Christopher Joye: Liquidity Ignition in the Land Down Under

Published on
November 26th, 2020
Duration
50 minutes

Chamath Palihapitiya on SPACs, Bitcoin, and the New World of Finance


Christopher Joye: Liquidity Ignition in the Land Down Under

The Interview ·
Featuring Christopher Joye and Joe Walker

Published on: November 26th, 2020 • Duration: 50 minutes

Christopher Joye, co-chief investment officer at Coolabah Capital Investments, joins Joe Walker of the Jolly Swagman Podcast to share his macro outlook on credit, rates, and housing in Australia. Joye forecasts the path of the coronavirus going forward, using quantitative models which have so far proved prescient. Joye tells Walker why Australian quantitative easing has buoyed the already richly-priced housing market (a prediction which won him the moniker "the hunter of Australian housing bears") as well as compressed credit spreads to very narrow levels. Filmed on November 16, 2020. Key learnings: The Reserve Bank of Australia may be late to the QE party, but this fiesta will run all night and those who can spot opportunities in credit and sovereign bonds will be rewarded handsomely.

Comments

Transcript

  • NR
    Nelson R.
    6 December 2020 @ 02:42
    .
  • RR
    Robert R.
    5 December 2020 @ 01:32
    Good interview. Just pains me to listen Joye's self promotion of himself.
  • CK
    Chris K.
    26 November 2020 @ 23:33
    It's funny that he mentions the hedonic index, for those that dont know in Aus the govt and rba rely on that index as a measure of house price growth. It is based on proprietary information not shared with the public, and provides a calculated metric as to what house prices are doing in 'real time'. You might ask why do govt agencies not just provide real verifiable information on housing? Because plausible deniability for politicians and 'houses always go up' narrative is deeply embedded in the australian economy, this privately owned index serves as a win win for govt. When your banking system is 60% loaned out to the housing market.. sadly unproductive housing will always be front and centre for govt policy.
    • NL
      Nikola L.
      26 November 2020 @ 23:55
      I thought that 60% was much higher. Thought to be closer to 80%. I might be wrong though. But you are spot on with your view.
    • DM
      David M.
      3 December 2020 @ 14:27
      I think governments understand the importance of housing but are simply ignorant about the inflationary bias issue with these hedonic price metrics. This ignorance is on full display here in Canada.
  • NL
    Nikola L.
    26 November 2020 @ 22:49
    Chirrs can predict where Oz housing is heading because, as he said it himself, he advices the Government on this market. So this is what happened – brief history – this is my view only: Around Feb 2019 Royal Banking Commission (RBC) found Oz banks were lending irresponsibly and this cause many people to get in lot of trouble as these people took homeloans they could never repay. Many can hardly service interest paid on those loans. These findings triggered tightening of the lending rules via macro prudential measures. Snice the pandemic Oz Gov (I wonder how could have given the Gov this great idea) decided to abandon the responsible lending and ordered the banks to start lending outside the macro prudential measure in order to revive the Real Estate (RE) market. Now RE prices are moving up again. Important point here is that just before we had our RBC, house prices started to fall (around mid 2017) and my view at that time was these falls were due to 2 factors: 1. China tightened their laws and started being more effective in preventing Chinese citizens buying RE overseas. 2. Aussies hit their borrowing capacity limits. During that period house prices did fall around 13% in Sydney and recovered most ground ever since and we were at the limit of our borrowing capacity again. As pandemic hit prices started to fall fast again. So this is what Oz Gov is doing now – besides getting the banks to lend irresponsibly again (I doubt banks will go 100% back to what they were doing before) the Gov also is allowing many people to access their retirement savings (portion of it) and want to extent and expand this initiative for first home buyers. Basically RE prices must stay high and go higher and people must borrow even higher loans. Will be very short lived as without wage growth we are about to hit the limit of our