Bend = Popeil Pocket Fisherman

Sometimes, in fact most of the time, I actually want to write about things I see in the previous weeks comments. Stuff from BEM, Duncan, and "Timothy" (although sometimes I wonder who that is), yup even BendBust (with too many aliases to remember), and the True Believers. But it seems I always get something that sticks in my craw in the meantime & I end up writing about that. So I determined that I would do that this week & not be carried away by other things... But first:

Remember the "Popeil Pocket Fisherman"? Oh, yes.

"The biggest fishing invention since the hook...and still only $19.95!"

It's actually a marginal product as any sentient being would know, who knows ANYTHING about fishing hardware. I mean, it's a dinky little fishing pole made with crap components. So why did it succeed?

Well, first, in the grand scheme of things, it didn't succeed wildly. Almost EVERYONE has heard of it, but I don't know anyone who actually owns one. And it never succeeded wildly because it is, right on the face of it, a marginal non-spectacular product. You can see that right away, without having to buy one. It's a little fishing pole, with a short little snub pole.

Now Freudian remarks aside, a short fishing pole is really functionally inferior to a longer one. It's only real benefit is it allows for more compact storage. But for that benefit you pay quite a bit more than you'd pay for a regular fishing rod. I bought a no-name rod & reel a year or two ago for about $7. So how on Earth does the Popeil Pocket Fisherman, an inferior and far higher cost alternative, even succeed?

Three ways: Over-the-top marketing, a tiny niche market, and buyer ignorance.

As I said, almost everyone has heard of the Popeil Pocket Fisherman. THAT is just good, pervasive & what admittedly is effective marketing. If you market something, ANYTHING, hard enough, you'll almost always find someone to buy it, if it's even a country mile within reasonable. If you look at Ron Popeils' company, Ronco, it is effectively a marketing front for a series of what are strange, novelty, and middling quality items. But they are pervasively marketed in "Crazy Eddie" style with a "willing and eager" (and totally fake) audience, in a style that is apparently effective enough that I remember Ronco commercials even decades after having not seen one.

And there does exist a very, very small market for compact fishing gear. For some people, I can't imagine who as I am neither a big fisherman nor constrained by space consideration to that extent, the Popeil Pocket Fisherman is a great alternative.

Finally, strange, substandard novelty products capitalize on buyer ignorance. If you know NOTHING about fishing gear, and Ronco has somehow convinced you of your potential need for a fishing rod, and they are convincing you with their "audience" that is stunned & amazed by their crappy offering, then you might just pay $20 for something worth, at most $7, just because you don't know any better. In fact, buyer ignorance paired with almost hypnotic marketing are the only possible way that products like the Popeil Pocket Fisherman even exist.

Maybe I'm just weird that way, but I immediately see many parallels between the Popeil Pocket Fisherman and Bend. First, there does exist a market for what Bend offers. Hell, I live here and when I first got here, the natural geography, scenery, small town feel, and opportunities to actually make a living here were very appealing. Unfortunately, some of that appeal is being dissipated by Prop 37, massive in-fill development, pervasive tract housing, almost totally irrational home pricing, hostile and incompetent city government, increasing percentage of people immigrating here who do not share my values (don't litter, don't be an asshole, clean up your dogshit, etc) , and so on. But still, Bend is nice, just much less so than 5 years ago.

So there does exist a "market" for what Bend has to offer, despite my own personal observations that what it does have to offer is declining in quantity and quality. As Popeil Pocket Fisherman demonstrates, if you market a middling product hard enough, it will sell to someone. But it's getting harder, much harder. Ye Olde BendBubble2 had some visitors of an ilk it hasn't had in awhile: Yup, People Who Compare Bend to The Highest Price Housing On Earth To Prove That Bend Is Dirt Cheap. Here's a comment after posting 10 over-the-top CA markets with higher medians than Bend.

All with median prices more than 2x Bend's median price. Oregon in general and Bend in particular haven't caught up with California and Washington prices, not by a longshot.

Of course, logically shutting down people like this has been done by me & others with such regularity & ease over the past year or two, that I practically do it in my sleep. Remember the "Yugo"? Yeah, the Yugo was The Cheapest car made -- in dollars. By these people similar logical estimation, the Yugo was, de facto, The Best Car Ever Made because it was the cheapest. Geez. Of course the Yugo was a disaster, because the car itself was a disaster.

