Tuesday 30 August 2011

On the Internet, nobody knows you're a dog, or a paid property spruiker.

Who are you really chatting with, when you post on that property forum or blog? A regular person like yourself, or a paid spruiker, funded by the real estate industry?

That's the question that arose this week, when it was revealed on several major Australian property forums that groups of 'shills' or 'spruikers' may be bankrolled by big business and property groups to paint a false rosy picture of the local real estate market.

You see, dear reader, the property market is in severe difficulty. Stock on the market has gone through the roof while auction clearance rates have fallen through the floor. House prices are falling, rental vacancy rates are rising, incomes are falling (contrary to popular opinion), and Channel Nine's disastrous 'The Block' finale (watched by 3 million viewers) was the final nail in the coffin. The media is awash with articles about the oversupply of property, the dreadful consumer sentiment, and the imminent collapse of the great Australian housing bubble.

What is the property industry to do in the face of this new reality? Why, what else, but attempt to spin their own reality. Demographer Bernard Salt was recorded recently at the Congress 2011 event, conspiring with big business and the real estate propaganda machine to create groups who would plant positive spin messages on the opinion pages of major newspapers, discussion forums, blogs, twitter other social media platforms. Mr Salt advocates that these groups should seek out and counter 'extreme' views. His property industry colleagues at the Congress 2011 event recommended broad PR campaigns aimed at fighting 'negative' sentiment in the real estate market. Watch the video below.

Have they been successful in achieving their goal? Is there more to the bullish comments on blogs, forums and news articles than meets the eye. I believe there is.

It shouldn't surprise anyone to be told that the real estate industry might wish to sow fear, uncertainty and doubt among the general public. We've been hearing their fearful spruik for decades.
'Buy now or miss out forever! House prices always go up! Don't miss the boat! Rent money is dead money! Get on the property ladder! Now is a great time to buy! Double your money in 7 years!
Did you happen to notice recently, how in the comments section of any major property news article, among the majority of balanced and realistic posts, there's always one or two jokers insisting everything is fine and house prices are just about to skyrocket through the roof and into the stratosphere once again. How likely is it that real people could be so stupid, to expect another boom at the peak of the largest real estate bubble this planet has ever known?

Not very likely, is it? More than likely, these people are vested interest spruikers, paid to talk up the market. At least, that's the conclusion on popular real estate discussion forums TalkFinance, and Australian Property Forum.
TalkFinance: Has KPMG Set Up Paid Gangs of Cyber Spruikers?
Australian Property Forum: Property industry groups to counter negative sentiment on websites?
In fact, a few smart investigators from the Australian Property Forum unearthed evidence that several high profile 'property bulls' are in fact 'sockpuppets' controlled by a single identity. It seems that after years of posting, and thousands of posts, the puppetmaster behind these characters slipped up on one occasion while posting on the Credit Crunch Forum.
Credit Crunch: Two 'bulls' post as one.
It begs the question, how many of the prominent property bulls and investors posting on news articles, blogs and forums, are in fact invented characters, controlled by these property industry spruiking gangs? When pushed for the truth, the shill posting on the Credit Crunch forum was eventually forced to admit his use of specialised software for the creation of multiple 'sockpuppets'. This ties in quite nicely with a recent article I read on astroturfing.
George Monbiot: Robot Wars

Online astroturfing is more advanced and more automated than we’d imagined. Every month more evidence piles up, suggesting that online comment threads and forums are being hijacked by people who aren’t what they seem to be. The anonymity of the web gives companies and governments golden opportunities to run astroturf operations: fake grassroots campaigns, which create the impression that large numbers of people are demanding or opposing particular policies. This deception is most likely to occur where the interests of companies or governments come into conflict with the interests of the public.
The article is very enlightening. It seems there definitely exists specialised 'persona management software' that can be used to create all the online facilities a real person would possess: names, email accounts, web pages and social media. It generates what appear to be authentic profiles, making it impossible to discern between these virtual identities and real people. Is it so hard to believe that the property industry is using such software, creating scores of fake personas, complete with technically, culturally and geographically consistent backgrounds, history and supporting details, and randomly selecting IP addresses to hide their tracks? This behaviour does indeed make a mockery of online democracy. Could it be that blogs, forums, and the comments sections of major news articles are disrupted and manipulated by armies of organised 'trolls' and 'sockpuppets' controlled by well funded vested interest groups? And if they are, then what should we do to fight these underhand tactics? One option is to fight fire with fire, as suggested recently on the Bubblepedia forum.
Bubblepedia: Antispruiking
Guys, the bears are starting to win the war on hearts & minds, but every day I see more bullish posts popping-up on forums all over the place. Our enemy is determined to keep the public fooled at any cost. I've got some notes here on tactics for posting on open forums, so check them out and add your own ideas. News and Fairfax are the biggest battlegrounds, with the likes of MVF and DB being very prolific (to compensate for the fact that their arguments are baloney). Please everyone get out there and keep the truth flowing so that these used car salesmen can't snare more innocents. Shepherd the sheeple to green pasture.
The Bubblepedia discussion thread sets out some excellent ideas, everything from posting subtle implications about the reality of the unhealthy property market, to questioning bullish articles, to posting personal anecdotes, and even to impersonating and ridiculing normally bullish commentators. But is this the right way to address the issues? Should we really stoop to the depraved levels exhibited by the real estate propaganda machine? Is there a better way?

