate.

Francisco Espinoza, 35, of Madras, said his job search has brought him face to face with the competition. On his job-seeking trips to Redmond and Prineville, he often runs into others who are doing the same.

“There are so many people who don’t have work,” Espinoza said.

Necanor Sanchez, 27, also of Madras, was out looking for work when it started to slow down at Mid-Columbia Lumber Products in Madras, and his days were reduced. Now, business has picked up again, and he’s working four days a week, which is keeping him afloat. But like Rivera, his name is on Gallyen’s wait list, just in case.

“Farm work is less skilled, and it’s lower pay,” Richards said. “Everyone wants to better themselves. And initially, when workers come, if they don’t speak English, they take these jobs. And as they learn English, it’s easier to get jobs at Bright Wood. If I was in their shoes, I think I would do the same thing.”

Richards said if he had enough work, he would keep Rivera year round — Rivera has already proven himself a capable, hard worker.

“It’s hard to find that kind of quality. If Bright Wood hired him back, he would probably go back,” Richards said. “We do see a higher quality of labor to choose from. I guess that’s the plus side of it.”

Lauren Dake can be reached at 419-8074 or at

The high unemployment in Madras is the shape of things to come in Bend. But it's happening there now, instead of later like it will in Bend, because:

1) Brightwood is a "centralized" decision maker about whether half that town working or not, not a lot of individuals, like Bend's RE industry... so we keep hanging on by our 401K's.

2) Most of the people in Bend RE piled it up for at least a few years, unlike Madras, and believe it'll turn around soon, and are burning through their cash

But once the reality DOES sink in, this piece will illustrate what will happen in Bend: EVERYONE in the industry will be "kicked down a notch" in their employment skill set. It's called Underemployment. You make less, you do grunge work, your life sucks.

Yup, even in the shadow of an outdoor wonderland, your life still sucks.

You think we won't hit that 9.9% unemployment rate like Madras? Hell yes, we will! Not this year, but probably next. Sometime within the next 4-5 years we'll probably see the highest unemployment rates we've had in 20 years in Cent OR. We're at 8.3% right now! It was at 5.7% last Feburary! Hell, 10% unemployment for Bend is a slam dunk in the next few years.

All those $120K/yr Realtors will be working at coffee huts. All those mortgage brokers will be working at ski shops. All the "assistants" to these people will be working at Bachelor... and unemployed the rest of the year.

The INCOME is going away folks. And our esteemed Bend Mass Media is STILL trying to talk this thing up again.

People are leaving. Why? Hell, it's fun making money in Xanadu! But once the novelty has worn off, Xanadu ain't so hot anymore.

Stop trying to "convince" people that this place is a paradise & hence, All Will Be OK. It is a paradise, but that don't mean dink. But no force on Earth will stop Bend from imploding on itself, certainly no PR or Marketing crap. There's not enough money to save this town. We'll be littered with the Walking Dead, just like Madras, in a few years.

What will work?

1) Property Manager - rental numbers aren't going anywhere but up, and all the foreclosures will ultimately get bought by someone... and turned into rentals

2) Lawyer (legal asst) - Again, foreclosures galore, and scumbag vulture lawyers will be there to suck us dry.

3) Move out cleaners & painters - Residential mobility going UP, and you gotta clean the place each time.

4) Used stuff - Consignment shops might make a comeback when the money gets tight

5) Used RV's - People will need to live in something once their life in wrecked, typically a "one-payment" domicile.

6) Moving & storage - I think there's even a piece in todays paper about the ever increasing need to store stuff.

7) Cut rate Realtors - I think 6% is going bye-bye, and pay-for-service & cut-rate guys will take over the market. This is already big & getting bigger.

8) Car repair - We'll be fixing what we have, not buying new.

9) Ebay, etc - Since Bend's economy is a one-trick pony (Buy this overpriced house, PLEASE!), people will need to start to diversify their own economics geographically, if they actually do decide to stay here.

10) Gas station, Les Schwab - Hey, it's state mandated that someone fill our tank. And spike tires are just a given around here.

So there you have it! I ended on an upnote, even.

10 ways to make cash in the collapse of Bend.

Monday, March 24, 2008

USA: The Worlds Deadbeats

Probably the best thing I saw all week on the Housing Bust was a CNBC interview by Jimmy Rogers, so here it is:

I love Rogers interview style; he's combative & pissed about anyone even suggesting that he's 1% wrong. So great.

But he's dead right. There has arisen this strange mindset that the business cycle can & should be abolished at all costs. And the primary cost is that the dollar has been let go. We're the New Mexico! The dollar will soon have the same dreadful stench of failure as the peso.

No country has ever printed it's way out of a crisis. In fact, almost all collapses into 3rd World Status have resulted from firing up the printing presses.

And amazingly, in response to what is almost certainly the greatest bubble ever created, our government has decided to throw More Money at the problem. What solves a crash brought on by excessive credit? MORE CREDIT!

How Do You Cure A Credit Bubble?

I'm a bit puzzled by some of the underlying thought processses behind those proponents of a massive government bailout of some sort of the US housing industry.

Monday, March 17, 2008

100th Post! Just In Time For The Implosion Of Our Financial System! YEAH!

600+ 400+ 200+ comments.. you know what to do... triple down

Agent Smith
: You hear that Mr. Anderson?... That is the sound of inevitability... It is the sound of your death... Goodbye, Mr. Anderson...

Son: "Hey Dad, what's that scary noise?"

Dad: "Oh, that's nothing Son. That's just the sound of America's Collapsing Financial System."

