What company will ensure the crash of Bend real estate?

Well, last week's "experiment" was a bust.

Everyone seemed to not want to hear from me the week before, and that's cool. And coincidentally, I noticed that while we have a tendency to just hammer away at some of the local RE schill's, and that some of that "bile" has seeped into hammering away at Bend in general. Seemed like we were starting to beat the shit out of each other.

And a long perusal of the comments gave me a little eye-opener: I know what I think are quite a few people in Bend, and I in fact know or have casually met many of the local luminaries that we all collectively hammer on periodically, and you know what?

They're not all that bad.

Timmy, Marge, Dunc, Brucey, rdc... and on and on. Most of the people making comments here are not the pathological locusts we whomp on. And neither are most are most of the people I know personally. Most of the people I know are work-related in some way, and many of them came from... California. And what's funny, is they are... dare I say... decent?

I know several ex Cali-bangers who came to Bend to escape. They feel like CA is an alien landscape, and they didn't really belong. Like transvestites: Born a woman in a man's body, these people are normal decent people, who were born in California. They knew something was wrong pretty quick.

So I wanted a week which was devoid of my take on things (Hallelujah), and just had the comments of you guys. Not many appreciated it, which I suppose is understandable; if I bought a copy the Wall Street Journal and all it had that day were letters to the editor, I guess I'd wanna roll it up & cram it up their corn chute.

Now the flip side is that people are selfish, they act in their own best interests, virtually at all times. And we are going to endure a crushing death blow, especially to Bend's local economy. And some of these people, decent, hardworking, and personable as they may be up close & personal, they may end up like the infamous "Raisin Face" (Heather Clark? Dang, she hot), and just leave a long-term bad taste in your mouth after really getting to know them.

But most people ain't that bad.

Most. Buster.

OK, I love the Buster as much as anyone, but the bitch got on my last nerve this week. Here's a snippet:

Yes, if your an intelligent investor, and your young, and you like to fix shit, there has NEVER ( in 25 years ) been a better time to buy in Bend.

Only fools can call a bottom, and you don't want to compete with man-twats on after the trough, thus right now when all the man-twats are panicking is a great time to buy.

I mean, what the fuck, did you join COBA this week? Bitch you been talking this thing DOWN 90% at times (remember $0.0006/ac?), and with medians down to a wimpy $275K or so, it's the best time to buy in 25 years? Are you fucking kidding me?

Needless to say, I strongly disagree with this crap. Things are going LOWER, something you've harped on HARDER than anyone here Buster. Way harder. I think it is still, overall, a crappy time to buy, and it will remain so for many years. When we have medians in the $100's... then maybe.

The RE market is a bell curve, some dumbshits asking WAYYYY too much, and a scant few offering a decent deal. In the bubble, the latter disappeared. And I mean, DISAPPEARED, extinct. I personally looked DAILY, all day, for a house from 2004 on that represented a decent deal around here, and found NOTHING. Hundreds, and hundreds, and hundreds of properties. Nada.

And it is still very close to those conditions. Is it lower than the absolute top? Hell yeah, but that don't mean dink. Ask marge:

Anyone that buys a rental in Bend before 2012 is a retard and will be feeding the pig forever. Buy it with cash and it's still going to go backwards for a long long time.

OK Buster, on to point 2:

Above click on "Bend Economy" BEM, last month, 30 days exactly BEM published "How to Fix Bend".

This is what we should be discussing, the upside, the down is over. It's Over, its going to take years for Bend to recover. In the meantime we need to stop government spending on PR&MARKETING. 90% of BEM's proposals are good. This is what we should be discussing.

Now here's where I am gonna catch shit, cuz we're about to go into Bizarro World, where I am contending what BEM & Buster are saying is mostly wrong. Hold on BEM... it gets better. Here is a summary of BEM's points about how to fix Bend:

1. Raise taxes
2. Increase funding for essential services & parks
3. Suspend master planned projects
4. Cut the destination resorts loose
5. Lobby for a 4-year University

I disagree with 80% of these points. Buster, you'll have to tell me what 90% of 5 is... you agree with 4 1/2 of these things?

Anyway, I STRONGLY agree with #4. These chameleon subdiv's out in the scratch are simply end-runs around Oregon's land use laws, plain & simple.

