BNN Guest – “I know a lot of people say it can’t happen here. I do not believe that. You’re seeing sales down, you’re seeing listings up. It looks like Phoenix and Florida, circa 2006.”

“I can’t stress enough, when I look at the data, start with Vancouver, or look at the Toronto condo market, and it’s now spreading into the single family market elsewhere, you’re seeing sales down, you’re seeing listings up, to a degree, I haven’t seen, really.. it looks like Phoenix and Florida circa 2006. … I know a lot of people say it can’t happen here… I do not believe that.”
– from interview with James Hodgins, of Curvature Hedge Strategies, on Market Call, BNN, 27 Sep 2012 [Hat-tip to LazyCanadian at VCI.]

When a critical mass of people have said this on air and in print, does a bell ring?
– vreaa

35 responses to “BNN Guest – “I know a lot of people say it can’t happen here. I do not believe that. You’re seeing sales down, you’re seeing listings up. It looks like Phoenix and Florida, circa 2006.”

  1. I’ll say this.. I look at maybe once a week. I just did it now. Search for 3beds, 2 baths detached SFH 500K-1m – start in W Van. For the first time I can recall, there are actually 5-10 listings at these prices in W Van. N Van – I’d say 50++. East Van? won’t let you do the search – there are too many properties! Just try it and see…

  2. So buddy suggests shorting a company like MCAN (TSX:MKP), great idea but good luck for the retail trader on a low liquidity stock like this. I’d be interested in what other CDN mortgage related stocks folks think are worthy of (and easy to) short?

    • Just to clarify: this post is not headlined as an endorsement of this gentleman’s investment strategy, but rather as another of many recent examples of very bearish RE opinion being openly broadcast.

    • Regarding our recent discussion of ‘cash’ as an investment option:

      “He thinks of cash differently than conventional investors. This is one of the most important things I learned from him: the optionality of cash. He thinks of cash as a call option with no expiration date, an option on every asset class, with no strike price.”
      – from ‘For Warren Buffett, the cash option is priceless’, G&M, 25 Sep 2012

      • not quite … cash expires continuously at a rate determined by uncle ben and with volatility … aside: the warren used to be an investor, but has since become another crony feeding at the bailout trough … in exchange for such favors, he performs on occasional tax-me-i’m-rich tours to gauge the public appetite for higher direct taxation

      • Buffett likes keeping a lot of cash on hand so that he can make opportune purchases. But in terms of its virtue as a long-term investment class, he is the first to advise against it.

      • El Ninja -> Sure. Options are not long term investments.

      • Fine, vreaa. Options are not long-term investments. But nor is cash an option. Buffett describes it as such only to make a point.

      • Cash is a way of waiting to take advantage of asset price weakness and opportunities. (That’s the way I interpreted Buffett’s ‘option’ idea).
        I do understand your ongoing point. There are always ways of doing better than the interest rates that cash provides (always) but that requires investor skill. And the average investor only has average skill and thus tends to get steamrolled by the markets.
        If you are an average investor, and you want to take advantage of RE price devaluation in say, one or two or three years, what is your best investment instrument until then? If you opt for being long stocks, your stocks may well devalue with RE at precisely the time you need to make a purchase. (That happened in 2008, BTW; not to say we’re expecting a rerun of 2008).

      • “Holding cash” in effect means someone else (probably the bank) is using it for something else, one hopes for a better return.

        The government really wants us to start investing.

      • Yes you can view cash as an option, just as I can view an airplane ticket as an option, but it’s not a free option. I think he’s talking more about liquidity and timing, though I’ll re-read it. Sage advice from a guy who I can never hope to replicate!

      • vreaa: agree entirely that cash is the best instrument to hold if you foresee near-term or even medium-term buying opportunities. Where perhaps we differ is in regards to the average investor’s ability to outperform cash over the long haul. You seem to be suggesting, at least implicitly, that the average, unskilled investor should keep their long-term savings in cash. Or maybe I’ve misunderstood?

        I agree that the average person should not be making active investment decisions. i.e. they should not be dancing in and out of the market, shifting around their capital, “playing” the stock market, etc; They will inevitably get burned. But it doesn’t follow that cash is the best long-term choice for such people. There is an alternative for unskilled investors: index funds. Steadily investing in a diversified index fund (which, by the way, Buffett advocates for the average investor), requires zero skill and, over the long-term has done much better than cash.

