Bend Oregon: Misery Reaches New Highs

Well now.

On Friday we had yet another pang of SOBRIETY regarding the RE hangover. The misery index, jumped an astounding .5% on Friday, when unemployment exploded nationally, from 5% to 5.5%, FAR higher than anyone expected.

So with inflation still at (an incredibly understated) 3.9%, we hit 9.4% on the misery index, an indicator wikipedia syas, "Some economists posit that the components of the Misery Index drive the crime rate to a degree. They have found that the Misery Index and the Crime Rate correlate strongly and that the Misery Index seems to lead the Crime Rate by a year or so."

This may answer the question I've heard in some corners, "Is it just me, or is there a lot more crime stories on the local news recently"? Yes.

If you go to miseryindex.us, and look at the index by month, you see that the current readings are the highest for G Dub's tenure, except for Sept 2005, when it had a quick spike to 9.8%. Clinton, after a rocky inheritable situation from G Dub's Dad, never really even came close.

This is actually a very interesting graph, especially the monthly version. In a brief period in the mid 1950's, there was no inflation, and this reading was composed only of a very low unemployment rate of 3.5%, or so.

Flash forward to the Ford/Carter years when things got especially terrible, and the index maxed out near 22%.

I've heard some economists state that inflation is not really that bad, because it is accompanied by growth, and hence inflation is a sign of a robust economy.

This is, of course, ridiculous.

Inflation is just a measure of how fast a fixed quantity of money is losing value.

If your paycheck increases 10%, and inflation increases 15%, you are worse off.

These economists err on this idea, because many times inflation IS accompanied by similarly large growth rates. China is a great current day example. They have had very robust growth & inflation rates recently, and they are probably the most vital economy in the World.

But inflation can also be accompanied by contraction, as can be easily seen by these misery index charts. The 1970's & early 80's are clear illustrations of this: Very high unemployment & very high devaluation of the currency.

This is the Worst of All Worlds: Stagflation.

And this is where I think Future Bend will differ from the Bend of Olde.

Bend used to be chronically Undervalued, because of the extreme cyclicality of the local economy. This place boomed & busted, everyone knew it, and so people had to play a middle ground when making home purchases. You priced for the bottom of the cycle, cuz everyone knew it was coming.

But then things began riding a Long Wave up, for about the past 3 decades. Bend went from chronically & deeply undervalued, to wildly overvalued. The Long Wave has finally crested, and we are going to again ride things back down, where Terribly Cyclical Bend reasserts itself.

But at least when things were terrible employment-wise here, they were OK inflation-wise.

Finding a job was hell, but homes were dirt cheap. Things "evened out". We had lots of one kind of misery, but almost none of the other. Poverty. With a View... and Cheap Houses.

Now? Now, we are returning to Poverty. And we do have a View. But we also have almost rampant, out of control inflation. Our home prices are falling, true, but you DON'T pay the value of the house each month, you pay THE MORTGAGE. And if you've bought sometime from 2004-2008, you've essentially "locked in" an incredibly high inflation rate via your mortgage. And we have nationwide inflation exploding higher.

Friday, oil prices spiked higher in the largest one-day price advance ever recorded, up almost $12/bbl.

So we are notching FAR higher unemployment rates, 6.8% at last count. And home values are imploding, which is probably a far better indicator of a large number of independent contractor wages around here than anything. And national inflation is on the verge of a spiral higher.

This all converges to give Bend probably one of the highest Misery Indexes in this country, by far.

We don't make much money. We have a far higher unemployment rate than the nationwide averages. Our local economy is cyclical in the extreme. Our "locked in" inflation has eclipsed the entire country for the largest purchase item most people will make in their lives.

The misery index for Bend continues to climb, and will push this area into the deepest economic depression ever witnessed.

Now, I want to do some "reprints" of some blogs of interest. First Dunc:

Saturday, June 7, 2008

Worm Ouroboros

Sometimes, something is so glaringly obvious that you ignore it. It's right in your face, you know there is something wrong, but you're distracted by other wilder, crazier things.

I've felt that we were building too many houses in Bend for several years; actually, I think I was saying that even before the actual bubble. My concern was that Bend didn't have an underlying industry, or economic base, to justify all the housing.

I didn't think minimum wage tourism jobs could pay for them, and there were only so many amenity rich transplants we were likely to convince to move here. I'm not even sure I was all that conscious that it was a national problem, I just could see what was obvious here in Bend.

I never felt that retired people were big spenders. The number of stores in Bend seems wildly excessive. It seemed that an awful lot of the newcomers were involved in real estate or building or support industries. More and more, it appeared to me that growth was the industry of Bend, and the industry of Bend was growth, a big Ouroboros Worm eating it's tail.

I wasn't really very aware of the credit/liquidity problem until it burst. I don't remember too many people talking about it, or reading very many stories about it. In hindsight, that too was obvious. I'd heard plenty of troubling stories over the years about people borrowing money that I didn't think they could afford to pay back.

But subprime and Alt loans and other guaranteed to make you 'house poor' schemes have been around for years. Was it the cause or the effect of too many houses? Whatever, it was the precipitating factor in bursting the bubble. The curtain was drawn back, and the wizard behind the screen was naked as a jaybird. I've begun to see the whole housing thing as a true pyramid scheme. At the top, the fewest and the biggest, and probably the ones who scammed most of the money, were the big financial firms; the Bear, Stearns, the Lehman's.

Right underneath of them, a bit more numerous, were the big banks. Both of these found loopholes in the relaxed regulations to bundle problematic schemes into 'investments.' Next level under, more numerous, were the national builders, the national chains, and the big box developments. Again, I've felt too many commercial buildings were being built, especially locally. All done, in my opinion, in money borrowed from the future. A vast pool of liquidity that seemed 'free'; but will have to be paid. Just below them, the regional banks, builders, and mortgage companies; the wannabes and the followers.

Under them, in much bigger numbers, a crazy number of local mortgage and banks and other financial services. And an even crazier number of local builders and construction firms. Working for them, a vast pool of real estate agents, and construction workers, and mortgage agents, and clerks working at stores supplying the bubble, and so on. And finally, in at the base, the home buyers themselves. Prime, alt-loans, and subprime.

In most pyramid schemes, the top walks off with all the money. Whats unusual this time is that the problem first appeared at the top. The level of greed and graft and stupidity was so massive, that once we saw the wizard's big, red, hairy butt, we wanted our money back. After the collapse of Bear, Stearns, the government rushed to reassure us that they are buying the other financial services some fine pants. Don't worry, we'll take care of it!

But, as usual in a pyramid scheme, the biggest number at the bottom are bearing most of the brunt. Do you see the part of the pyramid that hasn't really been talked about much? Except for a few high profile national builders, it seems to me that most of the developers and big builders, both regionally and locally, haven't really been punished yet.

Even when a company seems to run into problems, someone else comes along and bails them out. Randy Sebastian is given another lease on life, albeit with his nuts firmly clamped. It has been commented in passing, that building just seems to keep going on, despite the glut of housing and the lending problems. Yesterday, the Wall Street Journal had an article that partly explained what's been going on:

In "Real-Estate Woes of Banks Mount," Michael Corkery, Jonathan Karp and Damian Paletta of the Wall Street Journal: (Italics are mine, to highlight the role of the developers.) "Federal regulators warned Thursday that banking-industry turmoil would continue as financial institutions come to terms with piles of bad loans they made to finance the construction of homes and condominiums. "Until now, most of the damage to banks from the housing crisis has come from homeowners defaulting on their mortgages. But amid a dismal spring sales season for new homes, loans to home and condo builders are looking increasingly shaky..."
"...banks that aren't diversified, or those with high exposures to residential construction and development, are of particular concern..." "Home builders are falling behind on loan payments, and the value of the land and housing developments that serve as loan collateral is plummeting." ""We believe this period of procrastination is nearly over," says Ivy Zelman, chief executive of Zelman & Associates.

"The prospect of a new wave of losses worries federal regulators, given the large proportion of loans to housing developers held by many banks and thrifts. The problems are worse at small banks that can't easily absorb losses, and at banks with big exposure in states hit hard by the housing crisis..." 'Real-estate lenders had been hoping for a decent spring sales season for new homes, which would have helped builders stay current on their loans. But the selling season has been a bust.' "..."Finally the banks are capitulating and saying, 'Let's mark to market and flush this all out.' The market is going to get worse. We don't want to hold on to this stuff."

For me, this is the final piece of the puzzle. It both explains why frenzied building continues by developers, and the response of the banks. It finally let me see the whole thing as the pyramid scheme I detailed above. It also appears to me that problems are starting to ricochet through the different levels -- the government steps in to try to firm up one problem, but it breaks out on another level and so on. Which mean, it probably can't be controlled.

I'd thought most of the bad news would be put on the back burner during the spring and summer, and the accounting would take place in the fall. Now, I'm wondering if even locally, they'll be able to hold off taking the developers out of play. If you don't mind, I'd like to repeat one of the above quoted paragraphs, in Capital Letters and Italicized.

"REAL-ESTATE LENDERS HAD BEEN HOPING FOR A DECENT SPRING SALES SEASON FOR NEW HOMES, WHICH WOULD HAVE HELPED BUILDERS STAY CURRENT ON THEIR LOANS. BUT THE SELLING SEASON HAS BEEN A BUST."

That says it all. There is no way to "gracefully" unwind a Ponzi Scheme (ie Bubble). Our government powers that be, clear down to local City Councilors, media outlet editors, and housing associations will slowly but surely learn this.

What I find baffling is that the markets seem unable to comprehend that we are in uncharted territory. Unemployment just exploded higher, catch EVERYONE by surprise. Well, almost everyone. I wasn't surprised by that, but I have been profoundly baffled as to why so few seem able to see through to the ultimate effects of this catastrophe. I still find this baffling.

Usually the markets discount things to the befuddlement of almost everyone, then The Event comes to light. The markets are an almost mysteriously good discounter of the future. Not in this case. They seem like they are years behind. Again, baffling.

Another Best Of Bends Blogs for the week was from Jesse Felders My Back Pages:

Can we finally put an end to the "it's different here" mantra?

Now that the news outlets have covered the latest National City Housing Valuation Analysis, I think it's time to clarify an important point of the study. Today's coverage of the study in the Bend Bulletin suggests its conclusion, that Bend is one of the most overvalued markets in the country, may be flawed:

Dave Woodland, the vice president and regional manager of Signet Mortgage in Bend, urged caution in drawing too much from the national survey, which doesn’t capture the true income of the area, he said.

“They look at Bend and say it’s overpriced based on reported compensation levels,” Woodland said. “The reason Bend is so popular is that it’s a great retirement area, and there are a base of individuals who are independently wealthy, self-employed or retired.”

