Bend: Doomed To Tear Itself To Pieces... Again.

Ahhhhhhhhhhhh, Bend.

I guess I've figured it out: Bend is a town doomed to tear itself apart.

Look at Buster; Here's a Bend Lifer who wants nothing more than The Good Olde Days to return in force. Guns, depression, liquor, downtown vacancies, flatbacking renters. Cowboy Capitalism at its finest.

Just about the polar opposite of today.

Now hbm; Surely there couldn't be someone more Buster's Polar Opposite, right? No.

HBM said:

"What I want to know is why is Bend considered the land of paradise?" Bend isn't "paradise" and never was. When my family and I moved here in the mid-1980s it was a nice, pretty small town. Now, thanks to 20 years of uncontrolled, poorly planned (or unplanned) growth, it's just a sprawling ugly mess with a shitty climate. IMHO.

Bend was fine for me at a certain stage in my and my family's life. It isn't anymore. I've changed, my family circumstances have changed (daughter has grown up and moved away), and Bend has changed -- a lot, and mostly not for the better IMO. Why not move on?

How about Dunc? Surely as a downtown business man, he wants things to somehow right themselves and continue his 3 decade upturn?

Laying out the odds

Scenario Three.

Things really crash, dropping 50% or even 60%. Storefronts empty and aren't refilled. People leave town. I start playing cribbage on the sidewalk with my neighbors, waiting for customers. Ironically, after the worst has hit, probably no more vulnerable than the above scenario, because concessions would be forthcoming, one would think. And I would just cut to the bone.

Tuesday, May 29, 2007

A series of restaurants went into the space the Toomies is now in. Nothing like the haunted look in waiter's eyes, as they stood, tuxedo ed in the window waiting for customers. My neighbor, Jerry from the Sole Shop, and I used to sit out on the sidewalk and play cribbage for hours.

See the common thread? It's that way with everybody.

No one is happy with Bend, because it is never quite what they want. Hell, I got here in '01, and Bend has already become a horrible perversion of what it was then.

Full of Cali-Bangers. Hot & Cold running Hummers. Sprawling STD's going everywhere. Locals gone wild with greed (Breeze, DuBois, Bauhumper, Kuratek, et al). Prices just out of control. Mindless idiotic developments. Rude fucks. Liberal elitist dicks. Fake titties.

And I'm a fairly conservative, Olde School rePug. But even hard-core flaming liberals, like hbm, are fed up with the place. Why?

Full of Cali-Bangers. Hot & Cold running Hummers. Sprawling STD's going everywhere. Locals gone wild with greed (Breeze, DuBois, Bauhumper, Kuratek, et al). Prices just out of control. Mindless idiotic developments. Rude fucks. Liberal elitist dicks. Fake titties. Well, maybe not the liberal elitist dicks.

And Bend's anti-Christ, Buster... what's his fucking beef?

Full of Cali-Bangers. Hot & Cold running Hummers. Sprawling STD's going everywhere. Locals gone wild with greed (Breeze, DuBois, Bauhumper, Kuratek, et al). Prices just out of control. Mindless idiotic developments. Rude fucks. Liberal elitist dicks. Fake titties.

Right? Right.

That's what I see as Bend's main problem: No one will ever be happy with the place.

Papa Bear Buster: TOO HOT (liberal)

Mama Bear hbm: Too cold (conservative) (and too many Busters)

Brother Bear Dunc: Barely supports one store, and yet it always attracts locusts anyway.

No one ever seems to be happy in Bend. When it's growing, it's growing wayyyyyy too fast, at a pace that cannot last, and is doomed to implode at the end

When it implodes, it drives out everyone, and the whole place is economically gutted.

Dunc is a perfect encapsulization of Bend:

• Buys first store at True Rock Bottom Price.
• Does surprisingly well. Thinks it is personal genius, not cresting wave of fad.
• Expands in short order. 4-5 stores
  
• Fad implodes.
• Stores implode.
• Hanging by fingernails. For 20 years.

This is the nature of capitalism in the USA. And the nature of Oregon is the nature of the USA squared. And the nature of Bend is the nature of Oregon squared.

When the USA catches cold, Oregon gets the flu, and Bend gets the fucking AIDS.

And I can tell you EXACTLY WHY THIS HAPPENS. This is it. Are you ready, because this IS IT:

We never diversify.

Think of the US economy as a portfolio of business, because that is essentially what it is. All are, to some extent, interdependent. With some, the correlation is low, like aircraft & BBQ sauce. With some, the correlation is high, like furniture and housing.

