End badly

end_badly1

Some days ago, I made three predictions. In a year…

* The prime rate will have doubled.
* Oil will be $100 a barrel.
* The dollar will be at par.

Since then, mortgage rates jumped for the second time in as many weeks. A lot, actually. Sixth-tenths of a point in a few days, taking a five-year closed term to 5.85%.

Oil closed Wednesday in excess of $71 US. This means the black stuff has risen 100% in price in the last three months. If these were normal times, that would be shocking and consequential news – especially since gas will again be $1 a litre in a few days.

The buck now sits just north of 90 cents, driven higher by oil but depressed by a collapse in Canadian trade. Meanwhile the US dollar continues to drift lower, a trend which will define the future.

Obviously, if I’m half right, the cost of living will increase (mortgage rates and gas prices alone will do that), which erodes disposable income, and yet the economy will stagnate (a high dollar kills exports and manufacturing jobs, if there are any left).

It’s precisely this scenario – rising loan costs, big energy price hikes, reduced consumer spending and a jobless recovery – which make me wonder what the hell current real estate groupies think they’re doing. It’s hard to imagine average home prices rising over the next couple of years, while mortgage rates are destined to jump substantially. In normal times, that financial vice would crack the nuts of even the staunchest property squirrel, but now there are almost no voices of caution being heard.

So, pity the child buyers. Born circa 1985, they were in Huggies the last time the equity markets tanked, and have grown up in an era marked by growth, rising prices, jobs and dirt cheap interest rates. So when prices drop a little and mortgages sink in cost, they see this as a giant buying opportunity.

This will end badly. Eight months after the crash, we’re at it again – encouraging inexperienced young couples to buy assets very likely to fall in value, with little or no equity, financed by leveraged loans which will grow every more costly. Hard to think of a worse plan.

So, if you want to score, use more head than hormones.

Rates, oil and loonies will all be rising. If you can’t figure out how to turn that into money you don’t deserve much.

139 comments ↓

#1 Brandon on 06.10.09 at 11:37 pm

Spot on, Garth. You even got my year down.

Many my friends have made the housing plunge in the last 8 months… and a majority of the rest plan on buying within the next 4 months. I’ve tried to warn them, but as soon as a few of them did it, it was too late; the domino effect was too strong to stop them…

#2 nonplused on 06.10.09 at 11:57 pm

Well, a year out is a long time to make predictions these days! But let’s look at Garth’s predictions, using the maxim from Bill Bonner that “Things that can’t go on forever, usually don’t”.

• The prime rate will have doubled.

The prime rate was driven below the real rate of inflation. Who in their right mind would own a bond that pays less than inflation, and pay taxes on the interest so they get even less money to them than the already below the rate of inflation rate? Nobody who is thinking. Better to buy lots of MRE’s, solar panels, a genset, ammo, clothes, anything! These things are more expensive every year and there is no tax after you pay the GST so buy that instead of bonds. This trend will continue. The lack of buyers for bonds is already affecting the long bonds. Even China doesn’t want anything longer dated than 3 years.

* Oil will be $100 a barrel.

Light sweet crude oil production peaked in July 2006. Condensates, heavies, etc. have made up the difference. Whether that is OPEC cutting production or peak oil I don’t know but falling production always equals rising prices unless you can also get falling demand, which the last spike showed is not a willing market participant. Demand will not fall unless supply is prohibitively expensive.

* The dollar will be at par.

Not sure about this one. So far this government has shown itself to be wiling to “play ball” with the US and match their programs dollar for dollar on a pro-rata basis. But it could be that our trade shifts to other nations to pick up the slack. I don’t see it happening, because as I have already mentioned in response to other posts, we just can’t get that much more stuff to Vancouver of Halifax to put on a boat. Our trade network runs mostly North-South.

Buy some gold if you don’t have any folks. 10% of your net worth. And an RV if you don’t know that you can service your mortgage.

#3 EJ on 06.11.09 at 12:09 am

The real shame is that we as a nation got to see this unfold in a neighbouring country over the past few years, yet nobody has learned a thing. Huge, widespread sudden increases in housing prices have, historically, always been unsustainable. Many sciences have examples of systems that are driven with positive-feedback loops. All end in destruction of the system as it spirals out of control and cannot feed itself past a certain point.

It seems as if historical teachings are wasted, since the present is always rife with denial regarding comparisons to past struggles. Reason given?

“It’s different this time.”

Truly one of the most perilous phrases ever uttered.

#4 taxpayer like you on 06.11.09 at 12:20 am

“Born circa 1985, they were in Huggies the last time the
equity markets tanked”

??????

#5 Barb the proof reader on 06.11.09 at 12:26 am

Okay, a “comment” for those born c 1985:

You sometimes didn’t listen to your parents as kids, that’s natural, that’s the way you develop ‘detachment’ from them and leave the nest. However, you still don’t always listen to your parents. That’s okay, they didn’t always listen to their parents either, although that seems to come as a shock to some of you. But hopefully someone, somewhere, from one of these generations, will listen to Garth. Stop listening to hypsters, hucksters and those who have something to gain off your natural attraction to shiny objects. And try to lay off of delusions that things came instantly nor easily to other generations. T’aint so.

#6 Jeremy on 06.11.09 at 12:33 am

I know the following people who have:

1. Lost 30G’s on condo in Langford BC
2. Bought a house against the advice of their fin. planner
3. A girl (laid off make up artist) who owns a 400k condo in Van thats bleeding her money while she lives at home.
4. At least 4 people putting 10K or more into renos in there home, but not paying by cash.
5. Talking of buying boats and other luxury items.
6. Two admit to being house poor, and can’t do anything outside of hang out at home.
7 Four people that can’t sell their current homes but have bought a new one, so they rent the other one out.

This is in Victoria BC, and I feel very sorry, but then again I don’t cause these people would gang up on me when I mentioned the downsides of Victoria’s real estate market.

My co-workers favourite saying was ” You know when the best time to buy real estate was? Yesterday. Do you know the second best time to buy real estate? Today!”

I wonder how his two houses are working out for him now. One that isn’t even lived in.

I would love to buy but I need a bigger down payment and I’ll wait til after the olympics, I’m just worried that interest rates will be so high that it will offset any drop in prices because the house will still cost me a buttload. At least a low principal.
4.

#7 Munch on 06.11.09 at 12:40 am

Superb Garth, just superb!

Now expand your horizons and get your message out to a wider audience please!

You are doing nothing about this, despite my repeated pleas!?!

You are going to get me UPSET!

Well, you know what I mean!

Please, I don’t want to have to keep banging on this drum

Munch

#8 David on 06.11.09 at 12:53 am

Over the past three years, the Loonie has become a petro dollar like the Russian Ruble. Oil up Loonie high and oil down equals Loonie down. I have a small export business that gets paid in US Greenbacks. High Loonie equals sell more and get paid less. The correlation between oil price movements and the Loonie value is unmistakeable. For larger enterprises and governments these wild price swings in currency value can wreak havoc on balance sheets and produce fatal results. In the last year the price of oil has had little to do with fundamentals and a whole lot to do with price speculation. In a deflationary recession with falling demand for product, the price of oil skyrockets. Over the past 12 months the “fundamental” price for a barrel of oil has fluctuated between $36 and $150. For traders, it is a good chance to capture technical volatility, but for the rest of us?
The Huggies Generation bought real estate short and borrowed long. Sell that McMansion within 18 months for a big speculative killing and cheap mortgages are your friend, as long as they last. The day of reckoning is nigh and the housing bubble collapse is imminent. House prices much like oil became detached from fundamentals and stability. Unlike the movies, this story will come to a bad ending.

#9 timbo on 06.11.09 at 1:01 am

the puddy tat is looking at California’s problems.

http://www.sco.ca.gov/Press-Releases/2009/ControllerLetter06-10-09.pdf

from:
http://www.calculatedriskblog.com/2009/06/california-state-controller-out-of-cash.html

Can rates hold with this debt crunch coming? I doubt it but there is always hope. It does amaze me that the canadian public mood has not fully grasped what is about to happen due to the exposure to this insanity.

#10 Barb the proof reader on 06.11.09 at 1:02 am

Garth, are you implying cats are bad drivers? (Hmm…and Tortoiseshell cats are almost exclusively female…) Garth, are you saying females are bad drivers?

Okay, I got it — “the Folklore says that Tortoiseshells are sometimes referred to as “money cats”.

So Garth you’re saying it’s dangerous when crazed money cats are behind the wheel of a big financial vehicle.

#11 BoB on 06.11.09 at 1:19 am

I bought a good condition house and have a 500K mortgage @ 3.75% for 5 years, 35 year amortization, and monthly payments of $2100. We get to stop renting and it provides my family with a long term home at the same cost as rent. Using the accelerated bi-weekly plan and adding $300 to each payment I’m looking at paying it off in 19 years! During the 5 year term if I need to I can always go back to the rent equivalent payments. At the end of the 5 year period I owe 407K. If rates have increased a lot then I’ll be used to the higher payment and will just have to live with the fact that less of it is going to the principal. What’s wrong with this approach?

#12 Devil's Advocate on 06.11.09 at 1:24 am

“Rates, oil and loonies will all be rising. If you can’t figure out how to turn that into money you don’t deserve much.” G. Turner

Unfortunately not many will realize this. In fact, as is happening now, most will be motivated to buy while interest rates are low. “Lock your clients in now” is the battle cry from the mortgage brokers. “Rising interest rates are just what we need to motivate those on the fence to get off and buy” cry my REALTOR buddies.

Unfortunately, there are a swack of mortgage renewals coming up in the next year at probably substantially higher interest rates which will crush many of those recent home buyers who’s homes have lost 20% in face of the 5% down… they are upside down.

Unfortunately, a rising CDN$ ain’t gonna do a whole lotta good for a manufacturing or resource (forestry out west) sectors.

Unfortunately, rising oil prices only contribute to inflationary pressures most notably in the grocery stores but also everywhere else.

Unfortunately, it will be the very few who will see or are in a position to take advantage of the opportunities to be had by these economically devastating events. We, as a Nation, don’t have a lot to look forward to largely because most are listening to the SPIN.

Peter Schiff on Comedy Central
http://www.europac.net/Schiff-CC-6-9-09_lg.asp
Hard economic facts presented in a manner that will make you laugh, even though you might want to cry.

#13 . . . fried eggs and spam . . . on 06.11.09 at 1:26 am

Is that a squirrel, cat or Bozo The Clown in the driver’s seat? Hmmm. Sure is gonna be a real fun ride!

“. . . the US dollar continues to drift lower, a trend which will define the future. . . This will end badly.”

As such, the loonie will surpass the greenback (one has to balance out the other) such as last year, but what will Carney do? Nothing he can or wants to do at all. He and the Fed are in cahoots anyway.

So commodities, oil, precious metals, energy prices and more importantly food, fruits and veggies, whole grain cereals, bread, meat, fish and plenty of others will head on up the highway, putting most of us into the medium- to poor-doghouse.

Ahhhhh! Wait a minute! I’ve got an idea that’s so stupid, it may jes’ work, ‘coz so far nothing else has!

