A monkey off my back

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The Keen Walk to Kosciuszko was a fab­u­lous experience—as Matt Car­roll (one of the orga­niz­ers) put it, it was “the best hol­i­day ever”. That’s not to min­i­mize the effort involved: cov­er­ing 235 kilo­me­tres on foot in 8 days is no mean feat. But the com­bi­na­tion of great com­pa­ny, per­son­al suc­cess for all involved in an impres­sive phys­i­cal chal­lenge, love­ly scenery, excel­lent weath­er, and a cause that unit­ed a remark­able group of peo­ple, made The Walk far more plea­sure than pain.

(The Walk was also a suc­cess­ful fund-rais­ing ven­ture, gen­er­at­ing over $5000 for Swags For Home­less–enough to give 85 home­less peo­ple a portable bed in which to sleep–see the video fur­ther down. Please con­sid­er adding to our fundrais­ing tal­ly by click­ing on one of the Swags For Home­less links here)

This was­n’t what was intend­ed of course: The Walk was sup­posed to be a “Walk of Shame”, as sev­er­al head­lines termed it , for me being “hope­less­ly wrong on house prices” (“Walk of shame for pro­fes­sor who tried to burst house bub­ble”; “Walk of shame for econ­o­mist”). Instead, it turned into a suc­cess­ful protest against the hous­ing bub­ble, whose exis­tence even RBA Gov­er­nor Glenn Stevens recent­ly (and brave­ly) acknowl­edged on prime time tele­vi­sion (“Rates to rise, prop­er­ty spec­u­la­tion a ‘mis­take’”).

The Walk had its gen­e­sis in a “Vital Issues Sem­i­nar”, a series run by the Par­lia­men­tary Library to keep politi­cians and their advis­ers abreast of com­pet­ing views on impor­tant issues. Mac­quar­ie Bank inter­est rate strate­gist Rory Robert­son and I shared the bill on Novem­ber 26th 2008 (the month after the Gov­ern­ment intro­duced what I pre­fer to call the First Home Ven­dors Boost, with the unspo­ken objec­tive of sup­port­ing house prices–see “Res­cu­ing the Econ­o­my or the Bub­ble?” and “FHB Boost is Australia’s “Sub-prime Lite””), in what was billed as “Eco­nom­ic futures: two views”. In the mid­dle of his presentation—and with­out any pri­or warning—Rory sprang the bet on me in front of 80–100 Par­lia­ment House staffers (and some politi­cians).

Hav­ing been caught by sur­prise, I agreed to it before hav­ing a chance to nego­ti­ate terms. I sub­se­quent­ly found that I had in effect signed a near blank con­tract with a banker, leav­ing him to fill in the details—not some­thing that I rec­om­mend any­one do.

Click to donate to Swags for Home­less

Now that The Walk is over, I can revis­it a vital issue of my own: what the bet real­ly was about in the first place. For­tu­nate­ly the debate was record­ed, and when Rob Burgess of Busi­ness Spec­ta­tor turned an impar­tial ear to it (Rob came on The Walk to report it for Busi­ness Spec­ta­tor: click here to read the series), his con­clu­sion was that the bet was that:

Keen must walk to Kosciusko if nom­i­nal house prices fall by less than 20 per cent before Octo­ber 2013. (“KEEN’S DEBT MARCH: Rory’s repu­di­a­tion”)

Need­less to say, that’s very dif­fer­ent to how Rory inter­pret­ed it: his ver­sion was sim­ply that the bet was over—and he had won—once prices rose past the peak set in Sep­tem­ber 2008 (the quar­ter before he pulled the bet on me). But Burgess’s sum­ma­ry is an accu­rate inter­pre­ta­tion of our dis­cus­sions that day. If you have the time, you can decide for your­self by lis­ten­ing to the record­ing; if you don’t, here are the rel­e­vant seg­ments, tran­scribed from the one hour debate (the key pas­sages relat­ing to how the bet should be inter­pret­ed are high­light­ed in bold).

36:35 sec­onds into the record­ing: Rory: I think some peo­ple here prob­a­bly came today to hear about why house prices are going to fall 40 per­cent, so that’s what you’re most famous for at this stage. So what I was going to do, in the spir­it of com­pe­ti­tion or what­ev­er, Steve’s a bet­ting man, he sold his house.. so what I would say is if, I think it was 40 per­cent on aver­age across Aus­tralia, is that what it was?

