THIS POST LEFT INTENTIONALLY BLANK

Wow! What a week in Real Estate! Bam! Boom! Zing! THAT IS EXCITEMENT!

Ummm. No.

Now that we're in the chronicling phase of this Bubble bursting thing, it is becoming clear that Watching The Biggest Credit & Asset Bubble Of All Time Blow Up is not all that exciting.

And from this lackadaisical, lazy, crazy cold molasses unfolding of events flows one of the more insidious side-effects of this bubble implosion: People waiting FAR beyond when they should to take drastic action.

We collectively are the frogs in the warm water, which is starting to go to a fizzy boil, with just little tiny bubble creeping up the side of the pot. And yet we remain, unmoved.

Were we thrown onto a hot griddle, we'd have jumped right off. But no. We are slowly cooking.

I don't know about you, but I know PLENTY of people who are in dire straits financially due to the local implosion, and they continue to slowly boil, unable or unwilling to mark down assets that the market has devalued long ago.

But it happened so slowly, and continues to happen without shocks to the system, drama, or events of note... so they watch the water steaming around them. And remain unmoved to take action, or even admit the situation is getting desperate.

I know several people who know full well they are in deteriorating financial shape, but they are like a deer in the headlights, frozen by inaction. They know at the "current pace" of things, that they will completely implode financially and lose everything, but they can't move.

Like a game of musical chairs where everyone refuses to devalue their own chair by leaving it, all participants are myopically (selfishly) unwilling or unable to trade chairs with anyone, despite the distinct possibility they are about to lose their chair. Or chairs.

Paradoxically, very few people want their chairs, but no one can get rid of them. And they are unable to see that the price they have put on thier chair is completely unreasonable.

To wit, this Desert Skeeze piece of shit has hit the $80/sf level. Here's the cheap ass kitchen:

Skeezer Kitchen, $80/sf turd.

Not too long ago, Skeeze hit the RIP board, by breaching the $100/sf barrier. This was not that long ago, and still remains FAR below comp's all over town. $80/sf is HALF of what most surrounding property is priced at, and well less than 1/3rd what most similar homes are asking.

So there it is: Your musical chairs are worth half or less than what you paid, but like a frog in a slowly heating pot of water, you remain.

This is why this thing will play out over a much longer period and be so much worse than anyone thinks: Economists theories of rational expectations will be put to the test. People are simply nesting on their bad situations, probably fully aware by now, that they are going to get worse. But they remain unmoved. Unfortunately, they will soon die. Financially, at least.

And I know people who have piled it up substantially over the last 10 or more years, who were going to swing for the fences & get One Last Big Score in Bend's housing market & retire in their 40's. But now they are working furiously to make multiple mortgage payments. And clinging irrationally to the idea that although The Skeeze is running towards $50/sf, BUT their 4 vacant homes at $300/sf are DIFFERENT.

Why? They've been told that everyday for 10 years. Bend is different. Bend is better. I am better. I deserve to get everything I want, after all it's happened that way my whole adult life.

OK, the beginning of last weeks comments got some pretty stiff resistance to my idea that San Fran, and The Bay area are essentially doomed. Even worse is the concept that places like Detroit, Wichita, and Des Moines will DO BETTER over the long haul, than SF.

Mark my words, there is PLENTY of precedent for such a thing happening. Houston had it's oil bubble, and it took 20+ years to recover. LA periodically blows up, and takes about a decade to recover. Tokyo is still in recovery mode 17 years after it's bubble burst.

I cannot think of a single city more susceptible to the plague of this bubble implosion than San Fran. There have been a variety of factors contributing to this. There is no doubt that San Fran has a "real economy", and will not disappear from the globe. But so does Tokyo.

People put forth the argument that I must not "get it" when it comes to San Fran. That San Fran is eternally "hot", and will forever remain an "it" place that people will want to be.

Fine, I agree.

But that doesn't mean a thing with respect to the extent of the credit implosion that will roil that area for the next 20 years.

Look at New York City today. Great, vibrant city. Everyone wants to be there. This wasn't the case 25-30 years ago. Bankrupt, overrun with crime. NYC was a hell hole.