And the recent piece in the Bulletin shows that NONE of the requirements are really being enforced. There was a purpose to WHY the destination resorts were given exemptions to traditional land use statutes, and now poor downtrodden pentamillionaires like the Pronghorn developers are claiming destitute poverty, and they don't want to build 99.999% vacancy units equal to 1/3rd of their housing stock. They are hoping for something closer to 0%.

This of course, makes them a regular subdiv. They must have their cake & eat it too. Dunc's summation:

Pronghorn gets it's fifth extension.

Disgraceful.

This the old-boy network in full-swing, and if you re-read the piece, you see they are actually in essence subverting OR land use laws by granting never-ending extensions. Unbelievable.

Now, for the other 4 points, I don't agree with. Let me put my objections in the form of an anecdote (you lucky devils):

Say some poor redneck schlub, LeRoy, wins the lottery. LeRoy wins $100MM. Now LeRoy ain't Einstein, and like 99.97% of all dudes, he wants to do 2 chicks at once, and basically live the good life after a hard life of fucking sheep.

So LeRoy lives it up, and I mean MC Hammer style. If he even thinks he wants it, he buys 20 of 'em. He gets jets, takes out his now lengthy list of friends to $1,000 plate dinners, $10,000 hookers, in short he goes berserk. He do it right.

OK, now it's 5 years hence, and LeRoy finds himself in a 1 bed apartment, $200 in the bank, shooting the cracker, no furniture, strung out, hitting rock bottom, wondering what the fuck happened.

LeRoy is Bend. We ain't got shit, we're fucked.

So back to BEM's well meaning list. Drawing a parallel to LeRoy, it's like he stood up, dusted he-self off, and proclaimed in Scarlett O'Hara fashion, "I'll never be poor again!". All I have to do is invest wisely (ie "Raise taxes"), spend wisely (ie "Increase funding for essential services and parks"), spend within my means (ie "Suspend master planned projects"), and keep a rainy day reserve (ie "Lobby for a 4-year University").

OK, these are all good ideas. Hell, they're Great Ideas.

But it's too late. LeRoy is down to his last $200. He's got nothing, and the days of making hay are over. He should have done all this to START. Can he take his $200, and turn it into $100MM again with his Good Ideas? Maybe. But it would have been a hell of a lot easier had he done it from the start.

My own philosophy for running a Country, State, County, City, or your life, is to Save when times are good, so you can spend when times are bad. If you do that, and the bad times are not really protracted, or they are evened out by protracted good times, then you should be OK.

If you do what LeRoy did, and spend every single penny on extravagant crap, well, you will go down hard.

Of course, this is exactly what Bend has done.

We can't raise taxes without cratering an already bad local financial situation. We should be LOWERING TAXES right now to stimulate... but we don't have ANY MONEY. We're $20MM in the hole. We are WORSE OFF than LeRoy.

And the same goes for each of the other items. New parks? With what? We're dead broke. Suspend Juniper Ridge? OK, this is one where I sort of also agree. But what do we do with it? Let it rot out there? Sell it? Is selling it even remotely possible? Give it to Les Schwab? My Lord, the City is actually still thinking they can move forward on this thing.

A 4 year University? Again, a great idea whose time has passed. We're busted.

During the boom, we spent on flagrantly idiotic crap. And to make things worse, we exacerbated the situation by lowering our SDC's BELOW COST. And just like underpricing insurance, you can actually watch the money pile up in impressive fashion by doing so. But you'll also ultimately go broke. This happens with amazing regularity in the insurance gig.

We under-priced city services, people rushed in to POCKET OUR MONEY by building homes in roughshod fashion, and now it's time to pay. $300MM to upgrade our sewers, and such. But what are we going to do? Where's the money? What's your answer Buster?

OK, and here's some good shit:

I have been demanding this for months, and BEM picked up the ball. Not one of you fuckers even read BEM's proposals. But what do you expect from a bunch of lazy retarded renters?? Like you think they actually care about Bend??

OK, Buster, fuck you.

You claim to be a landlord, and you are living off the largess of... who? Yeah, fucking renters. So fuck you & your elitist "owner" bullshit. Were it not for renters, you'd be cracker ass broke.

