A New Low for the Bullish Propaganda Mill

Submitted by Rich Toscano on February 24, 2006 - 7:20pm

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.
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Submitted by powayseller on February 24, 2006 - 8:13pm.

The author makes several false assertions:
1. "And now over the past four years the media has warned of a housing bubble, ..."
What media has warned of a housing bubble? Soft landing articles started in December, bubble talk started early February. The past 4 years, the media has propelled the RE bulls.
2. He portrays Kennedy as a logical investor who used facts and statistics, but then uses the shoeshine boy story, which is totally not based on any logic. Was he a logical, or an emotional or intuitive investor?
3. He defines a contrarian as someone who buys when the market is most pessimistic. Ok, who is pessimistic about RE, other than those of us who are on this web site? Books, seminar, late night informercials are touting the benefits or RE. The market is optimistic, and the doubters are only slowly growing in number.
4. "Housing starts coming out with a bang this week..." A spokesman for the builders association said the strong numbers were due to warm weather, and the builders getting started in January with the spring time orders, and we should expect lower numbers for the spring months. There was no bang at all.
5. "Demand for housing is still strong..." Actually, inventory has doubled, and sales are half of what they were last year. Demand is way down. Prices are still up, but demand is down.

Who published these lies anyway? This guy is just a liar, and an example of how salespeople twist the truth to sell their product. What's the guy selling?

Submitted by Bugs on February 24, 2006 - 10:40pm.

The reason for the big jump in starts in January is that the developers are holding a lot of projects (in the form of entitled land) right now and they need to try and finish their projects and get out before it's too late. If the inventory is going up and the volume of sales is going down it doesn't take much to deduce that the developers don't have the luxury of time on their side right now.

Submitted by 4plexowner on February 25, 2006 - 6:36am.

Here's a link to an interview with Mr. Templeton. In it he states that US real estate prices could drop by 50%. The article is worth reading.

http://www.newsmaxstore.com/newsletters/...

Mr. Templeton also states that he has NEVER held a mortgage on a house.

Submitted by privatebanker on February 25, 2006 - 10:43am.

Please share who the financial genius that wrote this article was. This was the epitome of everything that has disgusted me with the real estate sales crowd. I think this person read two good books one day, went out that night and got drunk and returned home to create the most contradicting article in the history of the world. They clearly have absolutely no concept of value investing. And the anecdote regarding the shoeshine boy, that plays true to how real estate squawkers are right now. Simply amazing.

http://www.theprivatebanker.blogspot.com/

Submitted by barnaby33 on February 25, 2006 - 12:05pm.

I have seen this article as well, are we sure that it is actually serious? I have a hard time believing this simply because it is so poorly written. There isn't a single thing in this rag that doesn't contradict itself. Maybe its a joke? Hey I suppose it could be; the article we all agree the author is.

Josh

Submitted by NotARocketScientist on February 25, 2006 - 12:43pm.

Five or six years from now when real estate trauma has set in and top-of-the-market investors are chewing off their own legs to get out of the overpriced investment traps they have sprung -- in other words, when it really *will* be a good contrarian time to invest in RE -- this guy will be off trying to sell people the next played-out thing.

Submitted by smfj on February 25, 2006 - 2:04pm.

The funny thing is that I have used that same Joe Kennedy quote about the shoeshine boy more than once to describe the current real estate market: "When even the shoeshine boy has turned into a "flipper...".

And one more thing - how many of these "investors" who have seen "sizeable gains with their real estate investments" have seen a *realized gain* - not just on-paper appreciation, or worse yet, "cashed out" on the "equity" that accumulated during the run-up. I mean, Enron investors had a sizeable gain on their investment for a while as well - they just never became realized gains as investors held onto their stock betting on even greater appreciation and, once the stock dipped, a comeback. In fact, Ken Lay took multiple loans out using his stock as collaterol, sending him spiraling into greater and greater debt that he was unable to pay after the collapse - sound familiar?

Submitted by FauxCaster on February 26, 2006 - 11:33pm.

This still seems too hilarious to be true. Are you sure this isn't part of the same satire/hoax barrage o late, like

http://thereisnohousingbubble.blogspot.com/

and

http://www.fantasylandmortgage.com/

Although I'll have to admit, the "contrarian letter" is the best of the satire/hoaxes so far.

EDIT: I stand corrected. It is actually being published as parts of lending newsletters. Here's one:

http://www.middletennesseehomeloans.com/ on the front page (for now)

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