borrowing capacity very soon again. On top of that Aussie banks still have billions of dollars of bad loans that people can’t pay where banks have given these people more time to find jobs so they can start servicing their loans. If Aussie economy does not recover sufficiently over the next 8 months there will be very interesting developments on how Aussie banks will treat these loans on their books. The only other extreme measure that we haven’t taken out is – intergenerational home loans but I am sure some one who advices our moronic government has this ace up his/her sleeve ready to be used soon. We are basically taking desperate measure to keep this bubble inflated and John Hampton is right about his views in Oz Real Estate. I recommend people to visit Joe Walker’s podcast and listen to his interview with John Hampton to get the idea of the crazy times we had and about to have again with our Real Estate. Another point to mention is that Anti-Money Laundering organisation in Paris singled out Australia for having almost no rules to prevent drug lords and other criminals from laundering their money via Oz Real Estate.
    • TT
      Tokyo T.
      27 November 2020 @ 00:24
      You should be writing more or do you have a blog?
    • bb
      bernard b.
      27 November 2020 @ 03:44
      Agreed with Nick P. I'd read your stuff if you publish more! Full marks for Joye being a contrarian and being able to smile after the fact. I don't share his enthusiasm, when so much of what he described in this interview hung on Oz unemployment being less than predicted. Hard to crystal ball this, sure - my gut says, reassess this perspective in March 21, when Jobkeeper/seeker potentially wind up. (to be fair, this interview is a couple of weeks old. China starting to knock back coal as it has, may have dampened Chris's enthusiasm,
    • NL
      Nikola L.
      27 November 2020 @ 05:41
      @ bernard b. China started to knock back lot of Oz stuff much earlier. Even with the coal they started earlier but media was not making big news in order to defuse the situation and give Aus gov chance to calm things down. But our politicians were upping the heat by making very aggressive comments and provoked the Chinese even more. By the time they realised what is about to happen and shut up, it was way too late. Chris should be aware of this and if he is he is not then he is just naïve. Reality is Australia put itself into this position because is playing the role of useful idiot – there was no reason to go to the UN and ask for investigation in covid. That is big boys playground and should have been left for US but our PM wanted to please Trump and did it. Why EU or UK did not do it? That angered China and from there on we reached a point of no return – or until there is change in Oz gov in my opinion. China will play hard ball now. Our biggest problem is that for many years many Oz governments lacked any vision and made us very dependable on China. About 30% of all our exports go to China. Our economy is reduced to digging holes (mines) and flipping Real Estate. We lack diversification. Massive strategic mistake. Do you know that (no joke, anyone can check this) Australians are paying more for Australian Gas than Japan or China? Some politicians and businessmen (yes what comes next is also true) were planning to open Gas terminal on Oz eastern coast and import Australian Gas from Japan. Irony is we lost good chunk of our agri business to US farmers who are only happy to sell to China. Lol We need to decouple from China and stop them interfering in our politics but we should have used stealth rather than go out swinging. We could have bought more time to move some of our exports to other markets and even bring some manufacturing back or out of China. So much to say but it’s Friday arvo and it’s time to get ready to go out drinking.
    • SB
      Sergei B.
      2 December 2020 @ 20:48
      You nailed it, Nikola. Agree with the sentiment that if you're not blogging already - you should definitely start.
  • RG
    Rob G.
    26 November 2020 @ 09:26
    Section on China was fascinating.
    • PH
      Place H.
      1 December 2020 @ 05:54
      One of the few economists to delve into Xi Jin Ping's mindset taking into account CCP killed Xi Jinping's sister and then applied 10 times (failed 9 times) to join CCP AFTER his sister's death. Although I don't agree with his conclusion of Xi being a pure Stalinist in it for the long haul as an explanation for his actions. I think Xi Jinping wants to destroy the CCP and China as revenge for his sister's death. His actions make more sense in this light.
