Saturday, May 25, 2019

"Vancouver, Casinos and Grandmothers"

From The Macro Tourist:
“Do you mind if I have a pull?” the well dressed gentleman asked.
The grandmother had been sitting at the dollar slot machine for over an hour. The tokens disappearing faster than when you drop a burger on the floor in front of your labrador retriever. Why not? She thought to herself, let him feed the bottomless pit for a bit.
“Sure. Be my guest. But I warn you, it hasn’t been nice.”

“Thanks. Awfully kind of you. I don’t know why, but I feel lucky tonight. All the machines are in use, so I appreciate you letting me play my hunch.”
She watched the man remove a Bellagio one-dollar-token from his expensive suit and slip it in the slot. Then he pressed the button. The machine whirled and spit out the bad news.

With a big smile, he took out another token and tried again. No luck.
“One last time” he laughed as he pushed his final token into the slot machine.

Then it happened. Instead of greeting him with bad news, the machine blazed WINNER! WINNER! WINNER!
The man flashed a mischievous grin and said to the grandmother, “You have been playing this machine for a while. That’s your money. You take it.”
“Oh no” she responded, “you were the lucky one. It wouldn’t have happened for me. I insist you keep your winnings.”

“I tell you what. How about we take this money over to the craps table and try to turn it into some real dough? If we lose, so be it. If we win, we split it.”
What the heck she thought to herself. I don’t get over to that side of the casino often. It might be fun.
“Let’s do it” she said packing up her belongings.
As the night progressed, she realized this man was indeed lucky. Somehow they kept winning at the craps table. And it was so much fun.

He kept asking if she wanted to take her half and cash out. But she didn’t feel right taking his money. Besides, she didn’t want the evening to end. Why not let the fun continue until he inevitably loses it all? It will make a great story to tell the ladies in the bridge club.
Another hour and a half later, she suddenly realized how long they had been playing. Sobering up, she had a good long hard look the big pile of chips in front of the gentleman and said, “What are those orange chips?”

“Oh, you mean the pumpkins? Those are worth a $1,000” he told her.
“And the red ones?”
“Ahh… the cranberries? They’re 5k. And these little gems - they’re $25k”
Holy smokes she thought to herself as she stared at the pile of chips.

“Uhhhhhhh….” she stammered as she tried to estimate the value, “I think I’ll take my half now.”
It turns out they had won well over half a million dollars. After counting it out, the man handed her stack of chips worth a little less than $300k and thanked her.
As she was walking away, she said, “Peter, I never got your last name.”
“Brown. Peter Brown. Nice to meet you.”

Little did that grandmother realize, but she had been playing craps with one of Vancouver’s most legendary financiers. From that chance encounter, that nice old grandmother took her winnings and put all of her grandkids through university. For the rest of her life, she never missed sending Peter a Christmas card.

Vancouver real estate
Some people are lucky enough to be born smart, while others are smart enough to be born lucky. Peter most likely falls into the latter camp but I suspect he got a healthy dose of both traits.
Although I love telling that story about Peter and the grandmother, it’s not his casino exploits I admire most, but his ability to ride bull markets and most importantly, get off without being left holding the bag. Now some of my Vancouver pals will tell me that Peter was notorious for selling their “promote” too early, but I don’t view that as a bad thing.

Which brings me to the topic of today’s discussion.
Peter owned a sprawling house in Vancouver’s tony Point Grey district. Of course he did. Peter didn’t do much at less than full speed. The house was almost 15,000 square feet with a little less than 2 acres of land.

But most importantly, it was in the city, yet boasted an incredible view of the harbour.

I am using the past tense when describing Peter’s house because he sold it. For $31 million. To a…(wait for it, this is the best part)… to a… student.

As usual Peter was a little early, but when you are trading size, you feed the ducks when they are quacking. And no doubt about it, in May of 2016 it was like a Ducks Unlimited convention in the Vancouver real estate market.

It’s starting to sink
Peter probably came as close to top-ticking the Vancouver real estate market as humanly possible. Although many charts will show you how prices continued to go up, these are the same indexes currently indicating only a modest downtick over the past half a year.

Talking to my buddies from Vancouver, it is obvious the market is soft. Really soft. There is way more going on than the charts indicate. Rich people often sit on their hands in real estate downturns, so it’s still unclear where the real bids are, but suffice it to say we have already had a decent correction in Vancouver housing prices. Especially at the top end. Like the kind of top end Peter used to own.

Why is that?