Got your party hat on? It’s anniversary time.
Ten years ago today we were at the zenith of the dot-com age. Nortel ruled. Pimply-faced kids with no business plan and a cool domain name were making millions in IPOs. The Nasdaq crested at 5,048, profits were without limit, buyers could not get enough and it was ‘different this time’.
One year ago today we were on the cusp of depression, staring into a cauldron of fear. The Dow and the TSE had collapsed, losing half their values in just a matter of months. Wall Street banks were in crisis, TV newscasts were wall-to-wall with layoffs and investors were stampeding for the exits. Canadian investors dumped equity mutual funds in droves, leaving billions on the table.
So what do these two events have in common?
Everything, of course. They show without qualification that when the herd gets moving, it’s usually in the direction of a cliff.
Those who gulped tech stocks in 2000 went on to lose up to 70% of the value of their investments – in fact, 100% in some cases. And those dummies who dumpstered their stocks and funds last March took a giant paper loss and turned it into a real loss, only to miss a 58% upward trajectory.
Greed kills. Fear kills. But going with the crowd is the deadliest move of all. That’s roadkill.
This brings us to now.
As I keep telling people silly enough to come and listen to me, this is one unpredictable momma of a time. Volatility is always with us. A 20% market dive could be but a heartbeat away. Real estate has peaked with only one direction in which to travel. Ditto for interest rates and bond prices.
So how can we tell what lies ahead?
Easy. Look around you. Watch Global news. Read the daily paper. Wander through Best Buy. Spend an hour at mls.ca. Then do the opposite – because most people have absolutely no idea of the potential danger they’re walking into.
As I’ve tried to point out here, the economy is hopped up on government meth and will be coming down over the next few months. There can be no meaningful recovery without new jobs being created. Higher taxes, inflation and interest rates are 100% certainties. And families have been on a debt binge for months, sating themselves on houses, hi-def wallhangings and whatever it is Martha Stewart sells.
But that’s just the obvious danger. Governments are even more out of control than we are. For example, Washington last month spent almost $10 billion more – per day – than it collected in taxes, which is a record. The US deficit this year will be $1.6 trillion, and by the time Barack Obama finishes, more debt will have accumulated during his watch than under all previous presidents.
What this means: our biggest customer is imploding. How can that be good for us?
Meanwhile Ottawa and the numbies who run the provinces are also chalking up record deficits, which forecasts higher taxes and fewer services, just as inflation and gas prices are also rising. The end result of all this should be crystal: we hit a wall.
For much of the past year, since it looked like the world would end but didn’t, people have been consuming far beyond their means. Since salaries haven’t increased and jobs have been lost, the difference between income and consumption has been debt. By September it will be clear to everyone this movie ends badly.
So, be a seller, not a buyer. Trade your bonds for equities. Get your assets in a shelter. Lock in your rate. Trash your debt. Buy commodities.
And when you hear thundering hooves, run.
154 comments ↓
Garth, here in Kelowna….I’m on a LOC @2.25 weekly/accelerated…been offered a rate of 5years @3.75%…but everyone thinks I’m crazy to even to think about locking in ..When should we lock in ? Now or ride it out till June/July
Thanks
Why gamble for a dozen weeks? — Garth
Working for one of the major retailers in Toronto I can say that we are getting bonus next month and yearly salary increase as well. How it could be if the economy is falling apart?
Where did I say the economy is crumbling? And as for your company, do you work for Lovecraft? — Garth
seriously enough with the dates, how do you know it’ll be September, weren’t you saying June / July like 6 months ago? it’ll happen when it happens, it’s impossible to tell exactly when it’ll happen. Who knew March ‘09 would be the turning point for equities, same will applies when real-estate. nobody can predict when these things will happen.
being wrong doesn’t sell books. just keep them guessing.
You obviously weren’t here last winter. — Garth
The next crash in the U.S. is going to be in commercial real estate. Elizabeth Warren has more credibility than just about anyone in the U.S. these days and she says almost 3,000 of the 8,000 banks are in trouble with their commercial loans. This is the next banking crisis and it is coming soon.
In your book you state one should hold some bonds as part of diversified portfolio. Yet you just wrote to trade in bonds for equities. Did I miss something?
Yes. — Garth
I am one of those dummies who got out of mutuals in August 2008. Wow the market has climbed back 58 %. Guess what I still track the old funds and I’m still down 12%. Thats 70 % !!! I locked in 3 years at 5 %. Guess I won’t be paying my financial clown his undeserved wages. Try to find an honest financial advisor. No phone call in over a year. He’s sure doing his job, ain’t he. E nuff said.