And that fucking lame false dichotomy about "Owners Care About Bend, Renters Don't"... Christ, how fucking moronic. I mean, think that if you want, but cripes... that loses you credibility.

No one, NO ONE, has been enumerating an exhaustive LITANY of prescriptive measures for CURING BEND than me. Maybe BEM. Fuck, as recently as 6 months ago, I held out hope that BEM's list was at least in some measure implementable. I don't anymore. LeRoy is sitting with a needle in his arm and $200 bucks in the bank. My money ain't on fucking LeRoy anymore, cuz I told the motherfucker time & time again to GET UP & DO SOMETHING and stop wasting his money, cuz this was a ONE SHOT DEAL & WHEN IT'S OVER, IT'S FUCKING OVER, AND IT WILL NEVER HAPPEN AGAIN.

Well, LeRoy said Fuck You. You know what, Fuck You Too, LeRoy.

This town is broke, We spent when we should have saved. Even under-priced insurance might be sold by salvageable issuer, IF they invest very well. IF we had done all the things on BEM's list, there MIGHT have been some way to save this place.

Juniper Ridge could have been a fantastic industrial center. But what is it? It's 1,500ac of scrub, whose de facto owner & sole tenant is Les Schwab. Could have been a billion. We actually LOST MONEY on this thing.

4 Year University? Could have been a reputation maker. Could have made Bend a REAL destination, not a Bachelor motel dive. No. We did not pursue it AT ALL, and we briefly had the money.

Parks? Fuck that never had a chance, cuz that's about making things good for those that live here, and the City fathers have clearly shown they have NO REGARD for indigenous folks who they've already landed.

So yes, in this strange Bizzaro World, I actually stand alone on this triad against BEM & Buster.

And Buster, a lot of people care about Bend, whether renters or owners, Westside or Eastside, MBA or not, or what the fuck ever sort of categorization you want to put on them. OK Bitch, I bought a fucking house right when I got here, and sold when it just got too much for me to hold. I have been renting ever since, and I don't regret it at all.

I missed the bubble, and by my own investment predilections, I ALWAYS WILL. I may own at +2 STD... but never at 3+. EVER. So I ain't buying, and I won't until IT PENCIL'S against renting. And you stupid fuck, I do have an MBA, which neither confers intellectual greatness on me or not. I never ask people what their educational pedigree is, cuz I don't give a shit.

The smartest & most interesting people I know graduated from some ho-hum college or not at all. Probably like you, Buster.

And were I to ever meet you, I'd probably like you, cuz I like crotchety fuckers who made it despite the odds. OK, but just cuz you may be a slightly bigger than average polywog in a pathetically small pond, don't make you the shit. You're just one of the masses trying to scratch out a living, like the rest of us.

And if throwing the rest of Bend under the bus due to some arbitrary division you've made up in your head, and just cuz your old gristle-ly ass has carved out some small scale pile, well, then you're a pathetic fuck. You sound like you're angry & waiting to die.

OK, Buster? As Brucey would say: Flame on, motherfucker. Really. Flame on.

Cuz the larger issue, is that you & me be birds of a feather, bitch. We've both been banished to the netherworld of Bend RE blogging, cuz we outside the mold. And I am just letting you have it once as just a taste of the smackdown you've given me at least 100X, brother. So now it's your turn for another 100 hits on me... and hopefully you appreciate the knowledge that you CAN throw my fat ass under the bus, and I won't delete it. I won't delete it, but you better expect the occasional blowback on this shit.

And, let me tell you what the real root problem is here: It's not that we don't have good ideas, and that we couldn't implement at least some of them. It's that the governing structure in this town is so thoroughly inbred, corrupt, and Boss Hogg-ridden, that THEY are the real impediments to change.

Does anyone think our current, local government leaders are even capable of doing anything remotely right? They haven't so far. We'll NEVER get anywhere with the current City Council. Every single one is bought & paid for by someone, most by Bend RE.

So I'm all for implementing BEM's plan, or at least starting on one of them, but the current local government has got to go. Until they are gone, I don't believe Bend has a chance.

And moving on...

Man, I thought the fucking weirdest, most alarming news of the week was that rice rationing story!

