One path

roads1

Between the 1970s decadence of the Winnipeg airport and the insouciance of Westjet, an idle traveller with a newspaper is a dangerous thing.

I mean, look what I learned:

  • Tourism in Manitoba’s in the crapper. Visits from Americans have plunged, hotel vacancy rates are up and business in poor Churchill is off 30%.
  • The giant government fund standing behind US banks is empty. Goose eggs. Starkers. The Federal Deposit Insurance Corporation has burned through $60 billion and will remain in the red until at least 2012, despite a massive new levy on solvent banks. Evidently saving capitalism’s a bitch.
  • Tons of grapes will rot on the vines in the Niagara Peninsula and the Okanagan this autumn as the Canadian wine industry deflates. Prices have crashed by 40% or so as consumers stop boozing, or turn to rotgut. In a classic case of supply and demand, supply loses.
  • Expect the orgy of bank loans and cheap money to end soon, says the IMF. As the government stimulus tap starts to shut in North American and Europe, ‘funding gaps’ will materialize, which will stall the recovery and likely add to unemployment.
  • And, of course, a new ruckus over whether the economy is getting plumper or limper in the wake of plunging numbers in Japan, news Canada stalled out again and predictions the US faces a lost decade.

Man, was it just a few weeks ago the recession, human despair and bad hair days were declared over in the wake of a single month’s uptick? As noted on this blog, economists from the big banks along with politicians fell over themselves lauding an historically short downturn and a return to our normal ways.

They wish.

There is nothing normal about current times. Days ahead will be even less predictable.  We’re in the throes of a battle between inflation and deflation, between those betting on economic breakout thanks to government trillions and others convinced we’ve not paid yet for the sins of a generation of mindless borrowing and over-consumption.

In one scenario, higher energy prices, higher taxes and interest rates, higher equity markets, modest growth and a slow but jobless recovery. In the other, financially-stressed consumers unable or unwilling to pick up the tab as stimulus programs wind down. Economies sputter, demand falters, prices drop, unemployment rises, interest rates fester, government debt spirals, equities reverse, and we’re back on the edge of the cliff.

Nobody can guarantee which scenario will dominate, although a desperate media, business elite and political cadre will continue to goad consumers into spending and borrowing, whatever the consequences. How could it be otherwise? The entire ruling class, yoked to the belief growth must be continuous and incessant, chose to deal with the events of a year ago with a mega-dose of Keynesian tonic. Instead of letting excesses correct, they gave us more excess (2% mortgages, home reno tax credit, cash for clunkers, CMHC enema, bailout billions, and endless TV ads).

Needless to say, deflation is far more destructive than inflation. You need to be aware of it, watch for it, and take steps to prepare.

Judging by some comments here in the last twenty-four hours, there are people disturbed I would write such things. And while I personally think higher rates, higher taxes and a sputtering economy are what likely lies ahead, a deflationary spiral into the unknown has been a possibility now for almost a year. Last winter I put the odds at 20%. Still do.

Don’t know about you, but anything I judge has a 20% chance of happening to me, I do something about. It’s called insurance. Maybe you should get some, too.

Regardless of which road opens, there’s one inescapable conclusion: Real estate loses.

If inflation wins and rates rise, the market will correct. Has to. Affordability takes a big hit and an asset priced at the top of its cycle declines. Hundreds of thousands of people face the real potential of negative equity.

If deflation wins, and rates stagnate, the market will correct. Has to. Falling demand, consumer stress, rising unemployment and business failure dictate it. Hundreds of thousands of people in this scenario also face negative equity.

There is one consistent message on this blog. Whether you like it or not.

Having the bulk of your net worth in one asset is a very bad idea.

Even grapes.

In the news: Deflation in the air

99 comments ↓

#1 Shawn Allen on 09.30.09 at 10:20 pm

Garth said: Having the bulk of your net worth in one asset (meaning real estate) is a very bad idea.

I agree, aside from real estate I had had essentially 100% of my RRSPs in stocks since I started investing 20 years ago. Believe it or not, despite some bumps that has worked out extremely well.

But now I am hedging my bets. Having recovered all my 2008 losses and some more, I am determined not to suffer another 20% loss. So I now have a good chunk in cash, a chunk in equities and a chunk in a double bear ETF that pays off if the market crashes( that’s the insurance part).

By the way if you are young and just starting investing, go all equities and pray for a crash in the market so you can buy at the bottom.

As for real estate I have no intention of selling my house. It’s paid off and any drop in value really won’t affect me at all.

Maybe I am just too lazy to move and we have accumulated way too much stuff. Moving is a major stress and not worth it to me. Once the kids are out of the house maybe. But right now the idea of moving to maybe protect some equity in the house and then getting into a rental is just a complete non-starter.

You have to remeber too, the buy/sell spread and commissions and legal costs and moving costs on a house are probably at least 10 to 15% for a round trip, (sell and buy it back later), so you gotta be expecting a BIG drop to make that pay-off.

#2 double mike on 09.30.09 at 10:31 pm

“If inflation wins and rates rise, the market will correct. Has to. Affordability takes a big hit and an asset priced at the top of its cycle declines. Hundreds of thousands of people face the real potential of negative equity.”

Depends. If it’s a controlled inflation, you’re right, in case of hyperinflation you’re wrong. Mortgage fixed for five years at 7.5% with 15% inflation? I’ll take it any day. And there is a chance it might come to this kind of numbers.

Having said that I’m still renting and there is no way it changes in the nearest future. See you on the path beyond the fork :)

#3 CashMan on 09.30.09 at 10:31 pm

“Having the bulk of your net worth in one asset is a very bad idea”.

Amen brother.

#4 Jim on 09.30.09 at 10:35 pm

I wish for inflation, but expect deflation. Deflation is the current reality (who knows going forward; nobody). I agree that regardless of the outcome, having a huge mortgage won’t end well.

#5 Evangeline on 09.30.09 at 10:39 pm

((Having the bulk of your net worth in one asset is a very bad idea.))

I guess that’s why I hear so many people saying they are now into cash and gold. Cash hedges deflation, gold hedges inflation.

I guess equities are in disfavor by both insiders and retail investors because deflation will deflate stocks to lower values and inflation will overbloat them into another bubble, to be followed inevitably by another bust. People are sick and tired of the roller coaster ride.

#6 RJAG2034 on 09.30.09 at 10:46 pm

“Instead of letting excesses correct, they gave us more excess (2% mortgages, home reno tax credit, cash for clunkers, CMHC enema, bailout billions, and endless TV ads).”

Reminds me of the death spiral of ancient Rome, the corn dole and the games to satisfy the ‘mob’ Its quite eary when you take a closer look and compare the 2 periods of time. Dont forget what happened to Rome!

#7 Eduardo on 09.30.09 at 10:52 pm

http://www.statcan.gc.ca/daily-quotidien/090929/dq090929b-eng.htm

Migration numbers for Canada for all the people asking.

#8 Onemorething on 09.30.09 at 11:01 pm

Come on Big G! This blog likely spells out 80% of what is actually going to happen but one thing that IS A CONCLUSION, RE is going to dump, people are going to take big haircuts on salaries, unemployment will continue for years with those jobs NOT coming back.

One poster mentioned the US basically is too big to fail and I believe it but it will not mean that some really tough times are ahead for them, retest lows, Canada finally gets sucked under!

One thing that will happen, the US wont let the $$$$ tank. It wasn’t too long ago that is was at 0.72 and is still trading around 0.77. I believe we are range bound for some time as strong dollar needs to be pushed if any consumption is to be driven.