This is the most common rebuttal of the study that I've heard. However, those suggesting that the attractiveness of Bend is not factored in have not examined the study's methodology. Actually, for the purposes of estimating "fair value" the study gives Bend a premium on par with similar areas such as Missoula, Montana; Flagstaff, Arizona and Santa Fe, New Mexico. In fact, Bend's premium is greater than that attributed to Boulder, Colorado; Las Vegas, Nevada and Naples, Florida and equal to that of ultra-wealthy Honolulu, Hawaii and San Jose, California. Take a look; The methodology is there for everyone to see.

I agree that Bend is a wonderful place to live but it is no better than these other areas. And it's far from the utopic wonderland the housing bulls would have us believe. So can we finally put an end to the "it's different here" mantra? For one, it's not valid. And two, it sounds way too much like the "it's different this time" mantra of the tech stock bulls of 2000.

Again, just a great piece. Many people, including yours truly, do not read the fine print on voluminous reports like this, and the media gets a pass when they spout their obligatory bullshit about Quality Of Life, and how that one factor will always justify any and all Bend home prices, no matter how high.

Also note how he points out that CA & FL, yesteryears Marquee Centers of Overvaluation, have returned to some semblance of normalcy, while Bend remains wildly overvalued. THIS is further proof that Bend lags the trends of the country as a whole, significantly. Everyone else has bled off significant portions of their overvaluation. Not us.

Good Job Jesse for spotting this one refuting point of fact that has eluded every media outlet in Bend.

Here is just a very good piece from The NY Times:

About 1 in 11 Mortgageholders Face Loan Problems

By VIKAS BAJAJ and MICHAEL M. GRYNBAUM

About 1 in 11 American mortgages were past due or in foreclosure at the end of March, according to a report released on Thursday, a figure that is rising fast as home prices fall and the job market weakens.

The first three months of 2008 marked the worst quarter for American homeowners in nearly three decades, according to the report, issued by the Mortgage Bankers Association. The rate of new foreclosures and past-due payments surged to their highest level since 1979, when the group first started collecting the data.

All told, about 8.8 percent of home loans were past due or in foreclosure, or about 4.8 million loans. That is up from 7.9 percent at the end of December. (About a third of American homeowners do not have mortgages.)

Delinquency and foreclosure rates started rising from historically low levels in late 2006 and have picked up speed in nearly every quarter since. Analysts say at first past due mortgages represented mostly high-risk loans made to borrowers with blemished, or subprime, credit. Now, as the economy has weakened and home prices have fallen in many parts of the country, homeowners with better loans are also falling behind.

Economists worry that a big loss of jobs in the coming months could drive default rates much higher. The Labor Department will release its report on the job market for May on Friday.

“It’s not going to help the housing market out at all if you have a loss of jobs,” said John Lonski, chief economist at Moody’s Investors Service. “When employment’s contracting, that makes it all the more difficult to sell your home at an attractive price.”

Though defaults are rising in many places, it is worst in areas where home prices soared in recent years or where the local economy is now struggling.

California and Florida, for instance, accounted for nearly a third of all mortgages that were in foreclosure or 90 days delinquent. Home prices, construction and mortgage lending were particularly ebullient in those states earlier this decade. The housing industry accounted for a bigger portion of their economies during the boom.

“The problems in California and Florida are extraordinary, and they are the main drivers of the national trend,” said Jay Brinkmann, vice president for research and economics at the Mortgage Bankers Association.

Midwestern states like Michigan and Ohio, where home prices did not soar, are suffering mostly from the loss of manufacturing jobs and high-risk loans. Default rates in those states appear to have leveled off in the last few months, which may be an early hopeful sign.

About 9.7 percent of loans in five Midwestern states were past due or in foreclosure in the first quarter, down from 10.5 in the fourth quarter.

“This decade has been brutal on the industrial economies of the United States,” said Michael D. Youngblood, a mortgage analyst at Friedman, Billings, Ramsey. But “the rate of labor market deterioration in these depressed cities is significantly slowing.”

Michigan, Indiana and Ohio are still among the five states with the highest default rates. The other two states in that list are Florida and Mississippi.

Defaults are highest for adjustable-rate mortgages — loans that promised a low, fixed-interest rate for the first few years. But people who took out such mortgages are falling behind even before those loans reset to a higher adjustable rate. Analysts say that reflects the fact that those mortgages were popular among investors, buyers who made small or no down payments, and those who did not provide proof of their incomes.

Falling home prices are also contributing greatly to foreclosures. Homeowners who owe more on their loan than their homes are worth are more likely to default if they encounter financial distress, said Robert Van Order, an adjunct finance professor at the University of Michigan.

In past housing downturns like the one in the early 1990s, he said, housing prices did not fall nationwide and even in local markets they fell much more slowly. So far, home prices have fallen about 16 percent from their peak in the summer of 2006, according to the Standard & Poor’s/Case-Shiller index. Economists at Lehman Brothers expect the decline to bottom at 25 percent.

“What that means now is people don’t have that equity cushion as they get into trouble,” said Mr. Van Order, who was once chief economist at Freddie Mac. “The incentive to beg, borrow and steal is not there.”

By many measures the job market is not falling apart; the unemployment rate was 5 percent in April. But these are challenging times even for those who have not lost jobs with gas prices at $4 a gallon, economists said.

“Wage increases are not keeping pace with inflation,” said Bernard Baumohl, managing director of the Economic Outlook Group. “That really puts a lot of pressure on households to make some very serious financial decisions.”

The surge in defaults has been challenging for mortgage servicing companies, which find it hard to keep up with the growing backlog of loans awaiting foreclosure, analysts say.

Some mortgage servicing firms appear to be holding off because lawmakers in Congress are talking about a plan to refinance up to $300 billion in loans using the Federal Housing Administration, Mr. Youngblood said. The discussions are “giving servicers hope of a better solution for many borrowers,” he said.

In states like California and Florida where they have huge inventories of repossessed homes, some companies are starting to move a little faster by auctioning off properties, Mr. Youngblood and others say. In some markets like Las Vegas about half the homes sold in recent months had been in foreclosure.

Dean Williams, chief executive of the auction firm Williams & Williams, said mortgage companies are most eager to hire his firm in markets that have a “rapidly and constantly increasing pile up” of homes.

Note that since this piece was printed, unemployment is up to 5.5%. Have I mentioned that?

Notice that Americans in trouble now looks to be near 11%. Virtually no one had trouble paying mortgages 2 years ago. Why?

Because, as was mentioned by BEM in the comments, HELOC's were used as "income" for many years. And when home values are increasing, homes in some cases, sort of pay for themselves. HELOC it up every couple of years & you pretty much live for free in a house.

Now it's The Dark Side of this Ponzi Scheme. It still seems incomprehensible how bad it can & will get in a place like Bend, where incomes are so overwhelmingly tied to an imploding industry that'll make the timber bust look positively glorious.

Remember: See how bad it is nationwide? We are 18 months behind, and beta 5. Multiple whatever happens nationwide by 5 or a glimpse of Future Bend.

And possibly the most gloomy post of the week was by Cheri Smith, a local Realtor with the appropriately named "Buy In Bend" blog:

I have to admit I was disappointed to see that there was virtually no change in the number of home sales from April to May. And since I’m busy and not feeling very witty, I’ll leave it at that.

	Active	Pending	Sold
May	2132	193	115
April	2003	201	102
March	2009	194	82
February	1867	116	62

Wow. You can FEEL the despondent resignation in this womans tone.

You can also catch some VERY "realistic" vibes from Realty Times entries:

Fran McCormack: "Prices have turned sharply downwards. The average price of a single family residents is running around 475K. If you are an investor the Short Sale market is a place to pick up rental property or buildable land."

Debbie Hood: "We are still in the midst of a downward market correction, with Sellers adjusting their expectations from 2005 home prices."

Bev Sherrer: "Bend Oregon is a buyers market, interest rates are down and the inventory is up."

How about that Bev Sherrer? That's her entire entry, no mincing words, she's just fed up, incapable of an entry more than a few clipped words.

Go to Realty Times and you can get a taste for what it's like when an entire community of people are trying to talk themselves out of suicide.

And what would a weekly blog entry be with a self-administered kick in my crotch?

From Buster:

My humble opinion, is that this blog is a collective representation of Bend in decline, of intellectual laziness, This blog is Bend. Add insult to injury 99% of the folks on this blog are self-defeating renter losers.

You can't get more Bend than this group. You got the 'pussy' and his gorilla wife at the bike shop, this is what this blog is all about, middle age guys camping on their computer while their wives SELL in order to pay the bills. One day I went in to the Pussy's bike shop to find a part, as its near my house.

The first word was "Can I HELP YOU", this women was a white version of Grace Jones, a real man-hater. I quickly did a 180, and announced that I had a senior moment. Bitch Slapping this group is like stepping on a newborn litter of critters, what's the fucking point?

Bend is fucked, I think all of us know, and it will be years before the toilet bowl flushes the detritus. The people on this blog 100% represent the new-bend, which is why they constantly call each other cali-Ho's, because they are. It will take years to flush the toilet. I have done a good job of educating during the past 1-1/2 years, I'm a contrarian, as duncan has said, what's the fucking point? This is what the bottom looks like.

The "humble opinion" part was pretty damn funny.

But aside from that, you just really have to wonder about the motivations for Good 'Ol Buster. He supposedly owns rental homes which encapsulate most of his wealth, but want RE to implode. Why? He hates everyone here, but asserts that he'll never leave.

Plus he admits freely over & over that "Bend is fucked", and yet he says he abandoned this blog because he has outlined, along with BEM, ways to "fix" Bend. I've also outlined what I thought would fix Bend, but that was a long time ago, and I think it's too late.

Anther area where he & I seem to differ is the Ultimate Path that Bend will take. My own "humble opinion" is that local businesses are slowly but surely being crushed out of the Center. The center of Bend is being avidly turned into wildly overpriced commercial space, most of which is becoming vacant on Opening Day, even with signed tenants, who are defaulting on their leases.

The standard Bend business cannot survive at these lease rates. That's it.

So who does fill the space? Is it filled at all?

I do think we'll hit some eye-popping vacancy rates here in the next few years, but I'm afraid that we'll remain on corporate radars as a place to plop down a franchise. Sonic has just plotzed out the latest soulless edifice to much fanfare.

I visited Sonic this past week, and was left profoundly confused as to why ANYONE would line up to eat there. Not bad. Just wildly expensive & totally pedestrian food. I may never go again. Dandy's is FAR, FAR better. Greasy as hell. But way better.

This is The Problem. Sonic comes in under a corporate spending umbrella, Dandy's goes out.

Yarg.

It's already happening. Look for A Wave of locally owned restaurants to go under in the next 1-2 years downtown. WAVES of them. Retailers too. Then, look to see what pops up in it's place. Might be 2-3 years to fill some spots, but some may fill quick. Is it local? Or is it some slimy ass slick bullshit imported turd?

