On one sunny weekend in March some time ago, 61,500 people packed into a massive convention centre paying $49-$499 to listen to America’s self-proclaimed best business minds including Tony Robbins, Robert Kiyosaki (rich dad, poor dad author), and Donald Trump. The mood was energetic and the attendees were, at many times, screaming in joy when the speakers took the stage. People were pumped up as if they were going to watch the Stanley Cup ceremony where the Leafs won it all – the atmosphere was ballistic to say the least. Welcome to the Learning Annex's Real Estate Wealth Expo.
This travelling circus went from city to
city telling crowds the following: “in one weekend you can be a millionaire”,
“do whatever it takes to get onto the real-estate ladder”, “the best way to
build wealth is through real-estate”, and my absolute favourite, “real estate
can only go up from here”. The clowns cleverly reached
people’s inner FOMO (fear of missing
out) and exploited it to the max while collecting fat speaker fees.
Carol Lloyd attended this event and was
rather mystified by the whole spectacle. It was pandemonium and the crowds were
eating up this “education” like candy. She later wrote, “why now that interest
rates are rising and homeownership rates are at an all-time high and savings at
an all-time low? Why would over 61,000 people in one of the most overpriced
housing markets in the world spend good money to learn about real estate
investing?”
Ms. Lloyd inferred something big was on
the horizon as the warning signs were all flashing red. Rising cost of money, all-time high ownership
rate, savings rate at an all time low, and personal debt up the wazoo. This was
March 2006 in California just months before the real-estate tsunami was about
to make landfall and crush the American dream for so many.
“Guess who’s back” – Eminem
Anyone who has taken public transportation
in this city has likely seen the following ad:
This all-star event featured Tony Robbins,
an HGTV actor, some guy from Dragon’s Den, the “king of real-estate” a realtor
by the name of Daryl King and Canada’s #1 real-estate investor, Pit Bull (he
likely does not own any real-estate in this country).
Tickets for this world class educational
program ranged from $49-$2499 which is good considering the one’s that took
place in the states before their real-estate implosion were priced in US
dollars. I would imagine the $2499
package included some favours of an R-rated nature.
As much as I wanted to attend this event
(no sarcasm this time), I had a big run that day and skipped out. I regret few
things in my life such as the time I missed a Metallica concert back while I
was in undergrad, refusing to drink ice caps from Tim Horton’s for two years
because an ex-girlfriend really liked them and once ordering sushi a la carte
when there was an all-you-can-eat option.
I would like to add missing this affair to the list.
About 15,000 people attended this event
back on March 18, 2017, and, as expected, it was one giant circus. People were
yelling and screaming in joy when speakers took to the stage. Euphoria was in
the air and everyone was high on the allure of easy money.
The message conveyed to the attendees was
crystal clear: “do whatever it takes to buy”, “be creative if you don’t have
the money to buy”, “just do it and buy now” and, my favourite, again,
“real-estate can only go up”.
The “king of real-estate” Daryl King was
quoted saying “so buy today before it’s too late”.
I wonder what comments Pit Bull had in
relation to our mortgage finance system.
Outside of the “lecture hall” where the
“students” were busy drinking the kool-aid, I mean learning the intricacies of
Toronto real-estate investing, there were many booths from sketchy lenders
offering high interest loans, syndicated mortgage companies, “creative
financing companies”, pooling money to buy negative cash flow properties and
other sexy opportunities one can only dream of. Suffice to say, the place was
preying on unsophisticated common folk. “Predatory” would be a good way to
describe the scene.
The shadow banking system that we
discussed in the last blog post was alive and well. Unregulated lenders loaning
obscene amounts of money to people so they can get the “creative financing” and
buy properties to flip a short time later. Apparently, many of the loans were
only for 1 year in duration meaning that they were solely designed for short
term speculators.
In case you forgot, let me just cut and
paste the words of Ms. Llyod who attended the same event back in 2006 with Tony
Robbins as the headliner: “Why would over [15,000] people in one of the most
overpriced housing markets in the world spend good money to learn about real
estate investing? ... perhaps the very success of the Expo is an ominous sign
of the bubble popping, rather than a sign that the real estate boom is continuing.”
Revisiting the time-honoured stages of a
speculative mania
In any speculative mania, a point is
reached when the masses are so fixated on one object they collectively lose
their minds. Re-read the post “Fixating on delusions” if would like a
refresher. The real-estate wealth expo that took place here is prime evidence
of lunacy. Many people lined up and paid good money to hear so called “experts”
who recycle the same debunked dogma that has hurt so many people across the
world. But, rest assured, they were paid handsomely for their sermon.
When the summit of a speculative mania is
reached, greed and delusion pervades everyone’s thinking and irrationality
becomes the norm – until it doesn’t. The switch from greed and delusion to
“what the hell did I just do?” and denial is never easy to pinpoint with any
precision. Eventually the keg of
kool-aid will run dry, it always does. Once the masses figure out that it may
not have been a prudent decision for someone to spend $1.5 million for a wobbly
semi-detached home at 18x the median family income, there will be a collective
“what was I smoking when I agreed to this?!” moment that will be felt like an
earthquake. Greed will always turn to fear just like jumping into a lake will always
result in getting wet.
Echoing history
The
real-estate expos just prior to the US meltdown and the one that just took
place here in Toronto share such strong resemblances it would be folly to
ignore. Same headliners. Same narrative to buy now or be priced out forever.
Same encouragement to get involved with “creative financing”. And the same
madness and euphoria expressed by those in attendance. History does not always
repeat itself, but it does often rhyme.
The Toronto expo encouraged the same
reckless behaviours that sunk many hard-working middle and upper class families
down south - borrowing down payments, utilizing shady lenders, leveraging the
family home to speculate on a futures market, and making foolish decisions in
the attempts of making a quick buck. The speakers shrewdly reached people’s
inner FOMO and exploited it to the
max.
In any real-estate mania, those who were
caught holding onto one or more properties when the market froze over quickly
found themselves underwater. No life jackets were provided. As much as we want to think we can time the
market, we simply cannot. Not even the world’s best mathematician, Sir Issac
Newton, could time the market when he got caught up in one of the earliest
stock market speculative manias.
Ask yourself: did Tony Robbins refund all
those attendees at the 2006 expo? You know, since anyone who bought real-estate
in the USA in 2006 lost 30-70% of their money if they were forced into
foreclosure, and then some?
Did Daryl King and the other realtors who
presented inform the attendees how Torontonians in the late 1980’s lost upwards
to 40% of their money betting on Toronto real-estate and others had to wait 21
years to get their money back? Did they explain how the same dangerous credit
conditions back in 1989 have reappeared as of late?
You and I both know the answers to the
aforementioned questions.
But most importantly, would you follow the
advice of the travelling circus?