Good ole Nikkei below 10,000 today at mid day break.

I think key resistance levels once broken are really going to break the confidence out there whether stock market indexes, currencies or Baltic Dry/VIX.

Now we wait!

#9 squidly77 on 09.30.09 at 11:17 pm

The money people are lusting over smart peoples saved money and encouraging one and all to gamble at their casino, they threaten with lies about inflation and tempt with phony plastic soon to disappear stock market gains, they claim that Canadians are fools for hoarding cash.

We are clearly engaged in a prolonged bout of deflation, perhaps for a decade or more.

I like cash. Dont trust the money man

#10 nonplused on 09.30.09 at 11:59 pm

Well, I’m doing my part to stimulate the wine industry! (hic)

Wait until you see the US auto sales numbers for September (sans cash for clunkers, the most dumb idea so far in this bail out madness. Ruining perfectly good cars! What are the poor going to drive? Spending 3 billion to save $300 million in fuel? Besides, all it did was pull demand from the future to today. There is no way now to replace that future demand and the future will come.

Read today Saturn will be phased out by 2011. I’d like to see their plan for selling the remaining inventory now!

Insurance schemes like CDIC, FDIC, and such are frauds same as CDS’s. Let’s take for example AIG, again. They sold hundreds of billions worth of Credit Default Swaps on companies like Lehman. Collected a nice premium and giant bonuses all around! (yaa, this trading stuff is easy.) But because they hired fancy quants to do a bunch of math they came to the conclusion that there was literally no way they would ever have to pay out on them because a company like Lehman can’t possibly go bankrupt. Not in “several times longer than the age of the universe” (I loved that one when some of the bankers trotted it out to describe the probability of a misfortune they were currently experiencing). So they put aside exactly zero, nothing, not a penny against possible claims on the swaps. Not even some of the premium. In any other business, this would be considered fraud plain and simple.

FDIC and CDIC have enough set aside to cover normal failures in normal times to prevent a run on the banks. They don’t have nearly enough to save the banking system, or even a fraction of the deposits, in “Great Depression” type scenarios. They didn’t think they needed to, because the morons with Ph.D.’s figured it was the runs on the banks that caused them to fail in the 30’s, so if they prevented the runs, then the system wouldn’t collapse. They forget that the banks were actually insolvent, such as they are today. All the insurance in the world couldn’t have save them then, and the pittance we have today won’t save them now.

Life insurance is typically a much more robust industry. But now that stocks have gone nowhere for ten years and the yield on government debt is next to nothing, guess what? Their model doesn’t work anymore either. Ponzi scheme! Don’t live too long or you won’t be able to collect.

They figure that social security in the US will go negative this year or next in the US (paying out more than it takes in). No problem, they have 2.5 trillion in accumulated surpluses, right? Sort of. They lent that money to the Treasury, who spent it. So in order to get that money back, Uncle Sam will have to float even more debt. Yet another Ponzi scheme.

The problem with all these schemes is that they are not sustainable. They depend on new participants paying the profits of old participants and sadly always run out of new participants at some point.

The housing market isn’t a Ponzi scheme per say, but the bubble sure was. Without ever laxer lending standards, it’s not sustainable. They need to continue pushing more and more outrageous mortgages out there. As soon as that dries up, there is only one outcome possible. And so they will push. I expect them to lower rates for mortgages even further, reintroduce 40 year ams, and abandon the down payment altogether. They will use CMHC to push the cheap loose mortgages through the banks. But even that will only have a limited affect long term.

#11 janet on 10.01.09 at 12:23 am

Hi Garth…your last comment…don’t put your net worth in one asset..? We sold our house this summer and have a big chunk of cash we are safely sitting on @ .75% just waiting things out to make a move..no hurry. Is it not wise to have all of our money sitting in the bank if we suffer deflation?

#12 S. on 10.01.09 at 12:30 am

Well worth a look…

http://www.youtube.com/watch?v=JLejfG460WQ&NR=1

#13 greif on 10.01.09 at 12:42 am

Published 2009-09-23 15:35:36

Wages, benefits down
Wages, salaries and benefits earned by British Columbians fell 1.2 per cent (seasonally adjusted) in the second quarter. The drop in labour income followed and even larger decline (-1.8 per cent) at the beginning of the year, and was the first time that there have been back-to-back declines in workers’ earnings in more than a decade. Ontario (-1.1 per cent) and Alberta (-0.4 per cent) were the only other regions where labour income fell in the second quarter. Nationally, wages, salaries and benefits shrank 0.5 per cent in the second quarter.

- Statistics Canada

(from Whistlers Pique Magazine – here; http://www.piquenewsmagazine.com/pique/index.php?cat=C_News&content=Wages+1639)

#14 Munch on 10.01.09 at 12:47 am

YEAH!!!!!!!!!!!

#15 InvestX on 10.01.09 at 12:54 am

“Man, was it just a few weeks ago the recession, human despair and bad hair days were declared over in the wake of a single month’s uptick? ”

Man, weren’t you a couple days ago arguing against rates staying low? (Spring 2010 or so)

Now “higher interest rates will take a lot longer getting here.”

#16 Too Old Bob$ on 10.01.09 at 1:28 am

“Having the bulk of your net worth in one asset is a very bad idea.”

and I thought that’s what the “D” stood for in the last topic. Now where did I hear the word diversify before.

#17 Taipan on 10.01.09 at 2:50 am

Well sounds about right.

The media and politicians at the moment pontificating about how everything will be ok is frankly disturbing. Encouragement is fine, but delusional confidence is just wrong.

Its like an irish wolf hound has made a mess in the foyer of parliament, and the politicians have quickly wallpapered over the floor.

For a moment it has disappeared but it will seep out in unusual ways and what is that stink.

[url=http://www.businessspectator.com.au/bs.nsf/Article/IMF-bank-write-downs-capital-raisings-double-dip-r-pd20091001-WDS7W?OpenDocument] Desperation masked by euphoria – alan kohler[/url]

The IMF’s latest Global Financial Stability Report is another triumph of detail over clarity, but the bottom line seems to be that there we are less than half-way through the bank write-downs.

The headlines this morning focus on a reduction in estimated financial sector write-downs from $US4 trillion to $US3.4 trillion. Oh, well that’s all right then.

Of that, $US2.8 trillion is banks, and of that, $US1.3 trillion in write-downs have been taken – $US1.5 trillion to go.

#18 TaxHaven on 10.01.09 at 3:08 am

Actually, it’s quite probable ~ even unavoidable ~ that we will see higher interest rates even as the amount of money and credit in circulation stagnates or deflates. Just as we will see higher prices for gasoline, heating oil, natural gas, base metals, sugar, coffee and food. And precious metals, though for a different reason.

The bond market will see to that because it controls the purse-strings. And we are in a world awash with entities and states floating bonds, stock offerings and securities.

You can be sure the various levels of government imposed on us will continue deficit spending and Keynesian nuttiness, bread and circuses, social programs and debtor-support to the bitter end.

If those governments try to be the buyer of last resort for all their paper, something else will happen:

universal paper currency debasement.

That’s why I’m in consumer stock-short ETFs, gold, more gold, base metals, and agriculture ETFs. You should be too, IMO.

#19 Mike (Authentic) on 10.01.09 at 3:25 am

This is “your” mind:

O

This is “your” mind on thinking about the economy:

‘ ‘ ‘ ‘ ‘
‘ ‘ ” ‘
” ” ‘
U

(That would be an explosion BTW).

