Wednesday, February 29, 2012

Christopher Joye Manipulates $100M Bet Conditions

You may recall that a little over 12 months ago Christopher Joye proposed a bet with legendary fund manager Jeremy Grantham after Grantham spoke of the bubble in Australian property. I covered it on the blog here.

The conditions of the bet as explained in articles covering the bet (including the one posted on Joye's blog) was that the rise or fall would be based on the Australian Capital City Dwelling Price Index:
He challenged Mr Grantham to bet the $100m over a three-year term, basing the outcome of the bet on movements in the RP Data-Rismark Australian Capital Cities Dwelling Price Index.
For every 1 per cent rise in the index, Mr Grantham would pay $1m, Mr Joye said. But for every 1 per cent decline in the index, Mr Grantham would receive $1m. The Australian
16 months on and this index is down around 5%. The conditions of the bet would have cost the counterparty Joye was going to find around $5 million (so far, likely another $5-10 million by the end of the 3 year term). 

Rather than concede it would have been a losing bet for his mysterious counterparties and a cool $5 million for Grantham, Joye is now (posted today) claiming that the counterparty would have chosen an index which included rents:
How would Grantham have fared had he backed his own rhetoric? The indices that RP Data and Rismark produce for trading purposes are “total return” benchmarks, much like the ASX All Ordinaries Accumulation index, which tracks changes in capital values and dividends.
Since the end of October 2010, when we first outlined this idea, RP Data-Rismark’s capital city accumulation index has risen by about 0.2%.
So using this benchmark, which is the most likely index that a counterparty would wish to trade against (given they’d be expecting the capital gains and rental income realized from Aussie housing), Grantham would be down around $200,000. Call it evens.
If, on the other hand, he wanted to use the RP Data-Rismark index that follows changes in capital values, Grantham would be up about 5% assuming we could have found a counterparty willing to ignore incomes (or rents).  Property Observer
The RP Data-Rismark’s capital city accumulation index?

I posted about it previously on this blog when it was introduced to the public RP Data press releases almost 12 months after the initial bet was proposed (the accumulation index was available previously to RP Data subscribers).

Christopher Joye is then so cheeky as to suggest that Grantham could still take up the bet if he so wished.
Nevertheless, in the event that Grantham still believes shorting Aussie housing is one of the best investments of all time, we would love to hear from him…
I'm sure Grantham would know better than to take a bet from someone who is prepared to manipulate the bet conditions in this way to favour their outcome (in reality or perceived).

The sad reality for most Australians who have bought an investment property in the last couple of years (gone long) is that the rents don't cover their interest and other property outgoings so they are being drained in two ways, through cash out of their pocket just to hold the property and through the erosion of equity (or fall into negative equity) as house prices fall.

I don't need to short property. I rent to avoid the price risk and invest in assets which are appreciating faster than property prices are falling.


[UPDATE 01/03/2012: Morning After Above Post]


Christopher Joye posted late last night about a "Punk Blogger" who got his facts wrong:


I updated the original post to include the information (that the accumulation index precedes it's addition to the public RP Data press releases), I got it wrong apparently. No problems taking that on the chin here (unlike Joye who seems unable to admit he is wrong on anything). In my defense the RP Data release does make it sound like a new index (this from the September 30th release):

"This month RP Data-Rismark will commence publishing a “total return” series, which was always available in the underlying data as an “accumulation index” (the ASX also publishes accumulation indices that include dividends)."

I have to wonder whether the user who commented on the blog last night "Johnny" pointing out the same is in fact Christopher Joye himself?!

Regardless the issue does not detract from the fact that Joye's proposed bet has been manipulated so that he can "call it evens" when clearly the bet would be millions in Grantham's favour.

I will wear my new description like a badge of honour.

Punk Blogger signing out.


BB.

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12 comments:

  1. Did you honestly expect anything different hobo? tsk tsk, I thought you knew better.....

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  2. Actually this is wrong. RP Data and Rismark have been publishing a total return index for years for subscribers. They just started including it in press releases a while ago.

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  3. @euphoria, I must admit it was no surprise.

    @johnny, Thanks for the info, the RP Data release (September 30th, 2011) reads:

    "This month RP Data-Rismark will commence publishing a “total return” series, which was always available in the underlying data as an “accumulation index” (the ASX also publishes accumulation indices that include dividends)."

    Regardless the bet as originally stated on Christopher Joye's blog was to be based on the RP Data-Rismark Australian Capital Cities Dwelling Price Index not the RP Data-Rismark’s capital city accumulation index.

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  4. Well, do ya, punk? (C.Eastwood et al, 1971)

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  5. Trouble in paradise? Mr Joye claims to be chums with Malcolm Turnbull, yet It seems Alex Turnbull, son of Malcolm Turnbull, endorses your blog. See his tweet.

    https://twitter.com/#!/search/realtime/%40cjoye%20collateral

    "If i had this bet w @cjoye id have some collateral / margining terms too."

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  6. I think you'd be hard pressed to find even one of Christopher Joye's mates that would agree with the way he has now framed this bet. The counterparty would clearly have been the loser in the setup, but Joye is trying to manipulate a different outlook... not going to work, we can all see through his ridiculous games!

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  7. Grantham's comments were in regards to property prices, surely he would have chosen an Index that reflected the movements in property prices not one that included the poor yields which are below the risk free rate.

    Joye certainly has a great imagination.

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  8. Joye's the master of pub arguments and fcuk all else.

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  9. Joye is too "hedonic" if you know what I mean, at least CoreLogic's US experience seems to have put a gag ball in Tim Lawless's hopelessly romantic optimisim since "owning" RPData.

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  10. I posted at the time on bubblepedia a comment more or less "why would anyone bet Joye on an index controlled by Joye".

    Now that Choice has warned consumers about his mortgage product,.......I am really worried about his asx daily housing index.

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  11. This comment has been removed by a blog administrator.

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  12. Sorry Snowcrazed, but I have to draw the line and remove the content of your post, no need for name calling. Feel free to repost something that's a little less personal :)

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