Son: "It sounds like that earthquake in the Bering Sea that killed all those black Antarcticans in 2005."

Dad: "It was the Indian Ocean & Indonesians mainly, but this will be much, much worse than that. But, we had a good run"

Wow. Where to start? I guess we'll start with the Macro-Big Stuff, and work back to the Little Stuff.

Bear bailout sparks concern about other brokers
Crisis of confidence hits ahead of results from Goldman, Morgan, Lehman

SAN FRANCISCO (MarketWatch) - The emergency bailout of Bear Stearns Cos. dented confidence in other securities firms ahead of results next week from some of Wall Street's giants including Goldman Sachs, Morgan Stanley and Lehman Brothers, analysts said on Friday.

The Bear Stearns Companies Inc. was forced to borrow money for 28 days from the Federal Reserve, with help from J.P. Morgan Chase JPMorgan Chase & Co, after clients and counterparties deserted the 85-year-old firm.

Triggering a sell-off throughout the financial sector, Bear shares slumped 47% to $30, their biggest one-day drop in at least two decades.

Bear said the rescue consists of getting short-term financing from the Fed, through J.P. Morgan, after its liquidity "deteriorated significantly" during the past 24 hours.

Bear said the financial support is a bridge to a more permanent solution. Several analysts predicted the firm will likely be acquired quickly by a stronger bank or broker to stop its troubles triggering broader problems in the financial system.

"The financial system supervisors are attempting to prevent this company's problems and the perception of problems from rippling through the system to other financial players," David Hendler, an analyst at CreditSights, wrote in a note to investors. "Given Bear Stearns' huge impact in the mortgage, derivatives and funding markets, we sense that a salvation acquisition is the most likely possibility."

Only days earlier, Bear Chief Executive Alan Schwartz reassured investors that the broker had no liquidity problems and was meeting demands for cash. But concerns grew in the market anyway and on Thursday counterparties withdrew crucial financial support and the firm was hit by a wave of client withdrawals. That pushed the firm into the arms of the Fed.

"If a firm as large and liquid as Bear can be taken down on what appears to us as exaggerated claims about liquidity and counterparty risk which then snow-ball into a market reality as investors, counterparties and lenders shoot first and ask questions later, then what's to stop the same thing happening to other firms facing similar issues," Michael Hecht, an analyst at Banc of America Securities, wrote in a note to clients on Friday.

First-quarter earnings per share for these four firms will likely drop by more than half versus a year earlier, according to analyst estimates compiled by FactSet.

Bear's crisis is the latest sign that the U.S. financial system is cracking under the weight of a global credit crunch that was sparked by last year's subprime mortgage meltdown. As lenders have become more wary of mortgage securities used to back loans, they've pulled back, sparking widespread de-leveraging.

Brokerage firms get the money they need by borrowing it in the market, while big banks like J.P. Morgan get a big chunk of their funding from customers who deposit cash in bank accounts.

That means brokerage firms are more vulnerable to swings of risk appetite and aversion in capital markets. As the credit crunch has spread, creditors have become less willing to lend to these firms, increasing their borrowing costs.

"Financial markets are pretty frozen up. It's a stunner," said Hal Ritch, co-chief executive of investment bank Sagent Advisors and a former Citigroup Inc. banker. "There was so much liquidity just a few months ago, but now there's so little. There's a lot of fear out there."

As leverage, or borrowing, in the financial system is wound down, some market participants arehaving to sell assets to meet their obligations. That's causing prices to fall further.

Falling prices is a problem for brokerage firms because they still hold illiquid assets and will probably have to record the lower market value of these exposures as part of their first-quarter results.

Brokerage firms have already taken billions of dollars in such write-downs, but continuing turmoil in credit markets may mean a few more quarters of valuation hits.

"The problem that Bear Stearns and other financials face is a great unwind of leverage," Meredith Whitney, an analyst at Oppenheimer & Co., wrote in a note to investors on Friday. "When a company that is leveraged over 30-to-1 faces a crisis of liquidity and confidence of creditworthiness, that company will be unable to leverage its collateral and its leverage will be forced down to 1-to-1."

The global financial-services sector may end up writing down the fair value of subprime exposures by $285 billion, mainly from residential mortgage-backed securities and more complex vehicles known as collateralized debt obligations (CDOs), Standard & Poor's estimated on Thursday.

The rating agency gave investors hope when it said the end of such write-downs was in sight. However, it also gave an ominous warning.

The agency said that the broader credit crunch has dented the market prices of many other types of securities in recent weeks. If this continues, banks and brokers could be hit by another round of write-downs, S&P said.

"A major re-pricing of credit risk is taking place across the debt markets," S&P wrote. "If the wider spreads hold to the end of the first quarter or half of this year, financial institutions will suffer further market value write-downs of a broad range of exposures, including leveraged loans." End of Story

The notable sections are highlighted.

THIS is how close Armaggedon is. 24 HOURS.

24 hours before Bear Stearns went completely BROKE (don't believe anything else), the CEO made statements that ALL IS WELL; Zero liquidity problems, Don't Worry, We Are Fine.

Uh huh. Bear Stearns will be sold later this week, if not before I finish this post.

How unusual is this? Well, let's see. From Bloomberg:

Fed Invokes Little-Used Authority to Aid Bear Stearns

By Scott Lanman

March 14 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke invoked a law last used four decades ago to keep Bear Stearns Cos. from collapsing after the securities firm sought emergency funding from the central bank.

The loan to Bear Stearns required a vote today by the Fed's Board of Governors because the company isn't a bank, Fed staff officials said. The central bank is taking on the credit risk from Bear Stearns collateral, lending the funds through JPMorgan Chase & Co. because it's operationally simpler to accomplish than a direct loan, the staff said on condition of anonymity.

