You can't outsmart a bubble, because there is no smart in bubble.

A bubble will wear you down. It will last so long, and seem so strong, that even skeptics will start to look for reasons. They will see people seemingly getting rich, and the desire to join in gets stronger and stronger.

Even when the bubble pops, people will stay wedded to the illogic.

But the mostly coldly logical guy will come out ahead. The guy who is willing to cut his losses, to sit on the sideline and wait and wait for the bottom, and then buy when the psychology is worst. How many people can do that? Not many.

But I can at least try to sidestep the bubble. By constantly reminding myself that while I can't do anything about the bubble or its bursting, I can try to deal with the consequences. And the best way for that is to take my worst case scenario, and double it. (I have to do that because....despite everything you might think....I'm really an optimist. Optimism being the triumph of hope over experience.)

Rather alarmist sounding, I realize. I'm not saying we should build bomb shelters. I'm just saying, try to imagine a world without the bubble. You're in the bubble, so it's like Sherlock Holmes trying to imagine Arthur Conan Doyle, but try.

And realize its a bubble and has not reason. Don't try to outsmart it.

I hate to harp on this, but it's almost like the bubble bloggers don't really get the bubble.

A bubble has nothing to do with reality. It's a bubble, an illusion, and when it bursts, it disappears.

There is an inner core to every bubble, an inner reality. The bigger the bubble, the further you are from that core, the harder it is to see, the more the bubble distorts.

The bigger the bubble, the more it is going to hurt.

I could make the case that Bend, Oregon has had the BIGGEST bubble in a huge national bubble.

So, NOW you want to talk about supply and demand? About land and material prices?

What part of bubble don't you get?

Real estate folk are nothing if not persistent. Housing prices collapse? It's a buying opportunity!

The latest thing I'm hearing is that we need to create more buildable land, thus should extend the UBG boundaries. More land would lower housing prices.

I just can't see this.

If the price of the land was the main component of housing prices, then all those houses that were built before land prices went up should be cheaper still. Hell, any houses built with cheaper materials, with cheaper financial services. That isn't happening, because the main component to housing prices is.....the going rate. I don't believe that when I had my house appraised last time, they asked either the original land price....or for that matter, the price I paid for the house.

Ask yourself this. If supply and demand were strictly functional, wouldn't the huge supply already be bringing down prices? I think they are, but the prices are sticky, and people don't want to sell for less if they can help it. More land wouldn't change that psychology in the slightest.

Only if the government absolutely mandated the prices be held artificially low. They'd have to create a lottery system for buyers, because who wouldn't buy a house that was 1/3 lower?

Well, lots of people. Because again, the psychology of the buyers and sellers. I've heard complaints for years that sports cards were too expensive, yet every single time a cheaper brand has been created, it has been rejected by the consumer. "That's junk," the customer will say. "But why do prices have to be so high on these other brands I want?" Hey, I got news for you, buddy. All cards are made of paper, and all have pictures of players on them. The 'value' is created by the marketplace, not by the frakken material.

What would happen if another 500 houses were suddenly created on lower cost land? What's more likely, that those houses would sell significantly below the going rate, and that would force the other 2000 or 3000 houses to lower their prices? Or that the 500 houses would be near the median price, pricing themselves at the going rate? I'd be willing to bet that prices would be dictated by comparable prices, and not the other way around.

So you have to admire the real estate people for trying to create an even bigger glut of housing. Takes real hubris.

The thing that has interested me the most about the explosive growth of small business in Bend, is how do these new businesses know how well they'll do? I mean, no one knows knows, but how can they even guess?

It's probably the most important guesstimate they'll make -- as accurate as possible an appraisal of the level of business they are likely to reach, as accurate as possible a guess of their customer base.

When I bought Pegasus in April of 1984, I'd worked here for 4 years, I'd managed the store for about a year. When I took home all the information, overhead costs and loan payments and the cost of goods, and worked out a sales level I would need to get to make even minimum wage, that figure came out at twice the level the store was actually doing.

But because I'd worked and managed the store, I knew that the potential was there. I knew the store had been stripped of inventory several times, and that it would take just the slightest inventory push and show of faith to make it work.

And I was exactly right. In fact, sales doubled overnight.

In opening 3 other locations, I had to make similar guesses, and in each case I slightly underestimated the level of sales.

When Linda and I opened the Bookmark, I had a base figure in mind that I thought we would do, and sure enough, that's what we did.

This wasn't luck, it wasn't wild guesses. It was knowledge of the marketplace, long-time residence in the town, research.

I believe I have a good inner compass on these things. I trust my intuition. But that intuition is based on lots of experience and knowledge in my field.

I can't imagine moving to another town, opening a business where I had no experience. I think the odds of getting it right are pretty small.

That's why I think Bend has lost perspective.

I'll give you an example. When I bought the store, we probably had 50 comic subscribers. Over the next 10 years, this base of support slowly but surely increased to about 100. I would gain a customer, lose a customer, gain two, lose three, gain four, lose two. That kind of growth.

