Textbook examples of predictable behaviour.

geneer

http://www.economics.ox.ac.uk/members/andrew.farlow/part2ukhousing.pdf

A rather entertaining analysis of the UK housing market and its participants. From the ecomomics department of oxford university no less.

2.6. Bubbles and the Media

There is a twist on the arbitrage failure story for
those making bearish pronouncements about any
market. Since the timing of correction is, by the very
definition of a bubble, impossible to determine, then
those who predict the timing of correction (or are
made out to have predicted the timing of correction)
and yet find that it does not materialise in an orderly
fashion will find themselves discredited – only
serving to confirm in public opinion that the
optimists (who were never expected to predict the
timing of anything, and in fact repeatedly got their
forecasts wrong) were right all along. It seems to be
in the nature of bubbles, that as mispricing
intensifies, alternative assessments of what is going
on tend to become ever muted.
Demonstrating that the market is overvalued, and
being able to predict the timing of correction, are
logically mutually exclusive – though it is often
presumed that the former is only valid if the latter is

correct

25. This expectation is the way matters are set

up in some areas of the media

26. At the close of 2003

we were told

27 that “The Nationwide's latest figures

appear to have proven wrong those pundits who had
predicted a sharp correction in prices during the past
year,” ignoring the fact that no ‘pundit’ had made
any such prediction, and that such predictions had

been manufactured by these areas of the media

themselves with the help of the mortgage banks, so
that they could be triumphantly knocked down later.
At the close of 2003 this created the perverse result
that prices could become more overvalued than even
the mortgage banks had predicted, and yet,
somehow, this made the overvaluation story look
less valid and the mortgage banks look more right

28.

In fact the tone becomes more pro-price-rise. The
overvaluation story would suggest that when prices
rise by a third in one year for no fundamentals-based
reason, this is potentially bad news for those freshly
buying or wanting to buy, and for those taking out
large debt. To the writers of the above story
however: “The North of England did best – up by
nearly a third on 2002 followed by Wales up by a
quarter.” But, by this stage they probably didn’t even
notice their slip into such value-loaded language.
It creates much less of a media splash and it doesn’t
seem to matter that the leading mortgage banks have
repeatedly heavily underestimated house price
growth, and only seem to get it right when they
incorporate a large element of momentum. A year
ago all the major mortgage lenders predicted a
significant rise in the base rate; instead it fell and
ended the year much lower than their predictions.
All predicted a flat or, at most, a slightly increased
level of gross lending; instead it romped ahead rising
more than 20%. All predicted that house price
inflation would reduce dramatically and not achieve
anywhere near the gains that have in fact transpired
over 2003; none of them got even remotely close to
predicting the 34% rise in the north of England, or
the 25% in various other regions. Given their central
rôle in the decision-making processes of house
buyers, any reasonable interpretation would regard
this as a miserable failure – and a repeat of the
previous year’s performance. Arguably, this should
cast serious doubt on the faith placed by the media in
the mortgage banks’ view of the world. If their
fundamentals-based models could not produce a
34% figure, one would think that they would be
challenged for an alternative explanation. A priori it
suggests something other than fundamentals. But it
is not expedient for any mortgage lender to admit
this, nor, it seems, for the media to ask. And, as
unexplained price rises intensify, the failure to
challenge such poor predictions also intensifies.
At some point even dissent is rubbished. In recent
news items, and within a few lines of each other, the

BBC (news.bbc.co.uk) has developed the habit of

referring to those promoting optimistic views as
‘housing market experts’ and those holding more
cautionary views as ‘housing market doomsayers’
and ‘pundits’. As this was going to press, a story
appeared that illustrated all of these points
beautifully

29. Its text refers to mortgage banks as

‘experts’; its headline to those who disagree as
‘doomsters’. It then extensively quotes an ‘expert’
who had, until recently, spent a career in corporate
PR. It quotes, without a hint of irony, this ‘expert’
describing the 34% price growth in the North of
England – that this and other ‘experts’ had failed to
predict – as the ‘Year of the North’. The ‘expert’ is
not challenged to give an explanation for such a high
and unexpected figure, and none is offered in the
article. Next year’s predicted price growth of 8% –
four times the rate of inflation – that in other
circumstances might register as significant, is
described as ‘only 8%’ (given the doubling in recent

years, 8% is 16% of prices just a few years ago).

It is sometimes argued that ‘if markets are inefficient
why have those who argue this way not become
rich?’