At least that is how my head is somedays on trying to figure out “whats next”.

#20 Daystar on 10.01.09 at 3:41 am

My own unsolicited opinion that I’m seemingly never short of (broad smile) is such that there could very likely be inflation in imports and thus inflation in the cost of living, coupled with a substancial deflation of assets, both beginning quite close to each other, some time around the summer or fall of next year and this would be the absolute worst thing that could happen to Canada because, as most would agree, this would breed negative equity and shrink consumer spending which in turn would generate unemployment and cause a second recession (assuming the first one actually ends). The effects this kind of recession would have on society would be long, drawn out and severe, just like what is happening in the U.S. and I’m thinking it could last a full three years in Canada before it corrects.

Inflation of imports would easily be caused by a lower loonie driven lower by either a U.S. rising dollar forcing the loonie to fall, (modest U.S. recovery) or massive federal deficits forcing the dollar to fall (and rates to rise causing asset deflation) or both. And I”m thinking the loonie will rise to par like Garth does by the new year and begin a steady decline sometime in 2010 and continue thereafter until a government is formed that can generate surplus’s. I’m basing this assumption on betting that the U.S. dollar will rise due to modest asset inflation triggering a modest U.S. recovery.

And if I’m wrong about a U.S. recovery? Welcome to Garths warning of a 20% chance of a long term deflationary cycle in Canada coming true. Ouch!

If I’m right, at some point record fed deficits or a rising U.S. dollar or both… would ignite higher interest rates deflating assets crashing Canada’s grossly inflated real estate bubble fueling a long, ugly recession. Federal tax increases and spending cuts to make up for the shortfall in tax revenue caused by asset deflation/negative equity would surely follow in an effort to stop deficit spending should Canadians wisely elect a good government that is willing to try.

The net effect of such a real estate led recession would be stagflation in a sense if one couples inflation of imports with deflation of assets but the causal effects would be hundreds of thousands of folks facing negative equity due to asset deflation at a time when the cost of living/imports (and unemployment) potentially soars. This liquidity and credit squeeze on the consumer is essentially what happened and is still happening to the U.S. consumer and subsequent recession.

In the U.S., sub prime lending practices coupled with record low interest rates, created extreme asset inflation (real estate bubble) as we all know. Wreckless government debt loads later directly caused a rise in interest rates causing a RE bubble collapse and subsequent “poverty” effect causing a prolonged recession… a possible “lost decade” due to massive increases in debt with nothing to show for it… and now this exact same scenario is very likely to happen in Canada.

The same governmental policies that led to the U.S. subprime meltdown (loose mortage/lending regs, massive deficits) have been implimented here. Their outcome happening here (soaring bankrucy, recession, high unemployment, negative equity) is not all that hard to predict, other than CMHC (the nation and taxpayer) being the one who pays for massive losses fueled by asset deflation (Real estate bubble correction) as opposed to U.S. banks, homeowners and the nation as a whole.

These ass backwards Republican policies (mortage regs that create rapid asset inflation in a low interest rate environment) brought in by Harper could do as much damage here as they did in the U.S. . These policies have already done a great deal of irreversable damage here in creating a monsterous real estate bubble, begging damage control that should have been implimented years ago. We just haven’t yet lived through its consequences and most of the damage that is already done is irreversable but as asset inflation remains unchecked by this government, it will get worse.

It is truly disappointing to me to see why so many Canadians unaware of why such fiscal and regulatory policies lead to bubbles , or why massive debt leads to higher interest rates that later follow massive debt and pancake bubbles that inevidably lead to the kind of recession example the U.S. has just led. It is disappointing for me to assume that the majority of Canadians cannot yet see these imminent dangers before them being caused by such failed governmental asset inflationary policies.

#21 ca on 10.01.09 at 7:07 am

You report that the IMF believes “the orgy of bank loans and cheap money” will end soon.” However, 2010 is an election year in the U.S. and one should never underestimate a caged animal.

#22 BDG YYC - Or ... how about a bit of both !!! on 10.01.09 at 7:21 am

Or … what if we get the hybrid scenario ? Say … 20% of the stuff you can do without deflates as in all the discretionary spending items like wine, garden gnomes, flatscreens, and assorted geegaws, while the basic essentials (the 80%-ish of household spending) inflate – like food, insurance, utilities, gas, (taxes?) etc. While unemployment continues to rise and stays high, and wages fall and household incomes take a 20% hit and house prices fall putting only half or so of say the last 3 or 4 years of new home purchases underwater on their mortgages, credit and debt defaults and bankruptcies become the new fad for consumers, homeowners, retailors in the geegaw sectors, commercial RE (already trendsetting in select canadian markets) ???? Stagflation or some variant that the talking heads and our fearful leaders will surely find some “special” way of making it sound somehow less bad with encouraging names like ….. oh say … “jobless recovery” or some such thing.

If you got it … it needs protecting. The folks that are time and event focused, or are frozen waiting to see the whites of “its” eyes, or suffering from Canada/City myopia, might start thinking in terms of a very connected world and financial system, the high likelyhood that a tipping event if there is to be one will be of foreign origin and will likely be of the “whodathunkit” variety, and that the time can easily be pinned down to between sometime later today and say … oh … the future.

My take is that the majority of people are all in with no choice but to ride it out and take whatever comes. The rest are all over the map from … Huh? to on plan, prepared, and positioned to make the best of it. Some are doing well navigating and profiting as they protect themselves. Anyone stuck on “is it a good time to buy … or not?” Or thinks its about the Price of real estate in “pick a city” should probably be kicking their game up a notch … fast.

But that’s just me.

#23 cashman on 10.01.09 at 7:28 am

Uncle Warren Buffet says put all your eggs in basket, but watch the basket. I say make more baskets, sell them and eat the eggs. I would love to jump into the real estate market now but I fear that negative equity situation. For now I will sit on the side lines and watch those greater fools spend themselves silly. Then I will swoop in and buy it from them under power of sale. I love capitalism.

#24 David Bakody on 10.01.09 at 7:46 am

#2 double mike on 09.30.09 at 10:31 pm

Good point Mike …. unfortunately there are no controls in effect and never been since the days of wage and price controls (and that did not work). Free market society, whatever that means. To me it means the markets can charge whatever the consumer is willing to pay and because governments take their share right off the top they encourage overpricing ( Hello people) when we were sucked into Iraq and record high gas/oil prices in sued ….. “NO” government intervention wrt price fixing … well perhaps not true …. hello again they allowed and encouraged banks to increase credit levels … I remember my LOC being increased from 10K to 25K overnight!

Just received some pics of the new Detroit, suffice to say Sad …. home after home after home in ruins, once thriving manufacturing buildings in total ruin.

DO NOT DISPAIR, OUR ECONOMEY IS AS STRONG AS THE CANADIAN SHIELD ….. Mr.’s Harper and Flaherty over and over again during Canada’s first ” Fixed Election Date Election Autumn 2008

No need to explain the truth …… millions of Canadians have and are living with the sad results ….. and ladies and gentlemen the worst is yet to come …. and you can bank on it! US unofficial unemployment rate is now estimated at 17% ( conservative estimate). And that is just this side of the Atlantic … there are other countries in this global soup pot y’all.

#25 Kris on 10.01.09 at 7:51 am

Insouciance? Did you really use that word?