Things change. And they've changed in far larger metro areas than San Fran.

Mark my words: San Fran will probably be the largest metro area to suffer long term effects of this bubble. Vegas, Phoenix, Miami; they will all crash & burn, but they'll come back sooner. San Fran will crash and stay down.

And just going back to my boiling frog analogy. If you're of middle age and ever had any sort of talk with your grandparents, you may have gotten the sense that they became imbued with literally life-changing behavior from dramatic economic events early in their lives; ie Depression Era Economics.

They are frugal to a fault, they rarely buy new clothes, everything is jimmy-rigged, they patch instead of buy new. This is what's coming:

Will youngest boomers go broke?

They're raiding 401(k)s, falling behind on monthly payments and even going without medical care in efforts to keep afloat financially, the AARP warns.

By MarketWatch

The economic woes that are forcing homeowners into foreclosure, choking spending on nondiscretionary goods and driving up credit card bills may claim another group of victims in the coming years: broke baby boomers.

Consumers 45 years and older are raiding or compromising their 401(k) accounts, shirking monthly payments and skipping regular medications and doctor visits at an alarming rate, according to senior advocacy group AARP.

As many as 25% of Americans 45 to 64 said they are taking these steps to stay financially afloat, the AARP found in a recent study. That will put them at a decided disadvantage when retirement rolls around, particularly if they have subverted their health, and may lead to putting that retirement on hold.

At the same time, Standard & Poor's reports that the average American household savings rate remains at 0%, making it "more difficult for older Americans to finance their retirement."

• Talk back: Do you think boomers are in trouble?

"This is a horrific scenario," said Tom Nelson, AARP's chief operating officer. "People are feeling this pinch in the short term . . . but the long-term consequences that are facing these individuals and our economy for years, if not decades, are frightening."

The AARP survey included people 65 and older but found that those who were having the most difficulty adjusting to declining home values and higher prices for food and energy were 45 to 54, followed by those 55 to 64.

The youngest boomers were having the most problems paying their mortgages or rents. They were also more apt to pull money out of their 401(k) accounts and other investments and change their lifestyles. About 76%, for example, said they are eating out less, and 71% said they are spending less on entertainment.

It's likely, the study said, that the younger respondents are having a tougher time because they still have work and family obligations that place them more at risk during an economic slowdown.

At the same time, many people 65 and older have fewer decisions to make because their spending already has been crimped by their fixed incomes, the study noted.

Grim prospects

If this economic downturn worsens or lingers, Nelson said, the future for the youngest baby boomers could be grim.

Nelson painted this picture: A 45-year-old who postpones bill paying, cuts back on necessary medications and stops contributing to his 401(k) is undermining his credit rating, putting his health at risk and losing an economic base. Fast-forward 20 years, and those issues have only gotten worse. Tack on another 20 years, and the situation could be dire.

Mark Iwry, a senior fellow at the Brookings Institution, said it's hard to catch up on missed 401(k) payments. Not only is the actual payment gone, so, too, is the match by an employer, as well as the growth of the tax-free money. "You've got to put in a larger amount just to replace what you took out earlier," Iwry said.

Making matters worse, he said, people tend to assume they're going to die earlier than they actually do. Many don't plan financially to live until they're 90 because they don't think they'll ever get to be 90.

Continued: Women outlive men

According to the CIA World Fact Book, the average American will live to be at least 78 years old, with women outliving men by about six years.

Meanwhile, the national Centers for Disease Control and Prevention projects that longer life spans and a generation bubble of aging baby boomers will combine to double the population of Americans 65 years and older during the next 25 years. By 2030, the CDC estimates, there will be 71 million older adults who will account for roughly 20% of the U.S. population.

"People often underestimate their life expectancy," Iwry said. "But more than that, many never focus on or plan for 'longevity risk' -- the 50% chance that they'll outlive the average life expectancy, the 25% chance that they'll outlive it by a lot and the 15% chance that they'll outlive it by a lot more."

"Many people don't plan probabilistically, but life is probabilistic," he added. "We're managing risks here."

