The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Thursday, March 4, 2010

Lies, damned lies and statistics

Sharemarket spruiker Kris Sayce, who, as I have shown here, is a proven liar, has managed to write about me every single day this week in order to boost his own public profile. One can only conclude that nobody will listen to him unless he does so.

What is even more sad is that in order to generate any interesting content Sayce has to repeatedly fabricate lies. Like the one about how RP Data and Rismark had dropped our hedonic index and replaced it with a median price series. Pity that the hedonic index has been published every month for years now, and is reported by the RBA in the Statement of Monetary Policy. But never mind, Sayce tried to peddle that lie for about a month.

Or the other lie about how I had claimed that mortgage repayments were 10 per cent of disposable household incomes. Of course, the truth that Sayce never disclosed was that I had clearly presented data showing that Australian mortgage repayments were around 30 per cent of disposable incomes. The former number was an RBA estimate that denoted total household interest repayments as a share of incomes. I clearly presented both sets of data to my audience (and indeed a chart illustrating that mortgage repayments were about 30 per cent of incomes), but Sayce just lied outright claiming I had done nothing of the sort.

Today Sayce has pulled another cracking lie out of his hat via Bill Bonner and Dan Denning's Daily Reckoning. He quotes my presentation to Obama Administration last year (I was flown to the US by the Rockefeller and MaCarthur Foundations) referencing the very high idiosyncratic risk of individual homes. This is the quote from me he uses, and which he finds so offending:

"Our research shows the single family home is a phenomenally risky investment. It's around six-times the risk of a broad based property index. In Australia the single family home has around a 20% volatility, so volatility akin to equities and yet the average family invests 50% to 60% of all their wealth in the world in this highly idiosyncratic asset... The system [financial markets] had too much leverage, and particularly households had geared to high levels... They're leveraging against what is an incredibly risky underlying asset."

Sayce then claims that it is ‘shameful’ that I would say one thing to Americans and another thing to Australians. The problem is that this is Sayce just telling another lie. Actually two lies.

The first lie is that in the quote above I clearly distinguish between the risk of a ‘broad based property index’ and the risk of a ‘single family home’. Sayce obviously cannot tell the difference between the two.

The second lie is that I have been telling Australians about the very high idiosyncratic risk of individual homes since my 2002-03 report to the Australian Prime Minister. Indeed, I repeated these statements only last year on Business Spectator. To quote that article, which recycles almost verbatim what I said in the US:

“One of the principal problems with housing policy today is the popular fixation with owner-occupation. While there are undeniably significant socio-economic benefits derived from owning a home and creating, in Margaret Thatcher’s words, a “property owning democracy”, there are also nontrivial costs, which are less frequently focussed on.

“One of these costs is the portfolio diversification risks associated with investing 70-100 per cent of all your net wealth in a highly leveraged asset with very significant idiosyncratic risk. We estimate that the empirical volatility of an individual Australian home is around 15-20 per cent per annum depending on the owner’s holding horizon. The reason home ownership creates these economic problems is because the housing asset is largely “indivisible”. That is, you cannot live in a home and only own, say, 50 per cent of it while sharing the remaining 50 per cent of risks with outside investors. This leads us to the public policy problem that has been discussed at length in previous columns: in a perfect world we would “fractionalise” home ownership. That is, policymakers would foster new markets that allow aspirational and existing home owners to draw on both debt and equity finance, as opposed to the current situation whereby owners are restricted to employing 100 per cent debt finance.”

I have repeated this same message in countless Australian forums over the years. But that is an inconvenient truth for Kris Sayce, who is proving himself to be a pathological liar.