#26 BDG YYC - A good watch ... on 10.01.09 at 8:01 am

Pretty good.
http://www.pbs.org/wgbh/pages/frontline/video/flv/generic.html?s=tavi08s3198qbc2

#27 moneymean on 10.01.09 at 8:04 am

Daystar says:

“It is disappointing for me to assume that the majority of Canadians cannot yet see these imminent dangers before them being caused by such failed governmental asset inflationary policies.”

I am also disappointed. Could it be that many people don’t have the time to read about it the “crisis”. In this case, “Bailout Nation” by Barry Ritholtz, published this year by John Wiley & Sons, Inc. is the book.

If short of time, go straight for “Idiots fiddle while Rome burns”, page 226.

#28 Toronto C9 Renter on 10.01.09 at 8:17 am

#1 Shawn Allen said… ” I have a a chunk in a double bear ETF that pays off if the market crashes (that’s the insurance).”

Shawn just remember leveraged ETFs only work for short term because they always decay over time and YOU lose no matter what happens to the underlying index.

Simplistic example, if the underlying index drops 30% and recovers 43% the impact is zero. However the corresponding double ETF will drop 60% and recover 86%, and you will lose a big chunk your investment.

Don’t get me wrong, I like double ETF’s and trade them, but NEVER hold for more than a day or two.

#29 artisuseless on 10.01.09 at 8:22 am

Ron Paul has done more to further ignorance in economics than even Reagan or Thatcher possibly could have.

Beware gold for those who think it’s a ‘hedge’.

http://economistsview.typepad.com/economistsview/2009/09/gold-buggery.html#comments

Also, a lot of what gets called ‘Keynesian’ is in reality a bastardization of Keynsian theories and is, I believe, intentionally distorted (heaven forbid there’s ever a return to the sort of marginal tax rates there were in the 50s!). ZIRP, despite the claims on wikipedia, was not part of Keynesian macro policy and very little ‘stimulous’ spending in the US has even been spent yet – the lion’s share has gone to propping up banks.

#30 smw on 10.01.09 at 8:22 am

WARNING, the ultimate tear-jerker!

http://ca.finance.yahoo.com/personal-finance/article/forbes/1270/americas-wealthiest-citizens

Deflation hurts us all…

#31 Justin on 10.01.09 at 8:24 am

Is historical precedence relevant? Are we individually and collectively creatures of habit?

Now I ask this as I believe that the Occident has reached (matured) into its final stage and a new epoch is begnning in which we (the West) will no longer dominate.

Proof you ask? Yes! The following exhibits are presented.

Exhibit A)
Major world empires of history, dating the time of their rise and fall.
Assyria (859-612 B.C.): a 247-year reign.
Persia (538-330 B.C.): a 208-year reign.
Greece (331-100 B.C.): a 231-year reign.
The Roman Republic (260-27 B.C.): a 233-year reign.
The Roman Empire (27 B.C.-180 A.D.): a 207-year reign.
The Arab Empire (634-880 A.D.): a 246-year reign.
The Mameluke Empire (1250-1517 A.D.): a 267-year reign.
The Ottoman Empire (1320-1570 A.D.): a 250-year reign.
Spain (1500-1750 A.D.): a 250-year reign.
Romanov Russia (1682-1916 A.D.): a 234-year reign.
Great Britain (1700-1950 A.D.): a 250-year reign.
The USA (1790-2009 A.D.): 219 years and counting.
America’s reign is currently at 219 years. He further notes that the average duration of every world superpower listed above is a little over 238 years.
http://www.chuckbaldwinlive.com/chuckwagon.php

Exhibit B)
Alexander Tytler, a Scottish historian who lived at the same time as the American Founding Fathers, who described a repeating cycle in history. He had found that societies went through this same cycle again and again, and that the cycle lasted roughly 200 years each time. Tytler said the cycle starts out with a society in bondage. Then it goes in this sequence:

Bondage
Spiritual Faith
Courage
Liberty
Abundance
Selfishness
Complacency
Apathy
Dependence
Then starting over with Bondage

Food for thought gentler reader….food for thought!

#32 Dan on 10.01.09 at 8:43 am

#11 Janet

Re: don’t put your net worth in one asset, cash is one asset class even if it’s not strictly speaking one asset. If we have deflation you will do well. If not you will probably be run over by the inflation train.

There are really only two ways to recover from this kind of debt bubble.

1. deflation, default and destruction of debt, and rebuild from healthy foundations

2. inflation, probably very substantial, reducing the real value of debt.

In a fiat currency world, real massive inflation is only a political decision away, so no, entirely cash is not safe.

Personally I suspect we’ll get both. Initially deflation until it becomes too politically impossible or a sovereign debt crisis strikes, then followed by lots of inflation. For what it’s worth, I’m preparing for both.

#33 dd on 10.01.09 at 8:47 am

#1 Shawn Allen

“chunk in a double bear ETF”

Shawn, you can lose in a double bear if the markets go sideways for a long time. It recalculates daily. Watch out.

#34 dd on 10.01.09 at 8:53 am

“Having the bulk of your net worth in one asset is a very bad idea”

That includes cash.

Then you do not understand deflation. — Garth

#35 dd on 10.01.09 at 8:58 am

Lower prices?

Long term no matter what happens – more taxes, increase in food prices (under investment and population growth), and higher energy prices (demand out of the middle east and Asia).

#36 $fromA$ia "Garths Nugget Boy" on 10.01.09 at 9:13 am

Another interesting thread, Garth.

Heads up, Governments are willing to print their way out of a deflationary situation. Government nor the people will be able to pay off their debts in a deflationary period.

This is a big no no considering deficits created to keep people working, inflation, inflation, inflation.

Run the money printing presses!!!

* Justifies high home prices. Pay off mortgage faster.

* Incomes, though the last to rise, will be greatly increased.

*Justifes deficit and allows Government to pay off easier.

* Canadians all have there investments in their already inflated homes. Theres no choice, print money or enter financial and social chaos. Thank you, Conservatives.

This is a mess your Conservative Party has made and is desperately clinging to power by propping up this market and economy.

Oh and it’s not the Banks fault, they only lent the cheap money to everyone on the Finance Ministers Medalling and Canadians all beleive that the Canadian Banks are the best in the world.

Sure, Sure they make interest on the Governments Newly printed money. Big Fricken Deal.

#37 HJ on 10.01.09 at 9:33 am

We are and will continue to experience massive asset deflation and a continuation of this severe recession or mild depression.

Interesting paragraph written in late 1990 …

“In general usage, neither “recession” nor “depression” is precisely defined. We offer one useful distinction: recessions are retrenchments necessitated by overproduction; depressions are caused by overinvestment. The primary imbalances in a recession are in inventories; in a depression they are in structures and productive capacity. Inventory imbalances can be corrected quickly; excess structures and capacity take years to absorb.”

http://www.levyforecast.com/page2_3b.htm

God forsaken, never before seen levels of Debt Creation fueled 25 YEARS of overconsumption and have led to 25 YEARS of overinvestment in excess structures and capacity!

Over investment in housing, commercial real-estate, factories (auto is a prime example) … all these trillions in Debt need to be written off. The longer this is delayed, the more painful it will be.

http://blogs.reuters.com/rolfe-winkler/2009/09/30/krugman-and-the-pied-pipers-of-debt/

This will NOT end quickly, it WILL be painful and we WILL have deflation FIRST and once these bad Debts are finally written off and the over investment and capacity absorbed can we start talking about inflation.

Here are two other blogs that I like to follow, very informative as well …

http://market-ticker.denninger.net/

http://globaleconomicanalysis.blogspot.com/

#38 Comfortable in a coma on 10.01.09 at 9:35 am

Some headlines from todays Globe,

Jobless claims rise more than expected.
Consumers struggle to pay loans.
What zero economic growth looks like.

