Dennis Gartman – “The rising price of Vancouver real estate cannot continue. It won’t. How do we short it?”

Thanks to reader ‘D’ for sending us this snippet from Dennis Gartman’s latest letter to clients (30 Apr 2012, pg 7):


We agree with Gartman. Large price drops in Vancouver RE are all but inevitable. We have no suggestions regarding short positions, other than standing clear. We do suggest that locals with leveraged exposure to RE diligently consider their options.
– vreaa

31 responses to “Dennis Gartman – “The rising price of Vancouver real estate cannot continue. It won’t. How do we short it?”

  1. Does anyone know the specifics of how quickly banks recoup their losses thru CMHC? Will a housing crash have a big enough negative impact on bank profits that its worth shorting the banks, or will they just continue on and the CMHC and taxpayer cover the whole burden?

  2. Just short Canada. Thanks for all that, Vancouver (and Toronto). They don’t call you ‘the dumb blonde of Canada’ for nothing. Someone needs to come up with a greedy metaphor now too.

  3. I guess you could short Genworth Financial, which is one of the largest private mortgage insurers in Canada. And now that the CMHC is hitting it’s $600B ceiling, Genworth is making a move to buy even more paper!

  4. BTW I know very little about the stock market, so the above is def not professional advice!

  5. Oops, that Genworth MI, not financial.

  6. Renters Revenge

    How do you short Vancouver real estate?
    Rent.

    • Exactly. If you are renting you don’t need to increase your upside risk by adding to your short. You have been paying long’s dividends for as many years as you have been renting.

      • Renting is not the same as having a short position in real estate.

      • I’ve been over this before but I’ll say it again, if you plan on ever buying in the city you are renting in you are short RE.

        You have sold short as soon as you are paying the long’s dividend in rent. Most here are renting and speculating they can buy back cheaper. It’s a 100% directional bet.

        Some have been short for years and if they were to capitulate now they would have to buy back higher (in many cases much higher) than when they originally went short.

        Everyone needs a bed to sleep in so at any time every adult not living with their parent is either long or short RE.

      • Renters Revenge

        Thanks blammo. Well said.

      • Anonymouse

        Blammo, you can say it as many times as you like – you’re still wrong. If you short something and the price increases, you gave to buy back that something at the elevated price. Your potential losses are unlimited. Renting is completely different because you stand to lose exactly zero.

      • It’s only technically a short ‘trade’ after the renter buys back. Otherwise, from when the renter sold to his/her death, it is only a short ‘position’.

  7. The intrade market for a Vancouver Teranet print below 121 before Dec 2013 (-28%) is quoted 3.5%-99.5%. You can buy that event happening for 99.5 cents on the dollar or sell it for 3.5 cents on the dollar. It’s not what you’d call a liquid market.

    http://www.intrade.com/v4/markets/contract/?contractId=734327

    • Great link Zerodown. I’m amazed so few people seem to be betting on this (either direction), though I couldn’t see any indication of “total shares outstanding”.

  8. Home Capital (HCG) is a pretty good short bet. They hold a lot of high risk loans, with about 80% of their business in Ontario. This one could be the epicenter of a collapse! In Vancouver, you could short Wall Financial (WFC) but it’s very tightly held so I doubt you could get stock to borrow?

    I’d go with Genworth and Home Capital

  9. Let’s see what the next few quarters bring for the market. It only shows that global uncertainty continues to persist. It will also be interesting to see how the Chinese real estate slowdown will affect Vancouver buying trends from China.

  10. theblackboxproject

    Before you short…. “Markets can remain irrational a lot longer than you and I can remain solvent.” – J.M. Keynes.

  11. Most of the people here who’ve been calling for a RE collapse since 2007 would have lost a fortune by trying to short the market. Remember it’s not enough to think that the market will go down – you have to be pretty precise with your timing, too.

    • Actually if you had shorted Genworth MI in 2007, you would have made a healthy profit. If you would have shorted Genworth Financial in 2007, you would have made a 600% return.