Now, I don't want to suggest "Bend" is a "Yugo". It's not. A Yugo-like product is doomed to failure, no matter how cheap it is. Burns... that's getting closer. I actually think Burns is getting better, but that's another story. Bend, as a product in marketable form, is The Popeil Pocket Fisherman. Middling quality with some marginal features that do appeal to a fairly small number of "buyers". That doesn't mean "worthless" by any means. After all Popeil sold Ronco in August 2005 for $55 million, a pretty decent sum. But compared to the Ronco core competence of marketing novelty items, Ronco's market share in it's collective markets has never been more than 1%. It takes advantage primarily of buyer ignorance to capture a tiny share of a huge market.

That's Bend. A wildly over-marketed destination of middle of the road quality. Marketing is ALL WE HAVE. This place practically worships it, because like Ronco, it's essentially Bend's Core Competence. That's why when we receive widespread recognition, it's value is computed to the penny:

"It (Outside Magazine) reaches a demographic that most other advertising efforts don't reach because of a limited budget," Yax said. "Most of our advertising efforts don't go nationally. This is how we reach the national travel audience." The three-quarter-page article in Outside would have cost $71,720 as an advertisement, Yax said.

This is from a Summer article in the Bulletin, "More praise heaped on Bend". This is just strange. I lived in places that received this sort of "free publicity", and never was there an article computing it's "marketing value" -- right down to the penny -- in the local paper. This is what we do, it's what this town is: We are Ronco.

But there's the rub: Ronco ultimately has to abandon each of it's products in a serial fashion: The Veg-O-matic, GLH9 Hair-in-a-can, Mr Microphone ("Hey, good looking, I'll be back to pick you up later. Broadcast your voice on any FM radio!!!". Seriously, that was the ad tagline....), The Cap Snaffler - "Snaffles caps off any size jug, bottle, or jar… and it really, really works."

OK, each ultimately blows up because once you've sold the .01% of the population that actually needs it, and then you've fleeced the .99% that is so mentally decrepit they fall for your marketing or they are just ignorant, the market just declines from there. Your only real solution is to wait a generation for a new batch of suckers. But even they will have some sort of memory passed on that will lessen the marketing blitz effect. Wildly overmarketing the same crappy product is a DOA business plan after the first time. THAT is also Bend. We've just had our first, last and ONLY dose of success. But like the Popeil Pocket Fisherman, that's it. We're done. THAT particular gambit will NEVER work again.

But you know what? We will waste MILLIONS for years, if not DECADES, trying to Keep The Dream Alive. Like "Uncle Rico" on Napolean Dynamite who just kept reliving his glory year, 1983, Bend will end up a pathetic has-been if we keep flogging our one-single glory period.

Like BendBust, I am damn tired of repeating this, but this place needs a REAL ECONOMY. Not housekeeping, retail clerks, pizza delivery, or even construction. Real, sustained business. Here's an acid test for how REAL a local economy is: Do you see more "sales" of businesses or straight "closures"? An economy with "real" businesses will have an overwhelming percentage of "sales". There is "something" there of value that is salable. A "project" economy will have straight closures. There was nothing there of durable value in the first place, so it could never really be sold. That's why construction companies rarely "sell". They are "projects", not real "annuity-like" companies. You buy a general contractor, you've bought hot air.

Bend has an overwhelming number of totally "fake" businesses. They're not real businesses. A one-man law firm, accountant, or doctor office is NOT a business. It's a job. That's what Bends economy is, which is also why a predominant number of businesses here simply close their doors instead of sell. There's nothing there.

That's what we are. There's not much here. And if someone of relatively nominal intelligence were to closely inspect "Bend" as a product they would either buy or not, they would quickly come to the conclusion that we are OVERPRICED. Not totally worthless, and not the Ferrari of towns, but just somewhere in the middle. But in the Ronco style of over marketing, we have become totally dependent of a business model where we are overpriced with respect to our "fundamental value" by double, triple, or even quadruple. And man, without those "hot air dollars" we would fold.