And then we have ………….
Real estate markets on the rebound, bank says!

Yahoo! I’ll take the last one, and ignore the first three. If the bank says that real estate is rising, that must be a safe place to invest right?

Boneheads!

#39 HJ on 10.01.09 at 9:37 am

Great music video slamming bankers … caution foul language …

I’d rather not post the link. Not the language that offends, but the intent. Google ‘Gene Burnett’ if you want to pursue this. — Garth

#40 Nostradamus jr. on 10.01.09 at 9:44 am

Follow the smart money folks…

1/
…US Banks ripping off bank accounts….charges in U.S. dollars.

…Pimco establishing large US Bonds.

…the U.S. Dollar will remain the world currency…

2/
Why is Vancouver BC a growing elite city?

…Because it is different…

Nostradamus jr.

#41 The Vulture on 10.01.09 at 9:52 am

Some of the silly, naive, young first time buyers buying homes that they could not possibly afford without record low interest rates and lax 5% down policies…time to start listening to Garth. I am tired of your type driving up prices to insane heights and hurting everyone else…just chill a bit, don’t worry about the HST scare,if RE prices go down or moderate, why rush in at the top of the market? Never a good move to invest in poor buying decisions to avoid a tax consequence.

#42 PeckedToDeathByDucks on 10.01.09 at 9:58 am

Interesting info on Bespoke this moning…The data on the Chicago PMI is released early to certain investors who are willing to pay $200 a month.

So, how many other market-moving reports are released early for payment? Bespoke says this is perfectly legal.

One then has to wonder if it would also be considered legal to massage reports in certain directions for payment.

#43 Shawn on 10.01.09 at 10:08 am

#27 Toronto and #31 dd warn me about Double bear.

Agree if I had it to do again I would use single bear HIX

But here is the true performance of the double bears and double bull HXD, HXU

PERFORMANCE (AUGUST 31, 2009)
Bear (HXD) Bull (HXU) S&P/TSX 60 Index
1 Month -0.94% -0.76% -0.27%
3 Months -11.83% 5.64% 3.21%
6 Months -52.59% 73.42% 33.34%
YTD -45.77% 39.63% 20.48%
1 Year -18.50% -47.05% -20.56%

It performed as intendced year to date, 6 month, 3 month and 1 month (to Aug 31)

http://reports.theglobeandmail.com/jcap/en/64699/html/jovianf/

But in the past year the the double bear lost 18% as the market went down 20%. I am sceptical of the math that can explain that, why it worked so well these last 8 months to Aug 31 but so terrible over the 12 months. Someone should grab the daily data and try to explain that. Something smells.

#44 rory on 10.01.09 at 10:08 am

#7 Eduardo, ty for the link

Fyi …from the Statscan info it means an annual population growth rate of 1.44% (which is below the world growth rate) which will give Canada a population of about 67.5M people by 2057 …so that means in 48 years from today, we will have to double just about everything just to stay even …schools, power plants, oil imports & production, food production, houses, clean water, jobs, etc …good if you like growth and is sustainable …bad if you think this will impact global warming or that we do not have the resources …this is what I was talking about yesterday on the exponential functions …kinda sneaks up on doesn’t it …nice huh.

Remember, this is just not happening in Canada it is also occurring in the rest of the world …this is a very big deal.

#45 miketheengineer on 10.01.09 at 10:10 am

Swine Flu Info:

In todays toronto sun:

Meantime, Canada’s chief public health officer Dr. David Butler Jones told a media teleconference Wednesday that Canada will shield drug maker GalxoSmithKline from lawsuits in the event of problems with the vaccine, but not health practitioners who make mistakes in giving it.

“We’re not obviously anticipating problems with it, but indemnification for a vaccine is important if someone does malpractice, basically injects someone the wrong way or causes harm because of their practice,” he said.

Question to the list:

What the hell is going on with this stuff: The more I read the more I question the safety of this “chemical”

Also, what happens to the poor nurse who administer’s the shot, or the “consulting company” hired to administer the shot? Will they go to jail, if someone they inject dies, like that girl in the UK, a few days ago. The government is saying, the manufacturer is “off limits”.

This is really, really scary, especially for our health care people, who administer care to our people.

Anyone care to comment?

#46 Makeorbreak on 10.01.09 at 10:19 am

Ding dong! All is not well with Avon. En français:

http://argent.canoe.ca/lca/affaires/quebec/archives/2009/10/20091001-105144.html

#47 Alberta Ed on 10.01.09 at 10:21 am

Inflation, deflation, numbers and interpretations from government and self-interested media/RE that no one can trust make Garth’s advice on diversification all the more valuable. Thankfully, we found a good financial advisor years ago who saved us from catastrophe in the most recent crash through diversification (along with some good timing: we got out of RE several years ago and are biding our time).

#48 goldbuggered on 10.01.09 at 10:26 am

Artisuseless #28

“Ron Paul has done more to further ignorance in economics than even Reagan or Thatcher possibly could have.

Beware gold for those who think it’s a ‘hedge’.”

http://economistsview.typepad.com/economistsview/2009/09/gold-buggery.html#comments

Thanks for sharing. A forum full of fiat currency apologists and other assorted idiots. Pure comedy gold. These people represent everything that is wrong with “academia”.

#49 DaBull on 10.01.09 at 10:35 am

#6 RJAG2034

America never became relevant until after world war 2. So the empire has a lot of years left, 190 by my calculations.

#50 Bogdan on 10.01.09 at 10:40 am

F. me, the last part of the article looks like my yesterday’s comment, just that I kind of disagree with what I think is the conclusion:
“Nobody can guarantee which scenario will dominate” – since there will be no ruling scenario from the two. I think there will be a temperate deflation for not too many economic cycles, followed by a crash which will help the second scenario to step in. So there will be just one scenario of the two combined :-). At least I think the austrian economics is saying the same, as the gvt behavior is mirroring our greed.

Enough bets in front of us to beat the market, as the rolling coaster just took off.

#51 A Bonehead on 10.01.09 at 10:47 am

#36 Comfortable in a coma

Top 3 headlines in Globe business section

Real estate markets on the mend (about US Market)

Ford Canada sales, market share rise
September sales rise 24 per cent, marking fourth monthly increase

Americans open wallets in August

Ya… I’ll take those 3 and ignore yours.

#52 TAO on 10.01.09 at 10:47 am

Garth, this was your best piece in the last month.

Nice to see you express some uncertainty. “We’re in the throes of a battle between inflation and deflation.”

None of us know what is coming as however there is likely is one certainty.

Westerners will need to learn to make do with less.

#53 smw on 10.01.09 at 10:57 am

#35 HJ

Krugman made sense at one point, until he started jockeying for a position on Obama’s economic dream team.

——————————————————-

How can you not win with your money in Canadian bucks?

If inflation takes hold, then your hedged to gold and oil/natural gas and (money) being the ultimate in liquid assets, have the ability to move into fixed income products in the event of a moderate to sevre interest rate rise a la the early 80′s. In deflationary environment, demand for cash goes up as credit contracts and debts rise…

The only way for the USA to pay off its debt is via inflation, and the Fed is fighting a losing battle.

Interesting to see what the discussion was three years ago, right before the US RE market died.

http://www.dollarcollapse.com/iNP/view.asp?ID=36

The Kondratiev cycle/wave is a new one too me.

