Too Negative?
This blog is useless -- at least to me -- if I can't call it the way I see it.
I keep falling back on my knowledge of bubbles.
1.) Bubbles don't reinflate. Sometimes there is a dead cat bounce, but you have to recognize it for what it is.
2.) What's left after every bubble is the core reason the product exists, without the speculation and the hype. The more valuable the core reason, the more people keep buying. With pogs, Beanie Babies and Pokemon, the core interest turned out to be minimal. With sports cards, it turned out to be much, much smaller. With comics and magic, there turned out to be enough readers and players to keep my store alive.
3.) You can't believe what people say. Either the promoters or the believers.
4.) Once the fall starts, other than the dead cat bounce, there is a long and inexorable decline (sometimes a short and brutal decline).
What do we have left in Bend? We have a desirable place to live. We don't have much industry. We have too many houses, and way too much retail. There is a tourism and retirement industry. So there is a core interest that will keep the town alive. But strip away the excess and the speculation, and we have a pretty big fall still to absorb.
I think we are in a long and inexorable decline, like a python tightening. The frog is the hot water. I was waiting to see how this would play out, and I'm getting the sense that it will be slow, so slow that there will be plenty of plausible deniability. There will be plenty of twists and turns, and it will never be obvious.
That's why it important to pay attention to previous patterns of booms and busts, and not get caught up in the day to day details. This is going to play out over a 3 to 5 year span, long after most people quit paying attention. Like a long march, some people will drop out, some will join, and to the casual observer the line of marchers doesn't change, but to the actual participants, it's a trudge.
Those that are paying attention, who have patience and forbearance, and most of all, keep their focus, will survive. Eventually, they will even thrive.
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I've been carrying around the following in my notebook for a year now; but it seems especially pertinent at this time.
I don't remember where I got it, or what the title was, but it struck me as true advice.
"Focus on the primary factors, don't get distracted by secondary and tertiary elements.
Filter out irrelevant information.
Ignore the media as best you can.
Forget about what's possible, concentrate on what's probable.
When you lose, understand why you lost.
Don't get lured by a big spread.
Remember, the point is to make money, not be a hero."
I have to disagree with this one. You are mixing retail fad with a capital asset bubble. A retail fad is a kind of bubble, but the end result is substantially different. They are similar in that both represent dramatic over valuation. They are different in that when a retail fad goes away nothing is really left.
With a capital asset bubble, you do have substantial price reduction, but substantial infrastructure is created during the bubble. That infrastructure often support growth, at reasonable prices after the bubble pops.
Take for example the internet bubble, which drove excessive investment in backbone fiber optic infrastructure. Due to the over investment, the many of the initial companies that invested did not see a return on their investment and failed. But the infrastructure they left behind was purchased by others for pennies on the dollar and has been used as a basis for substantial enhancements in communications infrastructure for the last 7 years. We are now starting to reach the point where that capacity is getting taxed and future investment will be needed.
Now apply that to Bend. Over the past few years the housing bubble has resulted in exessive investment is construction. More infrastructure than is really needed. As a result you will see a collapse is pricing. Those that paid for the building of that over supply will lose. Prices will drop, including in lease amounts. However, the infrastructure will not go away and once the prices re-adjust the fact that it does exist will help drive growth, from the reset level.
So yes there will be a drop and re-adjustment, but that too will pass and a cycle of expansion will return, not the long permanent trail off into oblivion you indicate (as seen by many retail fads)
RDC,
I thought I made that distinction, but maybe I wasn't clear.
Yes, there is a value in the infrastructure, but the over inflation has to be bled out.
I'm thinking it will be a couple of years of slow decline, a bump along the bottom, and then a slow increase again.
But many businesses are going to expect it to bounce back right away, or maybe not even go down much at all, and I believe they are miscalculating.
The point I was trying to make was that the bubble prices, and thus the bubble building, wasn't sustainable.
That the core value of the houses will remain, and eventually come back; but not as a bubble.
And that much of the economy of Bend wasn't based on the core values, but speculative excess.
In a sense, try to imagine what Bend would look like without the excesses of the past 3 or 4 years, try to imagine how many restaurants and stores we'd be likely to have, and my guess is, that was the number the town will be supporting.
Like you say, the overbuilding will result in higher totals than otherwise, and will be a great longterm investment for someone.
But the next two or three years will be a shakeout period, in my opinion. With retail, which is what I'm focusing on.
In a sense, I'm looking for a 'working scenario.' That is, my planning has to be based on something, even if it's best guesses. Then, as reality intrudes, I can modify my planning. But I have to start with something, and the closer it is to reality, the better off I'll be.
So here's a guess.
Most of downtown is seeing a 5 to 15% drop this off-season. I figure that figure will moderate to a 5 to 10% decrease this summer in the downtown core. Probably 5% worse than that elsewhere.
Restaurants will see a bigger decrease because of increased competition.
But this winter, the decreases will be bigger -- another 5 to 15% on top of the 5 to 15% decrease we saw this winter. So some stores will be down 10% others all the way up to 30%. How they survive this drop will depend on factors behind the scenes -- their capital and motivations.
Then an improvement in the summer 2010) again, but still 5 to 10% worse than this summer. And then a really bad winter to follow.
After that, I figure we'll have hit bottom.
Cheery, no?
Maybe my timeline is different. But for a small business, 3 years of "long and inexorable decline" is FOREVER! I think that's about half the life time of a normal business.
You don't get to my age of business without having gone through that a few times.
A couple of bad years? So what? But for a small business, that is money loss, that is red, that is dispiriting and that is scary.
Maybe not a long time in the scheme of things, but a very long time to have to hold your breath.
So...ask yourself, could you handle a 20% drop in income -- "Only for a few years"? Some can, many can't.
I left off one bubble observation.
In every case, the consequences of the burst bubble were way, way worse than I expected.
As you can imagine, most people weren't even in the same ballpark.
I don't expect everyone to go along with these observations: there is a small difference between pogs and houses, after all.
But...well, I firmly believe that bubble psychology is the same. If I'm wrong, I'll learn something new and gladly reenter the fray.
If I'm right -- well, I'll probably still be here, and many of you will have moved on. That's been my observation.
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