Steve: Yeah, but over a ten to fif­teen year peri­od mate, so…

Rory: so, all right, it’s a long term thing

Steve: but over the long term I’m will­ing to stick to it.

Rory: Well how about this? If Aus­tralian house prices as mea­sured by the Sta­tis­ti­cian fall from peak to trough in nom­i­nal terms by 40 per­cent, I will walk from Can­ber­ra to the top of Kosciuszko, and if in fact Aus­tralian house prices fall by less than 20 per­cent, so if it just turns out you’re less than half right, … I will wear a shirt say­ing “I was hope­less­ly wrong” if they fall 40 per­cent, you should wear a shirt say­ing “I was hope­less­ly wrong” if it does­n’t…

43:50: Rory: The Aus­tralian mar­ket is down 1.8 per­cent in the third quar­ter basi­cal­ly, so take that as the high point for our bet…

58:10: Steve: I think the tim­ing of what we’re going through is quite dif­fer­ent to Amer­i­ca. On that point about Aus­tralia not being as irre­spon­si­ble on lend­ing, we did­n’t lend to the same peo­ple … irre­spon­si­ble bor­row­ers rather, but we lent as irre­spon­si­bly to the entire nation.

If you look at the house­hold debt to GDP ratio, in Aus­tralia it’s 2 per­cent high­er than in Amer­i­ca right now. The ratio here is 98 per­cent, the Amer­i­can ratio is 96 per­cent. If you go back to the 1990s, we had half the Amer­i­can’s ratio—which of course was low­er back then than it is now. So we’ve been lend­ing to a broad­er part of the com­mu­ni­ty, which is why you haven’t had a col­lapse in the hous­ing mar­ket straight away.

But what will hap­pen when the debt slow­down strikes and peo­ple stop bor­row­ing mon­ey, we won’t have the same degree of spend­ing, that will cause a decline both in asset mar­kets and also in employment–in the retail trade in par­tic­u­lar cause house­holds are the ones who’ll cut back on spend­ing this time round. A retail led… well, reces­sion would be a polite word for it, a very extreme drop in retail sales, increase in unem­ploy­ment and then any­one who has a mort­gage and no longer has a job will lose the house, and you will then have a cred­it crunch com­ing after the event.

So I see the Amer­i­can process as being a hous­ing cri­sis, a cred­it crunch and then macro­eco­nom­ic; we’re going to go through macro­eco­nom­ic, hous­ing and then a cred­it crunch after that. And I see it tak­ing about five years. When that hits, then we’ll be in the same sit­u­a­tion as the Amer­i­cans.

59:35: Rory: I’m still only going to give Steve five years to get his 40 per­cent. (Ban­ter over the top of each oth­er at this point)… I would say that the debt to income ratio that Steve Cites aren’t near­ly as impor­tant as the inter­est pay­ments to income ratio, and the Reserve Bank has just cut them…

60:15: Rory: It’s only just begun, right? They cut by 2 per­cent­age points in three months over 4 meet­ings… The down 2 per cent in Q3 was due to the Reserve Bank’s delib­er­ate effort to crunch the house­hold sec­tor and house prices, and now it’s the Reserve Bank’s delib­er­ate effort to sup­port the econ­o­my as much as it can, and the hous­ing mar­ket in par­tic­u­lar.

Steve: The only way that’s going to work how­ev­er is they actu­al­ly encour­age Aus­tralians to con­tin­ue bor­row­ing mon­ey, because a large part of the demand’s by increas­es in the lev­el of debt. Now that’s how we got out of the 1973 down­turn, it’s how we got out of the 1990s down­turn. We start­ed bor­row­ing mon­ey again. Do you think Aus­tralians are going to start increas­ing their debt lev­els again? I’m sor­ry, I don’t. I think we’re reached a sec­u­lar turn­ing point, not just a cycli­cal but a sec­u­lar turn­around.