That's what we are: Ronco marketing of Uncle Rico. In 1986. The Glory Years are Over. But dumb Uncle Rico will unfortunately NEVER FORGET 1983.

Moving on..... From Bend Economy Man:

I would never mess with perfection, Paul, but I think sometime you should do a "bust-o-meter" on Central Oregon grand schemes falling victim to the RE bust

"Never mess with perfection"? You shut down your blog! Start it up again!

OK, I'm all better now. Anywho, regarding the Implode-O-meter, I had a similar thought. Maybe put it in the sidebar. BEM named The Shire, some of the vacant eyesore lots downtown, and other potential "busts". And I guarantee you there will be more. I think. The funding for "facility based building" from housing to Redmond Waterpark took a turn for the worse in the past few weeks. Mercato is a bust either way, it's just a question of whether the Crocodile Dundee Bank of Tasmania will pull the funding before it's completed.

I think they will. Bankers are like Wildebeests, they move in herds. Stick together, and the chances of a leopard pulling you down are relatively low. Go out where you stand alone, and you will die. THAT is where much of Central Oregon projects seem to stand. They are in some instances almost pathologically weird (The Shire? Redmond Waterpark? Only in a bubble...), and most residential projects are being built into a market that has basically collapsed.

To BEM's point, there will be some Implosion Candidates, but there will also be many that are just abandoned. I saw in craigslist a 24 lot dev for townhomes where the thing has gone "Wholesale". Can't sell the lots retail, so let's try to bail on this thing wholesale... at 95% of retail cost. THIS is what I think will constitute the bulk of "Implosions". Of course these wholesale liquidations won't sell. Right here on BendBubble2's RSS feed, I saw some developer trying to bail on some lots wholesale, and what's funny is that after computing for Realtor fees and points and everything else, anyone who actually bought at his ask & actually got what he said the lots were worth retail, WOULD LOSE MONEY! Awesome!

"I have made a grievous financial mistake and paid WAY TOO MUCH for a craptacular couple of acres that I can never sell. But if you act today, you can take over my place, and what's better, I can GUARANTEE YOU'LL LOSE MONEY! It's Win-Win!

Oh wait, no. It's Win-Lose!

Oh, no. Actually, it's Lose-Lose!"

THIS will be the legacy of development deals done from today on, for as far as the eye can see. Lose-Lose. Anyone who's bought recently will lose. If you buy from them, YOU will lose. That's the reason they're selling for Gods sake.

Implode-O-meter, good idea.

From Duncan --

Wednesday, September 12, 2007


So income has gone up double, but housing prices have increased by 5 times? Not to worry, rich people will buy all the houses.


I'm still amazed and astounded by the reactions I get in my store from visitors. The comment, "It's happening were I come from, too." The comment, "We're thinking about moving here."


And then, when I question their knowledge of the local conditions, the realization that they don't have a friggen clue!


Perhaps when it comes to the crunch, they come to their senses. But I have a sinking feeling that they are moving here willy nilly, thinking they are going to get a comparable job to the one they left, and sitting pretty on a nest egg of equity.


So the question becomes. How long does it take for them to lose their nest egg?


Bend just keeps sucking up all that cash. And the longer the newcomers are oblivious, the longer high-end retail keeps opening. (Not one, but two bookstores opening in Redmond?)


Maybe this is just another facet of the cubic-zirconia that is Bend. We've marketed the hell out of this place, we've actually realized some ridiculous price gains and reeled in some particularly rich suckers... er, uh buyers. But INCOME. Yeah, that pesky measure of ECONOMIC REALITY, has remained almost pathologically depressed.

What's GREAT, is this place seems to want this illusion to persist, AT ALL COSTS. Screw income, screw it that no one who is actually here can survive. Just reel in suckers to keep cost inflation as high as possible for a small number of producers, Bends Elite. Reminds me of somewhere:

Under the leadership of current president Robert Mugabe the economy of Zimbabwe declined from one of the strongest in Africa to one of the weakest.

The downward spiral of the economy has been attributed mainly to mismanagement and corruption of the Mugabe regime and the eviction of more than 4,000 white farmers in the controversial land redistribution of 2000.