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

#54 rory on 10.01.09 at 10:59 am

#34 $fromA$ia “Garths Nugget Boy” you said:

“This is a mess your Conservative Party has made and is desperately clinging to power by propping up this market and economy.”

To be more accurate in the context of past, present, and future …the words ‘Conservative Party’ should be replaced with just ‘Government’ or replace ‘Con Party’ with ‘Lib Party’ as the policies will be indistinguishable …no one has any wiggle room …all know what needs to be done but to do so, in a full blown manner, is political suicide …the sheeple cannot take the truth …simple enough for you…GT say it ain’t so…and anyways all political comments go to GT’s campaign blog site….jeez NB.

P.S. – NB, you also said “desperately clinging to power” as in tacit support from the Liberals and NDP at one time or another on the policies you accuse them of…another jeez.

#55 kc on 10.01.09 at 11:08 am

2/
Why is Vancouver BC a growing elite city?

…Because it is different…

Yeppers, we are different alright…. Gangs, guns, and drugs rule the streets.. not to mention that curruption in victoria that allows these thugs to do what they want and not tighten any laws… BC’s Campbell is the top crook and the waste just keeps on flowing…

keep up your mantra and keep your lights plugged in for it is getting close to cropping out time ….

#56 Frugalistas.blogspot.com on 10.01.09 at 11:22 am

Higher taxes. Enough said. The money needs to be ‘repatriated’ somehow.

#57 rory on 10.01.09 at 11:25 am

Video from Jim the Realtor in San Diego …shows 50% of the homes on one street in foreclosure and the other half underwater …only one person paid cash …this is the guy I feel sorry for and may relate to …he has lost alot of his own money …if he would have been reckless and foolish and had a 100% am he would have more options …crazy bad.
http://www.youtube.com/watch?v=AGivpLqhY4c

#58 View from the south on 10.01.09 at 11:40 am

From Bloomberg – http://bloomberg.com/apps/news?pid=20601087&sid=aLk.qG0Imbe8

“The market had gotten a little ahead of the economy,” said Wayne Wilbanks, chief investment officer at Wilbanks, Smith & Thomas in Norfolk, Virginia, which manages $1.3 billion. “For the month of October we are on alert for a correction driven by the acknowledgment of a weak economic recovery.”

#59 Evangeline on 10.01.09 at 11:45 am

#28 artisuseless

((Ron Paul has done more to further ignorance in economics than even Reagan or Thatcher possibly could have.

Do free markets that punish bad business decisions and reward good business decisions scare you? Our economy is in the tank because we are pouring money into bankrupt entities that made bad decisions. Now we get hit with the double whammy of having to bail them out.

((Also, a lot of what gets called ‘Keynesian’ is in reality a bastardization of Keynsian theories and is, …)

Same goes for capitalism. Throwing trillions of taxpayer money to bail out failed and reckless businesses is not capitalism.

#60 S. on 10.01.09 at 11:48 am

A lot of comments here about how best to protect oneself from coming deflation, inflation, stagflation or any other …flation one can conjure up. Cash can be good, but it is also an asset and perhaps of the worst type: man made. Gold, over a very(!) long time provides a good protection of purchasing power. Not always a good investment.
One asset I never hear mentioned here is education, and that’s the one that never depreciates. So those of you hoarding cash might consider trading some of it for a bit of learning, perhaps in an area that will be in high demand for the foreseeable future: healthcare. (Maybe then we, one of the wealthiest nations on the face of the planet, will be able to stop poaching doctors and nurses from places where they are needed so much more.)

#61 pjwlk on 10.01.09 at 11:56 am

Driving eastbound on Dundas between Walker’s Line and Appleby Line in Burlington (ON) early this morning, I may be wrong but I could have sworn I saw two people camped out with sleeping bags at the front door of a new homes office on the south side of Dundas. There was also what appeared to be a big wedding style tent with clear sides on it, perhaps ready for more idiots… Hmmm…

#62 Got A Watch on 10.01.09 at 11:59 am

Rosenberg: We are certainly in a deflationary state is Mish (the deflation guy, who has been saying this would happen for many years now, damn him for being so accurate!) giving you the goods straight up, no mix. With numerous quotes from David Rosenberg, Canada’s star analyst this year, who returned from Wall St to Bay St. You can read his free ‘Breakfast With Dave’ 5 days a week by signing up at the link above for the e-mail, if you are interested, or sign up and then log-in to read them on the web at Rsoenberg Articles. It probably won’t be free access forever, so better sign-up (free) now if you are interested.

btw, I am not associated with G-F, I just like David Rosenberg’s commentary, despite his nickname of “Rosie” he wears no colored glasses.

Probably too scary for any inflationistas to read, the conclusion is that the USA (and by implication Canada, since we are so tied to the sinking anchor that is the US economy) and many other economies are now in a strong deflation: “Fueled by overcapacity, shrinking credit, reduced corporate spending and falling consumer demand, Deflation is taking root in global economies.”

Deny it if you want, but global GDP statistics, even manipulated upwards as many are, still tell the sorry tale: economies are shrinking almost everywhere. Canada, with 0% GDP growth, is in fact in deflation, if you think about it: in an economy built on ever-expanding “growth” to the sky, just standing still means you are in fact rolling backwards down the inflationary mountain.

I expect ‘growth’ to resume in a real way when the end of the Kondratieff Winter eventually rolls around, by 2018-2020 or so. In the meantime, better have a hobby, you will have plenty of spare time on your hands.

#63 Chaostrology on 10.01.09 at 12:05 pm

Someone has to say it:

“This won’t end well”

Justin nice little bit of historical digging.

I would say that we are entering our bondage phase.

Would some please pass the “jaws of life”.

#64 David Bakody on 10.01.09 at 12:09 pm

CBC Breaking News!

After contracting by about 2.5 per cent in 2009, Canada’s economy is forecast to grow by 2.1 per cent next year, the International Monetary Fund said Thursday.

So there ya go boys and girls …… the IMF knows …. just like they forecasted the last crash that caused the mess the world is in …. If any educated person can please explain how these dudes can and do forecast growth but failed to and do not forecast financial disaster! hm mm something is wrong in Denmark.

Who pays these overpaid people who have full time highly priced secure jobs? There may lie the answer.

#65 Keith in Calgary on 10.01.09 at 12:16 pm

Economists and politicians are the two job occupations that are always the most “shocked” by the “unexpected” bad news……funny ‘dat !!

#66 Genghis on 10.01.09 at 12:25 pm

If deflation takes hold it is not just the falling demand and rising unemployment that will hurt. Over the longer term deflation increases the *real* value of the debt, in the opposite way that inflation eats away at it. Add this to the list of woes of those who took on too much debt.

Even if the current trend of low inflation, low growth (and resulting low income growth) continues this is going to hurt. In the past we had much higher mortgage rates, but also much higher inflation and wage increases. The inflation and (nominal) income growth worked wonders for the homeowner. Those days are clearly gone.

#67 Men With Hats on 10.01.09 at 12:44 pm

Funny. America’s cash for clunkers program precipitated a frenzy of car buying for Toyotas .Corrola most popular .
Now that is hilarious in light of Obama’s gigantic cash bail out for the big three .
Japan should send a thank you note .Or at the very least a big screen TV.

#68 Dianne on 10.01.09 at 12:44 pm

Thanks GAW. Just signed up for Mr. Rosenberg’s comments.

#69 jess on 10.01.09 at 12:44 pm

while arguments continue over causes ….

What everyone is aware of are the effects since MISERY is easy to spot.
Glocalized is the trend rather than globalized.