30 But, the arguments for arbitrage failure rest

on the notion that it can be extremely difficult to
make arbitrage profits out of mispricing even if it is
obvious. It is, of course, this very lack of ability to
exploit mispricing that makes it able to arise, and
persist, in the first place. As Keynes put it “the
market can stay irrational longer than you can stay
solvent”

31. It is perfectly consistent to be in a

situation of talking about mispricing while still not
being able to make any money out of it.
All of this creates a bias in public opinion-formers at
times of bubbles in favour of optimists. Better not
reveal your bear credentials unless you are
absolutely sure that the bubble is peaking

32. This was

evident at the height of the stock market bubble of

the late 1990s. It was the bears in 2000 who added

seriously large value to the wealth of those who
listened, and it was those who disparaged the
‘doomsters’ who turned out to actually create the
greatest loss of wealth and the most ‘doom and
gloom’. As testament to the way the media and
investors in general prefer optimists over pessimists
whatever the damage optimists may inflict on the
personal fortunes of ordinary investor, leading
optimistic ‘pundits’ of the time

33 survived with

reputation largely intact, deftly deflecting criticism
elsewhere – onto Wall Street, Corporate America,
Government, and even onto ‘fickle’ investors

themselves.

I particularly like the bit in red.
Nice to see my observations are shared by some very knowledgable people indeed.

heathcote123

geneer wrote: »

Nice to see my observations are shared by some very knowledgable people indeed.

[/LEFT]

Yes, you are very clever Geneer. Well done.

HAMISH_MCTAVISH

“The Nationwide's latest figures
appear to have proven wrong those pundits who had
predicted a sharp correction in prices during the past
year,” ignoring the fact that no ‘pundit’ had made
any such prediction

That article is from 2004.

Here's your pundit.

http://www.housepricecrash.co.uk/forum/index.php?showtopic=246

Pimperne1

HAMISH_MCTAVISH wrote: »

That article is from 2004.

Here's your pundit.

http://www.housepricecrash.co.uk/forum/index.php?showtopic=246

Here's a letter from Reinhard to the FT some time after he predicted a crash on the video:


http://www.housepricecrash.co.uk/forum/index.php?showtopic=13338

So Reinhard seems to have sold in 2003 and made a £90k profit which he planned to re-invest when prices crashed. Anyone any idea how that worked out?

HAMISH_MCTAVISH

Pimperne1 wrote: »

Anyone any idea how that worked out?

:rotfl::rotfl::rotfl::rotfl:

Badly.:D

Pimperne1

Kirsty's got them weighed off:

"The fact that two couples could decide to take a year out and start up a website to try and crash house prices so that they could weigh in when they returned, wouldn't we all like to do that".

"The couple who sold their house a year ago have seen their house going up in value and they would need to be seeing a 20% crash just to break even".

That's all folks!!!!!

Thanks geneer by the way.

HAMISH_MCTAVISH

Pimperne1 wrote: »

"The fact that two couples could decide to take a year out and start up a website to try and crash house prices so that they could weigh in when they returned, wouldn't we all like to do that".

And that from a news article in summer 2004.

So they started the site in 2003.... And people like JD STR-ed in 2002.

"The couple who sold their house a year ago have seen their house going up in value and they would need to be seeing a 20% crash just to break even".

Wow.

Just...... Wow.

They need 20% off 2003 prices just to break even.

I sure am glad there were no deluded "pundits" taking such risks and going to the media about it back in 2004 when this article was written.

You know, the article that claims there were no "pundits" doing any such thing.

Oh, wait....

Thanks geneer by the way.

Yes, one of his better efforts at self-pwnage I must say.

heathcote123

HAMISH_MCTAVISH wrote: »

And that from a news article in summer 2004.

So they started the site in 2003.... And people like JD STR-ed in 2002.



Wow.

Just...... Wow.

They need 20% off 2003 prices just to break even.

I sure am glad there were no deluded "pundits" taking such risks and going to the media about it back in 2004 when this article was written.

You know, the article that claims there were no "pundits" doing any such thing.

Oh, wait....



Yes, one of his better efforts at self-pwnage I must say.

Yes, but a student (from oxford no less) does agree with him.

* actually having read it, it looks like it could have been wrtitten by geneer himself - were you a mature student geneer?

Rinoa

Pure comedy gold.

:rotfl:

Turnbull2000

Seriously geneer, just give it up. Do yourself a favour and follow carolt's lead.

chucknorris

Turnbull2000 wrote: »

Seriously geneer, just give it up. Do yourself a favour and follow carolt's lead.

Whatever happened to her? Did she buy?