  • SW
    Simon W.
    1 December 2020 @ 00:42
    Don't hunt me - I am not a bear! Surely credit supply for housing is tapped out to a point where credit creation in housing (in AUS) is dependent on credit creation elsewhere in the economy. Isn't this is the reality of capital adequacy ratios and relative weights of sectors in lending portfolios etc. and the bank's current appetite for capital to shore up ratios? And isn't affordability is also a limiting factor - and affordability is all about wage growth and the working population demographic? Cuz lets face it a 25bp fall in mortgage rates (where RBA cuts are based on) is only a saving of $1250 per annum or $25 per week on the average $500,000 mortgage where once a 100bp decline fed savings of $5,000 per annum or $100 per week! The current (Covid based) economic outlook suggests both availability of housing credit and affordability are under pressure. Save for the temporal effects of 'lifestyle' pockets being chased based on the emergence of work from home the outlook has to be one of 'peaking prices' and 'pricing stagnation' where prices appear to hold based on reduced transaction activity. Even an optimistic view of wages growth will surely face the headwind of a working population that is no longer growing.
  • JF
    Jennifer F.
    30 November 2020 @ 05:36
    Please Tell Joe Walker that he is lacking Vitamin B5, that would help his asthma. Avoiding Dairy would eliminate the gunk in his lungs and throat.
  • JF
    Jennifer F.
    30 November 2020 @ 05:36
    Please Tell Joe Walker that he is lacking Vitamin B5, that would help his asthma. Avoiding Dairy would eliminate the gunk in his lungs and throat.
  • jb
    jared b.
    30 November 2020 @ 04:38
    https://www.vu.edu.au/mitchell-institute/tertiary-education/australia-to-lose-half-its-international-students-by-mid-2021 The numbers and math don't lie. The population issue is real and isn't going away . . . what are they going to do/what can they do? No view on Australia as a whole but Sydney and Melbourne look likely to see some real pain in the years ahead.
  • CD
    C D.
    30 November 2020 @ 04:17
    Rather than "pot shots". And we don't "trade". We do move between listed equivalents. Our balance sheet's concerned with unpacking both "employment" and "capital flows" at the minute. We've sat down with demographers and economic consultants to achieve an explanation of "demand" - "supply" is pretty straight forward - it's not that simple. Like/hate 'im he's a clever dude, he is. That said, we've actively exploring a "short". In this regard we believe resi., on balance, is more horse shit than fundamentals. Thank you for your insights CJ!
  • SU
    Shakeel U.
    27 November 2020 @ 05:12
    I could smell alot of BS, either that, or Christopher Joye the best trader/investor mankind has ever produced 🙄
    • BM
      Brendon M.
      27 November 2020 @ 09:53
      Agreed. There was something odd. Chris, through his mentioning of enviable 'source' data/knowledge gathering, has a level of knowledge few viewers could imagine. So why does he sound like he is pitching for funds to save himself? With verbosity(BS) dominating..... Was it a morning interview after a late night with caffeine-stimulated soldiering? Kudos for Joe for the excellent directional interceptions.
    • RG
      Ryan G.
      27 November 2020 @ 10:50
      I was thinking the same. If they made all these calls way back then id almost suggest he and his teams are prophets.
    • JF
      Jack F. | Real Vision
      27 November 2020 @ 13:49
      @Shakeel and @Ryan check out Cristopher's article in April saying that Australian housing prices will not decline: https://www.afr.com/wealth/personal-finance/house-prices-will-not-fall-sharply-20200423-p54mj9 At the time the mainstream view was that housing would fall 20% or higher
    • MD
      Matt D.
      27 November 2020 @ 22:12
      Yep - to add to what Jack F has said below - he did call all of this very well. I was watching him do it real time.
    • jb
      jared b.
      29 November 2020 @ 22:37