In that case, each 1 per­cent cut by the Reserve Bank reduces the finan­cial bur­den on the econ­o­my by about 18 bil­lion dol­lars, which is sub­stan­tial. But if Aus­tralians sta­bilise their debt lev­els, or try to reduce them by 100 bil­lion dol­lars a year, that’s five times the scale of each 1 per­cent­age inter­est rate cut. We can’t cut more than anoth­er 5 per­cent.

67:30 to End: Shar­ryn Jack­son MP (Chair­ing): We also wit­nessed of course, the bet, but we might have to clar­i­fy pre­cise­ly what… (drowned out by chat­ter).. And I’m sure we’ll all look for­ward to one or both of you wear­ing a T‑shirt say­ing “I was hor­ri­bly wrong”…

Burgess arrived at his sum­ma­ry by com­bin­ing my long term pre­dic­tion (that house prices would fall by 40% over 10–15 years) with Rory’s time frame (“I’m still only going to give Steve five years to get his 40 per­cent”). Since Rory set a time frame of 5 years, and my call was for a 40% fall over 10–15 years, a halfway call—that I’d lose the bet if house prices did­n’t expe­ri­ence a 20% fall over the five years between Novem­ber 2008 and Octo­ber 2013—is a fair com­pro­mise between our posi­tions.

So why did I walk any­way, over three years before the bet will be up? Because I realised that if I did­n’t, Rory and the prop­er­ty lob­by would pil­lo­ry me for hav­ing welshed on the bet as Rory had inter­pret­ed it. So the best tac­tic for me was to under­take The Walk, and turn it into a protest march—after I had Rory agree that, if prices ever did fall by 40%, he would also walk.

In May 2009,  the Rudd Gov­ern­ment extend­ed the First Home Ven­dors Boost for anoth­er six months and I felt that prices were now cer­tain to breach the Sep­tem­ber 2008 lev­el. Email cor­re­spon­dence between myself, Rory and Chris Joye in June 2009, evoked agree­ment from Rory that he would walk if there was ever a peak to trough fall of 40%.  Thecor­re­spon­dence on this is repro­duced at the end of this sto­ry: ordi­nar­i­ly I would­n’t repro­duce such emails, but Rory at one point pub­licly denied that he had any oblig­a­tion to walk—see “Keen the los­er walks”. This cor­re­spon­dence there­fore belongs in the pub­lic domain.

Now, cour­tesy of Burgess’s con­sid­ered inter­pre­ta­tion of the bet, if prices fall by 20% or more at any time between now and Octo­ber 2013, Rory should walk.

The Walk

One thing Rory did­n’t know when he pulled the bet on me is that, while a lot of peo­ple of my age (57) might have recoiled at the very thought of a 225km walk, it actu­al­ly appealed to me. I am not in Tony Abbot­t’s class as an endurance ath­lete, but I have done the odd 1km swim /30km bike ride / 10km run triathalon (includ­ing the now defunct 2DAY-FM series which includ­ed a swim across Syd­ney Har­bour), a fair few half-marathons (I’m doing the 2010 one this com­ing week­end) and numer­ous City to Surfs.

Steve Keen’s Debt­watch Pod­cast 

| Open Play­er in New Win­dow

So I approached the event with a pos­i­tive per­spec­tive, see­ing it as a chance to get back into shape, and also do some­thing that few oth­ers would have done. I also expect­ed that some of the 4,000 mem­bers of my blog (and its rough­ly 50,000 read­ers each month) would also find the idea attrac­tive.

So it tran­spired: once I put the invi­ta­tions out on the site www.keenwalk.com.au, about 40 peo­ple put their hands up to join me for any­thing from an after­noon’s walk to the whole trek from Par­lia­ment House to Mt Kosciuszko. That turned what could have been a very soli­tary affair into a move­able feast of cama­raderie. Over­all about 40 peo­ple took part in The Walk, includ­ing 8 walk­ers (and sev­er­al sup­port crew) who made it all the way.