Bernanke took advantage of little-used parts of Fed law, added in the 1930s and last utilized in the 1960s, that allow it to lend to corporations and private partnerships with a special board vote. The Fed chief probably sought to stave off a deeper blow to the financial system from a Bear Stearns collapse, former Fed researcher Keith Hembre said.

``The Fed really doesn't have any obligation to help a non- bank aside from its role or responsibility to keep the financial markets functioning,'' said Hembre, who helps oversee $107 billion as chief economist at FAF Advisors Inc. in Minneapolis. ``They made a judgment, probably an accurate one, that they're not going to function very well if you've got a full-blown crisis with a major Wall Street firm.''

Unanimous Vote

The Fed said in a statement that it will ``continue to provide liquidity as necessary to promote the orderly functioning of the financial system,'' repeating reassurances the central bank has made often since credit strains arrived in August. The statement said the Fed Board unanimously approved the arrangement with JPMorgan and Bear Stearns.

The Fed Board, which met today at 9:15 a.m. Washington time, typically delegates such discount-window lending authority to its regional reserve banks when it comes to loans to banks.

``There's a clear realization among people both in the official sector and the financial markets that some of the institutions we have built over the last 100 years are not well adapted to the modern 21st century financial system,'' said former New York Fed research director Stephen Cecchetti. ``A lot of what we've been seeing have been creative innovations to deal with problems that the institutions were not built to handle.''

The senior staffers declined to describe how large the loan to Bear Stearns is, and whether a private-sector bailout was attempted first before the Fed extended credit through JPMorgan. The staff officials said the Fed used its authorization under the law several times in the 1960s though didn't immediately have further details.

Paulson's Support

Such votes require approval from five Fed governors. The seven-member Fed board currently has two vacancies, and one governor, Randall Kroszner, is serving past the Jan. 31 expiration of his term.

Treasury Secretary Henry Paulson, in a separate statement, said ``there are challenges in our financial markets, and we continue to address them.'' Treasury is ``working closely'' with the Fed and the Securities and Exchange Commission.

``I appreciate the leadership of the Federal Reserve in enhancing the stability and orderliness of our markets,'' Paulson said. ``Our financial system is flexible and resilient and I am confident that the efforts of regulators and market participants will minimize disruption to the system.''

Robert Rubin, the former Treasury secretary who is now chairman of Citigroup Inc.'s executive committee, said at a conference today that the ``risks have reached a point that the right thing is to act and act in a very serious way.''

47% Plunge

Bear Stearns shares plummeted a record 47 percent on news of the bailout. The announcement, coupled with a report showing U.S. consumer prices were unchanged in February, led traders to place 56 percent odds that Fed policy makers will lower their benchmark interest rate by a full percentage point at their March 18 meeting, to 2 percent.

Yesterday, the odds of such a move were 0 percent.

A reduction of that size would be unprecedented since the overnight lending rate became the Fed's main policy tool around 1990, trumping the Jan. 22 emergency cut of 0.75 percentage point.

It's the first time since the financial turmoil intensified in August that Bernanke, 54, has publicly announced Fed assistance to a specific company instead of measures open to broader sets of banks or other financial institutions.

Most recently, the Fed on March 11 announced plans to lend $200 billion in Treasuries to primary dealers in exchange for debt that includes mortgage-backed securities. Last week, the Fed increased funds available through its so-called Term Auction Facility, set up in December to lend funds to banks in exchange for a wide variety of collateral, including mortgage debt.

`All the Problems'

``What they're doing now is going to help, but I don't know that it will solve all the problems out there,'' said Thomas Garcia, managing director of Thornburg Investment Management in Santa Fe, New Mexico, which oversees $50 billion.

Bear Stearns's liquidity problem ``definitely gives some doubt as to whether other firms are releasing all available information, and whether this credit crunch is really over,'' Garcia said.

Bear Stearns isn't alone among financial institutions stung by the credit squeeze to be bailed out. The U.K. government was forced to nationalize Northern Rock Plc last month after the first run on a British bank in more than a century and take on 100 billion pounds ($203 billion) in liabilities. Two German banks have also received emergency aid.

While U.S. authorities have been faster than their U.K. counterparts in announcing the rescue package for Bear Stearns, former Bank of England policy maker Willem Buiter says that doesn't make their course of action was the correct one.

``This creates the same moral hazard issues that we saw with Northern Rock,'' said Buiter, now a professor at the London School of Economics. ``This bank is being given access to public money, and we don't know what the terms are.''

I think it's clear the path we are on. With gold at $1,000/oz, it seems to be a thesis whose time has come. I wrote a bit about how I thought this would unfold in a post wayyyy back when:

Ah yes, good old Zimbabwe. A place where you look to see how disastrous insular governmental corruption can decimate an economy. See any parallels to Bend?
  • Robert Mugabe = Bend City Council
  • Mugabe's Supposed Economic Sabotage = Let's Hire A PR Marketing Firm Cuz We F'd Up Juniper Ridge
  • 120,000,000 Zimbabwe dollars = Bend Median Home Price
  • Economic Meltdown & Refugees = Bends Future
Of course, like Mugabe, Bend City Council feels they have carte blanche to wreck this town just as long as they can continue to peddle economic influence to a microscopic portion of the population, the Bend RE juggernaut. Outcome? Bends Popeil Pocket Fisherman sellers have so far succeeded in bilking some real idiots out of their life savings, but that market is by definition small & shrinking away to ZERO. I have no doubt that like Mugabe, Bend City Council will continue to bang this little fiefdom up the corn chute for all it's worth, and the end result will be economic disaster & a massive flight of REFUGEES out of Bend when the true "hot air" nature of it's primary product is revealed.

