A New Low for the Bullish Propaganda Mill

A reader sent the following article in last weekend. This has been mocked elsewhere, but I couldn’t resist taking my own shots, as this is without doubt the most inept attempt at real estate cheerleading that I’ve seen to date:

CONTRARY TO POPULAR BELIEF…IT PAYS TO BE A CONTRARIAN.

Sir John Templeton was known as the “Dean of Investing”, and he was a classic contrarian. Mr. Templeton said to buy when things looked most pessimistic and sell when the masses felt most optimistic – and his attitude paid off. He began his Wall Street career in 1937, created many of the world’s largest and most successful international investment funds, and is now a full time philanthropist at age 92.

Some recent examples – stocks were on fire in 2000 and almost everyone was buying, but the market went the opposite direction from the herd. And now over the past four years the media has warned of a housing bubble, but home prices have done very well across the country; rewarding those who bought. With Housing Starts numbers coming out with a bang this past week and the report being higher than expected, it is a clear indication that the demand for housing is still strong. So, what about all this housing bubble hype?

Well, if Joe Kennedy – father of former President John F. Kennedy – were still alive, it is pretty clear that he would agree and say that the hype is clearly just that, hype. If we could ask this legendary contrarian and one of the most successful businessmen in history what he would do given the current Housing Starts number and all the bubble hype being published by the media, Mr. Kennedy would probably run…not walk…but run to a local real estate office and invest in real estate.

Let’s take a look at why Mr. Kennedy would probably feel so strongly about purchasing a home. Joe Kennedy attended Harvard College and became a highly successful entrepreneur with an eye for value. He multiplied his fortune through stock speculation and did so by investing with a very contrarian mindset. In the early to mid 1920’s the majority of the population was reluctant to invest in the stock market. However, Mr. Kennedy became an expert in dealing with a stock market that was unregulated and even opened his own investment company during the bull market of the 1920’s. Joe clearly saw an opportunity and with his keen eye for value, invested in the stock market. By being smart, going against the grain of the majority, and not buying into fear, he bought with confidence and made millions by doing so.

But one day, his local shoeshine boy gave him a tip on a stock to buy. Mr. Kennedy immediately cashed out his multi-million dollar gains and got out of the market. He realized that if the market were so oversaturated that even the shoeshine boys were giving out stock tips, it was time to get out. And that’s exactly what he did, just months before the stock market crash in 1929. Looking back, Mr. Kennedy based his investments on facts and statistics, not on fear and hype.

And when the housing bubble hype began four years ago, many individuals refused to base their decisions on hype…and have seen sizeable gains with their real estate investments. On the other hand, those who put off purchasing real estate based on the fear induced by the media most probably regret their decision. If you have been putting off the purchase of your dream home, don’t base your decision on fear and hype, meet with your trusted mortgage professional and get the facts about your local real estate market.

Oh, where do I begin. Let’s start with Templeton. It’s true that he is an extremely successful multi-decade investor. Unfortunately for the author of this gem, anyone with a clue about Templeton knows that he has frequently gone on record as saying that US housing is at great risk for a serious decline. As far back as 2003 Sir John was saying things like, "When home prices do start down, they will fall remarkably far."

After his first completely failed attempt at propping up his premise by invoking an investing great, the author tries again. This time he repeats the apocryphal tale of Joe Kennedy’s exodus from the 1929 stock market upon realizing that even his shoeshine boy was giving stock tips. There aren’t many shine boys any more, but I can’t tell you how many service industry people have excitedly told me about their real estate investing efforts. Nor can I go to a party without someone talking about their housing gains. Nor, when I went to Barnes and Noble today, was I able to browse the economics books in peace without being jostled by the hordes in front of the "Real Estate" bookshelf which hadn’t even existed a couple years ago.

The author’s failure to equate the 1929 shine boy’s stock tip with the modern-day hair stylist’s burgeoning career as a real estate agent is ridiculous. His attempt to liken the shine boy to those few who actually think that housing is poised to fall is even moreso.

I fully agree that, over the long haul, it pays to be a contrarian. But it’s clear that the author has no idea what it means to be a contrarian. Contrarians buy assets on the cheap. They wait until assets are unpopular, underowned, and underpriced. Given that real estate valuations have long since smashed through record highs, and that home ownership and real estate industry employment have never been higher, it is absolutely laughable to make a contrarian case for buying real estate. Just because pockets of people are starting to realize that there is a housing bubble does not render housing undervalued. Far from it, as a matter of fact: it means that the bubble is finally coming to an end.

Some day, the entire country will laugh in scorn at this article all the other tripe cranked out by the permabull press. As a contrarian investor, I’m going to get in early and start scorning it now.