Suddenly, in 1995, I had 250 subscribers. Another store in town started selling comics and he also had subscribers. I figured there were two possibilities -- either that I had the 250 true readers or that the rest of the newcomers were fluff, doing it because their friends were, because it was cool, because they thought they could make money. When it all imploded a year or two later, the base went back to -- you guessed it, 100.

When we opened the Bookmark, I had in mind a base figure, which we immediately achieved, and a pie-in-the-sky figure that 4 years later we are nearly approaching. This kind of estimate takes perspective, intuition, knowledge, and experience. So on a scale of 1 - 10, with 10 being maximum potential, we started at about 3.5, and have reached 8.5 after 4 years.

If I had to make a guess about Bend, I'd say that retail was built to a level of, oh, say, on a scale of 1 - 10, maybe a 25. Yep, about two and a half times the maximum potential. I doubt very much we'll even get to a 10 in real sales. We just lost perspective, all the newcomers brought preconceptions that just weren't realistic. We are going to see a whole bunch of businesses go down the tube.

Why should I not trust my instincts now? I've lived in Bend my whole life, and had a business in downtown Bend for 27 years. I've opened and closed other businesses. I think my perspective is pretty accurate. Compare Bend to towns with twice the population, with industry, with interstate highways, with colleges, and you know Bend has gotten too big for it's britches.

So how do these new businesses know how well they'll do? Since they just moved to Bend, since they've either never run a business before, or haven't had experience in the type of business they open? They don't know. They have no perspective. They don't know the base level of business; all they've seen is the fluff.

I'd bet, right about now, a bunch of new businesses are starting to get a glimmer. There is a chill in the air, and ain't just the temperature.

I need to rent some comedies.

Just finished, the Religion, about the siege of Malta. Goriest book I've ever read. Then, each night, sat down and watched The War, which is the goriest documentary I've ever seen. It was almost too much. I almost skipped the last episode, which I knew would contain the Holocaust and Hiroshima, but I'd already watched 200 hours or so it seemed, so I saw it through.

It will probably sound churlish of me, but I just didn't like The War as much as I thought I would. Burns and Wolfe were on C-Span, and if ever writers were treated like rock stars, it was them.

I'd admired the Civil War greatly, so what happened?

As much as I respect and admire the folk they profiled, I still felt I was getting just snippets of the war. Then huge brush strokes of history from the narrator, of events I already pretty much knew.

I also knew about as much of the Civil War history, so why didn't it work this time?

I think it was because it was missing the eloquence of the historians. I can listen to Shelby Foote for hours....I know they were trying to get away from the talking heads, but its hard to beat the pure presence and gravitas of some of those guys. And the scratchy jazzy background just didn't have the same resonance to me as the fiddle music in the Civil War.

As profound as the witnesses were, as important as the events, The War just didn't have the impact on me that the Civil War did. Except to realize that we've probably never shown the respect to these men and women they deserve -- my generation, the baby boomers, especially must have seemed like spoiled brats. And to be reminded that we also didn't give up the respect the Korean and Vietnam veterans deserved either, until much later. I hope we've learned from that.

I want to make it clear, I thought The War was a hugely important event, and better than anything else on T.V. It just didn't floor me, the way the Civil War did.

Except for the violence, which I believe needs to be shown. War needs to be shown for the senseless horror it is. My generation grew up watching John Wayne heroically charging the sands of Iwo Jima; if this generations sees the mangled, gory mess, maybe we'll think twice before we throw our young men and women into the fray. If it is necessary, at least we should be aware of the cost. Not the neat, tidy John Wayne movies of my youth. Let us be aware from the start of what we're asking.

I was impressed that Burns and Wolfe were willing to show the true horror of war, or at least give a glimpse of it. I felt I had to honor that by watching it all the way through.

For someone who rarely manages to leave his own store., I sure talk an awful lot about commercial real estate.

Yesterday, after picking up my car from Les Schwab (I had nails in both back tires, a real accomplishment), I decided to take a little driving tour.

First, I noticed that the space that I was going to rent on November 1, didn't look even close to ready. I'm going to be watching to see how long it takes for someone to fill the spot I was looking at.

Then I drove south on 3rd. Fred Meyer always seems busy, and the satellite stores are amazingly steady. There seems to be a fair number of vacant lots for sale on 3rd, both north and south, and signs mentioning retail. But none of them seem to be actually being built.

I came in from behind Cascade Village, and noticed that almost all the back and middle retail slots were empty. I took a look at the 'available' slots on the sign, and counted 13 spots open out of 43, with 3 more not yet open. Out of the 43, 10 were massive big stores like Best Buy which are a different case, so by my count 13 out of 33 spots where a small business could come in were empty.

What begins to sink in is that are plenty of retail spaces available, all over town, even in the downtown area. When you look out the windows of Pegasus and you see tenants who are actually being evicted even though they're willing to pay the rent, when you see cranes on every corner, and cars and passersby, and so on, you begin to think that everyone is just jostling for space. But there are plenty of spots open to rent.