I took some heat for even speaking about hyperinflation in a post last July. Well, let's say some people questioned the idea:


Could you please explain exactly what might trigger your hyper-inflation model? What bellwether's might there be?

The last serious inflation the US saw was late 70's.

While we're experiencing inflation right now, my feeling is that its because the US dollar is dropping like a rock. That said for most people fixing that simple problem is just a point of buying Euro's.

What in particular to you think will cause hyper-inflation? Your example in Germany happened after a failed war.

Hmmm... failed war? Nope, none in sight.

No, what we have is failed monetary restraint & out of control consumerism & credit issuance.

Coincidentally, I found an article mentioning the "Z" word:

The Fed May Run Low on Unconventional Ammo

Back in 2003, when the Federal Reserve cut interest rates to 1%, the world worried that the Fed was running out of ammunition and would soon have to turn to unconventional tools.

Now, in 2008, it’s worth asking if the Fed could run out of unconventional ammunition. Tuesday’s offer to lend $200 billion of its Treasury holdings to primary dealers in return for mortgage-backed securities both guaranteed by the government-sponsored enterprises (Fannie Mae and Freddie Mac) and not (private-label MBS) means it will have eventually sold or pledged half of its Treasurys, limiting how many more of these tricks it can pull off.

Since August the Fed has announced a series of steps designed to target those pockets of the financial markets facing the most stress rather than rely solely on the blunt instrument of lower short-term interest rates. These steps have primarily involved taking onto its balance sheet something a bit risky — a loan to a bank or a securities dealer, collateralized with paper ranging from corporate loans to private-label mortgage backed securities (i.e. MBS not backed by the federally sponsored agencies Fannie Mae or Freddie Mac).

Left alone, these operations would result in an increase in cash supplied to the banks, boosting excess reserves and pushing down the federal-funds rate. Since the Fed does not want that to happen, it “sterilizes” the operation by getting rid of an equivalent amount of something else on its balance sheet. That something is usually Treasurys. Last December, it announced the creation of the term auction facility under which it auctions off loans to banks against a wide variety of collateral. To keep its balance sheet constant, it decided to let a roughly equivalent amount of its Treasurys mature. Since then, its Treasury portfolio has fallen from $779 billion to $713 billion.

Last Friday, it announced two additional steps: It would expand the size of the Term Auction Facility loans to a total of $100 billion from $60 billion (and the original $40 billion) and lend up to $100 billion to primary dealers in lengthened, 28-day repo operations. To sterilize those operations, Wrightson Associates estimates the Fed will have to shed $100 billion in Treasurys. Friday, it sold $10 billion of Treasury bills, its first outright sale since 1991. It will have to sell or redeem a lot more to keep its balance sheet from ballooning. One of the beauties of the securities lending facility is that it is self-sterilizing: The addition of MBS to its balance sheet is exactly offset by the loan of Treasurys.

From the point of view of normalizing market conditions, it makes sense to replace Treasurys with other stuff because the federal government is having no trouble borrowing right now. Quite the contrary: The flight to safety has driven Treasury yields to unnaturally low levels. In the securities-lending (or repo) market, someone with Treasurys to offer as collateral can borrow at a rock-bottom interest rate. But it does raise the prospect that with a few more similar-sized steps, the Fed will have run out of Treasurys to sell or pledge.

As Michael Feroli of J.P. Morgan Chase notes: “in a short period of time the Fed could have up to $400 billion of mortgage assets on its balance sheet.” Of course, that would still leave it with $400 billion in other assets to sell or pledge. And the Fed doesn’t have to simply sell Treasurys: It can allow some of its $52 billion in shorter-term repo loans to dealers to expire. It could conduct reverse repos, i.e. start borrowing from primary dealers instead of lending to them (although that would tie up Treasurys as collateral for the reverse repos). Fed officials say they have many other ways of increasing their lending capacity though they were not specific.

And, as David Greenlaw of Morgan Stanley notes: “If the situation were to become sufficiently dire, the Fed has unlimited power to monetize the economy’s debt … . They could finance the entire $10 trillion US mortgage market — and then some — via some combination of outright purchases (of the GSE-backed securities) and repo transactions (for the private debt).” Of course, that would quickly send the federal-funds rate to zero and, with a lag, inflation to the moon. Hello, Zimbabwe (inflation: 100,500%).

There doesn’t seem much risk of that now judging from the Fed’s response to Wall Street dealer suggestions that the Fed purchase GSE MBS and bonds. The Fed has the clear legal authority to do so, unlike with private-label MBS, and indeed held some agency debt as recently as 2003. But Fed staffers told reporters Tuesday that such purchases would inevitably influence the prices of such securities and they don’t want their operations distorting relative valuations. Another philosophical barrier is the Fed’s long standing efforts to strip the GSEs of their implied government guarantee, one reason it has let its holdings of GSE debt fall to zero. A more prosaic obstacle: the Fed’s operations are not well equipped to hold MBS with their unpredictable prepayment patterns.

For a similar reason, the Fed does not, at least for now, want to lengthen any of its lending operations to 90 days, as the European Central Bank and the Bank of England regularly do and as dealers would like. The Fed, staffers say, would become the dominant influence on interest rates at that maturity and it would rather that be a market-determined rate.