OK, here's a graph of the fundamental nature of bonds vs stocks:

Risk/Return space for stocks, bonds, and riskless T-bills.

You want low risk & high reward, right? That's the upper left of this graph, and the maximum return per unit of risk lies on that brown line. It assumes there is some "optimal" mix of stocks, bonds, gold, and everything else, that lies right where that brown line touches it. What's that brown line? It's where the Ultimate Uncorrelated Asset (T-bills) intersects the Y-axis.

Strangely, you'll note that if T-bill rates go UP, that modern portfolio theory indicates you should buy more stocks. Imagine grabbing that brown line by it's left side & pushing it up... it "rolls up" that curve towards 100% stocks. Conversely, pulling T-bill yields down indicates more bonds should be bought. This is where we are now, extraordinarily low short yields.

I have to say, I spent a fortune on higher education, and this was about all I got out of it.

But maybe it was enough. Because while this graph illustrates that you can ALWAYS do better by buying a mix of stocks & bonds for maximizing your risk-adjusted return, it illustrates this fundamental truth for many assets classes in a huge variety of situations.

It's why there are Swim & Ski shops in town. Hiking shoes & snowboards.

When one is up, the other might be down, and vice versa.

But, by and large, there is a general ebb & flow to the economy as a whole, and everything either is doing OK, or everything is sort of doing crappy.

But the good thing about diversification, is that IF YOU PROPERLY REBALANCE, you can weather almost any storm.

Cuz think about it: What if you buy, say 70% stocks and 30% bonds. In 1933. Well, by about 1966, your stock portion is wildly overweighted. And on that graph above, you'll be off the optimal investment weighting, which is always that straight line that is resting on the risk/reward curve.

You can see on that curve, that the optimal mix is somewhere around 30% stocks, and 70% bonds. And it gets better when you can mix it with T-bills. The ability to buy T-bills, as well as sell them (buy optimal stock/bond mix on margin) is what constitutes this brown line. The brown line is ALWAYS the best investment. ALWAYS.

Same goes with a Swim/Ski store. What if your "Ski" section starts to overwhelm your "Swim" section? What if there is a Big Upswell in skiing for some reason?

Or closer to home: What if your Breakout Comic Section seems to justify opening a new comic store? And another. And another. And another.

What happens when you're "All Comics" (ie stocks, timber or ski's), and no "Games" (ie bonds, tech, or swimsuits)?

Your portfolio becomes unbalanced.

You become too tied to the whim & weft of One Thing. Too many comics, so when comics crash, you crash harder. Especially if you "averaged in". ie: You "bought" 4 stores at the top, borrowing to do so.

Solely Buying Buffett, while sensical from almost any rational backward looking perspective, NEVER makes sense from this perspective.

Diversify OR DIE.

Now, this doesn't mean Start An Aircraft Parts & BBQ Sauce store.

It means start with comics. Add games. Add used books. Add new books. Add things that "add value" to the other things.

So diversify intelligently. But also realize your Inherent Lack of Diversification. Realize you are in Bend. Realize you are selling a very targeted set of goods. Realize your customer base may have a high correlation to some sector of the economy (ie construction).

How to fix? Internet? I don't know. That space is already saturated. Start an "Awe Shucks" blog, and see where it goes? Maybe.

I guess that's my point: Success BREEDS it's own failure. Comics, Dunc's bread & butter, almost begat his collapse. Timber, once Bend's economic mainstay, very nearly put this place in a 20 year depression.

Then we made the jump to Real Estate. Ahhhhhhhh, yes. Surely Real Estate will be our savior. It never Goes Down!

And so it came to pass that RE, via a series of well-designed, planned & executed strategies using local government & media as puppets, has come to completely dominate this little towns economics.

Once again, Bend is a completely unbalanced business portfolio, ripe for a fall. We have almost nothing else to rely on to soften the blow.

This is why, and maybe you'll remember, I've said ad nauseum, that we should have taken our RE lottery winnings and Put Them Somewhere Else. NOT RE.

We should have charges $60K SDC's, and slowly but surely diversified into a number of POORLY CORRELATED investments: A 4 year college, tech, aerospace, medical, I-97 4 lanes, whatever.

Get us the fuck out of RETAIL, RESTAURANTS & REAL ESTATE. OK, we have MORE THAN ENOUGH OF ALL 3.

We have more than enough "life style" bullshit to last us a lifetime.