I'm guessing there'll be more of the latter, and less of the former. THAT will drive people OUT, and they will go in search of The Next Bend.

Is Mass Fireclosure In Bend's Future? Hey, I'm just arson a question...

I guess I should start out with less than obvious money-grab, that we all pretty much knew would happen, from Cessna:

In Kansas, Cessna got quick action from government

By Peter Sachs / The Bulletin

Published: April 12. 2008 4:00AM PST

Two weeks ago, aircraft maker Cessna told the state of Kansas that it needed at least $25 million on top of local incentives if it was going to build a factory for its new long-range business jet.

Four days later, the Kansas Legislature passed a package worth up to $33 million, and Cessna agreed to build the factory in Wichita.

The multimillion-dollar aircraft company that recently landed here when it bought Columbia Aircraft Manufacturing isn’t afraid to ask governments for loans or tax breaks when it expands.

But other than saying it wants a tower at the Bend airport by the end of 2009, Cessna has made no requests of Central Oregon governments.

Bend city officials say by all indications, the company is in Bend to stay.

“As far as we know they are investing in Bend; they are investing in that plant; they are hiring workers; they are training workers,” said John Russell, the city’s economic development director.

But the city and the county have few economic incentives to offer if Cessna were to come asking in the future.

“I can’t speak for the board on that issue,” County Administrator Dave Kanner said. “I’m hard-pressed to think of a source of money that we could tap into for that purpose.”

Doug Oliver, a Cessna spokesman, reiterated the company’s commitment to Bend last week, but otherwise declined to comment on the company’s plans. Several other Cessna officials did not return calls seeking comment.

Mark Withrow, the new manager of Cessna’s Bend facilities, told the Bend City Council earlier this month that his company has huge expansion plans, but he wouldn’t go into specifics beyond saying he intends to add 100 more jobs to the plant, which currently has 430 employees.

Withrow acknowledged to the City Council that Cessna needs to bring down the cost of the Cessna 400 and increase its production numbers to make it more competitive.

“Our goal in Bend is much bigger than where we’re at in Bend,” he told the council.

Taking flight in Kansas

Cessna’s roots in Wichita, Kan., date to the company’s formation in 1927. About 8,000 of its 9,500 employees are there, according to the company’s Web site.

The company is Wichita’s largest employer and coupled with several other aviation companies, a key part of the state economy, said Kim Young, a project manager at the Greater Wichita Economic Development Coalition.

The city, county and state provide a number of incentives for Cessna and other companies. For example, businesses at Wichita’s airport don’t ever have to pay property taxes on their land or buildings, Young said.

Businesses can get income tax credits for each new job they add and certain businesses can write off up to 10 percent of the cost of equipment they buy.

The city and county also set aside money from their general funds that they can give to companies as forgivable loans. For example, if companies meet targets for new jobs, then they don’t have to repay the loans, Young said. And the state provides money to help train new employees in a range of industries.

“We’re constantly looking at how we can sharpen the tools in our toolbox,” Young said.

Incentives like those can add up to millions of dollars in savings for companies to build and expand in Kansas, Young said.

“Those are just some competitive advantages we have for business, and we certainly make up for it in other areas” like job creation, Young said.

Cessna’s ability to get the state Legislature to bend over backward so quickly earlier this month was “unheard of” and “unprecedented,” Young said.

“That’s exactly the type of thing that we wanted to do,” Young said. “We have to move at the speed of business, which is very fast.”

If not for the Legislature’s action, she said, there was a risk that Cessna would build the plant for the Citation Columbus jet in another state. The plant will bring more than 1,000 new jobs to Wichita.

Central Oregon incentives

Roger Lee, the executive director of Economic Development for Central Oregon, acknowledged that the region has a long way to go if it wants to compare to Kansas’ incentives.

“When we first met with Cessna they made very clear what was available to them in Wichita and other parts of Kansas,” Lee said.

Since Bend Airport is in Deschutes County, the city can’t provide many incentives beyond lower lease rates on land. And the county hasn’t shown much interest in creating aggressive economic incentives, Lee said.

“From our perspective, in many cases the city and the county have not been significant players as far as offering incentive packages ~ for this industry or any other industry for that matter,” he said.

The state currently provides some tax breaks for new businesses, but nothing that compares to Kansas, Lee said.

A special enterprise zone the city and county applied for at the start of the month could provide property tax breaks for businesses at the airport and in La Pine if the state approves it. That would mean businesses wouldn’t have to pay property taxes on new buildings in those areas for five years, Lee said.

The city’s special projects manager, Ron Garzini, said it’s not just about having financial incentives for companies.

“It’s not just a financial issue,” he said. “It’s also, if you’re willing to stretch a bit to show a commitment to them, that means you’re going to stay with them for a long time.”

And ultimately it’s those small steps at building relationships between business and government that matter, Young said.

“Not everybody can right away put dollars on the table,” she said. “But if you’re talking about it and working together, I think you’re certainly moving in the right direction.”

Peter Sachs can be reached at 617-7837 or psachs@bendbulletin.com.

Bye bye, Cessna. First HoltzTek, now this.

Lemme say this with some pretty high certainty: Cessna will be leaving the area within 1 year. That's what this article is; an ultimatum.

The thing you should ask about ALMOST ANY STORY in the Bulletin, is WHY is it there at all, WHO would benefit, and what the hell do they want.

This story came straight from Cessna corporate, and their wants are simple: They want to be subsidized in large monetary terms, or they're leaving Central Oregon & they're taking their jobs with them. Look at the tone of the piece: Strong-arming local governments for millions is Standard Operating Procedure for this company. This article is tenderizing us for the inevitable. It's coming, and unless we acquiesce, they will leave.

I would put to you that they knew this on Day 1. I think they know that any rational government in the circumstances our current local government is in, will be unable to pay this blackmail. Heads or tails, Cessna wins & Bend loses.

Pretty standard shakedown. The question is: Will we shoot our wad on them, or Juniper Ridge... or something else? No matter, whatever it is, the tentacles reaching out for the slim pickins' remaining in this one-horse shithole assure our almost certain destruction.

If we payoff Cessna, we go bust & lose JR. If we don't we lose the jobs, we build some half-assed "facade" out at JR, we go bust & JR ends up a decent wad of blown up lava rock.

Of course, we barely have enough to pay for staying afloat, not withstanding all these bullshit dreams, like JR. This Cessna money-grab is just the vultures starting to pick the Bend carcass to pieces. And sure as shit stinks, our City Council will almost certainly cave to ridiculous demands.

Cessna, a Word Of Advice: Pull a midnight holdup, just like Les Schwab. Roll into a City Council meeting and announce a 1 hour deadline on a series of ludicrous demands, and simply threaten to leave town otherwise. You'll get it. But hurry; pretty soon the pickin's will be to thin, and you won't get squat.

An interesting short, little piece on Marketwatch about The Great Unleveraging:

REAL ESTATE

No-down-payment mortgages gone for good?

Most mortgage insurance companies won't cover 100% loans anymore

By Amy Hoak, MarketWatch

Last update: 7:31 p.m. EDT April 10, 2008

CHICAGO (MarketWatch) -- No-down-payment mortgages have been scarce lately. But in the past several weeks they've become virtually non-existent. And it doesn't appear they will return any time soon.

While Fannie Mae and Freddie Mac still have products that allow borrowers to finance 100% of their home purchase (albeit at a higher cost), recently the major private mortgage insurance companies have backed off from insuring these loans, said Bruce Brown, a certified mortgage planning specialist with First Security Mortgage Co., in Kansas City, Mo.

Mortgage Guaranty Insurance Corp., for example, changed its guidelines last week to exclude coverage of 100% mortgages. At a minimum, borrowers need a 3% down payment and a credit score of at least 680 to be eligible for coverage. In selected markets where home prices are declining, a 5% down payment is the minimum required.

Genworth Financial is another mortgage insurance firm that recently stopped covering 100% loans. In some cases, it's willing to cover loans with 3% down payments; in all markets it will cover a loan that involves putting 5% down, said Mark Goldhaber, senior vice president of industry affairs for Genworth Financial.

Lenders generally require private mortgage insurance for loans that cover more than 80% of the purchase price.

"It's obvious why they're making these changes," Brown said of the insurance companies. "They have to eliminate the losses they're taking." Mortgage insurance companies have been hit hard by the increasing number of defaults and foreclosures, he pointed out.

At MGIC, the changes to underwriting of low loan-to-value loans -- as well as increases to the pricing on some products -- were made due to the recent performance of loans with those characteristics, said Michael Zimmerman, senior vice president of investor relations. But the changes, he said, also reflect a return to more historically normal underwriting standards.

"The more equity that a borrower has -- or, if you will, skin in the game -- in any investment, the more likely they are to have a higher degree of responsibility toward it," he said.

Goldhaber said that those in the mortgage industry also have a responsibility to put homeowners into the proper mortgage product. These days, it's irresponsible to give people a loan for 100%, he added.

"In soft markets like we have today, with declining home-price appreciation, to put someone in a zero down is really inappropriate," he said. "It's the kind of product choice that gets consumers in trouble."

Many people have been finding themselves upside down on their mortgages when the price of the home drops and they end up owing more than the home is worth.

"Putting a person in a zero-down mortgage means in many cases they will lose value on home before they even have the curtains hung," Goldhaber said.

Other ways to 100%

That said, while the conventional no-down-payment products may have disappeared, there are still ways to buy a home without a down payment, said A.W. Pickel, CEO of LeaderOne Financial in Overland Park, Kan., and former president of the National Association of Mortgage Brokers.

"You have to broaden your definition of no-down payment," he said, adding that loan options are available, if not in the form they were in before.

A gift from a family member or a community grant can take the place of a down payment, for example, he said. And down-payment assistance programs are available to help those seeking loans backed by the Federal Housing Administration, he added.

They're not offered now, but shared-appreciation programs might also be available, where investors share in the appreciation of a home in exchange for assistance at the purchase, Pickel said. He expects companies to get more creative and come up with other solutions too.

"You will see more unique products coming out," he said, as companies search for ways to help down-payment challenged buyers get into a new home.

But as of now, there are fewer options than there were before for would-be buyers who don't have ample cash reserves. And Brown sees that as an overreaction.

He believes consumers should have the option of financing their entire purchase -- even if it comes with extra fees or higher rates. Someone who doesn't have a lot of cash, but is a good credit risk, for example, should have that option, he said.

"In a lot of ways, we're creating an environment for investors," he said, as the number of renters is sure to grow. "Think of how many people would be in the market over the next several years if they could be in a house for no money down. Those people have no option but to remain renters."

A possible return?