Sam's Club, the membership warehouse division of Wal-Mart Stores Inc., is limiting how much rice customers can buy because of what it calls "recent supply and demand trends," the company said Wednesday.

The broader chain of Wal-Mart stores has no plans to limit food purchases, however.

Sam's Club said it will limit customers to four bags at a time of Jasmine, Basmati and long grain white rice. Rice prices have been hitting record highs recently on worries about tight supplies as part of broader global inflation in food costs.

Even KTVZ ran a video piece on this:

Rice shortage fears prompt some restrictions (4/24)

I saw that piece Wednesday, and figured it was going to stay a little marginal piece that I'd have all to myself. Hell no, it was The Leading Piece on Thursday's nightly news!

Food rationing? In the U.S.A? What the fuck is going on? And the public calls to not stockpile & hoard rice was something out of Rwanda or some shit.

I mean, I knew there would be some strange crap as the result of this housing bust, but food rationing? Shit, even I didn't see that one coming. But I probably should have; the last bout of monster stagflation was accompanied by rationing.

Damn, this is starting to get shades of Soviet Russia before they blew up. Bare store shelves, a government out of control, what's next?

Anyway, this is Yet Another Unexpected Consequence of the Unraveling Of The Biggest Bubble Of All Time. Try to stay ahead, try to capitalize, and not be run over by these things.

OK, now for the headliner. Google will be the death of Bend RE in the long run.

And I should warn you this is more of a personal intellectual exercise, than anything.

I think it's pretty well known that pre-bust, California had some of the most perennially overpriced real estate on the Planet, and it still does. I meekly put forth many moons ago that Cali might actually lead a charge lower in RE prices that would take it to ::gasp:: parity with the rest of the country. Yes, medians in CA within eyeshot of the rest of the country.

I know, this one is still pretty hard to imagine.

Then you'll love it when I say they might go even lower than that.

And what got me thinking this was the recommendation to read Taleb's Fooled by Randomness, as recommended by Timmy. Tim is smart, so I am usually interested in what's on his reading list.

And Taleb's book is actually pretty good, being a rather flowery, and sometimes overly intellectual read about how humans many times underestimate the effects of statistical distributions, how some distributions are different from others, how chance can make life appear contradictory in the extreme, even to the extent of ensuring the survival of the least fit in a species, and so on.

There's more to it than that, but much of it was material I was vaguely aware of, but Taleb is very good at distilling some of the strange & inexplicable aspects of chance, and is especially good at pointing out long term winners are many times in immediate losing positions, and vice versa, and the reality of the now should be very suspect. Holding period returns, whether in life or love or roulette, are strangely bound to the holding period you happen to be in.

And so we come to California.

California may be one of those places that is playing a long-term losing game with extreme distributions in returns, that happens to be having an inordinately lucky holding period return, and that period has just ended.

This may be a fairly tired illustration, but it is quite possible to win huge amounts in a losing game. If you enter a game with a dollar, and a coin is flipped & each time you call it right, your money is doubled, and when you call it wrong, your entire stake is wiped out... you will ALWAYS ULTIMATELY LOSE if you play enough times. Always.

But you can also have a hell of a run. And as Taleb points out, someone somewhere will always have a hell of a run, if the initial population is large enough. And if the lottery teaches us anything, the more skewed & extreme the payoff, the more people will play. And the more people that play, the more fantastic will be the winnings of the outlying winners.

If you can win 100,000,000 times your initial investment, but the chances of you winning are incredibly small, many people will play. It seems they are unable to comprehend that betting $1 in a game having a 1 in 200mm chance of winning $100mm is a Bad Bet.

Change the odds to something comprehendable, like roll a dice & hit 6 and I give you $3, otherwise you give me $1... most will quickly see the poor payoff matrix of such a game. Extreme, almost ludicrous payoffs & chances to win are required to make paupers of the players.

This is what California is.

In all it's incarnations, California is a place of almost unbelievable extremes. The distributions of "returns" is huge.

People go there to hit it big in Hollywood, with almost mind-numbingly tiny chances of doing so. The local restaurants are littered with starry-eyed immigrants who work for next to nothing, just to be close to the action. And what's better, they're intelligent WHITE PEOPLE who will do grubby crap work for a pittance. And like any sharecropper, these amenity business owners are happy as hell to have this vast field of moronic dreamers to choose from & exploit.