      • Easier said than done. Many of the traders I know did one the following:

        – went short way too soon
        – covered way too early and ended up being long again before the downturn really got underway; ended losing more than they originally had invested in the market to begin with
        – refused to believe that a bottom had been made in spring 2009 (albeit a bogus and very questionable man made one) and kept riding their short positions into the ground; some doubled/tripled down (you all know how that movie ended…)

        BTW, I wasn’t aware that Genworth MIC was actually trading as a separate co in 2007. That being said, it’s chart looks like a POS right now. Good luck getting your broker to enter that short sale for you.

      • That’s why I don’t trade stocks. I’m more of a long term fundamentals type investor, and don’t have the spare time to navigate those whip-saw markets.

      • Anonymouse

        Then buy stocks with solid fundamentals and hold them long term.

  12. While the last decade allowed the opportunity to create equity in real estate, the next decade will be less about increasing equity and far more about preservation of equity while the vast majority around you fall backwards.

    In ten years’ time, it will be those that were not over leveraged that will be the geniuses!

    Those who were over leveraged will be wiped out.

    Those who never got in will have lost little, but a decade of their lives.

    And those who preserved capital by getting out early enough (anywhere over the last few years), will step up as everybody falls around.

    You have to have the courage to buy, but also the courage to sell.

  13. Gartman is a complete a$$hat. You guys aren’t doing yourselves any favors by posting his useless drivel here.

    • This post is not an endorsement of Gartman generally (even though we do agree with him on this call, as stated).
      It’s of interest that a fairly high profile investment newsletter based in the USA is strongly bearish Vancouver RE.

      • I’ll add that zerohedge does the same thing, takes note of some things that Gartman says, existentially.

  14. The Chinese impact on real estate globally is phenomenal – most of SE Asia, London, NY, Australia, parts of Africa.

    I was in China recently – the RE there still has some legs (afterall it is about the greater fool and there are some still in the wings).

    Canada should, but won’t, import tighter guidelines for capital flow.

    Europe is pretty much toast for a decade or so, the US unfortunately has a dysfunctional political structure to fix its own economic house.

    China – who knows about the middle kingdom, every bubble has to pop. It took ages for the Japanese bubble to pop. Do you all remember how the Japanese were buying the world in the nineties?

    Plainly put, I don’t know where the world is going. I hope for the best.

    • I suspect bands of roving market makers with zillions in e-credit doing battle with the cash-only mercantile lords. Hopping to destinations or industry sectors, each trying to play pump and dump on the other while sucking local economies dry. Until the world is a labor camp for the uber-rich, or until workers walk away from debt-based consumerism and the fashion of self gratification.

      Expanding the pre-barter system, where credit is extended within communities as a component of the social fabric would be nice. Developing regional reputations for proper valuation, resource stewardship, and a disdain for opportunism would also help. But I’m not naive. Investment planning is like choosing steps to cross a river.

      Where I live there’s a lot of give and take, neighborly favors, and non-monetary transactions. This baffles academics and regulators because they’ve forgotten that credit originated as an act of familiarity between transacting parties.

  15. I think the Canadian arm of Genworth is MIC.TO.

    The problem, as always, is the timing.

    • yes. getting a short right can be such a satisfying climax. but, finding and getting into right positions is very far from trivial. fundamentals alone will not say with precision when a turn will come – critical. fat pitch in all the mess is on the long side. as long as it remains an option, there will just be money printing – for all that ails. multi ways to capture … pick what ‘suits you’. i look hard and don’t see a thing yet to persuade otherwise. have you seen any difficult choices made voluntarily? (i.e. aside from iceland and china … as foils) tell me, please … i would like to know (really) …

      ps. sir_nem and friends … some chicks sure can partay full gas …
      http://tinyurl.com/7tpge65
      oh behave …

  16. One might short emerging market equities (specifically China bank stocks) as Vancouver RE is highly positively correlated. If you rent in Vancouver, you could buy US or AB real estate as a long to spread against your short. Or one might just buy short term Cdn govt debt / sell BC govt debt then wait for the BoC to cut rates by 50 bips (just as the RBA has done to prop up Australia’s RE market) and Moody’s to downgrade BC. Or just don’t live there.

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