#70 David Bakody on 10.01.09 at 12:48 pm

It is quite pleasant to read many posts from people who understand all that glimmers is not gold. Once we understand there is a problem we have hope and when we know the problem the challenge begins. It’s the same as having a flat tire and no jack. So with a good 20% chance of the economy going flat and no jack (Stimulus II) ….. pay down debt, spend wisely on needs not wants and invest wisely ….

#71 Evangeline on 10.01.09 at 12:50 pm

IMF predicts Canada to outpace rest of G7

Canada is on track to lead the world’s wealthiest countries out of recession next year, a testament to sound economic policy and weak competition

LUN (link under name)

#72 Got A Watch on 10.01.09 at 1:15 pm

FT Alphaville is on my daily reading list for years. A group Blog by several FT reporters, they are a superb free resource. A global world view from the London markets, sort of, I learn something interesting every time.

The posts by Izabella Kaminska and Tracy Alloway today are excellent analysis: “Europe’s North/South Divide”, “America turning Japanese?” (check out the amazing charts on that one!), “China will crush over-capacity!”, “SPE oops” are prime examples of what they have 5 days a week. You can pay a lot for info like this and get way worse. Two-thumbs up.

Here, from their own lips: Don’t Fear The Inflation Goldman says

“Goldman Sachs is putting an end to the deflation vs inflation debate, once and for all!

In a 30-page research note out on Wednesday (Sept 30), the bank comes down firmly on the side of (moderate) deflation in the near-term.

Here, GS analyst Andrew Tilton says, is why:

* Inflation is already low, with the core CPI down to 1.4% on a year-overyear basis and the overall CPI in deflation territory.

* Excess capacity in the economy is huge, probably at least 6% of GDP and possibly at its highest level since the Great Depression.

* Spare capacity is likely to persist for years……”

or how about this little eye-brow raiser: “Our own calculations using estimated Taylor rule parameters, as well as those in recent research from the San Francisco Fed, point to an `appropriate’ funds rate of -5% or below.”

Negative interest rates! Huh? Ouch.

Much more at the link, a good summary, though not the whole report, obviously.

#73 Makeorbreak on 10.01.09 at 1:37 pm

Are the USA turning into a third world country? Detroit too broke to bury its own deads

http://money.cnn.com/2009/10/01/news/economy/_morgue/index.htm

#74 jess on 10.01.09 at 2:29 pm

too be or not to be

…”number of unclaimed corpses at the Wayne County morgue is at a record high, having tripled since 2000. The reason for the pile-up is twofold: One, unemployment in the area is approaching 28%, and many people, like the Vickers, can’t afford last rites; two, the county’s $21,000 annual budget to bury unclaimed bodies ran out in June.

“One way we look back at a culture is how they dispose of their dead,” said the county’s chief medical examiner, Carl Schmidt, who has been in his position for 15 years. “We see people here that society was not taking care of before they died — and society is having difficulty taking care of them after they are dead.”

http://money.cnn.com/2009/10/01/news/economy/_morgue/index.htm

“No aristocracy in history has decided to give up any portion of its power willingly.”

In 1928, economic inequality was near today’s levels. Franklin Roosevelt succeeded in reversing the trend toward the continuing concentration of wealth, but it was a turbulent battle. In 1936, while campaigning for his second term and speaking at Madison Square Garden, FDR told the crowd:

“Never before in all our history have these forces [Organized Money] been so united against one candidate as they stand today. They are unanimous in their hate for me and I welcome their hatred.

I should like to have it said of my first Administration that in it the forces of selfishness and of lust for power met their match. I should like to have it said, wait a minute, I should like to have it said of my second Administration that in it these forces met their master.”

#75 grandeprairiegirl on 10.01.09 at 2:58 pm

#43 miketheengineer
You ought to read up on ‘adjuvant’s’ a kicker they are adding to the vaccine which basically kicks your immune system into overdrive from what I understand.
I believe ‘Squalene’ is the adjuvant for this vaccine.
It’ll bypass normal channels in your system and turbocharges your immune system. Something like that. That’s not natural and can’t be all good.

All I hear in the news is -wash your hands -sneeze into your arm. Over and over and over again.
Why don’t they add in -take extra vitamin D and Zinc supplements. Oh that’s right, no benefit to Glaxo Smith Kline if it’s natural. Gee…………..!!!!!!!!!!!!!!!
Personally I’m passing on the vaccine, taking extra supplements. Screw them. I’ve never in my life read and heard so much hype for a flu. Each and every day the last few month at least one or more articles in papers and several times a day on the radio.
Diverting our attention from other issues.

#76 David on 10.01.09 at 3:34 pm

The IMF and other economists aren’t stupid.

They are simply told that it is there job to keep your CONfidence up. Then you’ll spend all your money and borrow some more like stupid little sheep.

We got into this mess via too much debt.

So the only way to cure it is, MORE DEBT.

Go buy a house or three…you can’t afford not to!

Watch out! The inflation monster’s going to eat you up…so spend your money before its worthless!

Putting the CON back in CONfidence.

#77 shifty on 10.01.09 at 3:43 pm

Victoria real estate sales reach 17 year high in September.

/www.timescolonist.com/business/Greater+Victoria+real+estate+sales+reach+year+high+September/2055593/story.html

It can’t happen here! – uh huh!!!

#78 jussupow on 10.01.09 at 3:49 pm

# 70

`appropriate’ funds rate of -5% or below

This is what I have cited a few months back. All this brouhaha ‘bout inflation vs deflation made me smile. Always. For those looking for the source here is the link again http://www.frbsf.org/publications/economics/letter/2009/el2009-17.html. Why this is even debated is beyond me.

#79 prairiegopher on 10.01.09 at 3:57 pm

Looks as though the stock market is sensing something in the future.

#80 miketheengineer on 10.01.09 at 4:16 pm

Garth:

You have been around a bit. If I have to move to work, which is better:

Which city is better?

1) North Bay, where I have distant relatives.
2) Trenton, where I know nooooobody.

Or do I choose option 3, let my EI run out and move back home with mom and dad?

#81 T.O. Bubble Boy on 10.01.09 at 4:29 pm

Lots of Inflation vs. Delfation arguments here… one would think that RE is going down regardless of the scenario:

A) Inflation — any moderate inflation would cause at least a couple of points to get added to the BOC Rate. If wages don’t move (which they haven’t in inflation-adjusted terms for 10 years, except in the public sector), then all Variable Rate mortgages go higher. Higher rates = worse affordability = lower prices. Inflation should also mean higher bond yields = higher fixed rate mortgages = worse affordability = lower prices.

So – the only question here is: would there be a chance of hyperinflation, so that the prices of the assets (houses) rise in spite of the interest rate increases?

From what I’ve read, hyper-inflation usually only follows periods of deflation, so this scenario probably can’t happen in the near future without some significant deflation first.

B) Deflation: this is simpler – wages go down, purchasing power goes down, and asset prices go down to match. Also, debt gets harder to pay, so the % of income that can go towards housing is lower.

All signs here lead to lower house prices. The only way this doesn’t happen is if somehow unemployment and wages stay constant, which means that people have more purchasing power (same incomes, but prices of everything go down).

Also — there are a ton of variables that could make normal economic trends irrelevant: insane Government stimulus, 0% lending rates, H1N1, earthquakes/tsunamis/etc., China buying all the world’s gold, Iran playing with nukes, and who knows what else.

Garth – would you consider one of the volatility ETFs as a reasonable hedge in these times?