Destroy the US Fed (it’s privately owned and not needed anyway), the twelve banks (or whatever they are) connected to the Fed, take away all the powers they gave themselves in the first place, and return control to govts. over their own financial matters.

It means that WE, THE PEOPLE, who actually employ our MPs to run OUR country for US would have to show up for work, produce something useful and work a tad more cohesively than at present.

Bozo The Clown is my choice for PM! BTW, is Bozo a male or female? Females are still far more down-to-earth, intelligent, practical, realistic and sensible than men!
——
#140 Jake on 06.10.09 at 10:31 pm — “ps, Just where did you find those pictures. What were you googling that led you to those pictures?”

Hi Jake, I didn’t google anything — link was on rense.com, whatreallyhappened.com and a few others. I only watched about seven mins. of the clip.

Politicos feed sheeple refined grain garbage to keep them in line with the ‘establishment’; throw in plenty of unnecessarily aggressive cops for good PR fare and it makes for terrific m$m drivel.
——
Inflation, like Christmas remains a possibility so which comes first? — http://tinyurl.com/kuhloz

Bubblelicious. Hit the low point or floating on air? — http://tinyurl.com/mtj5da
——
Bernanke in 2006. Didn’t know what he was saying then, and still doesn’t. — http://tinyurl.com/ngr2ak

From http://economicedge.blogspot.com/ — Bernanke in Denial 2005-2007(ht Leland): “Stupid is as stupid does. This is what eventually happens when you spend more than you take in. Death, taxes, and exponential math. If you don’t “feel” the depression now, you will soon… real soon.”

Continuing in the hopeless tradition of Bernanke — http://tinyurl.com/n6fsm4 — From http://emsnews.wordpress.com/

“Despite making epic amounts of new funny money available, the Bernanke helicopter drop is not creating a healthy economy. It is just one more financial trick tried by wizards in the Great Depression that also didn’t work. The bond market is acting up now due to epic amounts of government debt being peddled. This is the next credit bubble that now has to break. One way or another, the Goddess of Balance, Libra, will prevail.”

#14 Marc on 06.11.09 at 1:42 am

Wouldn’t the Canadian $ rise again as U.S. T bills are cashed and reinvested as investor confidence is coming back? That is part of the reason the U.S. dollar rose against the CDN when investors pulled out en masse, they had to put their money somewhere, and T bills were bought up for little return. As they sell off, the U.S. $ weakens against the CDN. The CDN dollar is basically unchanged worldwide, so it is not so much a strong CDN dollar moving but a weakening U.S. dollar?

#15 rick in Surrey on 06.11.09 at 2:11 am

Inflation is coming! As far as gasoline at $1.00 soon, come buy some in B.C. It was at $1.10 last weekend! I thoroughly expect to see it up to $1.35 by the end of Summer. Short sighted and short memoried people who forgot what happened in the early 1980’s will be “living” that nightmare in 3-5 years all over again. Hell, they already think the worst is over and it’s senseless buying time all over again. Actually, when I read that over it sounds so perverse to me. To think people did not learn a single thing from this past year boggles the mind. They are setting themselves up for the biggest financial disaster of their lifetimes…insane! Why are they doing this? Well, there are some fantastic sales people in politics, banking and real estate and they are all hungry to steal their money. Like lambs to the slaughter…got any mint jelly?

#16 Paul B in Ontario on 06.11.09 at 6:07 am

Is it time yet to lock in to longer term mortgages instead of continuing with open, floating rate?

Thanks.

#17 somecatchphrase on 06.11.09 at 6:11 am

I love the last line –

“Rates, oil and loonies will all be rising. If you can’t figure out how to turn that into money you don’t deserve much.”

The other day, it occurred to me that it’s a great time to be an investor. There really isn’t that much ambiguity in the current economic environment.

The writing is on the wall. If you own overpriced RE, sell. If you own USD, sell. If you have cash, buy energy, agriculture, China, and maybe even a little gold.

If you have lots of cash, buy yourself a small farm that’s a safe distance away from any major city, develop the skill set to grow your own food and produce your own electricity.

#18 wjp on 06.11.09 at 6:15 am

Don’t forget to add to the list, the future tax payments for Ottawa and Queens Park after Harper and McGuinty are finished with their so called stimulus packages and leaving us with an even greater debt load. I would dearly love to see the ratio of jobs created against the dollars doled out by governments. To begin with, we have lost about half the auto related jobs due to re-structuring so we can begin the chart with a – 50%. Hard to believe we will see any jobs created with the rest of the handouts to corporations. I still think we would have been better off shoring up EI to take care of our unemployed until better times arrive, although that may be a long time from now. Regardless, I suspect we will be in negative territory regarding jobs once the stimulus money has all been spent.

#19 Da HK Kid on 06.11.09 at 6:29 am

I agree with what you are saying Garth. But oil is only heading up as the dollar retreats, GOLD is just moving sideways and replaced by Oil.

Dollar denominated foreign debt current is the challenge right now for the Treasury and Fed. China is bloody worried about what they own now, US is wondering how they can get China to take more treasuries moving forward.

The economy is simply about how these two giants plan to dance. Bernanke and Geithner both need to maintain a strong dollar policy. Nothing ridiculous say above 80 cents to pull this off along with offering stronger yields on future treasury purchases.

I believe this will occur however I also believe that we will revisit our lows as we know RE is still a mess and the equity bubble has to pop.

The rise in oil is just going to force companies to earn less and lay off more therefore adding to another collapse.

When this happens quite simply the flight to safety again back into cash and specifically the world currency USD will be back in full swing upto mid to high 80’s again.

I believe this might be the contingency plan to keep strong dollar. If they cannot manipulate it, they will let the natural coarse occur and it will rise on its own.

I agree with the deflation and potential stagflation occurring. Yes, the fed is printing money like crazy but none of it is going into the system.

What could occur with all the TARP money coming back is Wall Street asking for the free markets to finally work and isolate all the zombie institutions once and for all.

Government intervention is now on everyone’s mind.

If this all comes out in the wash, we will look back and say “why did we do it in the first place as now we have debts that are extreme and are screwing us over big time and long term”.

Welcome to the Great Global Reset!!!!

#20 john m on 06.11.09 at 7:38 am

Great post Garth………our governments with their wisdom and leadership (or shall i say lack of it).Took a “technical recession” and turned it in to a pending depression…i agree this will not end well…and sadly the “end” will be disaster. imo

#21 hagbard on 06.11.09 at 7:42 am

Peter Schiff was right.

#22 TS on 06.11.09 at 7:43 am

Mortgage rates are already on the rise with more increases forecast:

http://finance.sympatico.msn.ca/banking/mortgages/article.aspx?cp-documentid=20332492

#23 Canadian Army Guy on 06.11.09 at 7:52 am

How come gas is at almost $1.00 per litre at the pump when:

1. oil is at $70 US a barrel
2. CDN$ is at 0.90US?

Last year gas was at $1.40/litre while the barrel stood at $145????????????

Are we being gauged or what?

#24 Toronto C9 Renter on 06.11.09 at 7:53 am

“…In a year prime rate doubled. Oil $100 a barrel. dollar at par…”

Garth, sounds like we’ll be re-living March 2008, when these conditions were last present.

Are you betting on a second wave banking crisis, sometime in 2010/11? Seems many are starting to predict this…especially in EU but also in US with continued deterioration of housing there

#25 Basil Fawlty on 06.11.09 at 8:01 am

This is a dead a dead cat bounce, similar to the 1930, I believe. Most people today are economically challenged and will not listen to common sense, unless it presented by “trusted sources” in the mainstream media, who are nothing more then talking heads with corporate backing.
Prosperity measure are on the decline, real wages are declining, government debt is up, and real unemployment is skyrocketing. In the 1930’s we had ample resources, strong manufacturing and many self reliant people. What do we have now? This going to be really nasty. One must think for themself, since the government and popular media are no help.

#26 Bobby G on 06.11.09 at 8:03 am

http://stockcharts.com/charts/historical/djia19201940.html

The timeline won’t be exactly same because of government intervention but outcome will be same.
And it we’ll hear again “we didn’t see that coming”
Sometime this year the next leg down will begin
Had themselves some really nice “green shoots” in early 1930.

#27 Jonathan on 06.11.09 at 8:12 am

Keep in mind that alot of oil’s rise has to do with a falling greenback. The fall alone has added about $10 to the price of oil. So if our dollar rises significantly, that will offset a portion of oil’s rise. Furthermore, if the US dollar falls significantly, then they won’t be able to afford oil like they could, and consumption will drop off a cliff. Recession numero II

#28 Grantmi on 06.11.09 at 8:23 am

Oil closed Wednesday in excess of $71 US. This means the black stuff has risen 100% in price in the last three months. If these were normal times, that would be shocking and consequential news – especially since gas will again be $1 a litre in a few days.

are you kidding me.. Gas on the West Coast is already over a buck a liter, Garth. Try $1.10!!!

But of course we’re not in the center of the universe in Ontario where your gas is subsidize to keep the gerbils running!!

Gas is cheaper where the refineries are. Lose the attitude. — Garth

#29 TS on 06.11.09 at 8:25 am

Oil prices starting to rise….

http://finance.sympatico.msn.ca/investing/news/breakingnews/article.aspx?cp-documentid=20376040

Hmmmm…. Garth has been predicting rising mortgage rates and rising oil prices for some time… continued rises in unemployment should directly relate to an increase in mortgage defaults and foreclosures… which will reduce home prices.

#30 Barb the proof reader on 06.11.09 at 8:26 am

#6 Jeremy

You’re doing the right thing. Even if rates go up, they go down again too. “This” may end badly for some, but it’s never over. There’s always another roller coaster ride, the trick is to get on at the right time. It seems you already know that and have skills, maturity, restraint to do so. When rates were 19% we waited. When the Olympics were coming we waited. Two years later we bought. It’ll happen. In the meantime live, have fun and save.

#31 Chris no longer in England on 06.11.09 at 8:28 am

Fellow Canadians,

One of my last acts before leaving the Old Country was to advise my 21 year old niece and her fiancee not to buy a house. They are getting married in September but sensibly living with my sister and saving while they wait to see what happens. They seemed perversely pleased to hear that they should continue to do so, as it backed up their own instincts. So not all youngsters are as dumb as they look.

Meanwhile, we are settling in to our lovely rented house ($1,000 pm) with 10 acres of land in a semi-rural area along the 401 corridor. Having sold up everything in the UK we are now sitting on a pile of money and are better off than we have ever been. NB: Nostradamus Jnr, some immigrants are loaded with cash! (I’m the one with the diamond-studded dog leads.)