Inflation rose from an annual rate of 32% in 1998 to an official estimated high of 7,634.8% in August 2007,^[39] a state of hyperinflation. The IMF predicted inflation will reach 6,430% by the end of 2008. Estimates from private sector economists estimate inflation at about four times the official figures.

In August 2006 a new revalued Zimbabwean dollar was introduced, equal to 1000 old Zimbabwean dollars. The exchange rate fell from 24 old Zimbabwean dollars per U.S. dollar (USD) in 1998 to 250,000 old or 250 new Zimbabwean dollars per USD at the official rate,^[42] and an estimated 120,000,000 old or 120,000 revalued Zimbabwean dollars per US dollar on the parallel market^[43], in June 2007.

Mugabe points to foreign governments and alleged "sabotage" as the cause of this, as well as the country's 80%^[44] formal unemployment rate. Critics of Mugabe's administration, including the majority of the international community, blame Mugabe's controversial program which sought to seize land from white commercial farmers.

The economic meltdown and repressive political measures in Zimbabwe has led to a flood of refugees into neighboring countries. An estimated 3,4 million Zimbabweans — a quarter of the population — had fled abroad by mid 2007.^[50] Some 3 million of these have gone to South Africa.^[51]

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.

Finally, from BendBust:

If you can go down 25% do it, becuase this time next year will be -50%.

There are NO buyers, there is NO money, the only thing you can do is market the thing yourself, keep your realtor, everyday promote the house on Craigs, and everywhere you can, take out an AD of your own every sunday in the Oregonian, and promote the home. This way you'll catch that one guy with money, but YOU must lower the price, and work your ass off NOW, if you keep dragging your ass, you will be giving the house away next year.

WHAT! "Keep your realtor"? Are you PRO-BEND REAL ESTATE, BendBust?

OK, Buster, don't blow an O-ring. Just fuckin' with ya. But he brings up a good point, the money is GONE. I'm not sure I agree with his percentages, but when you start looking at the very peculiar & unique situation that is Bend RE (extraordinary RE economic concentration, double or triple the "normal" levels in regular towns, the extraordinary appreciation, and coupled with that a huge correlation of local incomes to RE prices), it becomes hard if not impossible to estimate the impact of the current credit contagion on a place like Bend.

The Credit Contagion may be the only, or the first in a long line of "surprises", that have long been talked about here, as post hoc reasons for a massive and almost unbelievable collapse in Bend RE prices some years from now. As Timmy has said (I think. Maybe I just thought it.), when stocks implode, the reasons for the implosion are only widely known & disseminated once the disaster is total & complete. We won't really know what the catalysts are in their full entirety until home prices here have imploded.

Cynics will say, "Then HOW DO YOU KNOW IT'LL HAPPEN!". Just because I don't know the exact reasons for a bubble bursting, doesn't mean I can't predict that it's very likely one will. The Ultimate Reason ALWAYS ends up being "The Whole Ponzi Scheme Collapsed Of It's Own Weight". That's why all Bubbles burst. There were "exterior" reasons for Bends Bubble, that were largely beyond our control; the national housing bubble, easy money, and a penchant for North-migrating equity locusts to move here. But there are several reasons that are ALL OUR FAULT, and we not only did nothing to mitigate their inflating effect, we have and ARE STILL plowing everything we've got into them. In summary:

Bend is a Pocket Popeil Fisherman (a middling town), being wildly overmarketed by Robert Mugabe (Bend City Council) for the single and sole reason of enriching a small elite number influencers (Bend RE developers). The outcome is easy to predict as day follows night:

Economic destruction and massive refugee exodus.

This is Bends fate. Like the Pocket Fisherman, we had our shot. Like Uncle Rico, we are past our prime. And like Robert Mugabe, we will be driven into economic catastrophe because our government is corrupt & incompetent. We could have taken our one-shot windfall & invested wisely & built a Real Town with Real Jobs. But no. We're beating a dead horse, and all indications show that The Powers That Be will beat this horse to bloody mush until this town is a shadow of it's former self. Bends Bubble collapse and economic destruction are a foregone conclusion because of this.

It's NOT a prediction and I don't "want" it to happen, it's just brutally obvious common sense.

