Team Ben! Ben is wrong!

Real estate markets move slowly.

Really slowly.

So let’s entertain ourselves with some bear fights.

A couple of days ago Garth Turner came to town with his traveling bear show from Greater Fool.  In that presentation some are saying he used charts from The Economic Analyst Ben Rabidoux without any attribution.

This kicked off a twitter snark-fest as seen below:

Now I didn’t see the presentation, so I don’t know if there were charts used without attribution, but in any case: BEN IS WRONG!

No, not wrong in this twitter war – Ben is correct to ask for attribution for his work and Turner is a jerk for neither clarifying nor denying the charge.

The reason I say Ben is wrong is because of what he says in this article about new record debt levels for Canadians:

“You can not have everyone in Canada pay off their debts at the same time because that will drag on the economy,” he said. “It is a strange dynamic. How do you pay off the debt when paying off the debt itself becomes an economic headwind?”

OK, maybe wrong is not the right word, more like incomplete.  As Patriotz points out:

I think Ben’s scenario is slightly off the mark. Crunch time will happen not when people decide to start paying off their debts, but when they simply can’t borrow any more.

And as Fixieguy points out it should read something more like this:

“… it shows the extent to which our economic growth is based on debt instead of fundamentals, a scenario which can’t be sustained for long before the jobs created evaporate…”

So mark your calendars, for here is one thing that Ben is wrong about and that is remarkable because Ben is never wrong.

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gokou3
Guest
gokou3
Anonymous
Guest
Anonymous

Ben should mark his graphs with his site URL so that attribution is automatic.

Hatter
Guest
Hatter

I think Ben’s scenario is slightly off the mark. Crunch time will happen not when people decide to start paying off their debts, but when they simply can’t borrow any more.

Isn’t that just another way of saying what Ben said – the flip side of the coin?

Betamax
Guest
Betamax

Duh. Both are examining the same metrics — it’s hardly surprising that similar material is presented. Grab a brain.

ou812
Guest
ou812

Man does that article ever make me glad I’m not in debt. People really live paycheck to paycheck and pay 15% of their income on debt maintenance?

The thing that gets me is that some people act like this is inevitable.

“Oh, well I just had to have a bigger TV”

Are there really that many adults out there that act like children with the get now pay later attitude? Is it really worth the stress and extra expense?

Evidently we need to be teaching basic economics in our schools better.

Kite
Guest
Kite

@Betamax: There’s a big difference between ‘similar material is presented’ and ‘hey, that’s my graph!’.

Does Turner ever make his own graphs? When I’ve been to his site all I’ve seen is funny pictures ripped of the internets with no attribution which makes me think he did use Bens work.

Its fine to say that they’re analyzing the same data if they are, but if one is doing the work of analyzing and presenting the data and the other is not that’s not a fair balance.

JR
Guest
JR

This is like a Van Sun headline. “Ben is wrong!” in the title. In the article “oh wait he really isn’t”.

Nothing Ben said is inaccurate. It doesn’t matter why people start paying off their debt, the fact of the matter is if they start paying they are more then likely going to proportionally ratchet back their spending. If they all start paying things off at the same time it’s not a good scenario.

BTW the Sun is charging online now! LOL! If it’s anything like the NYTimes you just need to go into your browser settings and delete the cookies for the Sun.

Yalie
Guest
Yalie
Patriotz and Fixieguy are right, of course. We are at the apex of a debt super-cycle that has been building for several decades. Here’s a graph of the total debt to GDP ratio in the US over the past 50 years http://www.theeconomicanalyst.com/sites/default/files/article_inside/2011/04/household-debt-as-percentage-of-gdp.jpg And here’s Canada’s consumer debt to GDP for the past 20 years: http://www.theeconomicanalyst.com/sites/default/files/article_inside/2011/04/household-debt-as-percentage-of-gdp.jpg Notice the cycles are DECADES long. Given we are currently at or just past the peak, we are likely in for years – if not decades – of deleveraging, just like Japan experienced for the last 20 years. It’s going to be painful, and the solution is NOT more debt, but instead the only realistic path forward is a slow unwinding of the existing debt and a return to real economic growth. You know, growth based on things like working hard and building stuff people… Read more »
Yalie
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Yalie

@Yalie:

Oops – posted the same link twice. Here’s the US chart:

http://market-ticker.org/uploads/2010/Jun/debt-to-gdp1.png

JR
Guest
JR
@Yalie: Great post, Yalie. I don’t think a slow drop is anything to be sorry about. A home purchase for the average family is not a speculative investment but one made to create a long term settlement and that decision needs to be made on non-emotional calculations based on solid finance, future plans, and risk assessment. If people are buying with the idea of staying for 10 years or more then there is no point in trying to time the bottom of the market (I’m not saying to buy now by all means!) I would say the only argument for a quicker drop is that there are so many boomers who need to cash out in the next 5 years. Additionally I’m rather concerned about small business debt. At least where we live the number of small business closing down… Read more »
Best place on meth
Member
Best place on meth

@Yalie:

“Bottom line for those of us wondering when to buy: it will be a long time before we see a floor in real estate prices. Likely many, many years. Sorry bears.”

