Saturday, October 6, 2007

To crank, or not to crank.

I have a friend who started warning me about the eminent collapse of the American economy about 25 years ago.

His reasons were many and varied, but they were well thought out, logical and rational. He is an educated man, with common sense, who ran a business in Bend for years and sold it for a profit.

25 years later, the reasons for an eminent collapse of the American economy are different, but just as compelling.

Someday, he'll be right. But as John Maynard Keynes is said to have said, "Someday, we'll all be dead."

When I first stumbled across the first BendBubbleBlog, it only confirmed what I'd been thinking for a couple of years. But in a way, the purpose of that first blog was to argue that there was a bubble, in the face of seeming prosperity. When the founder of the blog quit, (was that BEM?), he made the logically consistent point that the bubble was proved, and there was no further point talking about it.

As I've said before, either you think there is a bubble, and there is no real way to reason out the ways and wherefores, or you still think you can reason them out, which means in your heart of heart, you don't really believe in a bubble.

Still, with the jobs reports coming in strong, the stock market reaching new highs, I find myself slipping into the 'crank' camp. Because I keep looking at the local conditions and I can't imagine we are going to escape unscathed.

I've always thought the stock market was a different phenomena -- it goes up because people want it to. I've always thought the national economy was likely to shake off the effect of the housing bubble, and I've always thought there was a good chance that Bend would escape dire consequences simply by wearing blinders and bulling on through.

I guess where it stands for me, is one more major economic shock -- stock market falling, terrorist attack, China pulling the rug out from under us, some 'Black Swan' event, something like that, and we are in big trouble.

Otherwise, we'll just humbug and huff and puff and change the subject and look for the silver lining and so on....

Because, despite all the good reasons to be careful, humans have a great capacity to just keep on truckin....

7 comments:

Duncan McGeary said...

Greenspan talks about bubbles as being good in the long run. In that they build infrastructure that can feed later growth.

I've used the phrase, leaving a beautiful corpse. All these new buildings downtown, all these renovations, are going to get filled in someday.

The real question for most of these developers is, how deep are their pockets.

I think that Franklin Crossing will probably be a while elephant for four or five years -- can the developers bleed red ink for that long? If they can, they might come out well.

How many outs have the developers given themselves? What kind of commitments did they make? What kinds of mid course corrections are they able to make?

Duncan McGeary said...

I think I'm falling off the far end of the 'crank' scale here, Cassandra territory. Even Bendbust is telling people (timmy) to buy.

Why would you buy now for goodness sake? Why would Paul-doh think we're in shouting distance of buying prices?

My next door neighbors house been reduced from 400k to 325k in just a few months. (This is the house owned by a real estate agent who had bought the house for elderly parents who decided they didn't want to live in Bend. I asked her if she had heard of the bubble blogs. I asked her if she had heard of the 'bubble'. Blank looks.)

Why not wait? One year. Two years?

O.K. I'll make a prediction. Wait until November, 2009, and make a bunch of lowball offers (say 15% below asking price) and see if you can't buy a house for half what it was going for in 2006....

And if I'm wrong, you'll have plenty of time to ascertain whether housing prices are going up again. Heck, if you're worried, just watch the daily price changes, and if,say, 25% turn positive, then buy.

Duncan McGeary said...

Because of the 142 price changes listed on Oct. 5, 2007 NOT ONE was a positive.

None.

Duncan McGeary said...

Why am I blogging so much? I'm home and supposed to be doing my taxes...

This is more fun.

If I'm blathering, don't read it....

Anyway, I also think that the other bubble bloggers are losing focus again.

It's a bubble. It doesn't have legitimate reasons, and if it does, it isn't a bubble.

Prices are going to drop. A lot.

It's going to hurt. A lot.

I suspect that the longer a blogger goes, the more he or she desires credibility, the more he or she is read, the less they want to be the 'crank.' It's understandable.

I read once that a big problem with the villians on T.V. shows is that the longer they were on the show, the more likely we'd start to see the 'human' side. So, Hot Lips becomes one of the team, instead of a foil.

Duncan McGeary said...

I realize that I'm being inconsistent by saying that the Bend economy may skate, but that houses are going to tank.

Not sure I can explain it.

Foolish consistency is the hobgoblin of little minds.

I think there is going to be a lot of froth, and so the overall economy may skate by, while individuals within are destroyed.

The national economy may provide an escape valve for all the toxic news in Bend.

We will irrationally ignore the disaster around us? I'm looking for reasons for my optimism, because logic tells me there is none.

But logic didn't account for the bubble, and it may not explain the aftermath, either.

Anonymous said...

First of all the reason I told timmy to buy, was so he would shutup, in my nieghborhood prices are already down 50% on the ASK, e.g. stuff that had an ASK of $495k, today can be had for $250k, that's good enough in my book, if you want to buy don't wait too long,

Also and I must stress this to you duncan, the reason I advise to buy is that in 2009, yes prices will be cheap, but nobody will loan you money, this is the problem, right now is good because you can get money, and the you can get -50%, in two years you might be about to get -75%, but you'll not be able to borrow money.

I hope the above explains why I position myself the way I do, secondly I myself have bought houses already this year at what I consider a very good price. Homes that had never been on the market in the past.

Again the reason I adivsed timmy was so he would shutup, I think most of us agree, that currently is the time to be a renter, hell your can rent a mcMansion in NWXC for $800/mo, that as an owner would cost you $3k/mo or more, in a negative appreciation market.

Timmy explained he needed a write-off, and needed to buy, thus if you cannot wait, today is a good time, that said, its a stupid thing to do, unless your a landlord such as myself and can make shit pencil, as long as shit pencils, and the renter is paying the mortgage, I feel all times are good times to buy.

I cannot stress enough that once BEND goes to shit, and it will, money will be next to impossible to secure, and then there will be all these deals and ONLY them with CASH to buy them,

Right now we're in real estate paralysis, once the money gets shutdown because of fear, then there will be free-fall. I have always stressed that there is a support of 4X, X is income/yr, which is between $60k-$40k, thus good inner city homes that trade in the range of $200k are affordable.

It's the crap sitting today above JUMBO ( $417k ) that is fucked, and the sub-division shit in mongolia that is fucked.

Anonymous said...

But isn't that all the bubble deniers are saying? The housing prices are justified because of reason one, or reason two.

*

Everyone by word of mouth said "bend", bend is the next aspen, every home was going to be worth millions.

Everyone was going to get rich, lets go back to tulip mania, a fucking flower bulb in the 1600's was trading for more than a home.

Everybody was selling everything to buy tulips, such as bend.

In bend fucking secretary's at title company's that I know bought two or more homes on speculation. That was in fall of 2006, which as we know was game-over.

All one has to do is go get the book "grand popular delusions, and madness of the crowds", its odd that this stuff isn't widely know or taught.

The king of wall street said he knew it was over pre-depression ( 1920's ) when his shoe-shine boy was giving HIM stock tips.

I'm an old fart, been doing property managment, rentals for years, its hard work, when you see people with NO CASH flow, and no ability to do real work buying homes, and then letting them sit empty to make 30%/yr forever, you know insanity is present.

Today, we have all these insane people in Bend bleeding to death, just a few days ago the BEND PR machine of the city promised to bring it all back, we're now going to bring in tourist from Illinois, and Texas NO more calis, I kid you not.

Do folks yet realize its over? Hell no.