In fact, the existence of no- and low-down-payment loans were one of the biggest reasons the homeownership rate rose during the housing boom, said Bob Walters, chief economist of Quicken Loans. Some sought these loans even if they could put money down, Pickel said.

"Everyone bought into the idea that if you can borrow money, it's better than using your own," Pickel said. "I don't think that's completely gone," he said, but added that now people have woken up to a sobering reality that home prices don't always go up and that putting money down might be in their best interest as a homeowner.

No one knows if, when and how these no-down payment loans will return en masse. But many people in the industry think they'll be gone for a good while.

"I don't want to say never, but my gut tells me it will be a long time before we see mortgage insurers pop back into the 100% market," Brown said.

If they do return, borrowers will likely need spectacular credit and the local housing market they're buying in will probably need to be a "prime market," that is, they'd need to have a small percentage of second homes and investor homes, said Anthony B. Sanders, professor of finance and real estate at Arizona State University's W. P. Carey School of Business.

"Markets such as Phoenix, Las Vegas and San Diego have higher percentage of second home/investor loans and viewed as being 'speculative' markets subject to dramatic downturns," he said in an email interview. Lenders still may be hesitant to make no-down-payment loans even after housing prices hit bottom, he said.

"But bear in mind that credit events in the mortgage market move in cycles and we swear to never repeat the same mistakes ... until we collectively forget about the last cycle," he added.

This is why recurring Bubbles usually have a total minimum half-life of around 30 years: People burned in the last one, usually will not jump into a similar one for their adult lifetime.

Note the mention of Genworth Financial, the product of the monster spinoff from GE in 2004. And although they ceased to own any Genworth shares in March 2006, and hence should have minimal financial exposure directly from this unit, GE nonetheless took a severe beating in the market after announcing a surprise drop in earnings that shocked Wall St.

Economic aftershocks threaten recent optimism

GE's warning pokes hole in recent sentiment that credit crunch has passed

By Laura Mandaro, MarketWatch

Last update: 6:13 p.m. EDT April 11, 2008

SAN FRANCISCO (MarketWatch) -- Wall Street, recently basking in optimism that the credit crisis may have turned a corner, got rained on Friday after a surprise drop in earnings from bellwether General Electric Co. renewed fears of persistent economic aftershocks.

General Electric, whose activities reach a broad spectrum of business and consumer activity from TV shows and commercial loans to industrial turbines, said that profit fell 6%. It placed a big part of the blame on the near-collapse of investment bank Bear Stearns Cos.

The profit disappointment came as a shock to many analysts and strategists who had been expecting that diversified, international companies as well as the broader U.S. economy were somewhat buffered from the big loan write-downs and trading losses that have rocked brokerages and banks this year. U.S. stock markets sold off sharply, cutting into gains made since mid-March.

"Apparently the suggestion earlier this week that the stock market has turned a corner has proven to be premature," Sherry Cooper, global economic strategist for BMO Financial Group, wrote in a note Friday.

The rebound had been fueled by renewed sentiment on Wall Street that the worst of the credit crisis -- including the threat of spiraling financial bankruptcies -- was past. The Federal Reserve's intervention with Bear Stearns contributed to that improved outlook. Plus, financial institutions in the thick of the credit crunch have been forecasting an end, or at least quantifying the magnitude, of the financial losses clogging up credit markets.

For the broader economy, several private-sector economists are looking for a second-half rebound, a view in line with that of Federal Reserve Chairman Ben Bernanke. "A lot of people are taking the Fed action with Bear Stearns as an inflection point that, with financial problems, we're getting our hands around those. That could be true," said Joseph Quinlan, chief market strategist at Bank of America.

Reflecting some of this good cheer, U.S. stocks had bounced off the mid-March lows set about the time the Fed and J.P. Morgan Chase & Co.

JPMorgan Chase & Co engineered an unprecedented bail-out of Bear Stearns. Stocks in financial companies, which have played a lead role in the credit crisis, have gained 13% including Friday's sell-off. The beaten-down U.S. dollar, for its part, has stabilized against some of its rivals, though it continues to notch new lows against the euro.

But a new worry has gained ground. Even as credit markets loosen up, the aftereffects of wide spreads and tight lending standards -- the hallmarks of a credit crunch -- could further punish an already floundering U.S. economy.

"The fear now in the markets is that we won't only have recession, but we'll have deep and prolonged recession. ... It's the knock-on effect of the credit squeeze," Quinlan added.

General Electric, the largest U.S. corporate borrower, showed that convulsions in the financial world can derail even the most diversified of firms. The conglomerate said that "extraordinary disruption in the capital markets in March" hurt its financial division's ability to sell assets and caused it to take higher losses on the current market value of its assets.

End in sight?

Finance ministers and central bankers from nearly 200 countries will weigh in with their own takes on the length and severity of the global financial system's recent troubles, and the related setback to the world economy, when they meet for the G7 meetings in Washington, D.C. this weekend.

Plenty on Wall Street, though, say further financial stresses like could surprise markets, sending stocks reeling as they did Friday and credit spreads further apart.

"People underestimate the impact troubles in financial markets have on other sorts of companies," said Steven Bleiberg, chief investment officer for Legg Mason's global asset-allocation division, which manages $6 billion. "We still have to deal with all the negative fallout from the collapse of the real-estate bubble."

Renewed optimism about the state of the financial system had been helping the market move higher, according to Bleiberg. But buying stocks based on an expected end to the credit crisis may be little more than wishful thinking. "There's more bad debt probably lying in wait. To say we're almost done is premature," he said.

Nonetheless, the optimists have a growing pool of forecasts and statements to draw on.

Goldman Sachs Group Chief Executive Lloyd Blankfein on Thursday became the latest investment banker to report a glimpse of light at the end of the tunnel, telling shareholders he felt like the financial system was closer to an end to the credit crisis than the beginning, according to media reports.

Morgan Stanley chief John Mack puts the U.S. economy in at least the ninth inning of the subprime crisis, and at least halfway through problems from commercial mortgages, reports say.

Recent outlooks on the broader economy also are projecting relief. Economists at Lehman Brothers, UBS and Nomura Securities all see a rebound in the second half of this year after a mild recession, or a least a contraction, in the first. Bernanke and some other Fed policy-makers are predicting a recovery in the second half, helped by the roughly $110 billion in tax rebates that the U.S. government will send households starting in May.

"We expect economic activity to strengthen in the second half of the year," Bernanke told lawmakers last week.

Meanwhile, estimates for the size of the pain facing the financial system have been trickling out of brokerage houses and research groups. Global financial institutions already have written off nearly $300 billion in bad loans and investments; they could have as much as $900 billion more to go.

The International Monetary Fund projected earlier this week that the potential losses from the credit crunch could top $945 billion globally over the next two years. Analysts at Goldman, which lost $1 billion in mortgage and securities investments in its fiscal first quarter, put the size of total credit losses at $1.2 trillion.

At the other end of the spectrum, on Friday Credit Suisse put a $650 billion price tag on credit-related losses from the U.S. banking crisis. Lehman predicts that the global write-downs could reach $400 billion by the end of 2008.

Putting a cap on the credit problems, even if it's a high one, has helped boost morale among investors. They spent the second half of last year trading without having much sense of the eventual size or severity a wave of subprime-mortgage defaults would have on the overall financial system.

"It's a critical piece of info for investors to chew on," according to Bank of America's Quinlan.
"Whenever you can quantify the problem, it helps the investors evaluate the risk still in the market."

The S&P 500 Index has risen along with the improved sentiment, though it took a hard fall Friday on the GE news. The benchmark index is up 6% from its 52-week low reached March 17, one day after J.P. Morgan said it would buy Bear Stearns with as much as $30 billion in financing from the Fed. In a first, the central bank also opened its discount lending to securities dealers.

These moves appeared to assure investors that the Fed wouldn't let big Wall Street dealers go bust. They "put a floor beneath financials," Quinlan said.

Earnings signposts, economic worries

The next slew of indicators will come from the biggest banks and brokerages, which are expected to do a spring housecleaning of their questionable credits when they report first-quarter earnings.

Merrill Lynch & Co., Citigroup Inc. and several regional banks report earnings next week. It's likely to be bloody.

Analysts have slashed earnings forecasts in the expectation that financial institutions will wipe off as much bad loans and trades as they can. UBS AG already have announced a combined $23 billion in write-offs.

An end to that housecleaning is key to turning the credit cycle around. But one problem is that credit is still inaccessible for some, particularly in the mortgage market, and much more expensive for businesses there than it was a year ago. Those higher costs have lingered despite the 3 percentage-point drop in the Federal Reserve's federal funds rate since September.

Rates on Baa corporate bonds, or bonds backed by riskier but still investment-grade credit ratings, have risen to 6.87% from 6.47% a year ago. Their spread to 10-year Treasury notes has widened by 1.6 percentage points.

The costs banks charge one another also have jumped. While mortgage rates for traditional, 30-year fixed rate loans have fallen, the gap between those rates and 10-year Treasurys has expanded.

Even though we have had some good news, "you will have to see the end of write-downs before the fixed-income and interbank-lending markets return to normal," said Michael Moran, chief economist for Daiwa Securities.

Before that happens, consumers and businesses will continue to find it tough to borrow, making it harder for home sales and prices to reverse and exacerbating an overall slump in the economy.

"The consumer is stretched," said Russ Koesterich, head of investment strategy at Barclays Global Investors. "The U.S. consumer will need a long period to repair his balance sheet. It's unrealistic to expect a very quick, robust economic recovery."

Laura Mandaro is a reporter for MarketWatch in San Francisco.

This GE hit is essentially an admission that absolutely NO PART of this WORLD is exempt from the crushing credit collapse.

I had actually just looked at GE in stunned amazement for many months defy any sort of acknowledgment in the stock price that it was being adversely affected. I was just amazed, because GE is an economic behemoth, and they are in everything.

The Fall of GE is essentially a parallel to The Fall of The Have's: It's like the heretofore unaffected Westsider super rich are actually starting to take it on the chin. No one is exempt from this thing. And unlike all the prognosticators who simply cannot believe their eyes, this will be WORSE than anyone thought possible. This AIN'T the ninth inning of ANYTHING.

And I'm sort of surprised that no one posted the full article du jour. I know, I know. The prospect of warm weather kept me from the bloggage as well. Slow week. Here it is:

Double -digit price drops for Redmond, Bend homes
Sunriver, Crook County prices rise
by Jeff McDonald / the Bulletin

Median home sales prices in the first three months of 2008 fell almost 12 percent in Bend and 14 percent in Redmond from the first quarter of 2007, according to a report Wednesday from the Central Oregon Association of Realtors.

Bend’s median sales price — the price at which half the homes sold for more and half for less — for single-family homes on less than an acre was $306,500 in the quarter. Redmond’s median was $220,000.