That’s fine by me. I have no intention of ever buying in this craphole, I just want to see it all come crashing down.

Vote Down The Facts
Guest
Vote Down The Facts

@Yalie: “-As a result of this lower consumer spending the economy will be weak for years. ”

Isn’t that pretty much what Ben says?

N
Guest
N

@Yalie:

You seem to be saying that prices will be determined by sellers, rather than buyers. Is this what you are saying?

Painted turtle
Guest
Painted turtle
I do not believe teaching economics would work. People cannot resist temptation, especially when exposed to commercials all day long. I see friends buying large BBQ that hardly fits on the balcony and is used twice a year, expansive gear for kids that will outgrow them after using it twice, etc. Others start a new business every second year with dreams of riches but no knowledge whatsoever of the market, and fail. With RE, the call of greed is hard to resist for many, they bought because they knew someone who made tons of money. I know a math teacher who loses all his math skills as soon as he speaks of RE. I know another couple who does not believe in economics because this time is different. Many owners I know are now obsessed with their home and potential… Read more »
jesse
Member

I think you’ll find that comments are taken out of context in these media pieces. I wouldn’t claim Ben is “wrong”, more that you should ask him for clarification before claiming it. His previous statements have usually been geared towards the inevitability of deleveraging so I’m guessing there’s more to his arguments than what’s presented, and the same goes for Garth for that matter.

If it so happens that people wilfully deleverage it is a net drag as much as if the government or lenders force it. Now if the populace were on the whole capable of self-regulating — which I don’t think they are — that has different policy implications but that’s more a hypothetical scenario. Am I missing something?

Best place on meth
Member
Best place on meth

Australia’s resource minister declares commodities boom is over.

http://news.yahoo.com/australia-declares-end-resources-boom-015531774–business.html

Damn, the resource boom and the real estate boom are both over?

What will Canada have left to sell?

x
Guest
x

@jesse: In case it wasn’t clear ‘Ben is wrong!’ was a joke. There aren’t many people out there who offer the thorough analysis that Ben does. It seems the media is constantly printing snippets of concepts that are too big to fit into a paragraph, but it’s not their fault that the audience has a short attention span.

patriotz
Member

@JR:
There is no point in buying if it’s more expensive than renting (at today’s interest rates at least), period.

It’s not about timing, it’s about value.

RFM
Guest
RFM

A new analysis suggests Canadian non-mortgage debt rose to its highest level in nearly a decade during the second quarter.

Source: http://www.cbc.ca/news/canada/british-columbia/story/2012/08/23/debt-canada-transunion.html

Anonymous
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Anonymous

@Best place on meth: mama’s basement is a safe bet. i would have done the same.

Anonymous
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Anonymous

@patriotz:
Words to live by:
“Price is what you pay, value is what you get”
-Warren Buffett

gokou3
Guest
gokou3

@RFM: SO now that the mortgage rules have tightened and people cannot use their homes as ATMs, they have to resort to non-mortgage borrowings to fill their budget gaps?

patriotz
Member

@gokou3:
The numbers from TransUnion are for the 2nd quarter. The new mortgage rules didn’t take effect until the 3rd quarter.

squeako
Guest
squeako
“Bottom line for those of us wondering when to buy: it will be a long time before we see a floor in real estate prices. Likely many, many years. Sorry bears.” And that is OK. I am not all set on that one MUST own. I am more concerned with “does it make financial sense”, that is where my money goes. Sellers may not like that, but this is not a popularity contest. Financial sense overrides the “I have to own” feeling. I have to commend the younger people for having the guts and go, to leave this province for greener pastures. I am sure it will yield great dividends for them in the future. After all, what is so attractive about lousy paying job, spending spare time in fumy hot traffic, or black damp rain, constant financial stress, the… Read more »
Ben Rabidoux
Guest
Ben Rabidoux

Wow. Didn’t expect to see that headline on VCI. I’m……flattered?

I should clarify the statement. It wasn’t exactly presented entirely correctly. What you need to know is that media types will take a 20 minute conversation and boil it down to a talking point. What you have here is the author trying to sum up my explanation of the paradigm of thrift and the necessity and economic headwind of the inevitable Canadian consumer deleveraging ahead of us. These are simply not concepts that lend themselves to 100 character sound bites. It’s unfortunate that direct quotations are added even when the author is paraphrasing.

On to more useful endeavors: I just put up a new blog post that some of the VCI readers may enjoy.

http://theeconomicanalyst.com/content/look-household-balance-sheets-canada-really-much-better

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