        You mention that the average investor should hold cash if they foresee a decline in RE prices. There are two conflicts inherent in your example. First, if the average investor is unskilled (agree), how are they to foresee a devaluation in RE? I think you’ll agree that the coming crash, and the reasons for which it will likely occur, are beyond most people (hence bubble formation in the first place). Second, if the average investor should avoid the markets in general, what business to they have speculating on price declines in RE?

      • v, for avg investor waiting out devaluation, cash is best and probably because it hedges volatility … but they need to realize it comes with non-trivial bernanke risk … they should probably seek out non-looney advice from manager(s) that have understood this for a while … there are more of these people now but want to get one of them before fashionability makes it harder to tell the good from the bad

      • Everyone keeps throwing out “average investor”; what is your opinion of average investor? I’ve managed my own investments actively for 7 years now through discount brokerages (initially TD but then went to BMO because they offer trailing stops). I am levered and have traded options on occasion but usually to cover a short position. BTW, I hate mutual funds as there are way too many hands in the pot and see full service as a waste. If I did want to put my investments on autopilot, I would only trust an advisor that is paid a commission on my net annual gains.

      • The Poster Formerly Known As Anonymous

        @ El-Ninja:

        Lol @ Bernanke-risk. I agree, it is what keeps me awake at night and ~ 7% in Gold.

        @El Ninja: Index funds HAVE performed fantastically over the past 20 years due to low MER. However, A bit like Vancouver real estate, I can’t see the next 20 years matching the gains of the past 20, Bernanke-risk being the only caveat. Looking at Japanese and NASDAQ bear markets, right now buy and hold for index funds seems a bad idea for the average investor.

      • The Poster Formerly Known As Anonymous

        first part was @ chubster, sorry.

    • Genworth (MIC on the tsx). They provide mortgage insurance, similar to CMHC, for low downpayment mortgages. You can’t short CMHC, so this is the next best thing.

    • I am holding HXD, 2x inverse tsx 60 as a hedge . There are other that are just Canadian financials too. I figure Cmhc will take care of the banks so they won’t go down too much .

      • Ralph Cramdown

        Why don’t you short HXU instead? That way you get to collect the MER like a boss.

      • tsx 60 contains gold miners, does it not? I wouldn’t want to be shorting anything that’s got gold in it right now.

      • “I wouldn’t want to be shorting anything that’s got gold in it right now”

        amen to that.

        The TSX60 only contains ~35% financial, and has nearly 20% in materials (gold, silver and potash). I’m not sure why anyone would want to short that particular index.

        If you want to short banks, why not just short banks?

  3. “It can’t happen here.”

    The most conslusive evidence one could ask for that an event will soon come to pass.

    • Agreed.
      However, this kind of contrarian thinking, to which we too ascribe, has been wrong for Vancouver for the last half-decade or more. If you read back in this chronology of stories, you’ll see that locals have been claiming “it can’t happen here” for years and years!

    • My favourites also include:

      “Sales are down but prices are holding up, we don’t really know which way things will go from here.”

      “Prices are down in the US / that other province / city / borough / neighbourhood / street / side of the street / block / the place my neighbour just sold, but this place is holding its value.”

  4. Another version of sub-prime…I was wondering why RE sales were up in the states:

  5. if you like poring over details of how lending rates and standards have messed up the local housing markets … well really, the whole damn world is similarly all messed up … where we’re headed, the high cost of local housing isn’t going as big a deal … the why in one picture … … the most important rate in world … almost everything financed is in some way chained to it … forget carney, uncle ben is everyone’s daddy … so, if you’re somehow dependent upon that < 2% holding, stay calm, stay rational but think lehman, think greece, think spain, think gradually then suddenly … the dominoes will keep falling and one needs a plan

    if you're into like checking out the RE price stats every month, keep an eye on this monthly too … … a good gauge of potential for civil unrest and violence … above 210 mark means trouble

    v, what a great place to see what people in town with a brain are on about. dr.y, your cooking is how it should be, just a little spice goes a long way. mom, why don't you just say something? you know my sense of taste is long gone. sir_nem, apologies bud. one gets flaky looking at young faces and reflecting too long on uncle ben's instant arsenic rice (check up on that btw) – just a measure of how much hope is still left inside … try for forced shutdown again … ciao-out …

    • [NoteToChub: Never forget why we’re here… Or why we were chosen. “ChinUp! A GoodOfficer Remains Cheerful In The Face Of Adversity.” If that doesn’t do it, ‘OlChub – I have a great souvenir shot of Michele P. “Nu!” that I could have IllustriousEd forward to you. Just a thought.]

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s