Ben Rabidoux speaks to Bruce Joseph about the Canadian housing market.
Ben explains why analysts with major institutions are unable to honestly share bearish predictions (and, consequently, why one should always take their statements with a grain of salt).
- from Bruce Joseph, youtube, 1 Sep 2012
Hey thanks for the mention. This segment was shot last summer. Since then I’ve learned a bit more about how banks censor their analysts, a topic I discussed in this recent post (see the last section):
http://theeconomicanalyst.com/content/comments-cibcs-no-us-style-crash-canadian-housing-report-part-3
BTW, killer discussion on this site the past few days! Great job, VREAA!
Thanks, Ben. I’ve also enjoyed the discussion here the last few days.
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From Ben’s 11 Nov 2012 piece (linked above):
“In my current role, I’ve gotten to know a number of excellent analysts and economists who were or currently are employed by Canadian banks and who to varying degrees share my concerns over the housing situation in Canada. Each one has separately told me of specific incidences in which “bearish” reports they had written received backlash from upper management, or they were forced to remove portions of their reports before they would be circulated. Two of these analysts were told in no uncertain terms that they could not discuss their perspective on housing with the media. Two will only discuss housing-related matters with me via phone and not through their work email. One relayed an amazing story of a CMHC report they wrote in which they expressed some concerns with current CMHC policy and the pace of growth in their insurance in force. The day their research note was released, bank execs received a call from a CMHC exec. The report was pulled and the bank immediately issued an apology. All of them told me in no uncertain terms that “overly” bearish commentary on housing is simply not permissible for a bank-employed analyst.”
Good interview, Ben. I liked the Chomsky reference. I read “Necessary Illusions” around 8 years ago. It was certainly an eye-opener.
For the MSM, we are not the customer; we are the product! REMax guy with the cash is the true customer.
With 70% of the population invested, not much procacity on this topic anywhere.
I had to google “procacity.”
Honestly though, if you smelled smoke but weren’t sure where it’s exactly coming from, would you immediately yell “fire” in a crowded theatre, or let someone else do it?
Obviously, you head for the door first and, once you get there, yell “Fire!”
Just the other day somebody on this blog, in the classic Kitty Genovese feint, said “somebody should call the cops!”
I was thinking a bit today about bank analysts and, if not self-censorship per se, a bit of backward chaining or cognitive dissonance. Let me try to explain. I recall when Flaherty did some tightening this summer and a few in the Vancouver camp mumbled that he might not care at all about its effects on Vancouver so long as it had the desired effect on oh-so-important Toronto’s condo market. I didn’t believe it for a second, figuring Ottawa’s mandarins in Finance and at the BoC would take an unbiased view with plenty of data from all, ahem, important regions.
When it comes to private bank analysts, though, I think a bit differently. They’ve been beavering away in the towers at King and Bay through an unprecedented condo boom which has been going on so long that the sea of cranes and construction congestion just appears to be normal, along with the equity gains which anyone who’s bought in Toronto has gotten. I doubt too many of them do national tours, so they’re rather provincial in their outlook, as it were.
The problem is you’d look like a complete moron if you said, while owning, that this was a bubbly boom, yet didn’t sell. Moving is a pain, renting is a bore and it’s easy to go with the crowd, especially in a bank, and of course there’s Ben’s points above. I doubt there was conscious thought, but subconsciously I could certainly believe analysts’ personal ownership situations creeping back into their analyses.
I’d say this was visibly obvious with Patti Croft, who waffled in the national media about selling her Oakville house. You could almost read the thought bubble as she tried to convince herself Oakville wouldn’t be too affected, not like downtown or Mississauga… Sherri Cooper sold her estate, but apparently ploughed it all back into a tony condo. I can guess how many of the more junior members of the banks’ economic department have downtown condos and what they were thinking, with some of the more senior ones owning SFH and thinking to themselves “it can’t last with these condos, but SFH should be relatively unscathed.”
Anytime someone gives me advice in RE or other financial matters, I always ask: who do you work for?
http://www.moodys.com/research/Moodys-Revises-British-Columbias-Outlook-to-Negative-from-Stable-on–PR_261569
As mentioned in the video. Oops.
I wonder where this kid is now, has he made any more “deals” or has he pushed that aside and gone straight to the pyramid scheme.
I had a chance to meet a very distinguished investment professional/analyst during this past summer at an industry conference. Most on this site would recognize his name… He had previously been employed by the brokerage firm of one of the Big 5 banks but still did lots of consulting work for them. He was a speaker at the conference and I asked him privately about what he thought about the Toronto and Vancouver housing markets… He said “It’s nuts and it can’t go on.” but told me he couldn’t voice his opinions on the topic because of the bank connection. Yup, censorship in action.
*Off topic alert* (A thousand apologies to our esteemed archivist).
Paging El Ninja and Ralph C:
Highly, highly recommend you read this:
http://www.energybulletin.net/stories/2012-09-24/start-finish-why-we-won-and-how-we-are-losing
Those with an interest in bubble psychology may also find some parallels to draw.
Large dense cities are not sustainable and dangerously complex. The way forward may require us to disperse, not densify.
“Many people have the misguided belief that cities are energy efficient. Cities compared to other environments are often more efficient with respect to transportation, because fuel use actually drops off in city centers due to the availability of mass transit. But the embodied energy as a whole in the infrastructure, people, and information in cities suggests the opposite. Cities are actually energy hogs, that concentrate energy. In a future of waning energy, are our biggest cities too big to fail? What size city is sustainable?”
http://prosperouswaydown.com/cities-too-big-to-fail/
With all due respect, you’re nuts. It’s the hopeless romanticism that can only be the product of too little time in the hinterland, studying exactly how much time is spent in subsistence activities and in moving self and things from place to place, and how little is available for leisure or the generation of surplus. And that’s WITH the incredible amount of support that cities and their products provide to the hinterland.
Another angle: People have displayed a marked preference to living and sleeping on a piece of cardboard on a small patch of public sidewalk in a city with 33% unemployment and poverty for most of the employed than move to the country.
Where’s that commissar? Re-education is called for.
Who said anything about subsistence living?
“In the 21st century, it seems to me that a great rural migration is inevitable. The Internet brings the benefits of urban living to rural environments while the disadvantages that come with urban living may be unaffected. Therefore, the utility of metropolitan environments seems to be declining, as the utility of rural living seems to be rising.”
http://www.huffingtonpost.com/stephen-estes/internet-age_b_1914950.html
“A name for such a strategy is ruralisation, as opposed to urbanisation. This development strategy implies a successive replacement of houses in need of extensive restoration or rebuilding. Instead of building new houses in existing urban areas, small settlements integrated with agriculture, as outlined above, can be created in the hinterland of the urban areas”
http://www.unicamp.br/fea/ortega/energy/Folke.pdf
Great video, Ben.
In addition to conflicts of interest, there’s the fear factor of going out on your own. Psychologically it’s easier to be wrong as a group than individually, so go with the herd. Then there’s the natural tendency for analysts to simply extrapolate the recent past…
Agree, most economists’ models are simple an extrapolation of the past.
That’s why prices will always go up. At least until now.
Now that the RE market is inflating, my guess is that they just turn the arrow downwards.