Major strains

The S&P report, which calls Americans "dangerously unprepared for retirement," notes that the poor performance of asset markets in recent years is hitting the piggy banks of even those most primed for retirement. The S&P 500 Index, for example, is on track to have its worst decade performance since the Depression.

Indeed, 50% of those surveyed by the AARP said the value of their 401(k) accounts and other investments had dropped over the past 12 months. One-quarter of retirees said their golden-years income had fallen in tandem with interest rates.

"Retiring in a period like this strains assets in the best case, and this is far from the best case," said David Wyss, S&P's chief economist. "If older workers aren't adding to their wealth and if their asset values are falling, the prospects of a comfortable retirement are receding."

At the same time, the prospects of retiring early, or even on time, are dimming. The AARP study found that one-fifth of those who said their stock portfolio is lighter are postponing plans to retire. About 32% of those people are at traditional retirement ages, 55 to 64.

Wyss said he thinks more retirees will look for "bridge" jobs but that such jobs can be hard to find.

Iwry encouraged people to delay retirement -- even by a year -- as a generally painless way to shore up long-term finances.

"Retiring later is not all bad," he said. "People can improve their financial preparedness for retirement fairly dramatically by postponing retirement just a little."

Iwry called the benefits a "three-fer": Each additional year of work adds another year of income, which can add to savings, lessen the number of years without a regular paycheck and generally boost monthly Social Security benefits.

"Many people don't take this 'leveraging effect' into account," Iwry said. "A little deferral of retirement goes a long way financially."

This article was reported and written by Jennifer Waters for MarketWatch.

Published June 13, 2008

This is the first time that I can remember in my adult life that there is not the prospect of ever greater future consumption by almost everyone. Kids with Wii's, PSP3, Nintendo's. And not just one; THEY HAVE ALL 3. Kids with fucking 2 cell phones. WTF?

For the love of Christ, almost everyone I know has 2 or more homes. And they have 4 cars, although there are only 2 driving adults in the household. They have so many gadgets they can barely learn all the functionality of what they just got, before they buy another. Kids can't talk normally anymore. They send mindless disembodied text messages to other mindless zombies who don't give a fuck.

The consumerist fueled nightmare we've known for over 25 years is ending. Whatever you want, whenever you want it (via debt) has turned us into monsters. It makes our kids into monsters. I see kids everyday who are unable to communicate with anyone, especially their parents, except in terms of what they want bought for them. And I see parents who are unable to do anything but oblige. Love via Best Buy.

Again, Mark My Words: This is ending. The greatest financial collapse of all time may actually have some positive side-effects: Parents who start actually raising their kids. Kids who actually pull their heads out of their BFF asses.

Get started today: Throw your kids Wii in the shitter, stop buying cell phones every 2 months, disable text messaging, and stop fulfilling your life via retail (sorry Dunc).

OK, on to the Dominant Economic Theme of the Next 10 Years: Worldwide Stagflation.

It's pretty clear that firing up the US dollar printing presses has done the obvious, devalued our curreny to within spitting distance of the peso. So inflation will only punish us, right? No.

EMERGING MARKETS REPORT

Rising inflation poses threat to emerging markets

China, India, Turkey hardest hit; Brazil, a top performer, fights back

By Polya Lesova, MarketWatch

Last update: 6:22 p.m. EDT June 12, 2008

NEW YORK (MarketWatch) -- Inflation may present a rising threat for economies worldwide, but emerging markets have been particularly hard hit.

China, India and South Africa are facing growing challenges, while only a handful of countries, such as Brazil, have been somewhat successful at containing surging prices.

Fueled by skyrocketing food and energy prices, inflation is steadily rising around the world, threatening to undermine the big economic gains emerging markets have made in recent years.

"This is a dangerous time for these central banks," said David Riedel, president of Riedel Research Group. "The bout of inflation at this stage of growth is very serious."

In recent days, many central banks, including those in South Africa, Brazil, India, Russia, China and Vietnam, have tightened monetary policy in an attempt to control rising inflation.

The South African Reserve Bank raised its key interest rate Thursday by 50 basis points to 12%, warning that the inflation outlook "remains bleak in an environment of sustained increases in international oil and food prices." South Africa is struggling with double-digit inflation.