I expect­ed the Keen Walk­ers to be an eclec­tic lot, but even I was amazed. There were many IT pro­fes­sion­als and some engi­neers (some­thing I had expect­ed since there are many com­put­er pro­gram­mers and engi­neers on the Debt­watch blog), sev­er­al peo­ple from the finance indus­try itself, an econ­o­mist, jour­nal­ists, an ex-rock­et sci­en­tist, small busi­ness­men, sev­er­al RAAF per­son­nel, a train dri­ver, and an ex-real estate agent. As well as hav­ing the inevitable dis­cus­sions about house prices and debt, I found myself engrossed in con­ver­sa­tions about assem­bler-lan­guage pro­gram­ming, Nel­son’s vic­to­ries in Egypt and Water­loo, quan­tum mechan­ics, XML cod­ing, impres­sion­ist painting—and fre­quent­ly sim­ply dis­cussing the beau­ti­ful scenery, the phys­i­cal chal­lenges ahead of us, and the inor­di­nate­ly hot weath­er.

It did seem that the heav­ens were smil­ing on us. I chose late April because I guessed that this would be the best com­pro­mise between scorch­ing Sum­mer heat and unpre­dictable alpine bliz­zards; as it hap­pened, we had eight glo­ri­ous days of sun­shine and only one day—the final one on the Moun­tain itself—of win­try alpine con­di­tions. The heat was so marked that we altered the start time for the morn­ing runs from 10am to as close as we could man­age to 7am.

Each day began with a hearty break­fast with the entire troupe, fol­lowed by a prepara­to­ry mas­sage for me from our masseur Ania Pawliszak. Then we ran between 12 and 19km depend­ing on the day, cov­er­ing the ter­rain at an aver­age speed of about 10 kilo­me­tres an hour, includ­ing many uphill legs when I slowed to a Cliff Young shuf­fle (as in the video above).

The run leg was also far more social than I had expect­ed. I upped the ante on the bet by run­ning half rather than mere­ly walk­ing, sim­ply because the walk on its own would­n’t have been chal­leng­ing enough. I expect­ed this would give me a soli­tary morn­ing fol­lowed by a social stroll in the after­noon, but on most days I had four or more co-runners—notably the two Dav­es (every sec­ond per­son seemed to be called Dave), Adam, John, and my friend and fel­low econ­o­mist Liam. Con­ver­sa­tions con­tin­ued as we huffed and puffed up the many rolling hills on the Monaro High­way.

Then we took between 30 min­utes and 2 hours over lunch at one of the many rest spots on the side of the road. Ania again mas­saged me and any­one else who was hav­ing dif­fi­cul­ties after the morn­ing run, and we set off once more for the after­noon walk.

Except for the first evening, when we walked over 21km out of Can­ber­ra and stopped at the paint­ball facil­i­ty on Old Tug­ger­a­nong Road, we fin­ished the walk before sun­set and had plen­ty of time to relax pri­or to din­ner. Ini­tial­ly we were some­what restrained in evening activ­i­ties, but as the trek wore on and it became appar­ent that every­one was going to fin­ish, the evening’s din­ners became more extend­ed and even more social. I was giv­en a les­son in pool (and pool hus­tling!) by David Hirst one evening; on anoth­er we relaxed in the spa at the Best West­ern Marl­bor­ough Motor Inn in Cooma.

The trip was well planned and mar­shalled by Matt Carroll—who is the pub­lic offi­cer for the new­ly formed Cen­tre for Eco­nom­ic Stability—and as the days went on, var­i­ous walk­ers would take on addi­tion­al tasks to make things run more smooth­ly still. Peter Ren­shaw and his RAAF bud­dy organ­ised the walk­ers (who nor­mal­ly left an hour or so ahead of the run­ning group each morn­ing so that we’d fin­ish at rough­ly the same time for lunch); Dave Law­son became de fac­to cam­era man; and pri­or to the event, Col­in McK­ay arranged and paid for the print­ing of the T‑shirts.

Dun­can even became our de fac­to “Choice” man for Swags, test­ing set­ting one up and sleep­ing in it overnight (or at least until 3am, when the Jind­abyne Coun­cil sprin­kler sys­tem turned on!).

Steve Keen’s Debt­watch Pod­cast 

| Open Play­er in New Win­dow

The Walk was a won­der­ful instance of how coop­er­a­tion can turn a poten­tial­ly ardu­ous task into a plea­sure.