#32 MikeB on 06.11.09 at 8:29 am

While we all might agree endlessly that “those people” are crazy for annexing their lives away, we must keep in mind the herd phenomenon. It may not make sense to you and I that people are jumping in over their heads but the reality is that the herd are effecting markets tremendously, whether it be stock markets or real estate.
We are currently seeking a house in Toronto and have seen the swing from buyers euphoria at all the options to buyers panic and sheer stupidity but although I detest this, it is what the market is. The recent rise in interest rates will likely spur on the market as the morons jump in regardless. Keep in mind there are 10s of thousands of realtors who live to see endless price increases and to break that in the early months this year was FEAR, created by the banks collapse in the US. Again herd mentality… Until fear or real substantive evidence exists to support the problems that many of us realize exist below the surface then you may never see a market correction here. Simply an endless supply of idiots who have no issue with debt. The tail end boomers like myself are debt phobic and will weigh out any options to buy carefully because we know what the cost of money is. Our central governments and banks are hell bent on seeing inflation , a known entity, and keeping people in debt for decades. The notion of “its an investment” is bandied about lightly with little understanding of consequences. Nonetheless the governments know that if you get the herd going in the right direction things will improve, doesn’t matter if the information provided is correct or not. Once the herd moves then the momentum is set. Folks like myself and POL CAN, my fav poster, will continue to crack the RE market but face some significant head winds. POL CAN please contact me by email if you can to discuss strategy or just commiserate .

#33 lgre on 06.11.09 at 8:39 am

BoB – you sound like you signed up for a life of slavery..good luck, you’ll need it.

#34 Real Estate Deal or No Deal on 06.11.09 at 8:42 am

Just the update I needed, as I really wanted to buy something instead of rent another 12 to 16 months.

But with raising rates, inflation and higher oil RE is coming down to affordable levels.

Thanks.

#35 Bill-Muskoka (NAM) on 06.11.09 at 8:49 am

Garth,

Jon Stewart had on an economist named Peter Schiff Tuesday night. He has written a book about the coming hyperinflation. The Conswervatives at Fox laughed at him, but they are not now.

Here is a link to You Tube for all to see

I, having lived through this fiasco back in the 1980’s, know pretty well how things will go. The financial community will go right back to their ‘Me First!’ attitude rather than look at the Bigger Societal Picture.

Rate increases are guaranteed barring action by government. Oops! we don’t have a functional government, just kiddies acting in stead of the real thing.

That is why I spoke against your position on VRM’s, because history shows the cycle goes unbroken.

#36 Grantmi on 06.11.09 at 8:49 am

It’s not attitude Garth…. Just jealous!!

Wish we had LESS taxes on our petro here in Land of the Free BC.

http://en.wikipedia.org/wiki/Fuel_taxes_in_Canada

#37 dd on 06.11.09 at 8:53 am

#23 Canadian Army

“Last year gas was at $1.40/litre while the barrel stood at $145???????????? Are we being gauged or what?”

It is a little more complicated than that CA. Maybe there could be a shortage in the system. There is a long term shortage for sure.

#38 Bill-Muskoka (NAM) on 06.11.09 at 8:56 am

The price of oil is connected to only one thing…The ability of speculators to be greedy. Not one drop of oil has changed in the ground, just the price these vultures are getting at the commodities markets.

They use any excuse possible, but I still think the prime indicator is a seagull crapping on an oil rig. I call it the Gertrude and Heathcliff Syndrome.

All this while Harper sends our millions to the Tar Sands that were meant for Wind Power devlopment. Talk about socialized business? Yep, the Cons are Masters at that one.

The only solution is to fillup when the price is low, drive a lot less, coordinate your trips to maximize efficiency.

The so-called goobernment will do absolutelty NOTHING to assist you regarding fuel pricing.

#39 Signal Loss on 06.11.09 at 9:01 am

Soundtrack for today’s blog entry: Lovecats by the Cure (ok, it released in ’83 but close enough).

#40 BoB on 06.11.09 at 9:01 am

#33 lgre on 06.11.09 at 8:39 am
BoB – you sound like you signed up for a life of slavery..good luck, you’ll need it.

Based on what? The payments are less than 30% of my gross income. My wife is a stay at home mom. I have to pay to live somewhere…

#41 Rob H. on 06.11.09 at 9:03 am

Hmm.. well, I’m not quite so pessimistic..

Five years ago, purchased a former retail commercial building – spent about $50,000.00 to convert it to office space – now full. Appraisal has shown increase in value from $1 million to $3 million.

Remortgaged – orginal rate 9% – now paying 3.5% over 5 years, took out $600,000.00 equity (net result, overall mortgage payment dropped so now my own office is basically rent-free) paid off my house, put rest of the money into resource equities.. had a great May.. but, more likely, anticipate over-all moderate growth with rising oil prices likely to continue.

I graduated University in the early 80’s. Can you say 16% interest rates on my first house? I still look at a mortgage and envision a probable 10% rate, and if I’m under that, I’m in bonus land. So – not too worried about rising rates..

#42 POL-CAN on 06.11.09 at 9:14 am

#32 MikeB

Some thoughts on the housing market in Toronto….

I think that over the next 2 months the volume of sales will decline due to the end of the spring market. This might be goosed a bit to to the current rate scare but IMO will not be significant. There are only two things that can influence the current buying frenzy by the stupid:

1. stock market correction as they have gone too high and too fast with no fundamentals backing them up (no earnings potential…… hello)

2. continued rising unemployment

The first will happen shortly IMO. Should have happend already (I have been net short since early April expecting a typical 6 to 8 week duration of a bear market rally…. oooppppsss). The real second leg down should happen by fall and this one will scare the sh*t out of everyone.

The second is self evident to anyone that actually drives in Toronto. Traffic has been great since before x-mas. Even the last long weekend had very low volume. People are still going to the mall (parking lots are full), but are they buying anything? Less foot traffic in the evenings on Bloor and College are an indication.

We are off to Europe next week to visit family. Need a break from the house hunting nightmare for a bit :)
Hopefully by August sales will be down and listings up, and we can resume the search for the right house at the right price.

#43 Barb the proof reader on 06.11.09 at 9:15 am

#31 Chris no longer in England: “Meanwhile, we are settling in to our lovely rented house with 10 acres of land in a semi-rural area along the 401 corridor.”
Chris, welcome, or welcome back. I may be joining you.
After 30 years in Alberta many of us find this province is going backward in time. Hubby and I often talk of retiring there, back to our home corridor where we were born and raised and lived the first half.
All the best to you, I know you are going to enjoy your new life, you’ve got the knack.

#44 TS on 06.11.09 at 9:15 am

More signs of the effects of the recession…. CI, one of Canada’s largest mutual fund companies is merging 12 funds into other existing funds… and they are talking about lowering their management fees… some additional signs of deflation.

http://finance.sympatico.msn.ca/investing/news/breakingnews/article.aspx?cp-documentid=20376123

#45 KenDa on 06.11.09 at 9:19 am

#11 BoB

It depends how you think of your house – a home or a home/investment. Many tends to think of the latter since long gone are the days when you buy a house and live in it until you die. People look to change in 5-10 years time..hence the house is a home/investment.
In your case, I dunno how much you put down. But look at this:
in 12 months, you owe $492K
in 24 months, you owe $485K
in 36 months, you owe $478K

Now we all hope you house is worth that much at those times..If not, it takes only a greater fool to pay for a mortgage higher than the real worth of your house.

#46 Da HK Kid on 06.11.09 at 9:25 am

Barb the proofreader, your comments always make me laugh! Keep it up!

Garth’s pic actually reminded of the late 80’s Toonces the Driving cat skit. Here’s the link, what happens to the car reminds me of the economy.

http://www.youtube.com/watch?v=BQkL9LpvKl0

#47 john m on 06.11.09 at 9:27 am

Wow ..considering running again Garth..that is the best news i have heard in months.You bring hope to a country managed by a ship of fools presently. If you do i hope they sit up and take notice,disregarding your advice last time has played a large role in the state of our economy now.

#48 Gord In Vancouver on 06.11.09 at 9:31 am

It looks like at least SOME Canadians are listening to Garth – those who are selling into the current real estate “rally”. This selling pressure is evident by the fact that sales volumes have surged but prices are, at best, flat.

http://www.vancouversun.com/business/real-estate/Home+cooking+relief+renters+prospective+buyers/1682064/story.html

http://www.timescolonist.com/Business/home+prices+fall+Western+Canada+including+Victoria/1682335/story.html

#49 Devil's Advocate on 06.11.09 at 9:32 am

The notion of living in a bought and paid for home is a misnomer. Never does homeownership come without substantial associated cost. As the single largest investment most make in a lifetime the “opportunity cost” associated with home ownership, mortgaged or owned free and clear, is significant although often overlooked.

Were you to own outright an average home of say $350,000.00 there are a lot of other things you could do otherwise have done with that $350,000 which would be a more profitable investment that would cover the cost of renting with money left over. At today’s interest rates the cost of conventional financing on a $350,000 home would be approximately $1,445.00 per month, which is likely as much or more than you would pay per month to rent such a home and does not account for maintenance, property taxes etc. Of course you would need the $87,500 down payment to achieve those monthly mortgage payments.

But where do you invest the $350,000 cash, if you had it, which would provide a return that would cover a similar rental in today’s market? This is precisely why interest rates must rise. It is also precisely why many have chosen to control the roof over their heads and buy. It is also why NOT so many are buying property to rent – because the potential income simply does not cover the carrying costs.

Interest rates must rise for there to be a healthy investment environment. Unfortunately the move back to such a healthy investment environment is going to crush a lot of fresh new homeowners through rising mortgage rates. This must happen though. Many of those fresh new homeowners should never have been and this is precisely why our economy is in the state it is. We can not continue to provide the economic mechanics that make it possible for those who should never own a home to be able to. To do such is subsidy, indirect but still a subsidy and subsidies come as cost to all but the beneficiary. So these low interest rates are, as were intended by the Fed, a subsidy of sorts to promote home ownership and fuel the industries which supply it. Good plan in the short run as it proved to be, but with devastating consequences as we are seeing today. The fact is our economy needs renters. Not everyone should own a home. Homeownership is not a right. The opportunity to earn the money to buy a home is. Many have simply not earned the right to buy a home yet have been granted the opportunity despite their woefully inadequate financial position. Of course something has to fail.

Renting is not a bad thing. We need to get back to accepting that renting the roof over your head is not shameful. More often renting the roof over your head is the financially prudent thing to do whether you have the money to buy a home outright or no down payment what-so-ever.

Not all landlords are Snidely Whiplashs. Nor are all renters deadbeat bums. Landlords provide, historically, a very much needed service. Expect things to change with more and more choosing to rent if not being forced to rent. It will take time and be an arduous process getting there but that change has already begun and the first to feel the effects are those who should never have owned a home in the first place.

#50 Rick on 06.11.09 at 9:48 am

BILL “bought a good condition house and have a 500K mortgage @ 3.75% for 5 years, 35 year amortization, and monthly payments of $2100. We get to stop renting and it provides my family with a long term home at the same cost as rent. Using the accelerated bi-weekly plan and adding $300 to each payment I’m looking at paying it off in 19 years! During the 5 year term if I need to I can always go back to the rent equivalent payments. At the end of the 5 year period I owe 407K. If rates have increased a lot then I’ll be used to the higher payment ”

$407,000 left after five years and if rates are at 6% your monthly payments will be $2407 . If rates get that high your home will be worth less then your mortgagae. I got lucky to sell for a loss in April. If you lose your job or something happens like it did to me, you will be in a world of hurt. I was luck rates were low to sucker in stupid young couples or else in a few more months i would of went BANKRUPT. I would bet 80% of the sellers today are on their way to going bust and if stupid young buyers were just a little smart they would of paid less in a few months. Thank-you greaterfools.