On Wednesday, India delivered an emergency rate increase, the first since March 2007, saying it was "urgent" to fight inflation. India's wholesale price index recently soared to its highest level in nearly four years.

Earlier this week, Chinese shares fell sharply after the People's Bank of China raised banks' reserve requirement ratios for the fifth time this year.

Elsewhere in Asia, Vietnam, which is struggling with 25% inflation, raised rates and adjusted its official exchange rate downward in an effort to thwart currency speculation on Tuesday. Vietnamese equities are the worst performers in global emerging markets this year. Investors have sold local shares on concerns about soaring inflation.

Why is inflation rising?

High inflation, and in some cases hyperinflation, battered emerging markets in Latin America, Eastern Europe and Asia in the 1990s. Since then, inflation has been steadily declining until a few months ago, when energy and food prices started breaking record, pushing inflation higher and higher in the developing world.

Food makes up a much bigger part of the inflation basket, and disposable-income spending in emerging markets than it does in developed countries. For example, food accounts for more than 30% in Argentina, Malaysia, Russia, China, India and the Philippines.

"This food issue comes up again and again and again," said Jack Dzierwa, global strategist and co-manager of the Global MegaTrends Fund Dzierwa believes that rising inflation is the biggest problem currently facing emerging markets, and that higher food prices are largely to blame for that rise.

The other major contributor to inflation is the price of energy. The industrialization of fast-growing emerging markets requires tremendous amounts of energy resources, such as oil, natural gas and coal.

Another cause of inflation "is that a period of relatively loose interest rates in the developed world has resulted in a weak U.S. dollar," said Nicholas Field, London-based fund manager for global emerging market equities at Schroder Investment Management.
Weakness in the dollar has boosted the price of dollar-denominated commodities like oil.

Most vulnerable to an inflation hit are major food and fuel importers, such as China and India, strategists said. China's consumer-price index, a key measure of inflation, hit 7.7% in May, down slightly from 8.5% in April, but still fairly high.

"The three things that China needs to worry about this year are inflation, inflation and inflation," Riedel said. "It is such a concern for an economy during this phase of its growth. The markets are right to be selling off."

The Shanghai Composite benchmark stock index has tumbled 44% this year, making it the second worst performer in the emerging markets universe after Vietnam, whose VN index has declined 60%. Indian equities have also sold off this year, with the Sensex index down 25%.

Dzierwa said that there is some correlation between the performance of emerging markets and their inflation problems. For example, Brazil has been very aggressive in fighting inflation with interest-rate hikes, and the Bovespa stock index is among the best performers in the world with a year-to-date gain of 5%.

"Markets like Brazil, which is less dependent on imported food and fuel," Riedel said. "In Brazil, the central bank is being praised for being proactive in raising rates."

In Turkey, an oil importer, consumer prices rose 10.7% year-on-year in May and producer prices rose by 16.5% in the same period. Istanbul's IMKB-100 stock index is down 31%.

Russia, which boasts rich energy resources, but is a food importer, is struggling with 15% inflation, the highest among the BRIC countries. Moscow's RTS index is up only 3% year-to-date.

"Russia would have been a much better performer had it not been for this high level of inflation," Dzierwa said.

South Africa, whose stock market is dominated by resource stocks, is the best-performing stock market. The All-Share index is up 7%. Among U.S.-listed South African stocks are Sasol, Gold Fields , AngloGold Ashanti, Harmony Gold Mining and DRDGold.

One way for U.S. investors into the South African markets is via the iShares MSCI South Africa Index Fund.

Policy responses

"What we have is a period where inflation around the world was under control, and instead of coming down, it is now starting to go up in the majority of countries around the world, not just emerging [markets]," said Field of Schroder Investment Management.

How serious of a problem inflation becomes depends on the response of central banks and governments, he said.

Central banks in many emerging markets are not independent and tend to be subject to political pressure. In Argentina, for example, the government is widely believed to be manipulating inflation numbers. The official inflation rate is 9% while most private estimates put it at around 24%.

Many countries adopt short-term measures -- such as price controls, subsidies, and export bans on foods - that instead of mitigating inflation only exacerbate it.

