$100 million bet for Grantham
- Thread starter oracle
- Start date
I wonder why Joye only suggested the next 3 years.
Why not the next 15 years?
Why not the next 15 years?
If during the next 15 years prices go up 200% but than fall 42%, who is right?
Cheers,
Oracle.
It's a loaded offer to Grantham. Going short is always risky because inflation boosts dollar valuations and profits boost company shares so you should only approach going short if you have control of the timing.
15 years without inflation adjustments would be madness.
But why this infatuation with a 40% fall? 10 years with a 20 - 30% gross cap gain would destroy the -ve geared property investors.
BTW The Yanks are coming to Townsville. Anyone got prop here? Seechange did.
15 years without inflation adjustments would be madness.
But why this infatuation with a 40% fall? 10 years with a 20 - 30% gross cap gain would destroy the -ve geared property investors.
BTW The Yanks are coming to Townsville. Anyone got prop here? Seechange did.
Grantham's 42% is derived from overpricing re income multiples.
"In Australia’s case, the timing and speed of the decline is very uncertain, but the outcome is inevitable. For example, the average buyer in Sydney has to pay at least 7.5 times income for the average house, and estimates range as high as 9 times."
I presume by income, he means average wage.
I think Joye has interpreted it as household income.
Anyway, would be easy to express the short bet as the price of housing falling back to 3.5 times average wage, or if Joye chooses, 3.5 times household income.
BTW The Yanks are coming to Townsville. Anyone got prop here? Seechange did.
What do u mean by this? The Yank Navy, army?
effect on property prices?
Probably Gates and Clinton jawboning to communicate a message to China.
though I have no doubt the US will scale back its presence in Europe and increase it in Asia.
so the whole of australia is ONE market.
good. i look forward to sydney and perth finally correlating.
good. i look forward to sydney and perth finally correlating.
Hilliary and Joolia are talking about it today. We'll know more later in the week I suppose.
Our banks' foreign creditors and fx traders think so.
One's ears have to ***** (prck) up when Chris Joye says he is bearish.
Looking ahead, we are relatively bearish over the next circa 12 months on capital growth, and think that if the RBA does raise the target cash rate in line with the consensus economist estimate of 5.5 per cent, Australian dwelling prices will be placed under modest downward pressure.
maybe Chris needs to use more rate sensitive Brisbane medians as a leading indicator for the national outlook.
Looking ahead, we are relatively bearish over the next circa 12 months on capital growth, and think that if the RBA does raise the target cash rate in line with the consensus economist estimate of 5.5 per cent, Australian dwelling prices will be placed under modest downward pressure.
maybe Chris needs to use more rate sensitive Brisbane medians as a leading indicator for the national outlook.
I think 3 years is a reasonable time if you believe you have summed up the current market situation.
For eg. if you had to go either long or short on the US housing market the probabilities of making more money is by going long rather than short over the next 3 years. As there might not be too much downside left (if any) to the US housing market.
Therefore, if Grantham is confident that current market is overvalued and is bound for a correction. I think 3 years is sufficient to prove his point.
(PS: I believe if the GFC didn't trigger a massive house price correction, it is a testament that our housing market is not overly overvalued as some people make us believe.)
Cheers,
Oracle.
Grantham also said
"In Australia’s case, the timing and speed of the decline is very uncertain, but the outcome is inevitable."
Isn't that a meaningless argument?
He is quoted in the article as investment legend and GMO manages $104 billion funds. If he wants to be taken by others more seriously he needs to put his money where his mouth is. It certainly doesn't help anyone by making such extreme predictions without putting some form of timeline IMHO.
Cheers,
Oracle.
I don't agree. I think larger macroeconomic issues are very hard to time, especially when govts intervene, especially those of larger economies. Where would the USD and global stock markets be today without the US's QE2? Would the RBA have delivered a rate rise if the US did not intend to do QE2? How much are Australia's house prices tied to China's economic management?
Many have expressed concern about deregulation of the Australian banking system, its ever growing reliance on foreign credit, what is a healthy sustainable level of foreign credit reliance, a two speed economy, and our exposure to external shock. But try and time external shock. And be aware our foreign creditors will be trying to time it earlier than Mum and Pop property investors.
I would suggest it's likely that he already is putting his money where his mouth is and likely in a much more profitable way than the $1m per 1% change that Joye has suggested. Of course that's just speculation on my behalf, but I just find it laughable that Joye has challenged him in this way.
For a country that has no property bubble there are certainly a lot of interested parties going out of their way to prove that there isn't (e.g. Westpac and CBA's recent reports as well as Joye).
I find it amusing that Joye finds comfort in other interested parties confirming his 4.6x income ratio is accurate, but fails to mention than in real terms this is much higher than it was only 20 years ago (when it was under 3x).
actually there is no need to 'put his money where his mouth is' immediately.
These guys runs hedge funds, so they are constantly looking for long/short opportunities.
My bet is that he and other hedge funds have their beady little eyes all over this. They are just waiting for the opportunity to strike. They are drawing up their 'strategic shorts' in advance ready to put in motion at the right time.
However they wont just be targeting housing directly, they will be going for the liquid peripheral plays. Off the top of my head (and just as an 'outsider', so this is just speculation) i would suggest shorting the AU$, shorting the banks, and going long AU bonds.
The degree to which this occurs will depend on the movement in property prices.
If its just a slow trickle down, then 'seed' money will be placed but nothing serious in the scheme of things.
However if the decline in property becomes more pronounced, then expect the big cannons to be wheeled out and fired.
This second scenario worries me as Australia is just a 'small island in a sea of liquidty'.
One thing is for sure, when fear arrives in Australia (no mention of timing), these guys will be at the party, shorting for all they are worth in the pursuit of 'price discovery'.
The bet simply can't work as some have pointed out...
I was looking at trailing P / E multiples today and noted that even though share prices for some cos have returned to levels they were pre-GFC (ie breakeven), they were in fact trading on lower multiples (due to forecast earnings having increased).
Thus at any two points in time, the fact that prices are the same doesn't mean it hasn't 'fallen' or reverted back to average or median yield or price to income ratios. In other words, $5000 in 1890 might be more overpriced than $1,000,000 now and therefore property has 'corrected' over the last 120 years. But does that mean Grantham will still lose gazillions of dollars because the property appreciated?
I was looking at trailing P / E multiples today and noted that even though share prices for some cos have returned to levels they were pre-GFC (ie breakeven), they were in fact trading on lower multiples (due to forecast earnings having increased).
Thus at any two points in time, the fact that prices are the same doesn't mean it hasn't 'fallen' or reverted back to average or median yield or price to income ratios. In other words, $5000 in 1890 might be more overpriced than $1,000,000 now and therefore property has 'corrected' over the last 120 years. But does that mean Grantham will still lose gazillions of dollars because the property appreciated?
Great post IV.
The reality is that house prices could be sustained at today's prices (if rates remain sensible), but it's likely if prices do start to fall that fear will take over and prices will be driven lower than the majority expect. As it is 1 in 4 investors sell within 12 months and at least half within 5 years. This number will increase if investors lose confidence in a continued return from property. Not everyone is prepared to buy and hold property with a 20 year outlook like some on the forum seem happy to do...
Stock on market is already starting to increase.
Question that remains is: how is the government going to intervene this time and will it be effective?
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