#51 james on 06.11.09 at 9:53 am

#17 – Spot on, except I’d take a different strategy that your paragraph #3. I’d say if you have cash, get that farm and take it off the grid. Quickly. While the option still exists and is affordable. Make sure it is close enough to a small town, as well. Near family.

#25 – This is a dead a dead cat bounce, similar to the 1930, I believe. Most people today are economically challenged and will not listen to common sense, unless it presented by “trusted sources” in the mainstream media, who are nothing more then talking heads with corporate backing.

Again, spot-on.

#52 Rasputin on 06.11.09 at 9:55 am

For what it’s worth I don’t think we will see $100 oil any time soon. Maybe in 3 years. I think we will see $30 oil before $100. There is no valid reason on earth for oil to be that high right now. The world is swimming in it. There are millions of barrels in tankers floating at sea all over the world. Every country in the world topped off their strategic reserves over the past 3 months. Demand dropped so much that the O’Pecers were caught in a cash short position. They talked cutbacks but pumped for all they were worth. Also big money is goosing oil futures to give the appearance of a recovery. It don’t buy it. Why isn’t natural gas doing anything? Or uranium? Because it’s a trap, that’s why.

#53 Linda Pearson on 06.11.09 at 9:57 am

Hi Chris – Welcome aboard!

#54 Barb the proof reader on 06.11.09 at 10:01 am

Garth,

I for one hope you throw your hat into the ring and Caledonians would be lucky to have you.

http://www.garth.ca/weblog/

#55 TheFirstRick on 06.11.09 at 10:03 am

#5 Barb the proof reader on 06.11.09 at 12:26 am
Okay, a “comment” for those born c 1985:

You sometimes didn’t listen to your parents as kids, that’s natural, that’s the way you develop ‘detachment’ from them and leave the nest. However, you still don’t always listen to your parents. That’s okay, they didn’t always listen to their parents either, although that seems to come as a shock to some of you. But hopefully someone, somewhere, from one of these generations, will listen to Garth. Stop listening to hypsters, hucksters and those who have something to gain off your natural attraction to shiny objects. And try to lay off of delusions that things came instantly nor easily to other generations. T’aint so.
===========
Yeah, listen to Barb the all knowing. Maybe he/she/it will consider running for president of the world to save our souls.

#56 Mathew Gibson on 06.11.09 at 10:03 am

@ 21 and 35

Actually, it would appear that Peter Schiff was mostly wrong.

http://globaleconomicanalysis.blogspot.com/2009/01/peter-schiff-was-wrong.html

There seems to be a bit of acult surrounding Peter Schiff that probably isn’t deserved, although you have to admire him for standing up against public ridicule.

On a side note, I was speaking with the local mortgage broker yesterday. He commented that most of his traditional business from the US has dried up but one sector is now booming: locals re-mortgaging their homes to buy condos in the US. “Oh my god,” I thought (and I’m an athiest). The lure of that seemingly-cheap US RE is just too much and even people in small-town Canada are signing up for disaster. I wonder how much of it is financially-inclined and how much of this is a form of revenge.

#57 Greg W., Oakville on 06.11.09 at 10:07 am

Hi Garth, It would be nice if you again ran to be Haltons MP! But do run somewere. It seems to be in your blood.
You seem to accually want to try and stear the ship into a better direction for the majority.

I assume Dorthy is ok with you running agian?
Walking door to door must have it’s rewards if you find you have more energy after talking with people. You seem to.
The sun on your skin makes more vitamin ‘D’ that helps to make people feel better, and the walking/exercise also helps a persons mood and overall health.

FYI, I see this alot and I wanted to comment on it;

‘Oil closed Wednesday in excess of $71 US. This means the black stuff has risen 100% in price in the last three months.’

Was oil $35.50 three mounths ago, or $71?, to be clear.
I had assumed you ment double, but;
If a number double it is 200% more than before.
If it’s the same as before its 100%, no change.
(35.5×100%=35.5 / 35.5×200%=71 )

Maybe it’s commony understood by the press to mean double if writen 100% more, but for something is to be double it is 200% more using math/numbers.

I see (100%) misused alot and it bothres me.

Would you be happy if you investments went up by 100%, staying the same? Or up by 200%, so doubling?

Many people also do not understand the compound equation and think that constant growth is sustainable on a finite planet. I do not believe you are one of them?

#58 60ish on 06.11.09 at 10:09 am

#23 Canadian Army Guy
”How come gas is at almost $1.00 per litre… Are we being gauged or what?”

I don’t know about gauged – we’re certainly being gouged, as government condoned gasoline price fixing continues through the land…

Canada is supposedly the 4th largest supplier of oil to the US. I can drive across the border to Blaine, WA and buy gas for $2.81 (US) per American gallon = 3.8 litres. That’s $.73 per litre corrected to $.80 Can; as others have pointed out, it’s around $1.10 locally. That’s about 27% less to buy our oil in the US. Yep, we’re being gauged or gouged – screwed might be a better word.

#59 905er & Spouse on 06.11.09 at 10:13 am

Garth, please don’t let your kitty drive the car, that’s dangerous…

#60 Keith in Calgary on 06.11.09 at 10:15 am

There outta be something akin to “independant legal advice” given to first time home buyers by mandate……..you know……they have to sit in a day long class that does nothing but outlines the pitfalls of home ownership.. Personal finances, mortgage rates, amortization tables, the concept of what constitutes the REIC, historical boom/bust patterns and market psychgology could be some of the muriad of topics. Hell, make it two days long. If we make impaired drivers sit thru a two day long course to get their license back, surely we can do the same thing for these drunken fools who are about to create just as much carnage in society by singing on the dotted line.

#61 RJAG2034 on 06.11.09 at 10:17 am

“especially since gas will again be $1 a litre in a few days”

Haha, in Victoria its been over $1 for the past 2-3 months. I have to put premium in my cars and I’m paying $1.19 a litre.

#62 jwk (nee jwkimba) on 06.11.09 at 10:29 am

BOB, the problem is you are paying way too much. Expect your payment jump to 3100 when you renew in 5 years (25yr amort, 7%, 407k) that’s assuming you NEVER miss an extra payment.

Since your earning power, and that of the rest of the country, wont have increased much by then (hint:recession recovers slowly) whoever buys the house next doot will only be able to afford the same payment as you : 2100.

2100 at 8% means the house next door would sell for around 300k. So in 5 years after working your tail off to make all those extra payments, you wind up owing 407k on a house that is worth 300. Nice. Hey just 5 MORE years of insane ‘extra’ payments and you might catch up. Of course now the extra payments are on top of the $3100 base payment…

You way overpaid. Sorry….

#63 Dead Cat Bounce on 06.11.09 at 10:29 am

Canadian banks are going to be incredibly profitable because of this steep yield curve. Will it be enough to weather the foreclosure surge that is coming is the question?

#64 jwk (nee jwkimba) on 06.11.09 at 10:41 am

Greg W. Your math is right, but you have a problem with the english. “Has risen” means the price went up.

new price=old price + amount of rise
new price= 35.5 + 35.5*100%
new price =35.5 + 35.5
new price= 71

If the price has risen 10%:
new price = old price +amount of rise
new price= 35.5 + 35.5*10%
new price =35.5 3.55
new price = 39.05

etc, etc. If a price rises by 100%, it has actually doubled. The new price is 200% of the old price, 100%+100%.

If a price rises by n% where n >0 then the price has gone up. Under your interpretation, any price rise less than 100% would actually be a price _drop_. ie Prices rose 50% last year, you would interpret this as a price drop from 35.5 to 17.75 which doesn’t make sense.

one of my favorite math expressions sums up two different views nicely: To not add one half, take away one third.

#65 Ned on 06.11.09 at 10:47 am

Oh well

I believe that it is not the fault of young people only. I believe that it is their parents that are the problem. There is an old lady in the office and her dauther is looking for a house. So the mom is sooooooo excited that she does not stop talking about it. She will give me the usual explanations why it is a great time to buy. She is providing a protion of the downpayment from her retirement saving since, you know…., it is a great investment!!!!
Now I know why they say: “the apple does not fall far from the tree”

#66 ca on 06.11.09 at 11:06 am

Garth —

I’ve seen varying estimates as to how far the dollar will fall: 70 to the mid 40s.
I was wondering if you would share your thoughts on how far you believe it is likely to drop?

Thank you

It’s a petro-currency. Why would it drop? — Garth

#67 just a guy on 06.11.09 at 11:07 am

Greg W from Oakville, I think you are confused. There’s nothing incorrect about what Garth said.

Rick, I’d like to be clear about your comments.
1) You sold your house for a loss, immediately after the greatest housing bull market in recent history.
2) You are unemployed.
3) You were a couple months away from being bankrupt.

From all of this, I can safely assume that you overpaid for your house or bought in a poorly choseen location. You also failed to live within your means or build up any significant savings that you could live off of should become unemployed.

Should you really be throwing the word “stupid” around at other people?

#68 Canned Goods and Buckshot on 06.11.09 at 11:13 am

#31 Chris no longer in England

Welcome to Canada!

#69 Herb on 06.11.09 at 11:14 am

Considering running again? Best news I’ve had in days!

#70 Nathan in Edmonton on 06.11.09 at 11:26 am

#11 BoB
You must be new to this site.
I’d say there is nothing wrong with your approach as long as your household after tax income is say around 200K a year and that income is secure…. but really, how many of us can say our income is secure for 5 years let alone 30 more.

#71 MrC on 06.11.09 at 11:27 am

I love the pictures. Almost come to this site more to see them than to read the blog! As someone married late 30’s mortgage and debt free and living in the same house in west Toronto for 8 years I really don’t care where real estate prices are going short to mid-term. I loved yesterdays article. It makes me feel like I should retire now and give up my corporate job for something else. I guess I am saving more just in case of unexpected health or personal issues that might take a chunk out of my savings.

#72 Mrs Loquacious on 06.11.09 at 11:30 am

I find it astounding that folks (e.g. BoB) who’ve recently bought RE still think it wise to boast the details of their mortgage on here. Surely they must know that this blog is no friend of the Greater Fool. Why on earth would you want to brag about how much you’re paying for your depreciating property?! Would it not be better to exist in ignorant bliss, thinking you’re ahead of the game, than to have folks like jwk(imba) and KenDa call you out on the foolishness of your investment decisions?

Maybe it’s just me, but I don’t think that knowing how much I overpaid is going to help me sleep at night.

#73 if you don't like it on 06.11.09 at 11:32 am

I know many people my age (yep I’m one of those born in 1985) that bought 2000sq ft homes with attached garages. There logic is this is their “forever dream home” and that they plan on staying there for 20+ years. My response, ya sure, you’ll be itching to move in 5 years or less!
I did buy not too long ago, but we bought a 970sq ft townhouse that was veyr much a handyman special. We liked the idea of having a place in an older community, with great schools nearby, acess to all major roads, walking distance from grocery stores, bus station, ect.

Many buyers my age look for a the shiny, pretty things like granit, hardwood, big garage, ect which I feel is going to get them in trouble.