      House prices have fallen in 5 out of the last 6 months using the rubbish core logic data. Here is Chris Joye's track record on house prices. https://www.youtube.com/watch?v=rRG-jHK0FT0 in 2014 he predicted a 15% decline when house prices rose approx 30%. He is good at bonds and the RBA, housing not so much. Let wait and see if he is right and we get a 15-20% increase. Digressing slightly did he really say 10 times leverage has a great "risk reward" I would ague anything 10 times leveraged is high risk and potentially high reward but potential ruin also . . .
  • BM
    Brendon M.
    27 November 2020 @ 08:19
    Did it take 10 quants and five dedicated data scientists to become convinced of a pandemic in late February? Anyone trying to get a flight to Asia knew the same. Flights were getting canceled everywhere.... I watched this video for the Australia situation insights. Especially housing. Interesting information there.
    • BM
      Brendon M.
      27 November 2020 @ 08:33
      A quick check on the S&P shows the telling gap plunge on Feb. 24th......... How late was 'late February'?
    • DS
      David S.
      28 November 2020 @ 04:42
      I believe Mr. Joye was referring to an early rebound of the market. I cannot check transcript now at the pub. DLS
  • jb
    jared b.
    28 November 2020 @ 01:27
    The RBA property model (Chris in prior media has says his model is based on) has two major items which have been excluded from this interview. The first is rents which have been in free fall largely due to the effects of a shrinking population and over supply. This is forecast to continue over the next two years by the Australian treasury. Remember the RBA cut the cash rate over the last decade by around 350bps pre covid which should have lifted purchasing power for all of those in WA but house prices dropped 35% . . . The second is the basically the assumption prices always rise. Not enough time to go into here but worth looking into before you think about investing in Australian property.
  • DB
    Dan B.
    27 November 2020 @ 12:00
    Hmmm
  • PL
    Patrick L.
    26 November 2020 @ 08:43
    Does Christopher have a throat problem? Lol
    • bb
      bernard b.
      27 November 2020 @ 03:47
      ... or a hand-brushing his wolverine hair problem?
    • MS
      Mike S.
      27 November 2020 @ 09:49
      More of both of these guys please, and regularly. Swagman should become a key part of RV’s lineup. However, Joe’s gotta quit smoking 3 packs of Marlboro unfiltered per day before his next appearance.
  • DH
    Darren H.
    26 November 2020 @ 09:19
    How does Joel have such good connections (politicians, RBA governors etc.) at such a young age? Makes me suss of his authenticity. HE IS A FED! /s jk he is probably just rich or went to the right school or whatever. Good on him for his good fortune.
    • FD
      Frank D.
      26 November 2020 @ 12:44
      Check out his podcast, well worth your time. Then you will understand.
    • MH
      Martin H.
      27 November 2020 @ 00:32
      He certainly is one for heavy censorship if you don't agree with his guests. Typical of his generation. Lost my respect totally on that front.
    • NL
      Nikola L.
      27 November 2020 @ 02:50
      he earned it. as per Frank's comments below.
    • DH
      Darren H.
      27 November 2020 @ 08:40
      Yep have listened to his podcast. I think he is great and his housing bubble series was fantastic he just seems too perfect and it feels like a psy-op, like the gov, msm, and rba have gone let’s do a podcast the kids love those. haha more likely I’m just jaded and envious of his success!!! I dunno does anyone else get an inauthentic vibe from him? Maybe I’m crazy 😜
  • TN
    Tim N.
    27 November 2020 @ 03:40
    Not sure I learned anything new from this interview. It is always off putting when an interviewee appears to show little humility. Chris seems to be closely embedded into the RBA and the political structure in Australia and I could not help but think he is the embodiment of the Cantillion effect. Note that he does not talk of any of the negative impacts of QE in terms of widening the wealth gap which is creating a powder keg under future social stability.
    • MP
      Mitchell P.
      27 November 2020 @ 06:18
      I haven't checked but I'm pretty sure he's not a social worker - he's an investment manager and his job is to figure out dispassionately which way markets are likely to go and invest accordingly - he's discussing the effect of QE in that context. In any event most of the govt stimulus in Australia recently has been in the form of paying peoples wages so they didn't end up on the streets due to Covid - not sure how that's bailing out the big end of town?