Do we see this? No. America does not broadcast losers. We broadcast winners only, and the cruel irony is that a vast swath of losers is the main byproduct of broadcasting winners stories.

But surely, Silicon Valley is different, right?

Hmmm. I don't think so. I would put to you that the current Bay-area "business model" is a horrendous loser, that happens to have had a hell of a holding period runup. So what is this business model?

Well, in short, it is a lottery.

But first, back up, way up... like to Des Moines.

What kind of businesses do you picture being started in Des Moines? Car repair? Maybe a deli? Comic book shop, right?

What do you think of when you think of the Bay? Do you think of it like Des Moines? I don't. I think of the Paris Hilton and Brad-Jolena super powers of the technological World.

Google. I think mainly of Google.

Why? Why do I think of Google, and not Amiga, Go.com, About.com, AskJeeves.com, or even Steve Jobs' neXt, or even O/S 2? Because the U.S.A does NOT broadcast losers, it broadcast winners, and Google is a winner. And what happens to those who start up a winner like Google? Well Sergey Brin & Larry Page get their own Boeing 767's, and a 11 digit net worth, and become kings of the World. We remember Winners & Losers are abandoned to anonymity.

So what is the process by which the Google's of the World are created? Venture Capital.

And what is Venture Capital about? VC's plays a game with companies that is much like the lottery, where the odds of winning are fairly small, but the payoff's are potentially enormous. Again, a situation where the odds & payoffs have become so extreme that there exists the distinct chance of dire investment consequences. And remember that VC is predicated on credit, lots of it, and that game is over.

The situation faced by VC's is this: We have $5 billion, and we can make 100 investments of $50MM each. And there exists a Google-like payoff out there of $25 billion. Do we do it?

Many answer "Yes", without asking the most important question: How many companies are out there to invest in? What are our overall chances of winning? All they see is a HUGE payoff, and they do realize their chances of winning are small, but they don't realize just how small the chances are.

And you might say, "No person would rationally buy a money losing investment, especially those with huge amounts to lose". It happens EVERYDAY. Don't believe me, go look at the lottery payoff. They tell you straight up that they are going to take HALF YOUR MONEY, but many GLADLY buy such claims on future... poverty?

I'll admit it. I have bought lottery tickets. And it is the same reason: My utility for a single dollar is low, but my utility for $100MM is so high, that I am willing to overlook the ridiculously small odds of my winning, and buy one anyway.

VC's can & will buy money losing investments. And what will make them willing to play an even WORSE game? Simple, just skew the odds & payoffs to even greater heights. aka Google.

Google has probably single-handedly kept alive the vast grindings of the VC trade. It's payoff was so spectacular that there again exists, post-NASDAQ bust, enough faith in the monstrous upside of the VC lottery to keep money flowing to losing enterprises for years.

I think the jig is up in Silicon Valley. It certainly did have some true innovative successes in the past. But the VC lottery of today is a long term loser. VC is to Silicon Valley as RE is to Bend. It may not be the entire economy, but it's damn big. And Google, the paradoxical poster child of perennial VC losses, will keep alive the dream for so much longer that, like Bend, the economic demise of the Bay region will be just that much worse & protracted. Mike Hollern & Brooks Resources is our Google. A single beacon of such huge gains that it inspires such a vast army imitators, that the entire game is fucked.

So just exactly how will the success of Google depress the Bend housing market in the long-term?

Google inspires the long-term playing of a losing game, and Bend has long been the beneficiary of the California miracle. The miracle is over. The chain of events, while seemingly convoluted, should be clear:

• California plays a coin-fliping game of extreme risk/reward.
• They have a good run, as statistics dictates... someone was going to have a good run.
• Like LeRoy, they spend like hillbillies in a snowmobile store (Bend).
• They lose it all.
• Hillbilly snowmobile shop closes

The California economic miracle looks iron-clad, durable, and well-founded in fact & reality. It's something like the 6th largest economy in the World, for Gods sake!

Such is the nature of all losers before their streak abruptly ends.

Google & it's enormous success, ironically, will probably have the effect of prolonging the downturn in CA and, by extension, Bend than just about any organization anywhere.

Except for maybe, Bend City Council.