Readers, I'd like to hear your views, but before I go, I'll leave you with one more example of the dishonesty displayed by the Australian property industry. I call this 'The Eternal FHB'. One couple, who are now featuring in their third (at least) mainstream media 'First' HomeBuyer informercial.
Bubblepedia: News Ltd. Recycling First Home Buyers
APF: Real Estate Industry Spruik of the Day. Nishant & Anu Singla: The constant first home buyers

Does this couple even exist? I doubt it. Even if they exist, can they really still claim to be FHBs a year after buying? In the bizarre world of the real estate propaganda machine, anything's possible!

Over to you, readers.

Wednesday 24 August 2011

Real Estate in Crisis - The Block Auction Results 2011

Channel Nine's flagship property spruiking show 'The Block' ended in spectacular fashion this week. For those of you living on another planet, The Block is a 'reality' television show run every few years by Channel 9. Four contestants pit their wits, interior design skills, and bickering prowess against each other for several weeks, transforming unwanted half-derelict dogboxes into 'desirable' homes, then selling them for a tidy profit. Or at least, that's the idea. Let's find out what really happened this year.

It all began in June, when Watercress Productions, the production company behind the series, paid $3.6 million plus $198,000 stamp duty for the four terraces. That's $950,000 each. At the time of purchase, JPP Buyers Advocates' Catherine Cashmore said Watercress would be "very, very lucky to break even" on the deal. How right she was, as we'll find out.

Before the four contestants could even begin their renovations, the four houses had to be re-stumped, re-wired, re-plumbed, and re-roofed, at an estimated cost of $300,000 each. This brings the total cost per house up to $1,250,000 before the show even started.

Then each contestant couple was given a further $100,000 to spend on renovations and there followed eight weeks of drilling, sanding, painting, sawing and banging, with up to 60 tradesmen on site at any time, plus the eight contestants. Even if we ignore their cost in time and labour for those eight weeks, and just add the $100,000 in renovation money given to the contestants, we now have four houses costing $1,350,000 each.
" -- a second storey has been added to three of the houses, all four were restumped, rewired, replumbed and re-roofed, and each has had $100,000 spent on it by the contestants. Claiming the house he was auctioning had had $400,000 of renovation work done, one agent --"
Great, says Channel Nine, we're done. Let's sell these babies! Now, remember the aim is to make a profit. What sort of profit would you expect when selling a house that cost you $1.35 million plus the labour of scores of handymen (plus two months spent renovating, away from your own friends and family)? Does $100,000 profit sound reasonable?

What would you say if I told you the house sold for almost half a million dollars LESS than you paid for it?

That's right folks, despite the best real estate advertising campaign in Australian history, only one home managed to sell on auction night, for $855,000 (a $495,000 loss). Imagine the collective gasp as three million Australian viewers watched the property bubble collapsing before their eyes. Can you picture them clearly, sitting at home, shifting uncomfortably in their seats as they regard the horror on the contestants faces, and the beady little eyes of the auctioneer darting nervously around the uninterested crowd -- 'but I thought house prices always went up dear?'.

Oh no they don't! After the auction, the next house sold for $860,000 (a $490,000 loss), giving us an auction clearance rate of 25% or 50% if we're generous and count the property sold after auction.

The following day the Australian press was saturated with articles about the dismal housing market, the bursting of the bubble, the collapse in sentiment, the fact that property doesn't always go up. Of course, the real estate industry came out fighting with excuses as to why these results weren't representative, in a vain attempt to convince the public that the market was actually quite healthy. Too late, the damage was done. Three million viewers, and probably many millions more the following day, now knew the truth about the Australian property market.

Naturally Channel Nine would have profited through advertising and sponsorship during The Block series, but the dismal auction results and sale price reveal a property market in crisis. Unknowingly Channel Nine may have pulled the trigger on the bursting of the bubbliest city in the bubbliest housing market in the world. Melbourne's property market was in a poor state prior to the disastrous Block finale, with low auction clearance rates, falling prices, and a large overhang of stock (plus much more in the construction pipeline), but there's little doubt the negative publicity provided by The Block will have cemented a truly alarming picture in the minds of most Melbourne homeowners and property investors.

The mainstream media's reporting on the housing market in days after The Block finale was anything but positive.

But then the plot thickened, because amazingly a few days later the other two properties sold. Hooray! The market is saved, demand is high, faith is restored. It's sunshine and lollipops proclaimed the spruiking propaganda machine.

But wait. Number 37 Cameron Street had originally been passed in at auction well under its reserve at $901,000, and number 43 Cameron Street was passed in well under its reserve at $832,000. Oddly enough, when these properties sold several days later, they sold well above reserve, for $1,000,000 and $922,000 respectively. Far be it from me to suggest there is any dishonesty in the real estate industry, but who in their right mind would pay $70,000-$100,000 above reserve for a property that failed to sell at auction several days earlier. I wonder who bought these two properties?