Though I’m sure we would have ulti­mate­ly tired of the Walk had it gone on for anoth­er week or so, by the final day there was a sad­ness that it would soon be over. The walk­ers set out ear­ly, led by Peter Ren­shaw and his RAAF bud­dy (who prefers to remain nameless—let’s call him Dun­can), and Dave Lind­burg and I set out an hour lat­er for our final run. As usu­al, Dave beat me to the fin­ish at Char­lot­te’s Pass; then after a safe­ty brief­ing by Peter and Dun­can, we set out for the 18km return jour­ney to the sum­mit.

I was pleased to be joined for this stage by Peter Mar­tin, the Eco­nom­ics Cor­re­spon­dent for The Age. Peter was also there for the start of The Walk at Par­lia­ment House, but the 9km from Char­lot­te’s to Kosciuszko gave us far more time for a detailed con­ver­sa­tion about why neo­clas­si­cal economics—the dom­i­nant school of thought that, until the GFC occurred, did not believe that such events could occur—was so bad­ly flawed.

The weath­er was mild at the start of the day, and turned severe as only alpine regions can. As we walked towards the peak, we found our­selves inside a cloud with wind speeds approach­ing 50 km/hr, and the wind chill fac­tor drove the effec­tive tem­per­a­ture well below zero. The warm weath­er gear I’d bought for The Walk—running gloves, a gor­tex jack­et and run­ning skins– final­ly came in handy, as did the cold weath­er gear that has got me through sev­er­al win­ters in Nor­way and Roma­nia. I reached the peak look­ing like more arc­tic explor­er than jog­ger.

Unfor­tu­nate­ly that meant my “I was hope­less­ly wrong” T‑shirt was buried beneath sev­er­al lay­ers of cloth­ing. I began to take them both off for the sake of the pho­to­graph­ic proof that I wore the T‑shirt all the way, as required by the bet, but once again, the self-organ­i­sa­tion of the group saved the day. Dave Lind­berg had realised this might hap­pen, and had car­ried a spare T‑shirt just in case. We pulled it over my head with frozen fin­gers in a gale, and the final pho­tos on the peak were tak­en.

We then wait­ed for every­one else to arrive—including Nina Shedrin, at 59 the old­est mem­ber of the group and the only woman (apart from Ania) to cov­er the entire dis­tance. All touched the pil­lar of stones that marksS the coun­try’s high­est spot. I final­ly sat down to enjoy the feel­ing of hav­ing fin­ished a sub­stan­tial task—and to get out of the bloody wind.
Then we downed the rations that our RAAF con­tin­gent and Peter had brought with them, and final­ly, after too long in the wind, start­ed the 9km jour­ney back to Char­lot­te’s Pass.
Part of the way there, Peter Mar­tin and his two pho­tog­ra­phers peeled off to stay in the Kosciuszko Hut and file their story—Peter not­ed on the way that he was look­ing for­ward to fil­ing an eco­nom­ics sto­ry with the byline of “Peter Mar­tin, Kosciuszko”). The rest of us walked on, and then wait­ed until all were account­ed for before dri­ving back to Jind­abyne (Matt Car­roll eschewed the car to enjoy free­wheel­ing Aus­trali­a’s longest down­hill run).

That night we had our final very fine din­ner at the Jour­ney Wine Bar, after which sev­er­al mem­bers of the par­ty took to late night swim­ming in the lake, and some woke up the next morn­ing hav­ing not sobered up from the night before.

I can’t fin­ish this sto­ry any bet­ter than did Rob Burgess in his per­son­al post on www.keenwalk.com.au, so I won’t try. In Rob’s words:

Which brings me back to where I began – that this walk was about much more than house prices. The world is in an extra­or­di­nary state of flux, as if some reck­less per­former were spin­ning too many plates before a daz­zled, fright­ened audi­ence. Most of us see at least one of those plates falling soon (Chi­na, Greece, hous­ing, sov­er­eign debt, the stretched bios­phere, myr­i­ad forms of social dis­in­te­gra­tion, the stock mar­ket – take your pick), but if we are to pre­vent the rest crash­ing down around us, and start rebuild­ing, we’ll need plen­ty of good-heart­ed and intel­li­gent peo­ple to stand up and act – not just to pas­sive­ly say “the system’s bro­ken”, but to throw all their tal­ents into answer­ing the ques­tions “What’s bet­ter?” and ”What’s next?”