But no. We doubled down on REd. Just like a lot of my friends doubled down on tech around March 2000. Borrowed to buy, borrowed as much as they possibly could.

Should have taken their early winnings, and bought something Very Poorly Correlated.

"You mean IHTBYB, they should have bought Losers? Cuz they were winning up to that point, and boring stuff like BRK was going down the drain! Why diversify into a Loser?"

Cuz, as Dunc illustrates, as Bend timber illustrates, as Japan RE illustrates, as dot-com-2000 illustrates: It is the nature of things to undo themselves. It is the nature of booms to bust.

Success begets more investment. More investment begets concentration. Concentration begets lack of balance. Lack of balance always fails.

Far worse than a bad investment, is ALL IN as an investment ethos.

When comics perform well, buy more games (or books, or pogs, or...)

When stocks perform too well... buy bonds, NOT MORE STOCKS.

When RE explodes, get tech, a 4 year college, medical, a 4 lane highway... NOT MORE RE.

But that is, in fact, what we've done. From all timber to all RE.

And it's NOT that RE is itself inherently bad, it's the timing. We went ALL IN so late in the game, we're DOOMED.

"ALL IN" as an investment theme has a 100% FAILURE RATE.

Dunc went ALL IN on comics late in the game. But really, that's the nature of the game. ALL IN AT THE END is almost ubiquitous, whereas ALL IN AT THE START is essentially unheard of.

How many failed comic stores did you say there were Dunc? Something like 80-90% have failed in the past 20 years?

It's not so much a bad Industry, as it was Bad Portfolio Management. ALL IN AT THE END. Again, ALL IN has a 100% FAILURE RATE.

So Dunc went ALL IN AT THE END 20 years ago in comics, just as Bend went ALL IN AT THE END 2 years ago in RE. Expect similar results.

Where are we now? Funny, but we are exactly where all my friends were about 90 days after the NASDAQ bubble topped. They'd mindlessly bought some Swedish telecom something for $220/sh, watched it literally go to $280/sh overnight, but then mysteriously fall to a harrowing $125/sh.

They were shaken, but Very Hopeful. Very HOPEFUL. VERY, VERY HOPEFUL.

"It's going to bounce back. I know it. It'll be back at $300/sh before you know it."

And this keeps up, as it seesaws its way to $2/sh, where it flatlines for a decade.

That's where we are. Very hopefully sitting on something at $125/sh that we averaged in at $220/sh. It'll NEVER get there again, but we don't know that. We're HOPEFUL.

So it is too late to change things. RE runs the show via City Council & COBA, COAR, and God knows what other acronyms. It's not like we can call a stock broker & bailout. It took us years (decades) to get here, it'll take decades to get out.

So what should we do, once this thing has played out, and The Hope Is Gone (15-20 years) sufficiently that people in unison shriek "NEVER AGAIN!"?

Easy, diversify. Start building a Real Economy With Real People And Real Businesses. Does it mean BEM's "5 Things Bendites Should Do Now"?

Yes, that's a start. But it should be diversification within some rational bounds.

Realize that untrammeled growth into natural areas is shooting the Golden Goose. I don't see eye to eye with hbm on a variety of topics, but even I understand that mindless growth into places like the Metolius is pathological.

Realize that people come here to LEAVE THE URBANE. They are trying to ESCAPE. Making this place more like your favorite Frisco hood is just idiotic.

I guess there should be some rational guidelines, and hope that minds greater than mine can figure out what that means, and implement it. I can only say it IS NOT BEING DONE NOW.

But the primary objective should be to DIVERSIFY our economy to the extent that is achievable. Not only is this NOT BEING DONE NOW, all measure of force, time, money and effort is going into EXACTLY THE OPPOSITE.

Our local government is 100% made up of RE stool pigeons. Bought & paid for for 5 cents on the dollar. Doing all in their power to keep the gears of RE grinding along. Wiping out SDC's, building "affordable housing" and God knows what else.

This is why I said there is "nothing to be done" to save Bend. It is owned. And it'll be owned until the local RE interests are 100% wiped out. And that'll take decades.

Then, AND ONLY THEN, will Bend be ready for a rebirth. people will have had it with RE, even RE, and they will start to rebuild. When they do, unlike after the timber bust, they should NOT let one industry come to completely dominate this town. If they do, it'll simply happen again.

Diversify. It's the only free ride out there. And it is the key to Bend's future.

Geez! 9:00AM! Geez, this time change stuff is death. Time to look for the boobies....

I diversified into both jugs!