I hope some young people do listen to you

#74 D from London, ON on 06.11.09 at 11:36 am

Toonces the Driving Cat!

I think Garth should call his series of posts on the future of this bear rally “The Further Adventures of Toonces the Cat”.

I read the post of # 42 POL CAN with some interest. My wife and I put our money on the sidelines in the early days of the last leg down, and didn’t suffer a loss as a result. That was a case of fear working to our advantage. However we have been out of the market for lo these many months, and appear to have missed out on any short term gains we could have made. We continue to stay out waiting what we feel will be the inevitable retraction, but once in a while we think that maybe our fear has cost us in 2009, rather than saved us.

My topic for the group is: “If fear and greed are the great drivers of investing, are those of us currently in fear mode losing out? Should we temper our fear with a little more greed (not a lot) and maybe make some more $$$?” . Those of us in fear are waiting for the other shoe to drop before we’re comfortable with getting back into equities, but this rally seems to go on and on…

Garth always notes that we should: a) get a professional investment advisor to manage our money; b) not put all of our investments into one class; and c) invest in growth stocks now while they are relatively good deals. I beleive he is saying not to let fear have too much control right now.

I suspect a lot of posters and a fair few lurkers are like me, allowing fear to drive the car like Toonces the Driving Cat. Maybe a fear-driven strategy will lead to an unhappy outcome too, though not as spectacular to watch as the outcomes for greed or poor Toonces.

#75 Barb the proof reader on 06.11.09 at 11:42 am

Garth, in reference to your last post, the latest update is that Lisa Raitt carefully avoided actually saying or being sorry about calling cancer a sexy issue. Her statement simply says that she regrets the wording that revealed her avarice. In fact what she said is the opposite of acknowledging sorrow for talking about stepping on the backs of cancer victims for personal gain. In plain talk she doesn’t take back what she said, only the way she said it.

What she said was

“I want to personally communicate my deep regret for the wording I used”

Only the wording

Raitt specifically does not clear the air of her avarice and intent in using a sensitive and dangerous issue to her advantage. Her attitude remains. As she states her only regret is that she was caught off guard and that it was taped, as confirmed when she says

“I want to personally convey my deep regret for wording I used in a private discussion earlier this year which was inadvertently recorded”

Throughout, she avoided saying she was sorry — Raitt never said she was sorry. She added

“I want to offer a clear apology to anyone has been offended by what I said”

So if you were offended you receive a hollow, meaningless apology. What about people who were not offended but are waiting for an explanation of why Raitt would be so evil as to drool over potential dead bodies for personal gain.

I just thought I’d detail Raitt’s gaping character flaws over morning coffee. Voters can decide.

Besides, on cue, Raitt went on to make herself the victim — and then she blamed the Liberals, of course.

So, regret not sorrow, regret only that she got caught, clawing up the steeple and gambling with lives.

#76 MikeB on 06.11.09 at 11:42 am

Yes POL CAN… I too have been shorting for quite awhile and do believe the stock market is due for some sort of correction as fundamentals are in fact mentals. My finance guy does alot of consulting for huge pension funds and he still feels that shorting is the way to go as the U.S. is so insolvent that something has to give. Witness the 10 year bonds hitting almost 4%. They need to sell more bonds just to pay the interest. HOW…raise taxes…HOW… dunno people are out of work…6 million that is . Canada is just lagging a bit and we never went so high but our day is coming as unemployment rises. Green shoots are pot shoots… that’s what they have been smoking in Washington. Prices continue to drop in US but Toronto is very bouyant….. cheap cash is the reason but it has been very active since Feb/March. Inventory is low so little choice and the garbage is even selling which is truly a bad sign… never buy when everyone else is buying. We need a global calamity to shake the Toronto market… either the pandemic or stock market or banks. Brings me to my next point… there is still some concern that Canadian banks are way over valued and they need to have some loan loss provisions which will impact their “stellar earnings”
Agreed buying a house is too much of a chore these days yet many houses are flying in sales. Agents have no interest in buyers just working for sellers as that is a guaranteed commission. Still very tough to find a good agent as most want the fast buck and are horrendous at negotiating… deal blowers… Could be a very long time until some noticeable correction comes down the pipe… very late in the year or early next.
find email through site if you wish

#77 Rob in Onterrible on 06.11.09 at 11:54 am

@#7, Munch. You wrote:

Now expand your horizons and get your message out to a wider audience please!

You are doing nothing about this, despite my repeated pleas!?!

Munch, I disagree that Garth isn’t doing anything to warn people. He’s written 2 books, has this blog and appears regularly on howestreet.com. I haven’t seen him on MSM but that’s probably because they don’t like Garth’s message.

Regarding this post. I agree that this will end very badly. It is hard to see this now with green shoots sprouting all over the RE market but interest rates are on their way UP and that will put some brakes on the RE bandwagon. Spice it up with rising unemployment and Garth’s message is prescient.

I disagree with Garth and Gold, though.

#78 Toronto C9 Renter on 06.11.09 at 12:07 pm

# 52 Rasputin said “…I don’t think we will see $100 oil any time soon…Why isn’t natural gas doing anything?”

Rasputin, I know what you’re saying. Interestingly however, Natural gas is up 6.5% as of noon today. I for one have been moving into natural gas given it’s at a 6 year low. Perhaps not a short term play (other than today!) but a great long term one, I think

#79 alberta on 06.11.09 at 12:08 pm

“Rates, oil and loonies will all be rising. If you can’t figure out how to turn that into money you don’t deserve much.”

Hmm – Appears this prairie boy doesn’t deserve much. Is there something I missed that teaches us how to survive & prosper with rising rates, oil, & dollar? Do all of Garth’s blog followers have this figured out?

#80 Sanjay on 06.11.09 at 12:14 pm

I have been hearing home price tanking, but its not happening in in GTA. Can someone explain?? I request Mr. Garth to through some light on future home prices in GTA.
Considering mortgage rates going up, and price may not fall in GTA due to maximum number of immigrants settleing here, do you think its a good time to buy and lock in mortgage for next 5 years.
But please some one with more knowledge, share views.

#81 My_View on 06.11.09 at 12:15 pm

Unbelievable,

I posted a comment on yesterday’s post and got the boot. Why? O.K. so I changed my views of Garth Turner. I wonder how many other comments get the boot. 99.9% of the posters agree with Garth, but that very small percentage get axed, that’s democracy!

This blog is about issues, not me. Stick with the program. — Garth

#82 LurkingLola on 06.11.09 at 12:23 pm

This better suits the Naked Boomer post, but the Stats Can population pyramids show the Boomer wave quite nicely (2006 data).

Population pyramid British Columbia vs Canada

For extra fun, check out how old Victoria is!

#83 JoJo on 06.11.09 at 12:41 pm

Ha Garth!

Some days ago, YOU made three predictions. In a year…

* The prime rate will have doubled.(INFLATION)
* Oil will be $100 a barrel.(Hyper-Inflation)
* The dollar will be at par.(Inflation)

Since then, mortgage rates jumped to 5.85%.(Inflation)
Obviously, if YOU ARE half right, the cost of living WILL INCREASE (mortgage rates and gas prices alone will do that)(PLUS FOOD PRICES,ALL SERVICES PRICES) which erodes disposable income, and yet the economy will stagnate.
It’s precisely this scenario – rising loan costs, big energy price hikes, reduced consumer spending BECAUSE IS EVERITHING TOO EXPENSIVE.PERIOD.
DEFLATION IS WHEN FROM MY SALARY $ 4,000 after all living expences left $ 2000 in my savings.
If I have to spent all money for survival of my family,paid bills and mortgage and nothing left in my pocket than is Hyper-Inflation.
Ten years ago I made almost the same money ($ 3500) but now for any item,food,house,property tax,I have to pay between 2-10 times more than 1999.
So it’s a Hyper-Inflation . I agree with you this will end badly.

#84 Outlaw on 06.11.09 at 12:45 pm

For all you market shorters, myself are starting to enter some short positions but have participated in a very interesting discussion about how all the excess money will inflate the markets with everything else. I dont completely agree but its definitely something to think about. I would say that NG is a far better investment (over the course of 1 year or more) and inflation hedge.

#85 Jonathan on 06.11.09 at 12:49 pm

#76 MikeB

Hey MikeB

I entirely agree that the market is overdue for a correction. But be careful with your shorting.

In Fall of last year the market oversold, and trillions of dollars were extracted from the equity markets and placed in cash. Then the printing presses fired up, governments started taking on huge deficits. Inflation and currency valuation are now a concern, and the demand for bonds has fallen.

You have to be careful because those trillions in cash need to find a home. You don’t want to be caught in a deluge of buying – a bubble it may be – as people pour back into higher risk equitiies and away from cash and bonds. Remember also that most people don’t look at fundamentals as their assessment of the market. They look at how equities are doing instead. If equities are doing well, then to most investors, the world is doing great. Their is a great detachment between the two, and that equity story, where higher prices indicate higher fundamentals down the road, feeds itself.

Just a warning. You don’t necessarily want to fight this flood.

Thanks,
jt

#86 WestCoastGril on 06.11.09 at 1:07 pm

Opinions please:

Better to buy at low house price with higher interest rates
or
Better to buy at high house price with low interest rates?

My bet is the former, as rates can go down and I can throw substantial amounts of $$ at the principal ongoing (sales commish, residuals, etc), which has greater impact than in the second scenario. Thoughts?

#87 Two-thirds on 06.11.09 at 1:07 pm

New home prices have dropped by 12.5% YOY in Edmonton, which IMHO will simply add to the pressure on existing RE inventory prices in this most bubblycious city.

http://www40.statcan.gc.ca/l01/cst01/cpis04a-eng.htm

Good time to buy?

I guess that depends on how financially secure you are and how you feel about the economy in the next 36 months.

As for me and my house (figuratively), we’ll wait until the headline next year proclaims:

“New home prices drop by 15% YOY in Edmonton… please, please, buy our houses!”

LOL

#88 ca on 06.11.09 at 1:12 pm

Garth —

In today’s post, you wrote

“the US dollar continues to drift lower, a trend which will define the future”

Doesn’t this indicate that you see the dollar falling in the future?

The opposite. — Garth

#89 smw on 06.11.09 at 1:19 pm

Oil price does not equal gas price, its all based on refining capacity… There isn’t a magic wand that changes oil to gas.

But don’t fret, all that money handed over to the banks to get the “lending to business” instead has been sucked into the banks(worldwide) balance sheets.

Because the exploration companies for gas and mining haven’t been able to get the required funding, there will be a huge shortage of all commodities, putting even more upward pressure on price.

Instead, the banks are handing cash over hand over fist, to consumers, to lock into homes. So instead of spurring an economy based on growth in manufacturing and our lush commodities, we’re trying to continue with the failed consumer credit orgy.

This creates jobs at Wally Mart and Home Depot, that pay $10 an hour, not $25 – $100 an hour on the manufacturing floor or out in the bush digging.

—————————————————

As mentioned in a post above, semi conscience consumers with little or no equity in their home are utilizing their HELOC to pull the $10K out of their home for the $1000 tax rebate. Just another Flaherty “gimmick” to try to push the consumer to being the economic engine.