Elsewhere in the region, home prices dropped 15.5 percent in Sisters, 27.5 percent in La Pine and 9.1 percent in Jefferson County, but prices rose 16.5 percent in Sunriver and 8.1 percent in Crook County, the report said.

The number of homes sold in Bend in the quarter dropped 44 percent, to 222 units, and 30.3 percent in Redmond, to 92 homes, according to the Realtors association’s report of data provided by the Central Oregon Multiple Listing Service.

Local real estate officials weren’t surprised by the declines in sales and prices, citing more stringent lending requirements, a lack of buying urgency due to excessive inventory, and concerns about the national economy.

“That’s the market,” said Tom Greene, president of the Realtors association. “Sellers aren’t going to get what they got in 2006.”

Greene expects prices to stabilize during spring and summer but said the market could weaken further in fall and winter.

At the end of March, Bend and Redmond had 12 and 13 months’ worth of homes on the market, respectively, Greene said. That means it would take about a year or more for those homes to sell at the current rate of sales.

The average days a house sat on the market before being sold in the first quarter was 185 in Bend, up 6.3 percent, and 179 in Redmond, up 20.1 percent. La Pine had the highest average days on market, at 288.

The national economy, which two authorities — former Federal Reserve Chairman Alan Greenspan and former Treasury Secretary Lawrence Summers — said this week was in a recession, could pull the local housing market down further later this year, Greene said.

“We’re coming to the realization that the recession is one of the reasons we’re down,” Greene said. “There is some optimism — at least through summer — but it’s not going to be gangbusters.”

The year-over-year declines seen in Wednesday’s report aren’t surprising because the first quarter of 2007 was the strongest quarter last year, said Rockland Dunn, a broker for Summit Mortgage Corp. in Bend. The market started declining last June, Dunn said.

Several issues, including buyers taking their time to purchase and a perceived lack of financing, are keeping the market soft, he said.

The tightening credit markets and difficulty that some prospective buyers have in securing a loan have made it more difficult to close sales this year, said David Block, an appraiser for Bend-based Cornerstone Appraisal Group.

“Lending practices have changed dramatically,” Block said. “People can’t get out of their properties because values have dropped and they can’t get a loan.”

The region’s two highest-priced markets — Sunriver and Sisters — both maintained year-over-year gains in median sales prices, according to the MLS data.

Sunriver’s price gain was based on 11 sales, however, a 65 percent drop from the same period in 2007.

“January and February were not good for anybody out here,” said Mike Riley, general manager and principle broker for Coldwell Banker First Resort Realty in Sunriver. “But for March and April — so far, we’re up (number of sales) compared to the first two months.”

Heavy snowfall this winter contributed to the sales drop — so did people’s reluctance to drop their asking prices, Riley said.

“Sunriver is a second-home market — it isn’t affected in the same way,” Riley said. “A lot of owners haven’t budged in their prices or panicked.”

Jeff McDonald can be reached at 383-0323 or at jmcdonald@bendbulletin.com.

Funny. This is it. This is The Public Admission That Bend Is NOT Different, that the wave of destruction sweeping this country CAN happen here, that we are not the slightest bit exempt, and in fact are suffering through a price drop that is more severe than just about anywhere.

But it really wasn't a reason to stand up & cheer, or other such nonsense. I mean, if there is some sort of validation for this blogs existence, this would be it. Sure, we've had announcements of a severe slowdown is sales, but no really precipitous price drop.

And I guess it should be reiterated that there are some strange inconsistencies: A computation of months-inventory that looks 20-25% low, statements that Sisters is down & up, and the inane statement that March & April sales are up & "looking good!". Your standard retard could have "predicted" the same. It's like every Realtor in town has "discovered" this UNEXPECTED UPTURN in sales in the Spring. If you are a Realtor & are reading this, this is EXACTLY WHY you people are losing massive credibility.

This is it. It's started. The actual dropping of prices, and in a large amount, too. By my guess a 15% evaporation of home values wiped about $4 billion dollars out of the local RE housing equity stock. That ignores the inevitable hit that commercial is taking, and the monster hit on the Extreme Speculative red-headed stepchild: raw land.

But it passed with merely a whimper. And so it will go on.

We'll start to see the real slimey underbelly of just what this thing means soon: Property crimes, Bachelor scaling way back or closing, homelessness, mass vacancies downtown, Arson Fireclosures, and it goes on. It's really nothing to celebrate.

And the real horror is when it starts taking down regular people who participated to no extent. The de-leveraging is already hitting Main St. Even our favorite Mayor-To-Be, Dunc!

Had my Countrywide Home Equity Loan suspended yesterday. Now this shouldn't have bothered me -- I had no intention of doing anything but paying it off. Still, it was nice to know it was there.

Called them, and they said they were doing it to 'everyone' and that the terms could be 'reviewed.'

Asked the girl on the phone. "If someone who has made double payments on their initial loan for 21 months, and double interest payments on our HELOC, isn't worthy of credit, who is?"

This is just a chunk, and you should really read the whole thing. This thing will leave no one untouched. From GE clear down to Duncan, and you & me. I am as "delta neutral" on this thing as a person can be: I rent, cars are paid, I make ALL purchases in cash, my job is pretty removed from housing & credit problems. But I'm sure that I will at some point be adversely affected by this thing. If it's even from lessened quality of life by living here, that just makes me want to move on.

And as proof that you can learn things from the strangest quarters, I actually had a look at a book recommended by Tim a week or 2 ago, Fooled By Randomness. It's a fairly interesting look at randomness & it's effects on daily life, it's focus being largely on financial markets.

I use the term "strangest quarters" not to deride our brilliant Timmy, but the fact that I was reading a book about randomness, made me think about what a "long strange trip it's been" to the actual reading of the tome.

I was thinking about why I am married to my wife, and my conclusion is that it was a far from deterministic endeavor. It actually involved the strange intertwining of losing someone in my family, losing a job, the confusion of someone involved about these 2 events, their subsequent attempts to get me another job out of sympathy, and my subsequent meeting of my bride to be at this new job.

Such million-to-one happenstance is a common thread in the vast majority of my life. I am writing this blog SOLELY because I saw a short piece on the housing bubble many moons ago on KTVZ, I searched out & found BEM's original blog, I began commenting furiously, and started this blog because of the perceived vacuum of the closing of BEM's kick assery. This sum bitch has taken up a lot of my life. And I had no real Grand Plan for EVER doing anything like this. Almost pure chance.

Anyway, it made me distill my 2 fundamental investment thesii (Timmy?): If there does exist any sort of non-random, exploitable investment situation, to me it is these:

1) The stock market is NOT a pure random walk, there is an UPWARD bias. Otherwise we would be just as likely be where we are as we would stand to be at DJIA 30, at the depths of the Depression.

2) The prediction of the ascent of Bubbles is NOT a formula for making money. But the inevitable bursting of one comes as close to an investment sure thing as such things exist.

Now, I KNOW FULL WELL, that both of these statements violate some long-standing financial dogma: my "idea" of a random walk is that an "upward inexorable long-term bias" means that it's not TOTALLY random. And that even defining a "Bubble" is an exercise fraught with peril.

But there are some "rules of thumb" that seem to exist that allow one, on exceedingly rare occasions, to extract long term excess financial returns, by vaguely being aware of these 2 thesii, and they are really mirror images of each other:

1) Following extraordinarily negative volatile events in World Markets, (OK, I said WORLD MARKETS), you should accumulate stocks. This means once per decade type stuff... max.

2) Following"Bubbles" of extraordinarily large scale & magnitude, you can count on prognositcators to call for The End early & often. They will be wrong, and wiped from memory. The unraveling will be long, painful, self-reinforcing, and durable.

I am even more sure about Bubbles bursting than just about anything. Why? Remember the discussion about how almost any Bubble, left to expand without bounds, would soon consume all Earthly resources? And let to grow beyond that for just a few years would necessitate the creation of a solid gold sphere several times larger than the Earth to continue transacting. I'm not not sure of much, but I'm pretty sure that won't happen. Bubbles bursting are an investment sure thing. They will happen.

Notice that Buffett, whether wrong or right, rarely sells. He seems to follow some sort of philosophy based on Rule 1. He just buys when he believes a companies stock is well below some sort of "norm" valuation, and once he owns, he basically forgets about selling. I believe he bought US Air, watched it go higher, subsequently crater to single digits, publicly state he doubted things would get better, and the stock subsequently skyrocketed... and he sold.

He seems to realize that extraordinary volatility & randomness are inherent in owning stocks. He seems to abolish the "trading" mentality from Day 1. And he seems to make money in a way that seems a bit non-random to me. This is something at odds with this book which states flat out that there had to be a "Buffett" somewhere.

It should be noted that Buffett is a fairly extraordinary investor, but by purchasing via insurance entities, he employs huge amounts of leverage. His Super-cat lines WILL suffer a huge loss at some point, possibly after he dies, but he has piled up enough cash reserves, that he can currently swing bets in the billions without a problem.

The "Best Way" to capitalize on thesis 1 is to: 1) Wait for an exceedingly rare event of large negative magnitude. 2) Buy in wanton excess, and 3) Do not sell. Certainly do not be panicked out.

We are in the throes of thesis #2. I, and many on this blog, and the Original BEM foresaw that the bust would come. And if you recall, there were a non-stop litany of "experts" who said that it might come to others, but it sure as hell would not come to Bend. They were wrong.

And to me, it was no real guess that they would be wrong. If I had the slightest doubt, I would not have ever started this blog. Remember: I did NOT go along with CACB Shorters idea about shorting that stock, because I saw all sorts of peril & uncertainty in that particular bet. My margin of safety is quite thick. I did NOT fully understand their situation, and given a similar choice today, I would again decline.

And the nature of this thing gives people precious little way to capitalize. You can't "short" a house, Case-Schiller indices's notwithstanding. All I can do is wait for a bottom.

So capitalizing on thesis 2 is a bit harder, it is 1) Wait for the INEVITABLE bust of the Bubble 2) Do NOT buy when pundits tell you It's Over 3) Only buy when you are literally being PAID to enter a transaction, practically.

Problem there is these things go farther, harder, and longer than anyone dreams possible. And LONG after the rest of the country begins the slow agonizing process of recovery, we will still be mired in a financial quagmire. Bend, believe me, is going broke. It will be DECADES before this place recovers.

You can either leave or wait. And if you choose to wait, you should have 10 years of BURNABLE cash in the bank. But rest assured that at Rock Bottom, way out past 2015, there will be some spectacular bargains of a lifetime around here. Dunc bought Pegasus for $10K(?), only $5K down. It now provides a fairly comfortable living. THAT is a hell of an investment. Took 27 years, and gallons of sweat equity.. but still, not bad. That there is LONG WAVE, buy at the bottom thinking.