In Egypt, where the government heavily subsidizes food and fuel, inflation surged to 20% in May. Rising food prices have stirred riots in the country in recent weeks.

One way to fight inflation is to raise interest rates, though that tends to slow down growth, a dilemma that many central banks are facing. Another inflation-fighting tool is currency appreciation. Many emerging markets - including China and Russia - control their currencies and have shunned away from letting them appreciate in order to sustain export-driven growth.

In the Middle East, Saudi Arabia, the U.A.E., Qatar, Oman and Bahrain all peg their currencies to the dollar, but despite rising inflationary pressures the countries have opted not to drop their pegs or revalue their currencies.

Polya Lesova is a MarketWatch reporter based in New York.

A lot of these economies rely on cheap currencies to drive exports, and they are quite used to a strong dollar regime to get 'er done. But the US is no longer going to be the importing consumerist-fueled nightmare it's been for the past 30-40 years, and these countries will have to adjust to this painful reality as much as we will.

And I guess going back to the Consumerist Fueled Nightmare That Is This Country, I found this over on Dunc's blog. It's the story of someone who started a store that sells "nothing anyone truly needs". Sound like a town you know of?

Downturn tough for Portland mom-and-pops

Slumping sales are forcing a Northwest 23rd Avenue merchant to close her doors

Thursday, June 12, 2008

ERIN HOOVER BARNETT

The Oregonian

Stacey Korn arrives just before 10 a.m. to unlock her shop on Northwest 23rd Avenue. She hoists orange molded plastic benches from the back and places them outside under the windows. Then she sets up her sidewalk sign:

"Shop 'Hello' -- nifty gifts for the whole family," it says. "Patronizing us is like flirting with a wealthy widow. You can't overdo it."

Korn needs her sense of humor now more than ever. As the economy slumps, sales at her Hello Portland store at 525 N.W. 23rd Ave. are half what they were soon after opening in late 2005. Her family of four went from living almost entirely off the shop's income to barely getting by and deciding to close in September.

"My friends at Irvington School don't know my kids qualify for free or reduced-price lunch," said Korn, 41.

Her boom-to-bust story is about the kind of shop that falters in a downturn. Hello Portland sells lots of stuff people want -- from $45 hip handbags to $25 "I might barf" baby onesies -- but nothing anyone truly needs. More than that, it's a story of a small merchant's struggles, of the people left behind when a local store fails.

"You hear people say, 'I love this. I can't live without this,' " Korn said. "And then they walk out the door."

Korn gets by with her trademark pluck.

She left a dysfunctional family at 16 to attend acting school in New York and then in Los Angeles. She turned to graphic design school and did secretarial work at advertising giant Ogilvy & Mather, learning computer skills thanks to client Microsoft.

She found a creative niche designing saucy greeting cards for Paper Moon. "Desperate Career Girl," said one. "Sexual harassment: She could dish it out, but could she take it?"

Her big break came when Reuters, the media and financial company, contracted with her in 2002 at $250 an hour to design Web sites. She was still nursing her second child, so her husband took a hotel room next door and paged Korn when Piper was hungry, handing the infant to Korn at a lower-floor restroom in Reuters' Manhattan building. Her bosses never knew she had a baby.

After two years, Korn opened the Hello store on Martha's Vineyard. Richard Singer, the primary developer and landlord on Northwest 23rd, lured Korn and her shop to Portland in 2005, beating out Bridgeport Village.

The shop -- opening at the height of Portland's housing market -- thrived. On Saturdays, the store pulled in about $2,000, helping pay the mortgage on their $550,000 Irvington home. Now the Saturday take is under $1,000, and midweek days are around $300. Last year, the family took home just $20,000. Scott Korn left the store to take a baking job late last year. Seven employees shrank to three.

Korn thinks concerns about finding parking around 23rd are worsening the impact of the downturn. And many of those who do come in just play -- picking up Japanese vinyl toys despite signs saying not to.

"It's like amusement," Korn said with a sigh. "So maybe it's my fault. Maybe my business plan is too amusing."