On this walk I saw a bunch of peo­ple with all the tools required to get to work on this mam­moth task. We may not do this togeth­er, but the choic­es we make in our respec­tive walks of life will, I hope, be sus­tained by the mem­o­ry of this epic walk – or bet­ter still by keep­ing in touch with and encour­ag­ing one anoth­er as this dif­fi­cult phase of his­to­ry unfolds.
As I dropped Nina off at her south Mel­bourne flat late on Sat­ur­day night, I told her what I’d said to every oth­er mem­ber of the par­ty as we said good­bye: “Let’s all meet and climb that moun­tain again in ten years’ time.”

Nina shook her head. “No,” she said, “That’s too long. Make it five.”

Thanks to all of you for giv­ing me an expe­ri­ence to trea­sure, and a wealth of ideas and inspi­ra­tion to take into the future. Keep in touch. And keep walk­ing…

Indeed! As Burgess also observed in his post on the bet itself, “Oh dear. I hope Macquarie’s Rory Robert­son hasn’t thrown out his walk­ing boots… There’s no doubt the bet is still on – still for the tak­ing. Yet the thought of Keen win­ning this bet remains a ter­ri­fy­ing prospect.”

Click to donate to Swags for Home­less

Thanks again to every­one who took part, and to every­one who made it a suc­cess­ful fund-rais­ing ven­ture for Swags for Home­less too. And it’s not too late to make a dona­tion… every $60 raised will give one home­less per­son a portable bed to make home­less­ness some­what more bear­able.


Thanks also to Sta­mi­nade for donat­ing their sports drink to The Walk. I had already decid­ed to use Sta­mi­nade rather than any of its com­peti­tors because it is the only one to include Mag­ne­sium as well as Potas­si­um in its mix­ture; the fact that is an Aus­tralian owned com­pa­ny man­u­fac­tur­ing its prod­uct here was an added bonus.