All this “money” sitting in housing, and not doing its rounds in the economy, thats why we’ve stalled.

Low rates and the “wealth effect” worked to get Bush re-elected for a second term, too late for that political trick in Canada.

You had your chance at a majority, now the gig is up, hasta la vista, Jimmy.

#90 POL-CAN on 06.11.09 at 1:20 pm

D from London and MikeB

Got a Watch would be a better voice for how to invest in this market. I belive you need to be a day trader in this environment. I do not have the time for that but do pay much more attention to current events then i did 2 years ago for sure…..

IMO it is quite simple…..

The US markets are being propped up with TARP money. Very low volume meaning small investors are out. I stayed in with only my play money. Insiders have been getting out for weeks now. Some banks raised capital at this artificial peak. As soon as it pleases our masters at GS to pull the plug in order to make tons of money shorting everything including each other they will, and it will be brutal. Heck, these assholes will probably even short their own stocks….

Oil demand and electricity demand are down significantly. This means no recovery, not even in China.
This little nighmare is far far from over and we are never going back to the way things were in 2007/2008….

This week i got out of all of my personal corporate stock holdings. I am also moving all of my RRSPs into GICs. Due to this bounce I am back to early 2008 levels. Despite this 40 % bounce, at least one year of RRSP contributions plus growth is wiped out. Good thing that I was 65 % in GICs right from the beginning other wise this would have been much worse.

Get your hands on everything written by Bob Hoye and read sites like the following on a daily basis.

http://theautomaticearth.blogspot.com/

http://zerohedge.blogspot.com/

http://globaleconomicanalysis.blogspot.com/

http://ashizashiz.blogspot.com/

http://maxkeiser.com/

http://www.globalresearch.ca/

There are many others but the above are my faves….
Greater Fool included no doubt :)

#91 Munch on 06.11.09 at 1:22 pm

Hey GARTH?

Check this OUT!

South Afria has got its own MADOFF!

I am so PROUD, I could BUST – pardon the pun!

http://www.moneyweb.co.za/mw/view/mw/en/page91?oid=296836&sn=Detail

Munch

#92 D from London, ON on 06.11.09 at 1:25 pm

# 85 Jonathan

I guess I am part of that potential flood of money then (see my post # 74). There must be more of us ruled by fear right now than I thought.

#93 dd on 06.11.09 at 1:36 pm

#84 Outlaw

… I would say that NG is a far better investment (over the course of 1 year or more) and inflation hedge….

Current NG prices cannot go much lower. If oil shoots through the roof NG will follow, not matter if there is tonnes of the stuff in storage.

#94 pjwlk on 06.11.09 at 1:40 pm

The global recession has forced Canada’s companies to mothball more of their means of production than ever recorded before, driving industrial capacity use to just 69.3 per cent in the first quarter of 2009.

http://globeinvestor.com/servlet/story/RTGAM.20090611.windustry0611/GIStory/

#95 dd on 06.11.09 at 1:40 pm

#79 alberta

… Is there something I missed that teaches us how to survive & prosper with rising rates, oil, & dollar?…

Sure:
– Invest in energy stocks (oil / and out of favour natural gas stocks),

– have no debt (higher interest rate are going to hurt)

– Higher buck … some exports are going to keep getting hit. Short the US dollar?

#96 lgre on 06.11.09 at 1:41 pm

“Opinions please:

Better to buy at low house price with higher interest rates
or
Better to buy at high house price with low interest rates?

if you are responsible with money then the first option of course, if you’re not, it dosent matter..as you will always be a finacial slave…

#97 Devil's Advocate on 06.11.09 at 1:50 pm

#79 alberta on 06.11.09 at 12:08 pm “Rates, oil and loonies will all be rising. If you can’t figure out how to turn that into money you don’t deserve much.”

Hmm – Appears this prairie boy doesn’t deserve much. Is there something I missed that teaches us how to survive & prosper with rising rates, oil, & dollar? Do all of Garth’s blog followers have this figured out?

I’m trying to figure that one out too. Got some ideas but the overall cost of those enevitable changes I think will negate the opportunity in the long run.

Buy oil stocks? We’re never going to run out of oil it’s just going to get real expensive and as a consequence alternative fuels will be sought. Even Garth knows this check out http://www.xurbia.ca.

Look forward to higher interest returns on savings? What about inflation… hyper inflation.

Rising Loonies? Guess I’ll be able to buy MORE American stuff but not much chance of selling them more. Look where the strong US$ got them, they are consumers not producers which is a large part of the problem.

Yes I agree there are opportunities in what Garth predicts. But there are a lot of consequences which represent a whole lot more hurt on the horizon than gain for this country. We’re all in this together one way or another. It’d be nice if we could dump the vulture attitude which is only going to bite us in the behind at some point. What goes around does, eventually, come around.

#98 Barb the proof reader on 06.11.09 at 2:00 pm

#46 Da HK Kid … always make me laugh! Keep it up!
and … Toonces the Driving cat skit
Thank you Da HK Kid, the feeling is mutual, I appreciate your RE and other perspectives. And thanks so much for the link.. I loved Toonces… used to tape SNL then, there were a dozen or Toonces skits, so I’ll have to follow your link and see if they’re all there — great laugh, enjoyed it.
And good call! You did a much better interpretation — such a pro, “I’m not worthy!”

#99 PTDBD on 06.11.09 at 2:12 pm

Rebalancing the Global Economy
Mr. Carney’s speech today

Animal spirits, a New World Order, reponsible globalization and risks offloaded from the Public Sector to Private Enterprise, oh my! A must read. Of course, circumstances may change.

#100 lgre on 06.11.09 at 2:13 pm

“Based on what? The payments are less than 30% of my gross income. My wife is a stay at home mom. I have to pay to live somewhere…”

Was this a trick question? All the more reason, you are a one income family, if you lose your job good luck paying your mortgage on a whopping $1600 month from ei payments..by the sound of it you got pretty lucky to only pay a mortgage..I guess your neighbour is paying the rest of the dues associated with home ownership.

My income is more then that and I’m contemplating a $100k mortgage, $500k would never enter my mind.

#101 Increasing that 1% on 06.11.09 at 2:22 pm

#28. Grantmi, wrote “But of course we’re not in the center of the universe in Ontario where your gas is subsidize to keep the gerbils running!!”
___________________________________

Sooo, …what? Are only Ontarians that rely on gas gerbils?

#102 wjp on 06.11.09 at 2:24 pm

Selling Oil stocks when the price hits $75 might be very wise. If you like to hedge sell oil – buy Natural Gas.

#103 Dean on 06.11.09 at 2:35 pm

The demand for oil isn’t where it was last time prices spiked (though inventories are finally dropping). So I think there is a good chance oil may rollercoaster back down, and bring the Canadian dollar with it. That being said, $100 Oil isn’t too far away so how can you rule it out. I would say, unlikely though.

Interest rates will go up, but that’s not a real prediction is it? How could they go down?

To those people who are shorting the market: Did you catch the last two drops? If the answer is no, then you’re probably wasting your time. It’s much easier just to buy each month, and rebalance your portfolio from time to time and take some profits. Of course, that’s a long term strategy so you don’t get to brag to your friends when you get lucky and time things right.

Real estate in Canada right now seems the riskiest venture. I know the stock market could drop some more, but it’s already down in a big way. When you look across the border and see average prices nearly 1/2 what we have, it sure makes me nervous.

#104 Shifty on 06.11.09 at 2:40 pm

OK, so we could invest in oil. What’s your collective thoughts for an investment in Suncor Energy Inc. (su) on the TSX. The company is looking at purchasing Peto Canada and looks to me a well managed company.

#105 Barb the proof reader on 06.11.09 at 2:42 pm

#55 “Yeah .. barb .. the all knowing. Maybe he/she/it will consider running for president of the world to save our souls.” –TheFirstRick

Dear Rick, I encourage you, let go of me … I know you can do it. I’m cheering for ya. Try. Besides… your modus operandi is showing.. you’ve forgotten that you claimed last week that you skip my posts.

#106 David Bakody on 06.11.09 at 2:44 pm

#95 lgre on 06.11.09 at 1:41 pm

When I was moving from Kitchener to Dartmouth I bought a home without my wife present …. many said how could you do that? Easy … a. I knew the area she wanted to live to ensure which schools the girls went to and b. I know what we could afford putting 25% down. So I picked a new home that fit into that box rather than an older home. A real estate book can be the size of two telephone books full of wishes but when you put sensible criteria on the table it comes down to about two pages ….. “It’s just that simple” and if you choose wisely under those conditions your home will sell to exactly the same type of person sooner rather than later. Had three homes and that is exactly what has happened ….. and this home will be no different the schools are here couched in the center of the bus routes on a 50X100 foot lot.

For those who live or want to live in the lands of milk and honey best continue to rent … or win the lotto for y’all are in a no win situation.

For my pongo friend (CA)….. oil is profit and the worlds biggest business and these people will find ways to increase profit for themselves and shareholders come hell or high-water …. they do not call it black gold/Texas Tea for nothing.

PS: this auto mobile stuff will be short lived because the last thing a man/woman wants to do is give up their drivers licence ( Driving Miss Daisy) my dear sweet mother pulled the trick around age 90! she even drove the last 6 months without a licence albeit only a block or two on side streets ….. and for you smart people …. you try and take the keys from your 90 year mother!

One last thought (s) ….35 mpg @ 90 C/ltr cost less than 50 mpg @ $1.50/ltr ….. plus the price of new car that will get 50/mpg … ( you get my drift)

Careful when comparing US gas vs CDN gas there gas is not regulated ours is via Octane levels …. and they are not checked for water content at the pumps nor the supply tank stations.

#107 Calgary Rip off on 06.11.09 at 2:45 pm

Igre:

Its better to have sky high interest rates. Think about it. Interest rates can always go up. Do you want that to happen on a house that is $320K and should be priced at $190K? I dont think so. That is exactly what has happened over the last 5 years in Calgary. Buyers in that time period are in serious hot water. If they cannot afford their mortgage payments when rates rise-note when, not if-they will default. With that happening, market values will return to normal levels which should also have a beneficial effect on property taxes. Either way, you’d have to be an idiot to purchase any property in Calgary right now.

#108 Increasing that 1% on 06.11.09 at 2:49 pm

# 31. Chris no longer in England

Congratulations on accomplishing the big move, and kudos for having the courage to do it.

Interested in knowing about any good rentals you may have passed on, in your search?

#109 My_View on 06.11.09 at 3:02 pm

Sorry Garth,

Still love ya, your right no more personal attacks. Besides I can’t wait to learn more about your project bunker, it has always been a dream of mine to live off the grid. Peace!

#110 Greg W., Oakville on 06.11.09 at 3:11 pm

Hi #67 just a guy and #64 jwk,

I wasn’t trying to saying Garth was incorrect, I too ‘assumed’ he was trying to communicate that oil was 35.5 three months ago. But that isn’t what he said.

I guess the point I am trying to make is the use of language and the 100% versus 200% to describe a doubling in a number or something.
Communication is fraught with preventing misunderstanding. (You know what can happen if you ‘assume’.) And people that don’t spell well like myself don’t always help.

