VANCOUVER (NEWS 1130) – When Marc Cohodes bets against a market, history has shown there’s a good chance he’s right.
Before he retired, the 56-year-old headed Copper River Partner, one of the largest hedge funds in the world, and managed more than $1.5 billion in assets by betting against companies whose books seemed askew.
Now, the American short-seller has set his crosshairs on Vancouver housing and what he says is a market rife with foreign laundered money and over-inflated prices. Although it’s not a real bet, Cohodes hopes lending his name will generate awareness to avert disaster.
“Housing, in its simplest form, is shelter and the average family, I think, in (Vancouver) makes $80,000 a year. And when you multiply what people can actually afford, the transactions are going at significantly higher rates,” says Cohodes. “When you see the anecdotal stories of who’s buying houses, with capital controls in place from China, it makes you start to wonder what’s going on.”
The conclusion Cohodes reached was that foreign laundered money, largely from China, is making its way into Vancouver and “the BC government is a party to this.”
“Politicians say they are working on it, but they aren’t. They have no plan. It has nothing to do with supply and demand, and the politicians are owned by real estate interest,” he says. “You can’t be this tone deaf to what’s going on and allow it to keep happening.”
Conjuring images of the American housing market crash, Cohodes says Vancouver’s sub-prime lending market would put the plot of the 2015 film The Big Short to shame. He tells us the largest buyer, Home Capital Group, “has admitted to originating $1.9B in fraudulently documented loans, which is a colossal number. And no one has got in trouble or penalized.”
Cohodes says piecemeal solutions such as Premier Christy Clark’s announcement this week that real estate will no longer be allowed to self-enforce government rules, are lip service at best.
“It’s like someone who weighs 400lbs saying ‘I’m not going to drink coke anymore, I’ll switch to diet.’ It’s sort of pissing on a house fire.”
Despite his prediction that Vancouver is heading for the cliff and will likely experience a lot of pain in the future, he hopes citizens and policy makers can work now to cushion the blow.
Cohodes’ first solution is to open all housing records and make them publicly available so people can be held responsible for fraudulent or misleading deals. He then hopes people do something very un-Canadian and get angry.
“People need to get upset, protest, speak up, and speak out about what’s going on,” he argues. “I was there when the Canucks lost the Stanley Cup. They were mighty pissed off when the hockey team lost, so I think this a lot more important than that.”
In the short term, he encourages people to rent and sell rather than buy.
“Wait until the storm blows over, because it’s going to blow into a million unrecognizable pieces,” he predicts. “I think it’s going to be really, really, really bad, no matter what happens. I just don’t want it to be a huge, huge, huge disaster — and it’s never too late to begin to make changes.”