Bends Laffer Curve - Not Very Funny

The Laffer Curve is a theoretical construct that states generally that there exists some optimal revenue-maximizing tax rate for our government, somewhere between 0% and 100%. At 0%, obviously they collect nothing, and at 100% there is no "theoretical" incentive to work (or one hell of an incentive to hide your income) and there is also $0 in revenue. So the Laffer Curve is an inverted "U" shape, with $0 in revenue (plotted on the Y-axis) at 0% and 100% tax rates (plotted on the X-axis), and some local maximum somewhere in the middle that maximizes income.

There's been quite a bit on this blog, it's predecessor, as well as The Bulletin about businesses (mainly downtown) being closed down, ostensibly due to large increases in rent. Duncan McGeary talks about the lease rates diconnecting from reality on his blog, The Best Minimum Wage Job A Guy Ever Had.

Finally, it can probably be stated with little risk that Bend has experienced one of the largest population growth & wealth bubbles in its history, with a flood of people & money coming to this area in just the past 5 years.

So, what does the Laffer Curve, high lease rates, and big growth recently for Bend have to do with each other? It's my opinion that Bend commercial lease rates launched on a steep trajectory higher originating from a number of factors, a primary one being eyepopping growth, that may well have pushed per sq/ft rates past the point of profit maximization for commercial property owners.

Think of it like this: There exists some theoretical lease rate that maximizes the entirety of commercial properties downtown revenue, what it is, is debatable. But cumulatively (assume) there is some blended rate that maximizes the income for these properties. And it exhibits Laffer curve-type behavior; it is maximized somewhere between 0% of the "surplus" (profit) of these businesses and 100%. Charge nothing, and you get nothing, but charge 100% of a business owners surplus, and you eradicate any incentive to stay open.

As an aside: I do realize that there are "lifestyle" businesses, where the owner derives some sort of "psychic benefits" from operating their business, and the economics are of little importance, and some persons like this will operate their business at a loss for extended periods. There are also owners (maybe including Duncan), who take far smaller than economically maximized paychecks for the pleasure of doing "what they want". And then there are simply people who are ignorant of their economic gains over the relevant planning period. All these factors can push lease rates beyond an economically determined profit maximization point, and keep it there. And there is probably evidence that this is happening in some measure in downtown Bend.

I think that the large increases in lease rates currently in Bend are the simple projecting forward of large past rate increases. Demand for the space has certainly gone up with population booming in Deschutes County, while supply has stayed largely contained (until recently, when building height restrictions were lifted). This has resulted in a boom-led increase in lease rates, and with that, a boom in commercial property prices.

But I think the boom is slowing, if not busting. This makes current lease rates "optimistic", and probably to the right of the concave downward "Laffer Curve" for Bend downtown property. In fact, if a "bust" of Bends hyperboom really happens with full force, the natural slowing of economic activity, a dramatic slowing in lifestyle subsidies, and a dramatic decrease in economic incentives to continue working marginally profitable stores (a spouse unwilling to continue subsidizing a money loser, for example) could combine to lead to an explosion in vacancy rates downtown, and a commensurate plunge in lease rates.

I don't think the hyper-optimistic rates of $2.50/ft (+ net lease charges) are sustainable downtown. Of course leases rollover over years, so the effect may be delayed, but there seems to be strong evidence that commercial property owners are confiscating a share of the surplus created by downtown business that is far to the right of optimal, and will lead to a drastic reduction in total revenue. Businesses in Bend simply do not make enough to support current lease rates.

Once this sinks in, there will be a sharp adjustment in Bend commercial property values, downward exacerbating the bust. As I've written before, commercial property exists for no other reason than to make their owners money, and when the money stops these properties fall hard. And once the manifestations of a bust are clearly visible ("For Lease" signs all over), it's even harder to convince new lessees to sign up. Busts are hard to... well, bust.

I am not a bleeding heart liberal, left-wing nut socialist, or anything of the sort. I am a profit maximizer to the core, and think these building owners should maximize their income. But it is my firm belief that they have gone too far in lease rate increases, and they are far past the point of profit maximizing on the "Laffer Curve" for Bend commercial property. I think owners who are not grasping all they believe they can possibly charge in an economic environment gone soft are pursuing an enlightened path. Lessors charging $2.50/ft or more will find their space empty, as there just aren't that many businesses here that can absorb that sort of lease rate and survive.