I find the use of ‘100%’ to describe a doubling is less precise that saying by ‘200%’.
(I’d much rather, have my investment increase in value by 200%, than just 100% and staying the same. Assuming a 100% increase mean a doubling is an ‘assumption’. )
100 percent of something is still equal to the something,
Were 200 percent of something is twice the something.
Assuming Garth meant a doubling is what I did. But in contract and court a good lawyer may convince a judge 100% is not a doubling but the same. A doubling is actually 200%.

I guess that is why we have lawyers with legal peak to insure we reduce the change of misunderstanding and ‘assuming’ when communicating with language, especially involving numbers and other legal contracts.

I find lots of people use the 100% when they try to describe a doubling, but if something doubles the use of 200% will reduces the need to ‘assume’.

Feel free to respond again on this % issue/comment if you like, but
Perhaps this isn’t the best place/forum to be mentioning this small point, as I understand it? It’s just a pet peeve I have, when anyone use 100% instead of 200% to mean a doubling. If 200% was used more it would removes the ‘assuming’.
Just my two cents.

#111 MenWithHats on 06.11.09 at 3:29 pm

Real Estyate Plunges :

The prices of new homes in Canada in April fell by 0.6 percent from March and by 3.0 percent from April 2008, the largest year-on-year decline for more than 17 years, Statistics Canada said on Wednesday.

Market analysts had on average expected new housing prices to fall by 0.4 percent from March. It was the seventh consecutive month-on-month drop.

The year-on-year decline was the largest since the 3.2 percent fall recorded in December 1991.

Prices rose in just three of the 21 metropolitan areas and were unchanged in another 10 in April. Western cities which have seen large increases in recent years continued their recent pattern of falls.

Edmonton recorded a 0.9 percent drop in April from March while Calgary posted a 0.8 percent decrease. Victoria and Vancouver saw prices fall by 0.6 and 1.2 percent respectively.

#112 OttawaMike on 06.11.09 at 3:31 pm

#78 Toronto C9 Renter on 06.11.09 at 12:07 pm
I do not totally disagree there is upside in Nat. gas.
The new twist is the shale plays occurring throughout N. America. New technology has allowed the extraction of gas from shale beds and increased reserves dramatically.
The Pickens Plan(www.pickensplan.com) for large scale conversion of US transport fleet to compressed Nat gas is one thing that will cause nat. gas prices to rise substantially.

#113 Evangeline on 06.11.09 at 3:35 pm

((Now expand your horizons and get your message out to a wider audience please!)

what about talk radio? would that work?

#114 905er & Spouse on 06.11.09 at 3:38 pm

Dear BoB:

Sigh….Try a mortgage calculator and change the rate to 12% or 13%…or even 10%

You are looking at needing 4K+ monthly to service that debt.

That $300 isn’t going to go far then.

Better ask for some really big raises or pray to what every god(s) you worship. My parents were paying 18% once. Try that one for fun

Or maybe not, it might just give you nightmares.

Good luck.

#115 Gas Guzzler on 06.11.09 at 3:41 pm

Hi Garth,

What are your thoughts on Natural Gas? Do you think this will follow oil?

#116 RJ on 06.11.09 at 3:43 pm

They should slap a picture of an oil well on the loonie. My neighbor just paid me in loonies for working on her Florida properties. She seemed surprised that I was happy to accept them. Who’s that dude on the hundred?

#117 POL-CAN on 06.11.09 at 4:21 pm

Hi Garth,

The one time I do not copy my post before hitting submit, your site eats it :(

ZeroHedge (and others) have been posting for weeks now about how manipulated the stock markets have become. Here is a sample from today:

“So between Goldman controlling NYSE single-name program trading and dark pools, and JPM dominating ETFs (and prime brokering trades based on the decision of 1 gazillion teraflop processor cycles), we get a market that looks set to rehearse for the most recent Saw sequel. If anyone (whose name doesn’t have 80×86 in it) is still left trading this you have our sincerest condolences.”

more at:

http://zerohedge.blogspot.com/2009/06/goldman-sachs-principal-transactions_11.html#disqus_thread

I wrote earlier that the markets will turn down when our masters at GS/JPM and friends have raised enough equity at this fake peak. At that point they will stop proping it up and short it all the way down to ?

Moral of the story is get out while you can unless you have control of your portfolio and have to time to watch the markets like a hawk.

#118 if you don't like it on 06.11.09 at 4:23 pm

The place I bought in 2002 sold for $193,000 and in 2008 we bought our place for $225,000, I don’t thinks thats too much of a boom

#119 Barb the proof reader on 06.11.09 at 4:29 pm

Appreciated your posts today MikeB 32 & POL-CAN 42. In our house we have the same discussion, particularly Mike, our central banks and gov. DH with 30 yrs exp inside the market with eyes very open, and our mutual attention to world affairs, and.. our caution. I’d agree with your stereotype we are debt phobic. Albeit, Pol-Can we’re short since early Apr too..
The T.O. RE status is fascinating – I don’t envy picking a bottom there w/o assistance of further cataclysmic news to herd them more quickly one way or the other.

D in London, misunderstanding aside good one at 74. If you know about fear and greed, you are way ahead. You come across as cautious, not fearful.

#120 Greg W., Oakville on 06.11.09 at 4:33 pm

Hi Garth, re: the isotopes shortage used to test for some bone cancers in children.

If the Health Minister and Canada Health actually look at all the good science that is now available regarding the negative health impacts that adding fluoride compounds with some heavy metals to the public drinking water supply is having and it’s connection to some disease and some bone cancer, like the type Terry Fox had, it’s addition to the public drinking water supply would be stop immediately, I would think?!

From the good science evidence I’ve seen we would also see a marked declined in a number of common diseases we now see here in the west.
That not to say all disease is caused by drink fluoridation water only, just that there is a clear connection to the cause of some of the common diseases we see here in the west!

We would hopefully reduce the future need for isotopes to do some bone cancer test, as well as reduce overall health care cost, and not to forget about the reduced suffering caused by some diseases that can be clearly linked to the increased exposure to fluoride we are all getting, like some of the newer pesticides on some food, as an example.(see the link below)

It is a myth that drinking fluoride reduces tooth decay; the good science based explanation doesn’t back up the clam that drinking it is the mechanism!

My understanding is that even Lisa Raitt MP for Halton has the more expensive home water filters capable of removing fluoride from her family’s drinking water. What about you and your family? (FYI, Brita water filters do not remove fluoride!)
The addition of Fluoride to your drinking water supplies need to STOP!

Why haven’t even some basic test been done yet, for example to see if and how much fluoride can get into a person in a hot tube/bath/shower?

Why is it that your Medical Doctor can’t get your blood and urine tested for fluoride levels here in the west? The equipment is only ~$2,500. In India they check for fluoride in blood and urine before treating for decease symptom that might also be from fluoride.

India safe drinking water levels for fluoride is maximum half what we ‘add’ to your water, and India has a rider that says ‘The lesser the better’.
Some well water in India has lots of fluoride that needs to be removed before drinking.
Fluoride is not a nutrient; your body doesn’t require it!

We are being mass medicated without consent, with toxic fluoride that doesn’t actually do what it was first clamed, reduce cavities by drinking it! The dose isn’t even controlled! How much water do you drink? Are your kidneys functioning normally? If you mix baby formula with fluoridated tape water your Childs IQ will be reduces 5-7 point! How many other sources are you being exposed to everyday in some common medications and pesticide use on foods now. Do you drinking tea black, or canned tune, and tooth past through gum absorption? Do you recall we were once all told smoking was good for you?

The same people that started saying drinking fluoride was a good thing to do also told use DDT was safe! The fluoride licker from the phosphate scrubber towers is considers so toxic by the EPA that it can’t be dumped in rivers or the ocean, but if added to your drinking water supply it ‘magically’ is ok???
The quickest way to reduce most people fluoride exposure is to stop its addition to the drinking water supply.

Write you local Government and tell them to stop adding this toxic fluoride waste from the phosphate scrubber tower, that include some heavy metals, to our drinking water supplies NOW! They will save money by not buying it to put into your drinking water and help keep people healthier longer on average.

The clean drinking water laws in Ontario writen after the Walkerton tragedy forbides tha addition of know harmfull stuff to the drinking water.

At least you can boil off the chlorine used to kill bacteria that might get into the water, but boiling water will only increase the fluoride concentration!

For a link to some of the newest good science based information from around the world on the effects fluoride has on the brain and soft tissue of the body, right down to increased errors in DNA replication, as well as other sources of fluoride you might have additional exposure from, go to, http://www.fluoridealert.org/

“Believe in Myth Avoids the Discomfort of Thought.”

#121 POL-CAN on 06.11.09 at 4:33 pm

From a poster over at Mish’s site:

I am on strike against the system

Dear State of California,
I quit my job last friday (a full time paying position, highly paid), so sadly I won’t be able to help you with your impending bankruptcy. I will, however, watch the trainwreck from afar.

Dear Bank of America,
I have closed all my long time accounts. Try charging me for checks now. Good luck making any mortgages/refinances with the increasing interest rates.

Dear Fidelity,
I have cashed out all my 401k/IRA. Good luck trying to push more suckers into bonds from stocks. I hope index funds wipe you off face of the earth.

Dear Chase,
Only integrity stands between me charging the max on all my credit cards, and declaring bankruptcy. That line’s getting thin, too. The creditors can’t call me if I’m not in United States.

Dear Fed Reserve,
I will be traveling in Asia, with my savings already in a foreign bank account, living comfortably with $7/day food and $400/month rent. Why work when the government steals your labor via the printing press, I ask myself. I’ll just come back when hyperinflation prompts the american public to hang you from the statue of liberty.

Yes, I did most of the above (except the traveling part…that’s in a month)

#122 @Garth 2 on 06.11.09 at 4:56 pm

#74 D from London, ON

The question is one that a lot of investors with sidelined capital are grappling with.

The real question gating my own investments is: What was the cause of the 2008 crash, and how has the risk changed in 2009?

The crash of 2008 has been labeled the end of a speculative bubble in worldwide real estate, and perhaps OIL (if you’re a Rubin fan), and a lot of behind the scenes financial instruments that could not withstand a shock.

And then we have the economic fault-line built up between boomer retirement needs and the lack of a real western-based financial mechanism to make up for the shortfall in pensions. This fact is a major destabilizing undercurrent; investments must be made, but the real player’s have a desperate handicap… they’re running out of time.

Again to the question about 2009 risk:

The above reasoning is now orthodox. The market is getting past wallowing in pension data, demographics, real estate meltdowns, derivatives, moral hazard and depression scenarios.

If the market now discounts these issues, then it must care about some thing new. That is the question. Ideally, it might concern itself foremost with earnings growth (that is simplest). However, it is now concerned with inflation. Is inflation a real concern?

I would like to hear someone daring weigh the risks of a severe correction brought on by further losses in the US real estate arena (i.e. foreclosures in Option ARM, Alt-A, and Prime mortgages coupled with today’s overwrought US monetary resources) against the real risks of near-term inflation; which ought to be, by comparison, a slower moving demon.

