Tuesday, January 22, 2008

Bob Rennie is a (very well) Paid Shill

I heard a panel of financial market analysts on CKNW this morning comprised of Michael Campbell, Michael Levy, Helmut Pastrick and Bob Rennie. I am amazed every time I hear the silver tongued Bob Rennie open up his mouth. I believe that Bob actually believes the crap he says about Vancouver being able to weather the financial storms that are hurtling around the world right now and that our economy is an invincible fortress built upon ever increasing real estate wealth.

At times, during the few minutes I could tolerate, it seemed as if the 3 actual financial industry players were about to say - "What is this guy doing here?" After all Bob Rennie is a marketer, not an economist. He wouldn't know a price/rent ratio if it hit his Rolls Royce on the hood.

Bob, after being lobbed softball questions by host Bill Good, spouted the usual nonsense about the Vancouver Olympics, world class city, blah, blah, blah. Are you nucking futs? Blind? Deaf?

Rant off.

21 comments:

freako said...

Well in times of uncertainty, we hearing what we want to hear soothes us. Not a very smart way of dealing with things, but most have believed this stuff for so long, and have so much on the line that Rennie's nonsense is music to our ears.

As for Pastrick, he is a notch above Rennie in the analysis department, but he extrapolates way too much. Usually something like "low rates, strong economy" will keep RE appreciating at double digits. I don't see any acknowledgement of relative value in his statement. Rather he sees low rates as a gas pedal. If it is down (low rates) prices will go up, sure as a car accelerates.

mohican said...

It is just unbelievable really that people consider real estate as a safe investment right now.

The branch I work in had someone come in this morning who, because of recent market action, wanted to stop contributing to a RRSP account in order to save money for a rental property - since real estate is gauranteed!?! At the current savings rate, it will take this person over 50 years to save up a 20% down payment for a piece of junk $650k 4 bdrm box in Langley.

freako said...

in order to save money for a rental property - since real estate is gauranteed!?!

1. As I mentioned somewhere, I wouldn't be surprised if some in the real estate industry will seize on stock market volatility and make a case that RE is a better investment.

2. People are very bad at generalizing properly. They didn't come out of the tech debacle wary of bubbles. They came out wary of stocks. What they have to grasp is that it is not that a particular asset class is subject to bubbles. ANY asset can develop into a bubble. And that happens when the price of the asset grows faster than the fundamentals can support. They rising prices as validation of their choice, not as prices running away from fundamentals.

After this is done, people will be wary of real estate bubbles for a generation or so. But other than that, they will jump on the next bubble, be it gold or whatever.

Dignan said...

Mohican,

Have you seen any tightening in lending standards at your branch? I'm still in shock when I hear that banks are still giving money away. I guess it's the fear of competition and loss of business that keeps banks lending.

Warren said...

I also listened to that crap on NW today. Bill Good loves Rennie like a fat kid loves smarties.

I can't believe they had the gall to suggest people invest in real estate as a more stable investment than the market. Rennie defended our housing market as not being infected by the same poison that caused the US housing slump (debateable, but untrue).

Somebody questioned Rennie on specuvestors buying 3-4 condos in a new building, and Rennie pointed to the lack of rental vacancies, meaning that these people would be able to rent out their new condos.. and on and on.

The problem is all of these ideas sound fine, but not when you get into the numbers behind them. The triangle of wages, rents and RE prices is skewed.. guess which way.

mohican said...

freako -

1. Done - I heard Rennie this morning - this was his premise for continued appreciation in Vancouver.

2. People have poor math skills and very poor critical thinking skills and this combination is deadly when it comes to assessing risk in any market or investment.

dignan - no tightening around here as far as required credit scores or downpayments are concerned. However, the discount off of the posted rate is much much less than a few months ago and fewer people are qualifying because they don't have enough income to support the payments.

I see appraisal fraud and other mortgage fraud in abundance on mortgage broker deals. The business that the branch staff do is pretty solid from a risk metric point of view aside from the no-downpayment issue.

johnnyrent said...

Rennie's continued success is in large measure a result of the old adage: "no one ever went broke by underestimating the intelligence of the average consumer"

Also, if you say something often enough (Olympics, running out of land, low rates, World Class, we're different, they can rent, ad nauseum) the great unwashed will believe it.

jesse said...

Pastrick was on CBC this morning and touted how high commodity prices and a construction boom will help isolate Vancouver (not the rest of BC though) from the full brunt of a recession. The SFU business professor Lindsay Meredith is also quoted saying basically the same thing.

I agree with freako that Pastrick using existing conditions as a baseline is poor logic. The "Vancouver's terds smell like roses" argument is arrogant and unsupported by history. There is significant government spending going on and provincial debt is paying for it, excatly the same as before, just it is accounted for differently so it looks benign. High commodity (errr metal) prices and high government spending on construction are eerily similar to conditions just before previous province-wide recessions.

johnnyrent said...