Many key aspects of the latest plan remain unanswered, reflecting how quickly it was put together. Money market dealers want to know what kind of private label MBS they can pledge: jumbos? Subprime? Alt-A? (The Fed has nixed commercial MBS). They also want to know what haircuts the Fed will apply. Fed officials decline to be specific except to say they will seem conservative for ordinary times and liberal for tumultuous times. (One starting point may be the haircuts imposed on MBS collateral at the discount window: They range from 2% to 15% depending on the maturity and the availability of market pricing.) Those details will be worked out in coming weeks. – Greg Ip

This is from a WSJ blog entry. Sorry no link, it was a 1 day freebie :-)

But we are starting to hear even the most respected financial minds say how dire the situation really is. To wit, Buffett:

Derivatives the new 'ticking bomb'
Buffett and Gross warn: $516 trillion bubble is a disaster waiting to happen

ARROYO GRANDE, Calif. (MarketWatch) -- "Charlie and I believe Berkshire should be a fortress of financial strength" wrote Warren Buffett. That was five years before the subprime-credit meltdown.

"We try to be alert to any sort of mega-catastrophe risk, and that posture may make us unduly appreciative about the burgeoning quantities of long-term derivatives contracts and the massive amount of uncollateralized receivables that are growing alongside. In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal."
That warning was in Buffett's 2002 letter to Berkshire shareholders. He saw a future that many others chose to ignore. The Iraq war build-up was at a fever-pitch. The imagery of WMDs and a mushroom cloud fresh in his mind.

Also fresh on Buffett's mind: His acquisition of General Re four years earlier, about the time the Long-Term Capital Management hedge fund almost killed the global monetary system.

How? This is crucial: LTCM nearly killed the system with a relatively small $5 billion trading loss. Peanuts compared with the hundreds of billions of dollars of subprime-credit write-offs now making Wall Street's big shots look like amateurs.

Buffett tried to sell off Gen Re's derivatives group. No buyers. Unwinding it was costly, but led to his warning that derivatives are a "financial weapon of mass destruction." That was 2002.
Derivatives bubble explodes five times bigger in five years

Wall Street didn't listen to Buffett. Derivatives grew into a massive bubble, from about $100 trillion to $516 trillion by 2007. The new derivatives bubble was fueled by five key economic and political trends:
  1. Sarbanes-Oxley increased corporate disclosures and government oversight
  2. Federal Reserve's cheap money policies created the subprime-housing boom
  3. War budgets burdened the U.S. Treasury and future entitlements programs
  4. Trade deficits with China and others destroyed the value of the U.S. dollar
  5. Oil and commodity rich nations demanding equity payments rather than debt
In short, despite Buffett's clear warnings, a massive new derivatives bubble is driving the domestic and global economies, a bubble that continues growing today parallel with the subprime-credit meltdown triggering a bear-recession.

Data on the five-fold growth of derivatives to $516 trillion in five years comes from the most recent survey by the Bank of International Settlements, the world's clearinghouse for central banks in Basel, Switzerland. The BIS is like the cashier's window at a racetrack or casino, where you'd place a bet or cash in chips, except on a massive scale: BIS is where the U.S. settles trade imbalances with Saudi Arabia for all that oil we guzzle and gives China IOUs for the tainted drugs and lead-based toys we buy.

To grasp how significant this five-fold bubble increase is, let's put that $516 trillion in the context of some other domestic and international monetary data:
  • U.S. annual gross domestic product is about $15 trillion
  • U.S. money supply is also about $15 trillion
  • Current proposed U.S. federal budget is $3 trillion
  • U.S. government's maximum legal debt is $9 trillion
  • U.S. mutual fund companies manage about $12 trillion
  • World's GDPs for all nations is approximately $50 trillion
  • Unfunded Social Security and Medicare benefits $50 trillion to $65 trillion
  • Total value of the world's real estate is estimated at about $75 trillion
  • Total value of world's stock and bond markets is more than $100 trillion
  • BIS valuation of world's derivatives back in 2002 was about $100 trillion
  • BIS 2007 valuation of the world's derivatives is now a whopping $516 trillion
Moreover, the folks at BIS tell me their estimate of $516 trillion only includes "transactions in which a major private dealer (bank) is involved on at least one side of the transaction," but doesn't include private deals between two "non-reporting entities." They did, however, add that their reporting central banks estimate that the coverage of the survey is around 95% on average.

Also, keep in mind that while the $516 trillion "notional" value (maximum in case of a meltdown) of the deals is a good measure of the market's size, the 2007 BIS study notes that the $11 trillion "gross market values provides a more accurate measure of the scale of financial risk transfer taking place in derivatives markets."

Bubbles, domino effects and the 'bad 2%'

However, while that may be true as far as the parties to an individual deal, there are broader risks to the world's economies. Remember back in 1998 when LTCM's little $5 billion loss nearly brought down the world's banking system. That "domino effect" is now repeating many times over, straining the world's monetary, economic and political system as the subprime housing mess metastasizes, taking the U.S. stock market and the world economy down with it.

This cascading "domino effect" was brilliantly described in "The $300 Trillion Time Bomb: If Buffett can't figure out derivatives, can anybody?" published early last year in Portfolio magazine, a couple months before the subprime meltdown. Columnist Jesse Eisinger's $300 trillion figure came from an earlier study of the derivatives market as it was growing from $100 trillion to $516 trillion over five years. Eisinger concluded:

"There's nothing intrinsically scary about derivatives, except when the bad 2% blow up." Unfortunately, that "bad 2%" did blow up a few months afterwards, even as Bernanke and Paulson were assuring America that the subprime mess was "contained."