But almost none of them are appropriate for walk-by traffic, which is kind of sad. Really, the big box centers are destination stores. The strip malls are destination stores. Both malls, which were once pedestrian friendly, have turned into big box centers.

I drove over to the west side, drove through N.W. Crossing, was again unimpressed by the traffic.

The car traffic is really bad on the west side, folks. And I saw 2 pedestrians in the entire west side; actually saw way more pedestrians on 3rd (though half of them looked homeless.) I actually saw more pedestrians on the east side. So I call B.S. to the pedestrian thing.

The trees on the west side are nice, though.

Still, there is a sort of unattractive hodgepodge to it all. As if grafting completely different styles to each other. Grafting in the word that came to mind. Old next to new, in a chaotic way. Sorry, not that great looking. And all the unfinished lots need to be filled in and cleaned up to reach any kind of potential attractiveness.

I poked my head into an office, and started talking to a long-time commercial real estate manager. About half way through the conversation, when I realized she was being amazingly candid, I informed her I had a blog where I talked about these things, but I could tell she didn't really get what I was saying, so I feel compelled to stay vague about her identity.

Suffice to say, that just about everything I had been assuming from the outside, she pretty much confirmed. And she had nearly identical views on many of the subjects -- so even though she had different experiences, she had reached many of the same conclusions.

One thing that surprised me was when she mentioned the 'lord of the manor' syndrome. She was talking about owners who felt they could hire managers and employees, and be an absentee owners.

I came up with the same phrase years ago, used to describe my own behavior. I thought, when I had 4 stores, that I could plug a manager in each one, and then float from store to store as needed. I would poke my head in the door and say, "How much money we make today, guys?"

Needless to say, it didn't work that way.

There were a lot of other parallels in our thinking. Not sure if that is just a reflection of long experience, or just a similar way of thinking about things. Always helps to know that I'm not very far off base. In fact, I was making conclusions about some of her businesses which were right on, even though I had very little information. I was just looking at common factors.

Very validating.

There is still plenty of unfinished business to Bend. Still plenty of locations that need to be upgraded. Still plenty of unfilled spots. Still vacant lots.

In a way, I find that comforting.

In the past, I have found the biggest danger to the overall health of my business, is the money I have committed but not yet spent.

There are all kinds of advantages to making bigger preorders, to buying in bulk.

1.) I usually get the best price.

2) I endear myself to my wholesalers, which often pays dividends when I need favors or help: I position my store in their minds as a 'player'.

3.) Sometimes I get a better mix within the bulk, with more flexibility. For instance, the ability to make sets of things. Or to vary pricing, based on quality.

4.) I more or less guarantee myself a supply even if the product runs short.

5.) I get it at the earliest possible shipping date. It is order once and forget about it until it arrives.

And so on.

But I am in such a small industry, that whatever commitments I make in advance I simply must follow through. Once in a while, I can try to beg off, or cut orders. But if I do that, any goodwill I've created disappears, and the wholesaler will be much less likely to extend me credit, or the benefit of the doubt, or make any special effort in my behalf, the next time. I can't just find another wholesaler in comics, for instance, because there really is only the one.

It's usually better to take the damage and try to do better the next time.

Twice I was almost done in, almost destroyed, by huge optimistic orders I made when sales were humming along, but which arrived after a total collapse in business. Both times, I had no choice but to accept the material. Both times I went deep into debt, and was unable to ever sell the excess product for a profit.

The window is shorter, these days. Which helps. But the problem is always lurking.

My usual reaction to doubt is to start cutting the preorders. I don't have to actually cut the amount of overall material much; I just order after it comes out, instead. When I order off the open market I can order what I want when I want. As long as I'm willing to take slightly lower profit margins, and accept sell-outs, and maybe receive the product a week later and so on.

But these are small and very manageable problems, pretty much, and I've found it well worth my while when things look to be tight. I was one of the first sports card dealers I know of that went strictly through a wholesaler instead of ordering in bulk from the publishers, for instance, and I'm one of the few survivors of my era.

It was how I handled the last three bubbles, and it served me very well. I may not have made quite as much money as I would've if I'd been ordering in bulk from the makers, but I escaped with very little damage on the downside.

A fair trade, I think.

The comic industry has changed enough that I am no longer hostage to new hot titles I can't get. I have tons of graphic novels collecting evergreen stories, and usually can get get reorders of monthlies if I need them. And if I can't, so be it. There is always the next week's comics and the next.

I have access to so many toys and cards and games and books and so on, that making large preorders isn't necessary.

So I've decided -- starting this month for November/December preorders -- to cut down to the minimum I can get away with, while keeping my reorders at high levels. If business slows, I can easily adjust the reorders.

Because...well, it just is looking weak out there to me. Has slowed just a little at the cash register, not enough to panic, but enough to concern me.

But, it just seems really clear to me that no one in retail is going to escape the consequences of the bubble bursting.

No one.