Update 06.11.08:

World stocks tumble on grim economic news

Britain shocks with deep 1.5% interest rate cut

US retailers report steep drop in October sales

Collapse of automakers would crush economy

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The Navistar plant in Chatham, Ontario, which sits between London and Windsor, gave layoff notices to 470 workers Wednesday, cutting the employee roster by more than half. Just two months ago the Sterling truck plant down the road announced it’s shutting down completely. The GM pickup truck plant in Oshawa is shuttering next year, idling 2,600 more.

The economy’s sinking. There are too many trucks already.

Meanwhile GM and Chrysler inch forward on their merger talks, which will end up closing giant assembly plants in southern Ontario. That deal will also wipe out at least one major car dealership in every sizeable town in the country, and scores of them in cities. But if it does not take place, both companies could be in bankruptcy status within months.

After all, car sales last month were the worst since the end of the War. The situation, reporters were told, is more than dire.

This is devastating news, of course, as will be the announcement on Friday of more cuts at the once-mighty General Motors. Meanwhile word has just arrived that the Toronto real estate market – sadly, as I predicted – has started to unravel. Prices were down on an annualized basis by 13% in October, and the average house now costs less than it did two years ago.

Housing sales are off 35% in Toronto, 55% in Vancouver and 26% in Calgary. This makes every homeowner a little less wealthy, which is tough news since most of us have most of everything in real estate. The worst situation is for anyone who bought in the last year or two, with little or no money down. If they are not in negative equity now, they soon will be.

This, as you know, is what helped destroy the American economy and lead, in part, to the election of Barack Obama this week. Americans need change in order to stave off what could be an economic depression, and the expectations of the new prez are wholly unrealistic.

In Canada you should expect a replay of what has happened to the south. Our housing market is devolving in a similar fashion, and prices will continue to drop until the average family can afford the average home with a 15% downpayment and carrying costs of about a third of gross income. Since the average family now earns $75,000, that would put the readjusted average house value at $270,000.

That price is $100,000 less than the average home in the GTA or Calgary right now, and $430,000 less than the average Vancouver resale. That should give you an indication of what the next two years might deliver.

Clearly the economy is growing weaker, job prospects dimmer, homeowners poorer and investors more panicked. With the election of Obama, over the coming months markets and consumers will be waiting for some kind of miracle. Likely, it won’t come. There is no magic bullet. No solution to the packaging and selling globally of $4.2 trillion in toxic subprime debt; for millions of people with mortgages they can’t pay and millions; for millions more who owe more than they own.

As mentioned, I am writing a new book on what happens after this initial crash, for publication in January. The more I read, research, interview and dig into the root causes, the trends and the inevitable consequences, the more I am convinced we’re in the early stages.

Obama’s election this week was a certainty. He embodies hope.

Were that all it will take.

(Also posted at garth.ca)

Scary chart of the Day: