Sunday, October 20, 2013

Christopher Joye First Rejected & Now Embraces International Fund Manager Housing Bubble Views

Only 3 short years ago Christopher Joye was quick to reject the claims of international fund managers who sought to point out the bubble in Australian property. He went so far as proposing a $100m bet to Jeremy Grantham (who never acknowledged the bet publicly) that house prices wouldn't fall over a 3 year period, a bet that he profusely tried to twist the conditions of in followup articles (as it appeared likely at the time he would end up on the losing end of the unaccepted bet).

There is a summary of events in an article I wrote earlier this year:

Today it appears (there are still 2 weeks until the end date, November 5th), had the bet been placed, Grantham would have lost several million dollars as a result of house prices increasing strongly since the last recap in April when Grantham was still $1.4 million in the black (chart via MacroBusiness):

While Joye was quick to refute the views of international fund managers on Australia's housing bubble a few years ago, today he appears to be embracing views from the very same, this from an article published on the AFR yesterday:
Australia’s biggest international fund manager believes Treasurer Joe Hockey should be taking the possibility of a housing bubble more seriously and worries money-printing by central banks is creating asset bubbles.

Matthew McLennan, who manages $80 billion of assets in New York for First Eagle Investment Management, revealed to AFR Weekend he won’t invest in Australian banks because they are too risky and is concerned about the levels of private sector debt in Australia...

...Mr McLennan, whose father worked as a land surveyor, responded that he could not fathom “why people felt the need to say a market is not in a ­bubble” given the high relative property prices.

“I don’t think that’s a prudent approach when you see large levels of leverage and fairly low rental yields,” he said. “I don’t know what the upside is in talking down legitimate risks.”

Mr McLennan said he thought ­Australian house prices were “on the full side of fair value in a situation where the marginal buyer is already quite levered”. Australia’s house price-to-income ratio is less than 10 per cent below its all-time peak.
While Joye appears only to be regurgitating quotes from McLennan in this article, rather than directly endorsing/agreeing with all that is said, a recent slew of articles from Joye on a bubble or potential bubble in Australian property appear to show an interesting change of heart:

September 11: Why we should be worried about Australia’s housing market
September 20: Only fools ignore bubble trouble
September 25: RBA sees writing on wall for housing market risks

And this tweet from earlier in September also suggests a shift:
In 2010 (national) home prices were roughly around where they are today, incomes were lower and interest rates higher, indicating a lower level of affordability then than now, so why has Joye changed his mind on the Australian housing bubble? I would love to see an article from Joye rationalizing his position from 3 years ago relative to the view he is expressing today. Does he have a financial or career related interest in molding the national debate differently today compared with a few years ago or has he simply realised the error of his ways? 

Your views welcome in the comment section below.

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  1. It's a good question BB.

    In one of his articles he rationalised his support for house prices during the GFC and in the years following, saying that he knew residential property would be the beneficiary of govt stimulus. Assuming its not just an act of talking his book in some way, perhaps he thinks govt stimulus wont be enough this time? Or maybe he thinks the govt will try to stimulate - whenever the next crisis hits - but they don't quite have the ammo?

    Like you, I'd welcome an explanation from Joye himself rather than playing guessing games.

  2. You're right, an explanation from Joye would be preferable. I will email him and see if he would care to respond.