    • TN
      Tim N.
      27 November 2020 @ 07:26
      Mitchell - the big end of town and those with assets benefited the most.
  • PB
    Patrick B.
    26 November 2020 @ 18:48
    Maybe I'm missing something, but after supposedly calling all the big issues near perfectly this year (sharp, but short-lived Covid meltdown in March, exceptional V-shaped recovery, vaccines developed before year end, buying Aussie GBs etc) yet the fund is up c. just 8% YTD... https://coolabahcapital.com/performance/
    • NL
      Nikola L.
      26 November 2020 @ 22:43
      You are right. If Chris was able to predict the Feb/Mar crash, why didn’t he make 500% returns or at least 50%. Perhaps he did miss the recovery and did not go back into the market on time but his ego does not allow him to admit.
    • cj
      chris j.
      27 November 2020 @ 07:08
      Yeah that was a 8% return on a AA rated zero interest rate duration bond fund...
  • AL
    Aaron L.
    26 November 2020 @ 23:18
    Please make Chris a regular, cheers
    • Sp
      Scott p.
      27 November 2020 @ 04:24
      Agree, great interview
  • MD
    Matt D.
    27 November 2020 @ 03:22
    Great interview Chris. Thanks. We need you around here more often mate.
  • AP
    Andrew P.
    27 November 2020 @ 01:13
    Interesting to hear his thoughts on China. Would've liked him to go into more detail into China's impact on the oz housing market. Also, as he is a fund manager and apparently called this year almost perfectly, it would well be worth going into his funds' returns.
  • OC
    O C.
    26 November 2020 @ 21:31
    Woah. Was not expecting this stellar interview. Get this guy back and have him talk with Dee Smith! Very interesting and informative exposition on geopolitics as it relates to China and Xi and what it means from an investment perspective. I'm currently reading Dr. Jonathan Ward's book on China so it was really interesting to have that accommodative view that is not just US-centric. Good stuff.
    • NL
      Nikola L.
      26 November 2020 @ 23:52
      Joe is one of the most talented young men in Australia. His podcast is the best Oz can offer and probably one of the best in the world.
  • AS
    Ash S.
    26 November 2020 @ 23:02
    Brilliant Christopher! Please get him back again! Would love to hear more forward looking insights on the market next time.
  • ED
    Eric D.
    26 November 2020 @ 20:12
    My Question - Does QE alway work in propping up housing markets?
    • TM
      The-First-James M.
      26 November 2020 @ 21:43
      It has in the UK - so far...
  • JG
    Jason G.
    26 November 2020 @ 21:16
    Thank you gentlemen, fascinating insights around China as well as the expected outlook for Australia. As a fellow Aussie, I've been shaking my head at our housing bubble for years, but I guess since we're only just beginning our QE journey it seems like there won't be a 'pop' any time soon. Logical insanity?
  • GK
    Gautam K.
    26 November 2020 @ 20:51
    Christopher is brilliant!
  • IM
    Indranath M.
    26 November 2020 @ 20:19
    Section on China quite insightful!
  • ED
    Eric D.
    26 November 2020 @ 18:02
    Canadian RE prices are something to behold as well. I would love to see some interviews on here with some experts talking about this.
  • DS
    David S.
    26 November 2020 @ 17:20
    Excellent interview. Mr. Joye has a very unique ability of synthesizing analytical and practical viewpoints into a coherent investment strategy. Very rare. I hope we can see him again soon on RV. Many thanks to Mr. Walker for bringing this interview to RV. DLS
  • RM
    Richard M.
    26 November 2020 @ 15:41
    Great discussion overall and particularly the section on China - very insightful! Would love to see Joe and Chris back in 6 months for an update and any new insights they can provide.
    • DS
      David S.
      26 November 2020 @ 17:00
      Good comment. In only a few minutes Mr. Joye added greatly to my background understanding of China and political motivations within. DLS
  • DS
    Dan S.
    26 November 2020 @ 10:00
    Fascinating - thanks guys
  • CC
    C C.
    26 November 2020 @ 09:24
    Chris, Insightful as always; I read your AFR column. Great to see you on Realvision, Hope to see you more often. Would love to hear you and Raoul talk bonds and investment framework