Inflation by the way evokes all sorts of upsetting capitalist realities. However, its main trait is that it keeps you in the game. And that is precisely the point today. The game needs capital off the “sidelines”.

D, what is the worst case if you wait things out for a further year?

You expect a long life. A year of earning nothing but interest while you wait for a damning crisis to subside further should not destroy your life… especially since you made a statistically improbable but nonetheless genius call to bail before October 2008. Perhaps you can divide the spoils in two and compare *your* 2008-2009 ROI to that of the expert fund managers, hedgies and government-run pension execs that couldn’t manage to achieve a return even close to yours?

BTW.. love the GAS plays here. Don’t understand the liquefied gas effect on prices, but interesting since I’ve been charting OIL, GLD and UUP versus GAS recently.

#123 timbo on 06.11.09 at 5:29 pm

anyone in Calgary hear this name over and over on the radio over the last 2 years?

http://www.calgarysun.com/news/alberta/2009/06/10/9747711-sun.html

amazing how prices are going to rise but big speculator’s are now throwing in the towel.

link from alberta bubble….

#124 Chris no longer in England on 06.11.09 at 5:34 pm

Barb #43: “…All the best to you, I know you are going to enjoy your new life, you’ve got the knack.”

Thanks Barb! That almost brought a tear to my stiff upper lip. We are enjoying our new lives (even though we are sleeping on mattresses on the floor and sitting on deck furniture we dragged into the empty house). The owners even emailed us 3 weeks back to ask what veg we would like them to plant for us, and true to their word they have. Everyone has been very helpful and welcoming.

O Canada …. (must learn the words!).

#125 somecatchphrase on 06.11.09 at 5:58 pm

Nice to see so many natural gas bulls on here.

Recently took a position in Claymore Natural Gas ETF. (GAS)

If you can handle the volatility, this puppy could go to the moon in 2010, if not sooner.

#126 Chris no longer in England on 06.11.09 at 6:23 pm

Increasing that 1% #107: “Congratulations on accomplishing the big move, and kudos for having the courage to do it. Interested in knowing about any good rentals you may have passed on, in your search?”

To start with, I was looking to buy (this was beginning around 4 years ago and right up to last summer). When I could literally see the prices relentlessly rising and my chunk of money in danger of being eaten away, I finally began to think about renting instead. The reason I didn’t to start with is because we have dogs and I didn’t think landlords would entertain the idea. Anyway, I came over in Feb, and looked at some but for one reason or another they just weren’t suitable.

Anyway, because I had been following properties on the mls for a long time, I was very aware of properties that had been listed for months, in some cases a year or more – so I decided to target them and see if the owners would consider renting instead of selling. I think I contacted realtors for about 14 properties and about half of the owners said yes, to my surprise. They were obviously losing heart because of the length of time their houses had been listed without selling, so were prepared to consider an alternative idea. At this stage, I had not said anything about the dogs, but had suggested that if we were happy with the house and area, we would be prepared to buy it at a later date. Once I had them hooked, I owned up to having pets, but none of them seemed bothered. They were fixated on the idea that they could rent for a year and then possibly get a easy sale without any further effort.

So, we had quite a few to choose from, but funnily enough, the one we picked was actually a rental that happened to come up at the last minute. I don’t know where you want to live, but I can recommend contacting Jim Shortt in Brighton as he looks after a lot of rental properties. [Sorry Garth, delete this bit if you don’t like it!]

#127 . . . fried eggs and spam . . . on 06.11.09 at 7:26 pm

One Thing Leads To Another. Garth wrote a book called Greater Fool. Here is a 2:30 clip of A Slightly Different Greater Fool. — http://tinyurl.com/n22jpr — Comment from wrh.com:

“Money is pouring into the stock market, so everything is all right. Right? Right?”

Got milk? Got gold? G. Celente clip starts at 7:40, runs ’til 9:40 so drag the thingy across. — http://revolutionarypolitics.com/?p=1138
——
Just in case anyone forgot, this. — http://tinyurl.com/lqspak — Comment from wrh.com.:

“Memo to SecDef Gates, who appears to like to invoke history, but has absolutely no understanding of it: this military invasion and subsequent occupation of Afghanistan has absolutely no relationship to the events of World War II. Invoking this is a really gross error in judgment.

“The US and NATO are attempting, with a far smaller contingent than the Old Soviet Union used (around 500,000 pairs of boots on the ground), to conquer this country militarily. The old USSR failed catastrophically in this endeavor: the US will, unfortunately, probably do the same [ditto Canada].

“We are not in Afghanistan to bring it’s people “freedom and democracy”; we are in Afghanistan for the reasons reported in:

http://aangirfan.blogspot.com/2009/05/obamas-problem-with-gas.html

“Which ran a story on 17 May , 2009, from which the following excerpts are taken:

“The Afghan War is about energy, heroin and military bases. The USA would like to control the energy-rich former Soviet republics.The USA wants to split Russia and China.

“Afghanistan occupies a strategically important position.Afghanistan is believed to be rich in natural gas, petroleum, coal, copper, chrome, talc, barites, sulfur, lead, zinc, and iron ore.

“The heroin trade in Afghanistan uses U.S. dollars.

“So, there you have it.”

And the US dollar is heading downhill faster than a plastic tobbogan on ice. Recall Trudeau’s wage and price controls in the early ’70s? Slightly different, but — http://tinyurl.com/kocfde

“Most people think that currency controls are only implemented in ruthless socialistic, communistic or fascist countries like Russia under Stalin or Lenin, Germany under Hitler, Zimbabwe under Mugabe or other oppressive regimes like China, Argentina, etc. Viewing explosive history through the lens of monetary policy reveals a common thread. Dictators attempted to abrogate monetary rights and the people either killed them or were killed.”

The Bilderberg Group, Rothschilds and their ilk come to mind, pushing everything ahead on a quicker basis with newer and more wars.

WHO declares a Pandemic Level 6? Has to be a Pandemic of Stupidity!

#128 Riveted on 06.11.09 at 7:32 pm

Early casualties of the next pandemic:

http://www.guardian.co.uk/money/2009/jun/11/mortgages-rates-inflation-nationwide

#129 Outlaw on 06.11.09 at 7:34 pm

#124, GAS is pretty good but i think it prices gas in canadian dollars, so be careful of the exchange rate risks. Its a 1 to 1 ratio so the decay is not there, as with horizons HNU which is leveraged 2 to 1.

#130 Increasing that 1% on 06.11.09 at 7:38 pm

#125. Chris no longer in England

Thanks for your response, re: your rental search
Adding about the possibility of buying is a good point, especially after you had the great idea of approaching those who’d allready been trying for a long time to sell.

(But, then it is funny how it’s the things that pop up in the last minute that fit the criteria…)

#131 Sean in E-Town on 06.11.09 at 7:40 pm

Now I’m worried, Garth: You and Paul Krugman are on the same page. http://krugman.blogs.nytimes.com/2009/06/10/eats-green-shoots-and-leaves/

#132 lgre on 06.11.09 at 8:01 pm

David Bakody -I’m stating the mere fact that a $500k mortgage on an $80k salary is not healthy, regardless of how we slice it..In the last 15 years I invested in everything, which will allow me to convert from FT to PT work in the next 2 years at the ripe age of 32.

I have nothing against RE, I have owned several and looking again. I just don’t see how Bob can sustain a proper life with a mortgage that big..his money not mine, I put in my 2cent..bloggers can take it or leave it.

Calgary_rip_off – I agree with you, read #95 again

#133 BCing You on 06.11.09 at 9:33 pm

#28 Grantmi

Gas prices are higher in Vancouver than Ontario mostly due to a 6 cent/litre transit tax for Metro Vancouver and a 2.4 cent/litre carbon tax for BC. Not because gas is subsidized in Ontario. Also, our carbon tax is increasing by an additional 1.2 cents on July 1, 2009 and 1.2 cents again on each of July 1st of 2010, 2011 and 2012.

#134 Herb on 06.11.09 at 10:03 pm

Meanwhile, in politics …

Aaron Wherry has produced the best summation of a day in federal politics ever:

http://www2.macleans.ca/2009/06/11/the-commons-stephen-harpers-real-world/#more-63815

#135 smw on 06.11.09 at 11:02 pm

Looks like Goldman Sachs is back in the petroleum game.

http://www2.goldmansachs.com/our-firm/investors/stock-chart/index.html

Insolvent Banking 101, bang the oil drum if all else fails.

So how much inflation is required to get the US banks out of the deep red?

#136 Happy Renter in North Van on 06.12.09 at 12:36 am

#44 TS – Having worked for CI, it’s not an issue of lowering fees for the common schlubs investing in mutual funds… it’s about lining their pockets with extra $$$.

#137 JoJo on 06.12.09 at 1:36 am

Garth –

In today’s post, you wrote

“the US dollar continues to drift lower, a trend which will define the future”

Doesn’t this indicate that you see the dollar falling in the future?

ANSWER: The opposite. — Garth

Wow, Oil price over $ 100 and stronger $ US?
Last July $ 1.63 US = 1 Euro Oil price $ 120-140/barel
and Feb/09 $ 1.25= 1 Euro Oil price $ 33/barel
I’m positive if again oil price will hit $ 140/barel
than $ 1.80 US = 1 Euro and China,Russia,India,Brasil will dumped $ US.

Higher interest rates and it’s singh of Deflation in Economy?
Please, what economy you learned in School.
For example if you have a loan 200K/25 years with 4% interest and loan with 160K/25 years with 7% interest. Do you know that if you buy cheaper house 40K but within 25 years you have to pay more money on cheaper house 160k/25 years and 7% interest.
So in Canada you have only two choises cheaper house and than you have to pay interest 7%-8%- 12% or full top price with 3.5%. On the end is the same bull s…

#138 D from London, ON on 06.12.09 at 8:15 am

Garth2 and Barb, thanks for your posts.

I cannot say it was a “genius” call that took our money out of the markets before October. It was fear. When we had that mini-blip in January 2008, we went back and forth pissing and moaning in fear for a few months, and when things started rising again in mid-2008 we let fear get the better of us and we bailed from our 100% equity-based mutual funds. It is only “genius” in hindsight. At the time our FA did everything she could to derail and delay our moves to liquidate.

I agree with your comparison vs. equity fund managers, especially in 2009. The last cards for 2009 are yet to be played, so we will see if fear is as good to us in 2009 as it was in 2008.

I cannot get a handle on: 1) inflation expectations going forward, and 2) the amount of gross manipulation, back-room games and general chicanery going on with equities, especially now (starting but not ending with the “Plunge Protection Team”). These 2 unknowns just add to the fear side of the equation for us.

#139 Solitario on 06.12.09 at 9:02 am

Dear Mr. Turner,
with all due respect, I disagree with your predictions.
And I add another one to them: as it has always been the case in the past everytime we happen to disagree, I will be right and you’ll be proven wrong.
There is no way to have CAD at parity, much higher rates and $100 oil in the same time in the next 3 years.
Here’s my prediction for 2010:
-CAD between 80-90 cents US
-prime just about where it is today +/- 50bp
-oil averaging $80 (US)