Author Nassim Taleb would have you think similarly that there had to be a "Duncan" who capitalized at the bottom, lo those many years ago. And he "may" be right. But if you are aware of such bargains and believe that economic depressions are not permanent, they just feel that way, that you can buy post-Bust at prices that may never be seen again in your lifetime. But today, is not that day.

Remember: Life Is Funny. It is 90% luck, and 90% certainty. If someone told me 3 weeks ago that it'd snow almost every day this past week, and it'd be 80 & sunny by the weekend, well... let's say I'd have bet against it.

Bottom line: This is NOT the ninth inning, it's the second for Bend.. maybe the 4th for the rest of the U.S. We are going below $200K medians. This town WILL go broke. Cessna IS LEAVING. This is going to hurt like hell. This is all pre-ordained, at least it is to the extent that anything in life can be.

Realize you are living in a fairly extraordinary set of circumstances, in a extraordinary place. The type & severity of financial Armageddon that will happen here, won't happen to 99.95% of the U.S. population in your lifetime. But I am equally sure that it will happen again... someday. Probably long after I and my kids are dead.

But at the end, ROCK BOTTOM, you might have the chance to get an asset, investment home(s) or business, that pays for an acceptable lifestyle for a pittance. THAT is what you should stay attuned to, that is what you should look for. But we are nowhere even remotely close to that today, nor will we be for years. Look for owner financing, look for people who will GIVE you money to get themselves out. Because that is all they will care about at Rock Bottom.

Extinct Species Found In Bend Oregon

ADDENDUM: Bend Economy Man emerges from year-long hibernation & posts to his blog:
http://bendoregonbubble.blogspot.com/
YEAH!

Well, if you wondered what Armageddon looks like, go outside. This is it.

I posted an "Addendum" to last weeks post regarding mstuckers mid-Feb update on Month to date sales.

One home a day sold.

Not that that rate could possibly be sustained at such a low level, but that's 365 homes a year! We did 2,849 sales in 2005.

If there's anything I'm sure of, it's that number will pick WAY up. 6 months ago I was also sure that we could NEVER get to where we are today.

timothy said... The gears have ground to a halt. You can hear the silence. Next up: the flood of "spring" inventory.

As I've said before: This will get worse than you or I ever thought possible. Even Bends Gold Standard builders is starting to crack:

Anonymous said...

The layoffs are a comin'. Palisch homes just laid off 17 employees including 4 of their 6 superintendents. They were the last builder still slamming houses up. Supposedly unloaded the building that their offices are located in also. Maybe wal mart is hiring.

Even Duncan hopped on the Prediction Bandwagon, and NAILED IT!

So, I think we'll see the first battleground in the dining industry. Obviously, a lot of older restaurants are seeing the handwriting on the wall. The second battleground I'll predict -- with absolutely no inside knowledge, just a guess -- is in office space and condo's, especially on the west side. Third battleground are the outliers -- businesses and stores located in what may be zoned retail but not normally seen as retail.

BANG! The very NEXT DAY, the Bulletin runs this piece (and kudo's to them, I suppose, for running ANY sort of real estate piece... FINALLY):

Area’s industrial and office space vacancies rising

‘If you’re in an expansion mode,’ says one local broker, ‘it’s a great time to be looking’

By David Fisher / The Bulletin

Published: February 24. 2008 4:00AM PST

When Chemica Technologies, a Bend-based biotech research firm, pulled up stakes and moved to Portland last year, the managers at Grace Bio-Labs didn’t hesitate.

Grace, a maker of patented labware for the molecular study of cells, was about to burst out of its space on Empire Avenue, Business Development Director Michelle Carney said. So it bought the building that Chemica left on west Bend’s Cyber Drive, complete with built-out lab space and offices.

Now Grace Bio-Labs, which has been in Central Oregon since 1986, has 2½ times more space for its 17 employees, with room to build out further.

“It’s very well suited to what we do,” Carney said. “So it was just a matter of being in the right place at the right time and having the right connections that we found this building when we did.”

Businesses throughout Bend and Redmond are finding industrial and office space easier to come by this year.

After three straight years of relatively tight vacancies and gradually rising lease rates, vacancies opened up in the fourth quarter of last year, Bruce Kemp, principal broker at Compass Commercial Real Estate, said Thursday. The change was fueled partly by a contraction in housing-related business sectors and partly by the effects of new buildings coming onto the market.

According to Compass’ quarterly survey of 177 buildings, office vacancies rose to 11.2 percent in Bend by the end of the year, nearly double the 6.5 percent of fourth quarter 2006.

Industrial buildings also loosened up in both Bend and Redmond, according to Compass’ survey. Bend’s fourth quarter vacancy rate reached 10.5 percent in industrial space.

Redmond’s reached 17.3 percent, bloated mostly by the addition of new buildings.

The total amount of space leased in both markets increased through the year, but not at the same rate of growth the markets saw in 2006. In Bend, 48,800 square feet of new office space was leased out through 2007 — less than half the 124,000 square feet that was absorbed in 2006.

Industrial absorption in Bend amounted to a little less than 85,700 square feet, according to Compass’ numbers, about 33 percent off the 2006 pace.

In Redmond, less than half as much new space was absorbed in 2007 as in 2006.

The bottom line for potential tenants is simple, Kemp said. Lease rates have remained stuck, but tenants are getting much better incentive deals from prospective landlords, ranging from richer tenant improvement allowances to several months of free rent, as landlords scramble to get their buildings filled.

“If you’re in an expansion mode,” Kemp said, “it’s a great time to be looking for space.”

Who’s looking?

After a moribund fall, activity in the commercial leasing market is picking up as companies, like Grace Bio-Labs, that are not related to the housing industry begin to realize that they might be able to find a decent deal on new space, said Steve Larsen, principal broker at Steve Larsen Properties.

Much of the interest seems to be coming from the nonhousing-related financial and service sectors — insurance brokers, lawyers, accountants — who have needed for some time to grow their practices to keep up with the expanding population, but have felt shut out by a tight leasing market, Larsen said.

Now, with monthly Bend office lease rates stuck in the $1.65 to $2 per square foot range, depending on class and location, and with landlord incentives rising, some are making their moves.

“I think there are a lot of people who have kind of been on the fence for a while through 2007 who are making those kinds of decisions, either because they are out of space or they can’t wait any longer,” Larsen said.

Still, there is an air of caution in the wind, Kemp said, and it’s tipping the weight of the market toward leasing rather than buying space, and toward holding off rather than starting a new building project.

From a tenant’s perspective, the factors that go into making those decisions can get complex, Kemp noted, but it boils down to a basic question: Is there more money to be made by investing in a building or by paying rent and investing the upfront cash back into the business?

Right now, market factors are tipping the table toward leasing, Kemp said. First, there’s the question of whether to invest in a building or in something else. With lease rates flat, it’s tougher for the income stream on a commercial building to compete with the 6.5 percent or more in simple interest that a similar investment could draw in the general economy.

Then there is the question of rising or decreasing real estate values, Kemp said: Right now, there’s downward pressure on the price of commercial buildings, and particularly fierce pressure on the price of commercial land.

Consequently, Kemp said, he would expect the major office buildings that are already under construction in Bend, including The ODS Cos. building at Wilson and Bond streets and the 38,000-square-foot Bonnett Point office building at the corner of Simpson Street and Colorado Avenue, to finish up and gradually fill up this year. But any new construction that starts is likely to be a build-to-suit project for a locked-in tenant — and he doesn’t expect to see many of those.

“It’s a little bit cautionary,” Kemp said. “I think people who may want to buy at some point in time are probably going to lease rather than buy right now.”

Office condos

That’s not to say that sellers aren’t trying.

Ron Ross, a commercial property broker for RE/MAX Equity Group in Bend, said he counted eight to 10 sales of commercial buildings in Bend in 2007. Last month, there were 66 commercial units listed for sale, Ross said. About half were buildings and the rest were office condos.

Office condominiums — buildings in which the tenants can buy a small piece of a larger building, rather than having to shell out the millions that it takes to build a full-sized, Class A structure — are a relatively new concept to Bend. Two of the largest, the 32,000-square-foot Vision Plaza building and the neighboring 11,420-square-foot Columbia View Suites, sit next door to each other on west Bend’s Columbia Street. Both have had units for sale for about six months and neither is close to full.

Ross is dubious of the concept’s staying power, particularly in a market that is already overbuilt.

“They just flat have not been successful,” Ross told a group of reporters and real estate agents at a Central Oregon Association of Realtors lunch Wednesday. “I’m sorry if I’m offending anybody here, but they have not been selling office condos.”

Larsen, the listing agent for Vision Plaza, said he has one of the building’s units under contract and another in negotiations. There are two letters of intent to lease some of its space — an option that wasn’t part of the owners’ plan when the building was built.

“Obviously, the last six months were not what I, as the listing agent, or the owners anticipated,” Larsen conceded, but he blamed the building’s slow sales more on market timing than on the concept.

It took more than 18 months to take the Vision Plaza building, where 1,200-square-foot units are listed for around $367,000, from the concept stage to completion, Larsen said. The market changed during that cycle — a risk that all developers of commercial buildings, most of which are large, expensive and time-consuming to build, face.

“If it were easy, everybody would be doing it, and for a while, a lot of people did. But it’s a risky business,” Larsen said.

That’s true, Ross agreed. The current market has driven out most of its speculators and tax-deferred property exchangers, leaving a different sort of playing field. But it’s taking awhile, he said, for some of its players to adjust.

“Property has to stand on its own, fundamentally, right now, and if it does, we have good buyer interest,” Ross said. “That means it has to have real tenants, with good leases that are supporting the price point. If that happens, property can sell in today’s market. But unfortunately, we have a lot of sellers who don’t understand that, and even a lot of brokers who don’t understand that, so we’re building up an excess of inventory.

“Long-term, I’ve seen this picture before,” said Ross, who’s been in Central Oregon real estate since the economic troubles of the early 1980s. “I’m actually very positive … you just have to take a bigger picture, longer-term view.”

David Fisher can be reached at 541-617-7862 or at dfisher@bendbulletin.com.

First off, lemme say that Duncan has been calling this for awhile. Personally I am fairly out of touch with commercial, except for a glimmer of personal knowledge that downtown is becoming wildly overbuilt, with unsustainable lease rates. I ultimately think that the credit/housing bust will affect EVERYTHING, but this was one of those things that's off my radar.

Second, note that business expansion as measured by office space absorption has dropped in half in 2007 vs 2006. And 2007 was not really supposed to be weak. In fact, EVERYONE seemed to state repeadedly that commercial was 100% IMMUNE from the whole crdit/housing bust, at least in Bend.

My Lord, they were building commercial space like crazy in 2007!

I actually drank the Commercial Immunity Kool-Aid, and thought Bend commercial would be OK. I did NOT understand the economics of how that could happen, because I personally thought the lease rates were insane, and I thought the "office condo" had all the appeal of the "home condo": Nice if you love living wall-to-wall with your neighbors and sharing in the financial pain of the weakest link.

That horrible abomination out near Colorado will probably end up on the RIP board. Office Condo's? Geez, that'll end up being another collective "What the fuck were we thinking?" head slapper.

Apparently Dunc was right, and the only thing collapsing (Yes, they are collapsing. I don't need a freakin' dictionary to figure that out.) faster than the Bend housing market, is now the imploding commercial market.

We are headed towards a mega-glut in commercial space in Bend. Nice high, double digit vacancy rates, and all that good stuff. All those pining for The Good Old Days, circa 1983, in Bend will soon have their wishes granted.

The most interesting quote in the Bulletin piece, to me, was this:

Is there more money to be made by investing in a building or by paying rent and investing the upfront cash back into the business?

Yeah! My "Rent And Invest The Difference" motto is starting to get some traction.

Of course it would be considered far more quickly in a purely financial setting like commercial. Rent & Invest The Diff is harder to implement with your wife & kids involved.

Ross' final quote about being "positive longer-term" is a continuation on the Elizabeth Taylor SMEAR IT OUT thesis. Everything will be fine if you take the 1,000 year view.

OK, I agree with that.

Good job Dunc, on nailing this one!

So... what else happened this week?

Oh right. CACB revised their quarterly earnings to pocket change.

Huh, seemed like they had ironed out all the Q4 messiness last month:

Cascade Bancorp (Oregon) (Nasdaq: CACB) Released Results for the Fourth Quarter and Full Year 2007, Confirming Earnings Per Share at $0.19 and $1.23, Respectively
BEND, Ore., Jan. 23 /PRNewswire-FirstCall/ -- Cascade Bancorp ("Cascade") CACB reported 2007 full year Diluted Earnings Per Share (EPS-diluted) at $1.23 per share down 8.4% as compared to 2006 with Net Income at $35.0 million versus $35.7 million for 2006. As pre-announced on January 3, 2008, the Company confirmed it recorded a $7.5 million (pre-tax) provision for credit losses for the fourth quarter of 2007 to increase the Company's level of credit reserves primarily related to its residential land development loan portfolio. This resulted in a full year 2007 provision of $11.3 million versus $6.0 million in 2006. Fourth quarter 2007 earnings per share were $0.19 per share on $5.3 million of net income, compared to $0.36 per share and $10.2 million for the year ago quarter and as compared to $0.35 for the linked-quarter. The Company also confirmed its pre-announced fourth quarter net-charge-offs of approximately $3.9 million, a majority of which were against loans affected by the real estate downturn.

Sorry! Hold the bus! 'Member that thing we said last month? Scratch that, that was a big load of shit! Man, were we way off. We actually got our ass waxed. Here ya go, this here is the Real Deal:

Market Report -- In Play (CACB)

February 21, 2008 4:31 PM ET

Cascade Bancorp increases Q4 provision for credit losses Co announces that it revised its estimated Q4 earnings from its previously reported results on Jan 23. Co says its Q4 results are reduced to $0.01 per share. This updated earnings estimate is the result of an $8.1 mln (pre-tax) increase in its provision for credit losses to $15.6 mln from the $7.5 mln previously announced. Co says "As we navigate through this challenging downturn in the real estate market, we will continue to monitor our loan portfolio and take appropriate measures to reserve against the risks posed."

Some among us seemed DUBIOUS about this financial wink-wink...

Bend Economy Man said...

Just a thought:

If Bank of the Cascades had 4Q 2007 earnings of $0.01 per share, probably a safe bet that in 1Q 2008 it's running at a loss.

CACB really "lucked out" (wink-wink) that even after revising its accounting mistakes, it managed to eke out a meager profit, thus delaying the inevitable "Bank of the Cascades Unprofitable" headline for a few months.

How, by the way, has P. Moss kept her job the whole time?

My target CACB stock price for April 2008: $9.

The financial sophisticates at Cascade Bancorp decided that they would sidestep the financial implosion overwhelming them:

Step 1) Drink Kool-Aid non-stop
2) Report earnings 50% below prior year
3) Wait for the hub-bub to die down, then drop the other ONE FOURTH of the earnings bomb.

Hey WAIT! "ONE FOURTH"? That sort implies this line of bullshit spewing forth from Patty "Never A Quarterly Loss On My Watch" Moss is NOT OVER.

Right. See, the losses at CACB dwarf their Kool-Aid fueled idiocy. The losses are FAR larger than what they are reporting. They have applied liberal amounts of ELIZABETH TAYLOR-FICATION to their reporting so that the horror is minimized.

Moss & Crew get the ::eye roll:: of the week for this little facade.

Anonymous posted this:

More people moving in, but at a slower pace
California continues to be No. 1 feeder market by far
By David Fisher / The Bulletin
Published: February 17. 2008 4:00AM PST

Back in 2006, Altrec.com CEO Mike Morford and his managers figured they had to get their company out of Seattle. The offices of the online seller of outdoor gear were 15 traffic-choked miles from its warehouse, and it was running out of space.

It was tough to compete for top-level techies in a region dominated by Amazon.com and Microsoft, Morford recalled Wednesday. People’s commutes were tough. Nobody, in other words, was having much fun.

So the company cast a net around seven or eight Western towns and regions, including Central Oregon, weighing 20 or more different variables, from transportation to space availability to state incentives, to find a new place.

It settled on Redmond. Since it moved in September 2006, the company has brought 17 families to Central Oregon from outside the area, Morford said. Its total staff has tripled, partly because it has been relatively easy to attract talented people to the area to keep its Web design, marketing and search engine functions going, and partly because it has found a reasonable supply of them here.

“It actually has worked out better than we thought it would,” Morford said. “We knew it was going to be fun, in the sense of moving to Central Oregon, but I’ve been amazed at the number of people from places like San Francisco and Seattle who know about Bend. They have a place in Sunriver, or they’ve vacationed here or something, and they are trying to figure out how to live here.”

The total number of new families moving into and out of the area has slowed with the national housing slump, if data on interstate shipments from three of the country’s largest movers is any indication, but the basic trend remains strong.

People who can afford to move, and who can afford to hire movers, continue to prefer moving into Central Oregon to moving out of it by about a 2-to-1 margin.

Overall in 2007, United Van Lines LLC, Mayflower Transit LLC and Atlas Van Lines Inc. reported 369 shipments into Central Oregon’s three counties, and 179 shipments to other states. California accounted for the bulk of the inbound shipments with 37.9 percent, followed by shipments from Washington state at 9.8 percent.

Overall, four times more Californians moved in than moved out, with 140 coming in to 33 moving out. Washington’s 36 inbound shipments exactly doubled the number moving out of the region to that state, but some numbers were more balanced.

Sixteen shipments headed for Arizona, while only 19 came in from there, according to statistics from the three movers.

Colorado sent 18 shipments into Central Oregon, but got 15 back. Massachusetts was the only net draw from the Central Oregon region, attracting eight shipments out, but sending only two back.

Slowdown in moves The inbound migration pattern may have remained strong through 2007, nearly exactly reflecting the 2-to-1 inbound ratio of 2006. But the total amount of movement dropped substantially. The 369 inbound trips of 2007 were down nearly 15 percent from 2006. Outbound moves dipped, too, dropping 10.5 percent from 2006 to 179.

The data, collected from the three movers last week by The Bulletin, gives an incomplete picture of the region’s total migration pattern because it includes only interstate moves. Moves within Oregon are regulated by a different arm of government that doesn’t require the same type of data collection.

Still, the drop in overall numbers reflects a national slowdown in shipments, Atlas Van Lines spokeswoman Barbara Cox said, which is grounded in a single factor: A sluggish housing market is making it tougher for people to sell their homes where they are, which makes it tougher for them to relocate.

The slowdown is as apparent in Central Oregon, a region whose housing economy has traditionally been dependent on newcomers for its strength, as it is in the rest of the country. Sales of single-family homes on lots dropped 26.7 percent to 1,520 last year in Bend, according to the Central Oregon Association of Realtors, while the number of homes listed for sale topped 1,200 at the end of the year.

Redmond’s sales fell even further, dropping nearly 43 percent to 516, with more than 500 homes still listed for sale at the end of the year. As they have in much of the country, slowing sales are translating into lower prices.

In west Bend’s NorthWest Crossing, a 400-acre subdivision developed by Brooks Resources Corp. and Tennant Development, sales of housing units slid into the 45 to 50 range in 2006 and 2007, from the 105 sold in 2005, according to David Quiros, principal broker at NorthWest Crossing Realty. About 75 percent of the NorthWest Crossing inventory that sold last year went to buyers from outside the area, at prices that were significantly off.

Lots in the subdivision today are listed as low as $138,000, he said, down from the spring 2006 peaks of nearly $200,000.

The fiercest downturn in moving activity seemed to settle in last fall, a couple of months after a credit crunch bit the nation’s mortgage lending markets, said Harold Perry, owner of local Atlas agent City Moving and Storage Co., and it hasn’t picked up yet. “We had some things going last year, but jeez, there’s nothing going on this year,” Perry said, calling this year the worst winter he’s seen in the local moving business since the early 1980s. “You could almost go to sleep and not miss anything, so it’s bad. Whether it comes back or not is anybody’s guess.”

Given the number of unsold houses in Central Oregon and its biggest feeder markets, the leaders of Brooks Resources, the region’s biggest development company, figure that land and home prices may have to work their way back roughly to 2003 levels before the market regains some semblance of supply-and-demand balance, Brooks Resources President Kirk Schueler said.

That would bring median home prices in Bend back to the mid-$200,000 range. The median sales price through 2007 for Bend homes on lots stood at about $349,000, according to the Central Oregon Multiple Listing Service.

“Our prediction — I guess maybe it’s a hope — is that it squares around when we get back around the 2003 area,” Schueler said, “and it varies. Different pockets of town will do better than others.” Who wants to be here Meanwhile, Nancy Lynch, who’s owned local United Van Lines agent Bend Storage & Transfer Inc. since 1981, said she expects the same kinds of migration patterns to continue, even if they happen in reduced numbers.

Some will move here from warmer climates, then move back again after a few winters of snow and cold. Some will move here with half-formed dreams of economic success, then fail and move away.

On balance, though, the area for more than a decade has been a magnet for retiring baby boomers and others who are anxious to get away from the rat races, Lynch said, and the ones who have either brought jobs or money with them — or both — have had the best luck sticking. If they can get here.

California reported its lowest number of outbound moves in more than a decade, according to Atlas’ year-end report, possibly because people found it difficult to extricate themselves from houses in that state’s hard-hit markets. But despite the national slowdown in movement, Atlas’ national statistics still indicated a strong inclination for people in the country to move West, according to the company’s year-end report, with net movement particularly strong into the Northwest.

