blammo at VREAA yesterday [24 Jan 2011] taunted the Vancouver RE bear ‘Choir’ for having been wrong for so long –
“I often wonder if more people have been hurt by bear blogs (selling too soon/not buying), than will benefit from them due to future market corrections.”
This is a familiar and expected criticism. We acknowledged to blammo that it has indeed felt silly being wrong for so long, but pointed out that this is simply what happens in bubbles. Bears look silly until they suddenly look right. It is easy to point out that anybody could have made a fortune flipping condos or westside lots, but we know that all markets are made up with an almost infinite number of coulda-shoulda-woulda situations, in retrospect.
Despite being wrong for this long, our outlook remains the same. And, no, this is not out of stubbornness, or out of insanity, but quite simply because there is no information out there that causes us to change our view. The vast chasm between Vancouver RE pricing and fundamentals remains astonishing. In fact, we see even more downside for the market as it goes from very overextended to uber-overextended. Fifty percent price drops become even more likely.
David Rosenberg, by coincidence, has some relevant comments in his ‘Breakfast with Dave’ missive today [25 Jan 2010]. He is, of course, talking about the currently overextended stock market, but the principles are very similar:
“As frustrating as it may be to have been focused on risk-adjusted returns as opposed to gross nominal returns, to have been managing the downside risks and preserving capital rather than chase a mostly speculative run, it is more advantageous to be positioned tactically to take advantage of any corrections or price dislocations that occur over the near- or intermediate-term that are part and parcel of all markets, especially ones that have over-run the inherent fundamentals.”
There you have it. That is why sensible managers of their own funds have not bought into the Vancouver RE market for the last 3, 5 or even 7 years. They have seen how much our RE market has ‘over-run the inherent fundamentals’, and have decided not to participate in a ‘speculative run’ with a significant portion of their own net worth. This is not to be confused with risk aversion. All good investors and speculators have to take risk. But the ones who do well through their investing lifetimes are the ones who take calculated risks, when the odds are on their side. Pointing out that people have made money in Vancouver RE in the last 5 years is like pointing out that a cowboy walked up to a roulette table, put all of his money on a number, and his number came up. And then another cowboy did the same thing, and another. Does this change the way one approaches roulette? Do you line up with the cowboys? No. Sensible people avoid roulette altogether as, over the long term, you can be assured of losing.
Yes, it is ‘frustrating’ for bears as the RE run continues, but memories of this frustration will pale into insignificance when compared with the relentless and ongoing pain of being on the wrong side of the bubble collapse. That collapse has the potential to wipe out many, and to severely impede the financial health of even more for decades. Not to mention the broader adverse effects on our society, that we will all be forced to sustain.
Until the price drops commence, we’ll admit we look foolish. But we fully expect that to be a temporary position.