I believe that a few of these are available — VXX as an example — but I’ve never really looked at these in detail before.

#82 HouseBuster on 10.01.09 at 5:05 pm

#73 prairegirl
“I’ve never in my life read and heard so much hype for a flu.”
————————————————————-
That’s because they don’t want a repeat of 1918.

#83 Nostradamus jr. on 10.01.09 at 5:51 pm

A few more predictions

….Nasdaq will drop 3%today

….Non Confidence vote fails

Nostradamus jr.

#84 Shawn on 10.01.09 at 6:03 pm

Regarding the HXD double bear discussed above.

I can’t resist mentioning that it was up 5.17% today as the Toronto market fell 2.84%. So this insurance against a market fall worked out pretty well today.

(Yes, it should been up 5.68% but that could be just daily tracking error that can even out. But there is also the management fee that has to be paid and possibly other frictions in the works of it.)

#85 Boombust on 10.01.09 at 7:26 pm

“Are the USA turning into a third world country?”

Something like that. Why?

#86 Boombust on 10.01.09 at 7:27 pm

“Goldman Sachs is putting an end to the deflation vs inflation debate, once and for all!”

Spare me.

#87 viewwest on 10.01.09 at 7:39 pm

re # 75
Highest number of houses sold in Greater Victoria, in month of September, in 17 years.

Looks like they sold 24 homes at $1,000,000+. At this rate of sale, compared to the listings in this price range, they’ve still got more than a 12 month supply of inventory to go! ….assuming nobody ADDS to the inventory by listing their million dollar home!!!

(and believe me, there would be a rush to list a lot more houses but RE agents in GVA are running out of cash to market more high end homes that aren’t selling).

#88 jess on 10.01.09 at 7:40 pm

Banks want to keep students stupid and in debt. A lesson in economics
http://trueslant.com/laurieessig/2009/09/30/banks-want-to-keep-students-stupid-and-in-debt-a-lesson-in-economics/

#89 Toronto C9 Renter on 10.01.09 at 8:03 pm

#82 Shawn… “I can’t resist mentioning that it was up 5.17% today as the Toronto market fell 2.84%. So this insurance against a market fall worked out pretty well today. ”

True enough!

Something I found illuminating today after surveying the damage — my bank preferreds and also my BCE preferreds both went up (albeit modestly) amid todays carnage.

Seem to be solid investments for these coming uncertain times, and the 6% plus yields don’t hurt either!

#90 Basil Fawlty on 10.01.09 at 9:14 pm

“We’re in the throes of a battle between inflation and deflation, between those betting on economic breakout thanks to government trillions and others convinced we’ve not paid yet for the sins of a generation of mindless borrowing and over-consumption.”
We could also have both in the form of stagflation, which occured in the 1970′s, or worse a hyper-inflationary depression.
Many economic commentators feel inflation is not possible given the mount of credit that has been, and will be destroyed. They seem to be implying that newly created money or credit has to go back into the assets that have collapsed, but why would this happen when the credit bubble created the biggest misallocation of productive capital in history, evidenced by over 18M empty homes in the US etc.. Additionally, many commentators miss the connection between money creation and the fall in the US dollar. If newly created money and credit simply filled in the holes created by the credit collapse, there may be no inflation. However, the reality is that money creation is causing foreigners to dis-hoard US funds, which obviously means they understand that the US currency is not a good store of value. If we had deflation it would be becoming a better store of value and foreiners would not dis-hoard. All cases of hyper-inflation in history have been a currency event.

#91 shifty on 10.01.09 at 9:49 pm

#85 viewwest
I agree there are many new million dollar plus homes still sitting for sale in the West Shore and Bear Mountain areas in particular. The amazing thing are the sales of the six and seven hundred thousand dollar resales. Just jaw dropping. Medium price for a home of modest accommodation in a reasonable area is now over six hundred thousand. Unbelievable, crazy.

#92 Barb the proof reader on 10.01.09 at 9:54 pm

All I want to know is when is the price of wine coming down in Calgary. I have a feeling the big grocery store chains will drop their liquor prices first.. and soon.

#93 Barb the proof reader on 10.01.09 at 10:03 pm

#78 miketheengineer If I have to move to work:
Which city is better?
1) North Bay
2) Trenton

Mike,
I’m not an expert on either city, but I check out lots of towns for where we might move.
On surface I’d suggest Trenton — it’s further south = better climate, better location for travel = access to other places, and perhaps other little details such as not as many bugs?

#94 Keith in Calgary on 10.01.09 at 10:32 pm

Barb…..

RC Superstore has the best wine and booze prices.

#95 Across The Fence on 10.01.09 at 11:06 pm

This was posted by a BC realtor, Mar, 2009 pay attention !!
In my career, the real estate food chain, always and predictably, collapses as follows: the U.S. goes first, then Ontario and the East about 2 years later, then spreading west to B.C. and Alberta a year to 18 months later, and finally, small towns a year after that. Mark the date of collapse as Sept 2008, then do the math from that point.

#96 Eduardo on 10.02.09 at 12:46 am

Garth, why not just print enough money to pay off the household debts of the populous?

Deflation solved, QE not inflationary according to you.

#97 Herb on 10.02.09 at 7:17 am

Miketheengineer,

I second Barb’s recommendation at #91. North Bay is brutal, and Trenton nothing to write home about, but its weather, location and access are much better.

Is there a reason why you are focusing on Air Force towns?

#98 Tony on 10.02.09 at 9:58 pm

I bought long term bonds a few months ago knowing full well this will be at the very least a double dip recovery or more to the point there never was a recovery it was something the stock manipulators on wall street dreamt up. The stock market should bottom out in 2012 and the recovery around 2015. Expect negative growth rates in Canada and America for many years to come. The only logical outcome is a decade of deflation.

#99 Industrial Guy on 10.04.09 at 10:26 am

The usual suspects……

From the October 3rd Brantford Expositor: “City stays in top 10 for buys in real estate ” Michael-Allan Marion
This year, Brantford slipped to seventh place. The article suggests that a native land claims dispute and a rapidly decreasing industrial base may be having a negative economic effect on the area. Mayor Mike Hancock is pleased to see Brantford is still on the list.

“Brantford is a community with the right attitude, the right skills, the drive, the vision. It has all of that and the right location between two U. S. borders, at Windsor and Niagara Falls.”

Now for the reality check …… Brantford has suffered a huge decline in employment due to the collapse of the manufacturing sector. The cities location between Windsor and Niagara isn’t a blessing. It’s a curse. Windsor and Niagara are true economic disaster areas with unemployment soaring over 10%. Maybe the Mayor needs to get out a little more. I guess he missed the memo on he collapse of the auto sector and a record low tourism figures in both those of these cities.

There sure are great deals to be had on some very nice houses. All you need is a job outside of Brantford and a desire to commute each day to that job. If Garth is correct and oil prices rise to $100.00 (US) a barrel. This will become a very expensive trip everyday. GO Transit is planning to add Brantford to their Hamilton service in the future.

Brantford has traded high paying manufacturing jobs for $9.50 /Hr jobs in the food sector and call centres. The same newspaper recently reported that the largest of the call centres was soon to close. It’s not a good situation when your town can’t keep a call centre. It’s almost the employer of last resort in this town.

It seems everyone is in denial.

Oh yes ….who created this “top 10 Ontario communities for real estate investors” list? Don Campbell, president of the Real Estate Investment Network. A name well know to the regulars of this blog.

http://www.brantfordexpositor.ca/ArticleDisplay.aspx?e=1916390