Bottom line: Little things leverage a heck of a big wallop. It only takes a little spark from a "bad 2% deal" to ignite this $516 trillion weapon of mass destruction. Think of this entire unregulated derivatives market like an unsecured, unpredictable nuclear bomb in a Pakistan stockpile. It's only a matter of time.
World's newest and biggest 'black market'
The fact is, derivatives have become the world's biggest "black market," exceeding the illicit traffic in stuff like arms, drugs, alcohol, gambling, cigarettes, stolen art and pirated movies. Why? Because like all black markets, derivatives are a perfect way of getting rich while avoiding taxes and government regulations. And in today's slowdown, plus a volatile global market, Wall Street knows derivatives remain a lucrative business.

Recently Pimco's bond fund king Bill Gross said "What we are witnessing is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August." In short, not only Warren Buffett, but Bond King Bill Gross, our Fed Chairman Ben Bernanke, the Treasury Secretary Henry Paulson and the rest of America's leaders can't "figure out" the world's $516 trillion derivatives.

Why? Gross says we are creating a new "shadow banking system." Derivatives are now not just risk management tools. As Gross and others see it, the real problem is that derivatives are now a new way of creating money outside the normal central bank liquidity rules. How? Because they're private contracts between two companies or institutions.

BIS is primarily a records-keeper, a toothless tiger that merely collects data giving a legitimacy and false sense of security to this chaotic "shadow banking system" that has become the world's biggest "black market."

That's crucial, folks. Why? Because central banks require reserves like stock brokers require margins, something backing up the transaction. Derivatives don't. They're not "real money." They're paper promises closer to "Monopoly" money than real U.S. dollars.

And it takes place outside normal business channels, out there in the "free market." That's the wonderful world of derivatives, and it's creating a massive bubble that could soon implode.

Comments? Yes, we want to hear your thoughts. Tell us what you think about derivatives: as "financial weapons of mass destruction;" as a "shadow banking system;" as a "black market;" as the next big bubble dangerously exposing us to that unpredictable "bad 2%." End of Story

Here's a guy who graduated from Paul-doh's Community College of Talking Down A Market With Talk Of Armageddon:

'Doom and Gloom' has just begun
Bearish newsletter editor finds little cheer in most assets
By Barbara Kollmeyer, MarketWatch
Last update: 10:51 p.m. EST March 7, 2008
LOS ANGELES (MarketWatch) -- "Dr. Doom" sure is living up to his name these days.

Speaking to a packed room of financial planners here on Friday, the famed money manager and newsletter editor Mark Faber literally brought down the house with talk of a worthless dollar, a helpless U.S. central bank and a dire situation in which investors have just a few avenues left to turn to.
"We may now have a hostile environment for all asset classes, with the exception of some real estate and commodities," said the editor of The Gloom, Doom and Boom Report, pointing out that since 2002 all asset classes have been rising -- a phenomenon that hasn't been seen for 200 years.

"The current synchronized global economic boom and universal all-encompassing asset bubble will lead to a colossal bust," he said.

Financial markets, currently in the grips of a credit bubble that worsens by the day, will see a protracted period of high volatility, in which 20% movements either up or down become common and the chances of making a lot of money become very difficult, he said.

He heaps much of the blame for global troubles on years of expansionary U.S. monetary policy that had a flawed fixation on U.S. consumption rather than boosting capital infrastructure and spending. Federal Reserve Chairman Ben Bernanke and his colleagues are clearly backed into a corner now as they cannot tighten money policy without causing a collapse of the entire financial system, he said.

"Easy money and debt growth has had a diminishing aspect on U.S. economic growth -- 'zero hour' may have already arrived," Faber said, adding that he thinks the U.S. is in the throes of recession and has been there for the past four to five months.

Indeed gloomy nonfarm payroll data for February further routed U.S. financial markets Friday, convincing many that recession had arrived.

From bearish to deep in the woods

Faber was spouting his gloomy philosophy a year ago when in an interview with Time magazine he predicted all assets were in danger owing to easy monetary policy in the U.S. and elsewhere, with investors getting too used to constantly rising asset prices across the board. "I believe we're in the midst of the greatest asset bubble ever," said Faber in the January 2007 article.

Fast-forward to the present and you can't blame some of that "I told you so" from Faber.

Indeed, credit markets have been routed and financial markets have seesawed since late October, with some notable bubbles in Asia and elsewhere last year. And he said he's not seeing enough bears out there, with investors still too optimistic.

"Before October, everyone was bullish -- rushing into assets and out of cash. Then...over the last three to six months, people went to buy the rallies. Sentiment is not that bearish. The mood has stayed optimistic and asset markets are still vulnerable," he said.

Nowhere was he bleaker than when addressing the beaten-down dollar, another victim of Fed policy which he said has ensured cash returns below the rate of inflation. "In the long term, the dollar is a doomed currency. It will go to zero," he said, which produced some nervous laughter from the audience.

Bright spots in emerging markets, commodities

Where he does see some options for investors is in some corners of emerging markets, noting that he believes the Chinese yuan could double in value in the next five years or so, which will raise the value of many emerging Asian currencies at the same time.

The Asian property market is also favorable in the long run, given low levels of urbanization and low levels of mortgage debt. He said fears that a Chinese property bubble are on the horizon are overblown given that home prices have gone down as a percentage of gross domestic product and as a percentage of household income.

Among his other emerging Asian investment themes: real estate; health care, such as pharmaceuticals and hospital management; local brands, which could replace international brands; and commodities such as sugar and cotton. Tourism is another big theme that he likes for the Asian markets, including hotels, casinos and airports, along with financial services such as banks, insurances companies and brokers. Infrastructure is also a key theme, with "bottlenecks everywhere," he said.