Extra effort

Sometimes she's direct. When a customer asked if she could buy the shop's melamine plates on the Internet, Korn told her, "Yeah, you could. But I'm here selling these so that I can feed my kids."

Reinforcing that connection is crucial for mom-and-pop businesses, especially now.

"Everyone is just kind of holding their breath to see what's going to happen," said Robyn Shanti, coordinator of the Sustainable Business Network, whose membership includes 360 locally owned Portland businesses. "People also realize if they don't patronize those businesses, they're not going to be around. And if they're not around, we'll lose the whole quality of life in our neighborhoods."

Korn is doing what she can. She tries making customers comfortable, fading out alternative rock music and fading in her "Old people just walked in" mix of Billie Holiday and Glenn Miller when seniors step in.

She puts a sale table outside on warm days. She uses cash to buy merchandise, avoiding additional debt. She rarely gives out even basic handle bags -- "Can you put this in the bag you have?" she asks -- saving 35 cents a pop. And she's gotten her kids involved, saving on child care.

On a sunny spring weekend, Piper, 6, and a friend sat outside selling $1 buttons they made, quickly pulling in $58.

Looking for work

Sometimes stress gets the better of Korn. A week ago, she parked her car just over the line into the valet zone for the restaurant next door. The restaurant had it towed. The cost: $210. "What am I going to sell on Craigslist to pay that ticket?" she said, sobbing. (She sold her car-top storage container.)

Kind comments help. Leslie Hildula comes for offbeat party favors and invitations. "It has this kind of inner-child enthusiasm for life," Hildula said of the shop.

But as the Korn family prepares to take on a foster child in need of emergency placement, Korn must be pragmatic. She hopes to find a stable job in graphic design or another creative field.

On Tuesday, Scott Korn arrived at the shop at 5 p.m. to pick up the children.

"Bye, cutie," he said to his wife as he headed out, Piper and Skyler, 10, ahead of him.

"Bye, sweetie," she said.

Then he remembered to ask: Is she coming home to tuck in the kids before returning to clean the store? She let go of her cleaning crew.

No, she told him. An employee's coming to help her scrub the floors.

"It'll be a party," Korn said.

Erin Hoover Barnett: 503-294-5011; ehbarnett@news.oregonian.com

I'll say it again: I know MANY, MANY people in this town going through this EXACT same scenario. In fact, it's hard to think of anyone I know who isn't going through this, on some level.

This Oregonian piece epitomizes Bend perfectly: A flood of immigrant noobs who thought they'd get here & run this shithole in 6 months. So they started, sight unseen, reserach undone, a convenience store in NWX, an upscale cooking supply store in a space where the previous cooking supply store failed, a "quirky" kids clothing store because they've carved up the kids clothing market just a little bit better than the last guy, a restaurant where the previous 3 restaurants failed, a bookstore because you "do what you love and the money will follow", an art gallery where they supply an eclectic mix of blah, blah, blah and so on.

Bend remains the all-time greatest equity-sink of all time, and will just become more so in the coming decades. Bend, like San Fran, is going down catastrophically, because both places are built on excessive consumerism. Without credit, both will die. Bend will undoubtedly die faster, but both will inexorably DIE. Without credit they wouldn't look anything like they do today.

Nicholson describes a woman in As Good As It Gets, “I start with a man and take away all reason and accountability.”

Bend is a woman. It is a town that lacks reason and has been held unaccountable for so long, it is unable to function otherwise. Where would we be without credit? Where would we be without a rampant influx of Cali-fueled 401K ploppers? How would they have gotten here without credit? What happens to this cycle now that the credit-fueled game of musical chairs is over?

You're going to see many parts of California, Florida and other Bubble-fueled nightmares implode, but none are larger, or have credit as a more intrinsic part of their economy than The Bay area. The Bay is the issuers of the lottery tickets, and has played the game better than anywhere to positive effect. And there is substantial wealth there because of it.

But the Game is over, and the largest participants will suffer the most. The United States will suffer on the largest macro sense. California will suffer the most on a statewide basis. And LA will suffer. But San Fran will suffer the most & literally be a city transformed by this event.

But it will take a long time for that frog to boil.