Falling prices in the local housing stock might actually help the region pull out of its funk faster than the rest of the nation, since its underlying desirability apparently remains undiminished, said Roger Lee, executive director of Economic Development for Central Oregon. “People still want to own homes and, in our case, boomers still want to be in the Pacific Northwest,” Lee said, “so things are playing well for us. If we were in the same position in Detroit, I don’t know what my forecast would be.”

February 17, 2008 10:58 AM

First of all, this piece goes on and on about the TREMENDOUS inbound inbalance between Oregon & just about everywhere else. Population figures from the Census bureau:

California: 36.5MM
Washington: 6.4MM
Arizona: 6.2MM
Oregon: 3.7MM

OK, we are TINY compared to these other places! There's NO ONE here to somehow push that ratio positive. There will probably NEVER be an outbound positive ratio to ANY of these states... EVER!

This also reminds me of the recent reports that Oregon is among the lowest states in foreclosure. Wyoming is The Lowest. Lowest number of foreclosures in the country are in Wyoming.

Wow! Real estate must be KICKING ASS in Wyoming, right?

Huh, here's a nugg printed by BendBB, "New data reveal depth of housing slump":

The states suffering the biggest drop in sales in the third quarter were Nevada, down 44 percent and Wyoming, down 42 percent. Other states with big declines were New Mexico, down 39 percent, Oregon, down 38 percent and Arizona, down 37.6 percent.

Uh huh. It seems that when you measure things on AN ABSOLUTE BASIS, stuff like OUTBOUND MIGRATION & FORECLOSURE NUMBERS can make small markets look GREAT. That's SOLELY because the population figures are TINY.

Oregon is a TINY population state, just like Wyoming. DUH. That's why we don't have a lot of foreclosures.

Granted, there's more to it than population... Michigan is suffering from a depression, and THAT is going to keep them in the doldrums for years.

But even if WE are having the Best of Times, and Cali is suffering The Worst of Times, they WILL HAVE MORE FORECLOSURES than we ever will. Basic math.

Don't succumb to basic mathematical crap that is being printed around here. Is it true? Yes. Is it also misleading? Of course. Somehow you never find the footnote telling you that:

1) We are a very low population state & will ALWAYS have a small number foreclosures.
2) We are 18 months behind the curve of the RE Mega Bubble Implosion.

The header over on BendBB puts it well:

Economic statistics are like a bikini. What they reveal is important... what they conceal is vital.

BEM said it best with respect to these recent Disaster Scenario Bulletin stories:
Bend Economy Man said...

I think that The Bulletin showed some backbone by publishing some rough facts and deadly quotes right after the COBA campaign began. Kudos to The Bulletin.

Yes, they followed the old Bulletin formula of Misleading Headline That Says Exactly the Opposite of the Facts in the Story / "Happy News" First and Last Paragraphs / Hard-Hitting News in the Middle. But by now I think we've deduced that this is in the Bulletin's editorial standards manual.

Another nail in the Bend Miracle coffin?

80 losing jobs at Bright Wood
Layoffs amount to 16 percent of work force; company attributes cuts to housing market

By Lauren Dake / The Bulletin
Published: February 21. 2008 4:00AM PST

MADRAS — For the second time in just more than a year, Madras-based Bright Wood Corp. has laid off more than 10 percent of its work force.

Around 180 out of 1,130 employees, working mainly in manufacturing and administrative positions, will be let go, said Bright Wood President Dallas Stovall. The layoffs started Monday and should be completed by the end of the week. The cuts amount to about 16 percent of the staff.

This should come as no surprise. And like CACB earnings "surprises", this one ain't over either. The hits will keep coming.

Area tourism feeling a pinch
By Jeff McDonald / The Bulletin
Published: February 21. 2008 4:00AM PST

Skiers and snowboarders flocked to Central Oregon over Presidents Day weekend, but the business boost was short-term relief in a so-so winter for many businesses that rely on visitors, industry representatives said Wednesday, expressing nervousness about the future.

Benefiting from clear roads, ample snow and sunny days, Hoodoo Mountain Resort broke attendance records over the holiday weekend, and Mt. Bachelor ski area saw more visitors and spending. But local lodging properties and restaurants are feeling the pinch of a cooling national economy.

A slow December and January at many area lodging properties could bode ill for the region’s $498 million-a-year tourism economy, according to Alana Audette, president and CEO of Central Oregon Visitors Association, which promotes the region’s tourism industry.

“Overall, we’re still getting that sense that people are just belt-tightening a bit,” she said. “People are getting more wary about making those vacation plans. Advance reservations for spring are off, and the summer also is showing signs of slowing. It’s making us real nervous.”

Business has dropped between 15 percent and 20 percent the past 2½ months at Merenda Restaurant and Wine Bar in downtown Bend, said Jody Denton, chef and owner. He said the slowdown has affected many restaurants and retail businesses around town. Denton also is chef and owner of Deep, which opened downtown in June.

“I don’t think anybody’s immune,” Denton said. “I thought Bend would dodge the bullet until December and January, but it’s definitely trickled down.”

Bend’s cold housing industry has played a large role in slower business at Merenda and Deep, Denton said.

Folks, you wondered what absolute calamity looked like? It's here, now.

Our commercial real estate sector has finally jumped whole hog into the bursting RE horror. Ridiculous concepts like "office condos" which is a simple-minded attempt to sell RE to the only group capable of buying anymore, BUSINESS, has failed MISERABLY. Lease rates are simply unsustainable.

Local banks, that only months ago declared themselves fit as a fiddle financially & almost completely IMMUNE from the collapse... LIED. They were firmly planted in some Kool-Aid fueled hallucination where they were exempt from reality. Even I bought into this fantasy. As GHWB so eloquently put it:

When US Presidents become confused, they invoke THE WHO!

CACB plumbed new lows, and is within eyeshot of the single digits. Who would have thunk it? Even CACB Shorter covered in the $20's.

People aren't moving here anymore. Has Bend lost its luster? Well, certainly some. I got here in 2001, and am not enamored of the "attitude" that has transformed the place in just that short time. Honking, rude, self-absorbed psychotic consumerist nightmares. Hopefully the Bust will put out that fire.

More specifically, NO ONE CAN SELL THEIR HOUSE, and we are finding that THAT is the grist of the Bend economic mill. We RELY on the ability to GRIFT PEOPLE OF THEIR MONEY. Look at that quote from the "moving" piece:

they are trying to figure out how to live here.

This is just amazing. I know of Very Few places where you have to "figure out" how to live somewhere. YOU FUCKING WORK. OK, you work.

Not Central Oregon. We are grifters, we have to FIGURE OUT how to survive. And my God, has the grifter trade here been a bonanza for the last 5 years. Ask Holz-Tek: Two of the most gifted Flim-Flam men to ever grace our shores. These two drew up a Perpetual Motion Machine on a napkin, called it a "Master Plan", and sold to the City of Bend for $2,560,000! AWESOME!

Unfortunately, this gig is up. The money has gone away, and there's no one left to pay for the nightmare created during this romp. Brucey got the Big Fuck You, when he dared address this problem with Bends Big Muckety Mucks:

bruce said... On the CC meeting: LS building looks as good as we will get, Sonia is worried about money (some real "choices" will have to be made if we don't sell any JR land next year) and the dickhead John Russell simply brushed me off with a "no" when I asked him how we were planning on paying for the roads/sewers/etc. for the 50 acres we were planning on selling if all the money from that acreage was going to pay for the current shit that we are building.

I STRONGLY ENCOURAGE you to head over to Bruce's Blog, and read his headline piece, "JR Financing Just Doesn't Make Sense". Excellent review on the Circular Financial Clusterfuck that is Juniper Ridge.

Nice Bruce.

Finally I want to retract my statements of last week, that could be interpreted that this may NOT be the Best Buyers Market in 20 Years in Bend.

I thought about it, and maybe they are right. This MAY WELL be The Best Buyers Market Of ALL TIME. Check this listing over on BendBB:

2008-02-22 2613809 Bend Mtn River Estates 1475000 725000 -750000 -50.85 219 11

This little Sugar Shack has been listed since the Earth was a ball of hot magma, and worse it's been marked down ELEVEN TIMES, for a total of OVER FIFTY PERCENT.

Think about it: This little shithole has been for sale FOREVER, and has taken 11 Reality Revisions for a 50+% hit in price. This bodes well for a strategy that has been non-existent for 5 years in Central Oregon:

The Coma Inducing, "I've Gone Fuckin Blind" 50+% OFF Lowball.

This species, long ago thought extinct, actually has a basis in reality nowadays. People who previously would have not even thought about responding... well, most probably still will not respond, but SOME WILL.

The sale of RE around here is being removed from peoples DISCRETIONARY table and being put on the COMPULSORY table. They HAVE TO SELL.

Can you imagine throwing this homeowner a 50% OFF lowball on Day 1? My God, they'd call the cops on you. "We've got a crazy person in the building!".

Have a scroll through BendBB's price change boards. Those badboys are well-populated with HUGE reductions from initial DREAMY list prices. There are people who HAVE TO SELL.

Now their prices are still insane in most instances. That should tell you something, when they are still 100% too high after a 35% price reduction. BUT, you can walk to the table in todays atmosphere of Dread, and calmly throw down a LOWBALL that renders every man in the room sterile, and every pregnant woman goes into premature delivery.

And you won't be removed forcibly. They might actually talk about it. Most won't. 90+% won't. But the ones that DO, can be worth your while. Some of these people/banks that hold onto 3 or 4 $320K EMPTY rental shitholes, MAY look kindly on a $190K kick square in their hairy-ass beanbag, if it means avoiding foreclosure on the lot of them.

This could be The Best Buyers Market EVER. But you gotta have the means & the fuckin nads to walk in unabashed, and give EVERYONE in the room FINANCIAL EBOLA & THE FUCKIN AIDS with a lowball that DOES NOT saddle YOU with their Horrific Financial Problems.

If you play their game, you will get killed. You'll hold an unsalable piece of shit in a MASSIVELY DECLINING market. You'll never break even, and you'll lose money every month, and you'll take a 33% haircut AT BEST when it comes time to sell, and that's a Big IF... IF you can sell.

But, if you firmly plant a scrote busting, steal-toed LOWBALL right in their crotch, you can actually make out OK, and that is IF AND ONLY IF you do NOT plan on selling in the next decade, and you can make that cracker shack pencil as a rental. And there are Realtors who are STARVING TO DEATH for you to play this game.

So do me proud folks: Go out looking for a cracker shack, and walk proudly to the table and throw down a LOWBALL that ruptures every eyeball vein in the place.

The Sign of A Successful Bend Oregon Real Estate Transaction


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