He is also keen on Cambodia, which he describes as having a relatively open economy, with a regulatory framework and government commitment to attract foreign direct investment. He said the country's young population, strategic location, abundant natural resources and exceptional access to trade privileges make it an attractive investment locale for light industry and agricultural businesses.

With the world population growing, especially in emerging markets, arable farmland will become an increasingly pricey commodity. He highlights First Farms, a Danish company founded by a group of farmers whose land was bought up by developers; Ukraine-based Landkom International and Astarta; and Black Earth Farming, a Swedish-run company that invests in Russian farmland and has an initial public offering forthcoming.

Other commodities worth a look: sugar cane in Brazil, palm oil in Indonesia or vegetables in China. End of Story

Finally, I can't resist this Business Week piece, mainly because of the awesome last line:

Recession Time

As the economy teeters between bad and worse, one question looms: What's the best course of action? Here's what can be done. And what can't

Kevin Van Aeist

Wall Street got its hopes up on Mar. 11. Elated by a Federal Reserve move to stop the credit crunch, the U.S. stock market posted its biggest one-day gain in five years, with the Dow Jones industrial average rising more than 400 points. Look out, though. Fed officials are the first to acknowledge that their initiative attacks only one problem, the liquidity squeeze at big banks. It does nothing about the central risk to the U.S. economy: an unprecedented crash in home values that is sapping households' wealth and confidence while putting an enormous strain on the banking system.

How bad will this downturn get? No one can know because we've never experienced such a headlong slide in the housing market—and this comes at a time when its current value of $20 trillion accounts for the vast majority of most families' wealth. Right now most economists expect the U.S. to experience a mild, short recession in 2008. But there is at least a possibility of a steeper decline that the traditional recession remedies—interest-rate cuts here, deficit spending there—won't be able to handle.

What should be done? For policymakers in Washington—Fed Chairman Ben Bernanke, Treasury Secretary Henry Paulson, and congressional leaders—the sensible course is to insure against the small but scary possibility that things could go very wrong. The potential "insurance policies" are government actions that have a real cost but lessen the risk that a mild recession turns into something worse. The International Monetary Fund endorsed that approach on Mar. 12 as First Deputy Managing Director John Lipsky urged policymakers globally to "think the unthinkable and guard against a downward credit spiral."

Broadly speaking, policymakers have three options for putting a safety net under the economy. Each has its pros and cons, and the cons become most apparent when the measures are taken to an extreme. That's why a three-pronged approach that uses each option in moderation may be the best way to go.

The first option is to depend mainly on aggressive measures by the Fed to flood the economy with liquidity. That's already under way. On Mar. 11, the central bank announced an innovative program to lend $200 billion in high-grade Treasury securities to big commercial and investment banks. It will allow them to use, as collateral for the loans, valuable but harder-to-trade assets such as AAA-rated mortgage-backed securities. The measure could enable them to start lending and borrowing again. The cons: no direct help for distressed homeowners who don't qualify for refinancing.

A second option would be some sort of a government-led bailout of homeowners, which reduces the burden of looming debt and high interest rates, and limits foreclosures. The third option would be assistance to the lenders and holders of mortgage-backed securities in an effort to thaw the credit markets. The trouble is, both of these options are seen as unfair by those who don't require bailouts. And it's up in the air who would have to bear the biggest share of the housing-related losses: homeowners, investors, or taxpayers.

It's indisputable, though, what policy changes cannot accomplish. There's no way to stop home prices from falling; they got way too high, and the current crisis won't end until they get back to what the market concludes is a sustainable level. It's not reasonable to try to avoid a recession, either. When a sector as huge as housing goes into a deep dive, it's pretty much inevitable that the rest of the economy will be affected. "We saw a once-in-a-hundred-years runup in housing prices, and now we're seeing a once-in-a-hundred-years collapse," says Harvard University economist Kenneth S. Rogoff. "It's very, very difficult to do much about it."


The airwaves and blogosphere are alive with people who say nothing should be done. They argue that intervening now would only delay the inevitable liquidation of credit-fueled excesses. "Under proposed bailouts, responsible people lose and have to give their money to gamblers, liars, and sleazy lenders,"

And finally, journalists (not in Bend) are actually trying to grope for a bottom:

Mind the Gap: Home-Price Downside

March 13, 2008

The economic balance hangs in large part on how much further home prices will fall. A look at one important measure -- the relationship between home prices and household income -- suggests we might not even be halfway there.

Over the long run, home prices and income should march along the same path. As households earn more, they can afford to pay for more expensive homes.

But the two can get out of whack. During much of the 1990s, incomes grew faster than home prices. The landscape shifted around 2000. From the start of the decade through the mid-2006 peak, home prices nearly doubled, thanks in part to falling interest rates. Over the same period, income per household rose just 26%, according to Moody's

In certain states, the disparity was extreme. Seven states, including California, Florida and Arizona, saw annualized growth in home prices outpace income growth by 10 percentage points from 2002 through 2006, according to housing expert Thomas Lawler.

The difference between income growth and home prices has started to narrow. Home prices were down 10% through the fourth quarter from their peak in mid-2006, according to the S&P/Case-Shiller national home-price index. But to bring prices in line with incomes, they will need to fall further. If incomes continue to grow in the next year as they have in the past decade -- probably an optimistic assumption -- it would take a 9% to 12% drop in home prices to bring the two measures in line with each other.

In states that saw bigger housing bubbles, the correction will be more severe, says Mr. Lawler.