That’s not a knife”: email correspondence about the bet in June 2009

From: Rory Robert­son [mailto:Rory.Robertson@macquarie.com]
Sent: Wed 6/3/2009 4:41 PM
To: Steve Keen
Cc: Christopher.Joye@rismark.com.au
Sub­ject: RE: That’s not a knife…
I saw rp data ceo going to spon­sor your (even­tu­al) walk…maybe CJoye will put his hand into his deep pock­ets as well.
All good fun.
—–Orig­i­nal Mes­sage—–
From: Steve Keen [mailto:S.Keen@uws.edu.au]
Sent: Wednes­day, 3 June 2009 4:22 PM
To: Rory Robert­son; Christo­pher Joye
Sub­ject: RE: That’s not a knife…
Yes whoops, 40% or more (78.6 or below) is you, 20% or less is me (104.8 or above). I wrote too quick­ly before­hand.
With the prospect that we both might get some alpine exer­cise agreed, I’m hap­py with the terms. Chris’s ideas and the RP-Data web­site etc. could all be car­ried out as well.
Cheers, Steve
From: Rory Robert­son [mailto:Rory.Robertson@macquarie.com]
Sent: Wed 3/06/2009 4:12 PM
To: Steve Keen; Christo­pher Joye
Sub­ject: RE: That’s not a knife…
Steve…please check your calculations…40% drop from 131 peak is 78.6 on abs index…that’s when I would walk.
If that 131 lev­el is regained in any peri­od of time after a fall of less than 20%…doesn’t touch as low as 104.8… then you have com­mit­ted to walk.
recall that down 20% to down 40% is no-man’s land…
writ­ing “I’m will­ing to gam­ble that 131 was the peak” seems bizarre to me…it’s a mat­ter of fact that 131 was the peak…the obvi­ous and only peak that matters..we now are bet­ting on the trough that follows…you say 78.6 or low­er, I say high­er than 104.8…
talk about what might hap­pen AFTER 131 regained short time or long time is beside the point (per­haps “a triv­ial peak to peak with a minor trough”)…
hav­ing said that…if abs or chris’s index ever falls 40% from its peak lev­el in 2008 — over any num­ber of decades — I will walk…
—–Orig­i­nal Mes­sage—–
From: Steve Keen [mailto:S.Keen@uws.edu.au]
Sent: Wednes­day, 3 June 2009 3:50 PM
To: Rory Robert­son; Christo­pher Joye
Sub­ject: That’s not a knife…
Dear Chris and Rory,
There is a def­i­n­i­tion­al issue for a trough. The bet was peak to trough, and you need sub­stan­tial top and bot­tom inflex­ion points to iden­ti­fy both–one blip at either end won’t do. But nor do we have to wait until the old peak is restored to iden­ti­fy a trough, which is the way Rory defined it below.
There is there­fore a need to define this more pre­cise­ly, but I’ll start by say­ing that if the index (ABS 641601, “Price Index of Estab­lished Homes ; Weight­ed Aver­age of 8 Cap­i­tal Cities ;”) is above 131 by the end of this year then I will walk. But if it falls below 104.8 at any time in the next ten years, Rory walks as well.
If on the oth­er hand it falls to say 100 and then there’s a full year of ris­ing read­ings, then Rory is off the hook.
I’m will­ing to gam­ble that 131 was the peak, but it’s pos­si­ble that the First Home Ven­dors Boost could push it up past that lev­el before the end of the year, only to see it fall again a lot more after then. My expec­ta­tion of a very large fall over 10–15 years would then be vin­di­cat­ed, and if it’s half as big as I nom­i­nat­ed (40%), the Rory walks–even if I have already walked before­hand.
In oth­er words, we’ve got a Croc­o­dile Dundee sit­u­a­tion here: there could eas­i­ly be a tem­po­rary boom–especially but not sole­ly the FHVB, and if the bet was whether house prices would be above the March 2008 lev­el in the next two years, I would­n’t have accept­ed it. But I’m talk­ing a large scale rever­sal over sub­stan­tial time peri­od. We could have a triv­ial peak to peak with a minor trough, fol­lowed by a “Now this is a knife” peak to trough after­wards.
Cheers, Steve
From: Rory Robert­son [mailto:Rory.Robertson@macquarie.com]
Sent: Wed 3/06/2009 11:00 AM
To: Christo­pher Joye; Steve Keen
Sub­ject: RE: Web­site
chris and steve…i’m sur­prised there’s talk of con­fu­sion on basic peak-to-trough detail of bet…after all, the size of any peak-to-trough fall is set in con­crete when series in ques­tion touch­es old high…it’s def­i­n­i­tion­al…
peak was last year…whenever price series hits that old high again, whether after 2 years or 20 years, the size of the peak-to-trough fall is set­tled. only issue then will be whether the fall is big enough (-40%) to make me walk or small enough (less than ‑20%) to make steve walk.

chris, i’m hap­py for you to track/promote the bet using your measures…promoting your prod­uct by say­ing abs mea­sure even­tu­al­ly will catch up with real­i­ty. but for me it’s nei­ther here nor there which series we use.…growth in abs and rpdrm series nev­er will dif­fer by more than 5pp… if steve wants to walk soon­er (via rpd-rm mea­sure) rather than lat­er (abs mea­sure) that’s fine with me, but i feel no need to fine-tune details of bet.
From: Christo­pher Joye [mailto:Christopher.Joye@rismark.com.au]
Sent: Wednes­day, 3 June 2009 10:15 AM
To: Rory Robert­son; S.Keen@uws.edu.au
Sub­ject: Web­site
Hav­ing spo­ken to you both, this is what I pro­pose to do (under­stand­ing that you reserve the right to dis­agree!):
1) Steve is keen for us to use an inde­pen­dent index that cap­tures all prop­er­ties and is hap­py to use the RP Data indices on the basis that I have dis­cussed with him;
2) Rory is hap­py for RP Data to track the bet using their indices, but, as he not­ed, is also com­fort­able rely­ing on the ABS mea­sure;
3) RP Data have agreed to build for free a web-page with graph­ics etc that is explic­it­ly designed to track the bet using RP Data’s indices;
4) RP Data will donate $1,000 to the bet’s win­ner assum­ing that there is agree­ment on when the bet is won/lost;
5) RP Data will also assist with a fund-rais­ing cam­paign for the los­er to assist them raise mon­ey for char­i­ty for their hike up Mt K;
6) I will have you each per­son­al­ly approve/sign-off on the web­site con­tent before it is for­mal­ly uploaded.
Kind regards,

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