How can anyone who calls him or herself an economist say that "high commodity prices" will shield BC from a downturn.

Forest products are still our largest export (40%) and lumber prices are not only in the tank, but swimming towards the bottom of that tank. Jock Findlyson, a real economist, reviewed all the gory details about our forest products sector just today in a Sun editorial.

Aleks said...

It reminds me of the people who said that the stock market wouldn't fall because even though it's been on a tear, P/Es were still good. Not mentioning that profits were way higher than normal because everybody'd been on a tear, or that profits could decline. If the housing market starts to tumble, Olympic construction could be the only thing Vancouver has left. And that only lasts two more years.

condohype said...

"Somebody questioned Rennie on specuvestors buying 3-4 condos in a new building, and Rennie pointed to the lack of rental vacancies, meaning that these people would be able to rent out their new condos..."

There is no lack of rental vacancies when it comes to new condos. If you're looking to rent downtown, there's tons of choice. Overpriced choice, but tons of it nonetheless.

patriotz said...

I guess it's the fear of competition and loss of business that keeps banks lending.

How about the CMHC insurance? They can't lose.

As for Rennie, I have a lot more respect for him than the other people he appeared with. The guy is a professional tout, pure and simple. The others are people with economic training who have decided to work as touts. As least with Rennie, what you see is what you get.

As for business schools, it seems to me they have sold out entirely and can't be relied on to give an objective analysis of anything, beyond just collecting statistics a la UBC. You will still occasionally get a tenured prof in an economics department willing to point out that the emperor is walking naked.

But frankly I think that's really the whole problem with this era, which I will call the Reagan era because it really started with him shilling for the tobacco industry way back when, because it seems that just about everyone, from the media to "academics", are just spouting lines that they are paid to say.

Livingsword said...

LOL

I heard the same interview and as per usual the two Michaels were solid and clearly not on Fantasy Island… It seems to me that Mr. Rennie was doing a bit of a sales job during the interview…

patriotz said...

Did the "two Michaels" say that Vancouver RE is as over-valued as anywhere in the US and headed for the same correction?

Because if they didn't, they were about as solid as Northern Rock.

Clarke said...

Sam Clements noted that history may not repeat itself, but it sure can rhyme.....At the start of the 1929 crash, and indeed even well into the depression, it was easy to find most prominent economists and business leaders that were either in complete denial, or very ready to fall back on the standard line that "the economic fundamentals are sound." This is rarely backed up with anything, or if it is, the evidence provided is often pretty flimsy.


This is the line now being touted in the US, and even here quite regularly. Whenever you hear this, you should probably get sceptical, as it is comparable to sayings such as "we are in a new paradigm" or "this is different than everywhere else".

The local RE bubble, like our vulnerability to a US economic downturn was not too hard to detect with a little bit of base knowledge and some analysis. The media have categorically failed to do this, with most content being cheerleading. Most expert commentators are more than happy to volunteer to help in the cheerleading....

freako said...

The media have categorically failed to do this, with most content being cheerleading. Most expert commentators are more than happy to volunteer to help in the cheerleading....

Locally we have several boosters getting airtime. I can see why Rennie, the builders, the realtors (Muir) are bullish, they have a special interest. I do not see why CMHC is constantly bullish, they sound no different than the other special interests. Then we have the "critics" such as Campbell and Levy who get a lot of media play. They appear to go the neutral route, though they certainly don't behave like "critics". Better for your career perhaps. But what really bothers me is when guys like UBC's Sommerville also plays it safe. He KNOWS what will happen, yet he never even hints at it. We don't have a SINGLE high profile RE critic locally.

As for 1929, yes there are hundreds of quotes available from important bankers, economists and politicans who all expected the markets to go higher and higher. In retrospect the situation was very obvious. I have a soft spot for Roger Babson, who called it as he saw it. In fact his statements sunk the markets, the Babson Break, which unnerved the market.

aetakeo said...

I am glad I found the housing bubble blogs, because I am not and have never been an economist. I am a computer tech. Before I found housing blogs, I would find myself shaking my head and gritting my teeth and muttering darkly at the radio, because the math didn't make sense to me. The moment I started feeling this generalized pressure to BUY OR BE PRICED OUT FOREVER, my own questions started. I mean, economy is an interlinked beast, relative to itself.

And the whole "unemployment low, therefore 1.2 million dollar teardowns" argument made zilch sense.

aetakeo said...

Freako - what do you think is up with Summerville? Why do you think he knows what will happen? I have never been able to figure what's going on there. They have answers, but to none of the questions the bears have been asking.

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misanthropic curmudgeon said...

mohican:
excellent post!
i emailed our uber realtor the article and asked for her comments...
i can be such a mean cs'er at times
but the article encapsulated my thinking quite well and the charts were exquisite....

walked past the "O" clock at the Art Gallery.... 751 days to go

read somewhere that 9000+ units were coming onto the market by then.... holy crap batman!

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