It is also possible that home prices will overshoot on the downside, just as they did on the upside. Goldman Sachs economists say prices could fall another 15%. Merrill Lynch economists say they could drop another 20% to 30%. Both banks have been more bearish than others on the economy -- and so far look correct to have been so pessimistic.

Retailing Likely Checks In With More Glum Numbers

Consumer spending is one potential casualty of falling home prices. When home values fall, households have less home equity to tap when they want to buy a new flat-screen television.

Today's February retail-sales report from the Commerce Department could provide evidence of that. Sales were up 3.9% in January from a year earlier. That paled in comparison with year-over-year gains of more than 6% that prevailed from 2004 to 2006. It was also less than the 4.3% increase in consumer-price inflation registered in January from a year earlier.

Economists don't expect strong numbers for February. On average, they see an increase of 0.1% from the month before. Auto makers and retailers reported a slow February -- with the exception of Wal-Mart Stores and other discounters, which benefited as shoppers tightened their purse strings. The Federal Reserve's latest "beige book" compilation of economic anecdotes described retail sales as "below plan, downbeat, weak, or having softened" in most of the country since mid-January.

Tax rebates might temporarily boost spending again later this year. But consumers are walking into pretty stiff headwinds.

Funny how a bubble ends so much worse than anyone thinks possible, even supposed "Smart People":

Bear Stearns Co, Inc., 10 year chart

I don't want to repeat any old advice, it's too late. Just look at the BSC chart, and realize that WE are about 18 months behind. And at least 5X more volatile than the rest of the country.

But All Is Well In Bend, right?

No pot of gold: Bend's red ink soars to $20 million

Posted: March 14, 2008 10:50 PM

City's first 2-year budget taking major hit from downturn

By Barney Lerten, KTVZ.COM

When Bend city councilors get their latest update on the city's distressed budget Monday evening, they'll have to look hard for a St. Patrick's Day rainbow. And even if they find it, there surely won't be a pot of gold at the end of it - not with a projected shortfall nearing $20 million for the city's first two-year budget.

A "summary of revenue shortfalls for the 2007-09 biennium," distributed to the public and councilors Friday, shows the current fiscal year's revenue is $7.6 million below projections - and for 2008-09, the current best guess is for a gap of more than $12 million between expectations and reality.

The biggest hits in the update provided by Finance Director Sonia Andrews are of little surprise: planning, building and engineering fees, along with franchise fees and ambulance and FireMed revenue. Planning fees are expected to be down 50 percent from expectations, or $2.1 million for 2007-08, rising to 59 percent, or off almost $3 million in the year starting July 1.

"With the radical drop in residential housing starts, we have to revise our development revenue estimates downwards," Andrews wrote. "Although commercial building activity continued, the decline in residential activity has simply been too great."

"The shortfalls are in revenues that we depend on for operations," she continued. "For the size of these shortfalls, every department will need to make some reductions for FY 2008-09, and certain budget reductions will affect service levels."

The city already has laid off 10 workers this year and not filled 25 vacancies, along with other cuts in materials and services, and vehicle and equipment purchases.

City departments are scheduled to meet with Interim City Manager Eric King over the next two weeks to finalize budget reduction proposals for the coming budget year, to be presented to the city council and budget committee in April.

On Wednesday night, the council's work session will focus largely on councilors' stated 2008 goals, which include financial stability, community relations, the Urban Growth Boundary expansion, Juniper Ridge and transit.

Well, wait a minute. That sounds like Bad News! That sounds like our Benevolent Leaders don't know what they're doing! I thought in Bend we hold certain truths to be self-evident, and such, right? What happened to That Stuff Only Happens To Other Guys, Much Stupider Than Us? What happened to stuff like this Blast From The Past from Life Is Good:

"Look to CACB-Short... if he's right, we'll look back and say, "Hmmmph.". If he's wrong, well....." He bought his short position in October @ 30.4 and it closed yesterday @ 30.91. When he bought the position the prediction was that if a major stockholder sold a large number of "thinly traded" stocks, CABC would be crushed. On November 29, 3 million shares were sold (11% of the outstanding shares). The stock price barely moved in this huge sale that tripled the previous volume record. It doesn't seem to me there is any question that CABC shorter is under water on his investment, and that he totally missed his bet on how a major sale would affect the stock. Thaks to BEM for resetting the page with a more interesting tone. Life is Good

What has happened to:

We Are Bend Oregon, And We Are Different.
We are smarter than the rest, we are better than the rest.
What Happened?

Finally, here are some mid-month sales stats. If you're afraid the Bust will Never Come, this should put your fears to rest.

Here are the mid March stats: As of 3/14/08

36 Sold @ 261k med.

07 95 Sold @ 358k med.

05 118 Sold @250k med.

1997 42 Sold @123k med.

So we are seeing 1997 volume and 2005 medians....SO FAR

Just somthing to chew on. The pending sale volume is going it does this time of year.

And a final word from Jon Markman at

Although it seems like the debt crisis has been with us for a long time, true panic has been kept at bay because the size of the potential losses has been underestimated at the same time that the redemptive power of government entities like the Federal Reserve has been overestimated.

It's only in the past couple of weeks that investors have been able to determine the potential scope of damage to companies outside banks and brokerages, and those estimates frighten even jaded players.

One leading hedge fund reported in an internal memo this week that "the threat of a death spiral hangs over us" and added, "There is insufficient time for those with the wrong positions to reposition and there is even insufficient time for those with reasonable positions to just get out of the way."

I don't have to really be "negative" anymore. I think it's covered.
$261K medians? Dang it, I could have used that burrito!