A more suspicious man than myself might suggest the real estate industry and/or Channel Nine were feeling rather nervous following the lackluster auction results and lack of interest in their heavily advertised money pits. A more suspicious man might suggest they had something to gain by ensuring those properties were quickly snapped up at more respectable prices in the following days. But I'm not a suspicious man, so I won't go there. I'm sure they were simply purchased by fools, rather than by vested industry backed buyers.

The image below depicts the situation on Monday, after the first two properties were sold.

So who were the winners out of this whole fiasco? Easy. George and Vicki Stoupas, the elderly couple who originally sold the four derelict dogboxes to Watercress Productions for a cool $3.6 million.

Two couple of my favourite sayings come to mind. 'A fool and his money are soon parted' and 'Theres a sucker born every minute'.

If Channel Nine and Watercress have done one thing, they've shown us who the greatest fools and suckers are. 


The Block 2012 was covered well on Australian Property Forum: The Block 2012 Auction  Analysis

(It seems Channel 9 was careful to avoid another disaster like 2011!)

Monday 8 August 2011

RBA Cracking Up

The interest rate futures market as of 08/08/11 is currently predicting six interest rate cuts. Yes, count them, six! And that includes two cuts next month (September). Does anyone else find this quite unbelievable considering the RBA rhetoric over the past year. We all know the inflation genie is out of the bottle, and the RBA's stated primary objective is to keep inflation under control, within their 2-3% target range.

Yes, The Reserve Bank promised to stamp down hard on inflation, and the recent CPI readings gave them ample reason to raise interest rates this month. But quite bizarrely, they chose to sit on their hands this month and do nothing about Australia's now well entrenched inflation problem.

Has the RBA abandoned their inflation target? I fear they have. Successive core inflation increases of 0.9% should have meant an August interest rate rise was a certainty. Inflation is on the march, not just in Australia but across the globe, and central banks everywhere are stubbornly refusing to act.

Of course there are serious financial issues across Europe and America. Everyone knew those global debt concerns were not resolved post GFC, and have still not been resolved today. The sovereign debt concerns are unresolvable, and can therefore be used as a permanent excuse by the RBA and other central banks to tolerate high inflation and avoid performing their duty of stamping down on inflation. This appears to be the position taken by other global central banks since the GFC, in many cases keeping rates close to zero while tolerating high inflation.

The Reserve Bank's failure to act in August has destroyed their credibility. After jawboning and promising rate cuts for months, they demonstrated a weakness and unwillingness to act, presumably due to pressure from business and government. Their bluff was called, and they backed down. Financial markets no longer place any faith in RBA promises, and are pricing in six rate cuts despite the RBA claiming to hold a tightening bias.

Not only do we have out of control inflation in Australia, we also have full employment, rising incomes, and house prices still at bubble levels. If the RBA can't raise rates now, how do they expect to be able to raise them later as inflation continues to rise while those other economic indicators weaken? Now is the time to act, before inflation becomes entrenched as an acceptable part of Australian life, as happened in the 80s. Failure to act now will lead to an even worse recession in the future. Kicking the can down the road just delays the inevitable and makes it worse.

Since that fateful RBA decision last week, the Australian dollar has tumbled and stock markets across the globe are reeling. Some commentators are saying GFC2 is here (although I would argue GFC1 never ended). If the RBA truly has abandoned their inflation target as I (and the financial markets) believe, then we could indeed see them slashing interest rates again as they did in 2008. This will most likely result in an expectation of much higher inflation, and a negative feedback loop of high prices across the board.

Instead of taking our medicine in 2008 (the recession we should have had), the government and RBA kicked the can down the road to 2011. Now the recession we need to have is much larger, but the RBA and government will probably try the same tactic once more, by dropping rates and stimulating the market one last time. The RBA is going for the easy option - inflating our way out of our debt problems, instead of taking the correct option, letting nature run its course, and accepting that a recession is necessary. Every boom must be followed by a bust. Every bubble must be followed by a crash. That's the natural order of things, and you can't kick the can down the road forever.

But they will try their best.

As the rest of the globe disleverages, the RBA and our inept government will attempt to steer Australia into one final debt fueled boom, a last hurrah for the Australian economy and housing market. Once the Australian population realises high inflation is the new RBA policy, they will decide en masse to trade their earnings for tangible assets (which for most Australians, means real estate). This final stage of the bubble is known as the Crack Up Boom. Yes, those real estate spruikers will be out on the streets once more, convincing working Australians to gear up into over-valued houses at the very peak of the greatest property bubble in history.

I'll leave you with the words of the great Marc Faber.

I think we are all doomed. I think what will happen is that we are in the midst of a kind of a crack-up boom that is not sustainable, that eventually the economy will deteriorate, that there will be more money-printing, and then you have inflation, and a poor economy, an extreme form of stagflation, and, eventually, in that situation, countries go to war, and, as a whole, derivatives, the market, and everything will collapse, and like a computer when it crashes, you will have to reboot it.

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