3 junius on 03.10.10 at 11:56 pm
“next crash in the U.S. is going to be in commercial real estate.”
you can also add Alt-a and ARM’s to your list. This will be the death blow to the US economy.
interesting read about US homes.
“U.S. Real Estate Confusion or Lies?” by Mike Stathis
http://www.marketoracle.co.uk/Article17771.html
On a different aspect, I asked one of the salesmen at work today how things are going, he said point blank, “death by suicide, I give a low quote, and the competition undercuts by $15.”
If canada is in a recovery it can only be in politics and not on the working man’s shoes.
cheers
The sound of thunder reminds me of bulls charging ahead (positive) and a coming storm (negative, so choose your poison). In any event, the end result will not smell like a bouquet of roses.
“. . . Martha Stewart sells.” — Didn’t the lady bust loose from the slammer a while back? Her empire is still in fairly good shape.
——
Anyone seen this? Seems the break-up may soon be taking place.
Hmmm. With this president being labelled like this, is it any wonder that the US Fed, GS, JPM and many others are following in the same footsteps? Sheeple are almost a lost cause.
Nutbars Combination of two paras. from further down is better:
“Nor is the Amero true. 39,000,000 Americans are out of work. China’s Military people are demanding China sell U.S. Treasuries in response to Taiwan arms sales and U.S. Fiscal Policies. Do you realize what that would mean? Obama’s biggest financial supporter George Soros says the Gold Market is a bubble while secretly buying Gold with both hands. Birds of a feather?”
Bingo! Guess who controls all Haiti’s oil, minerals and most other things?
More funny-munney.
Is it any wonder there is so much unemployment here when this is happening?
Kannaduh under control freak King Steve (not pretty).
With all the talk on yields and interest rates, it’s interesting to look at how they conspired to create the financial crisis in the US and the emergence of mortgage backed securities both there and here
http://tinyurl.com/yljo5fe
I am not sure equities are a good choice at this moment. They could take a huge hit, as they have been on a run for while now. I agree with bonds not being safe bet, but for equities, I think it will be way better to buy them once initial panic fades.
Go into equity’s and commodities?
I would almost rather buy a house–in fact–if i thought we were going to have inflation–i would for sure buy a house–
I don’t see inflation–I don’t see commodity demand–
Rates are debatable–but–i think they go down-when equity’s and commodity’s crash–
House prices contracting–is “not” inflationary–
It is extremely deflationary–especially since the whole planet is levered to NA mortgage rates–
there will be a time to buy commodities–but only when employment picks up–or the $ goes terminal on us–
anahoo–That’s my call–it’s all here in black and white–
I’ll admit–I’m an asshole–if I’m wrong–
http://www.youtube.com/watch?v=x80h_JiOTZs&feature=related
I’ve been waiting in Vancouver since 2004 when prices looked too high and I had just got married. Now two kids and 6 years later we have saved alot but not enough… still renting. The wife circled a date on the calender today, April 2011, suggesting my theories had had their time long enough. By that date next year we buy a place in Van or find another town where we can… anyone have a suggestion for a better place near the ocean cause that’s what it looks like from here.
Beware the Ides of March!
Mwahahaha
Well done, Garth! You keeping hitting the ball out of the park, day after day after day …
Which gets me to thinking … you aren’t a MACHINE, are you? I mean, am I following a fictitious person here, one who is really a literary software program?
Just asking …
But… the thundering is so compelling!!
I think I dodged a bullet this week. Faced with having to move, the temptation was strong to assume a pile of debt and buy a house in Calgary. Like, now. The main push is cheap money. I costed out a few scenarios and the effect of 5 year fixed going from 4 to 6% more than balanced a price drop of 10%. That is: if, in a year from now, house prices in Cowtown have dropped 10 – 15%, but the rate goes from 3.75% to 6%, the monthly cost is still higher, or just about the same.
The difference is that the total debt incurred is considerably less. But, the fact is, that it is the monthly comings and goings of cash in our accounts that commands the strongest attention. Its hard to look past that.
In the end, I’m staying out for another year. Mostly because I found a cozy little house to rent two blocks away for a lot less than I currently pay, and I’ll be able to put aside 2 – 3K a month given the savings. The prospect of having a cushion is quite anxiety reducing.
The fear is that, a year from now, I find that not only is debt more expensive, but houses are too. Here’s hoping I don’t feel too foolish twelve months out from now.
“It’s anniversary time” – speaking of anniversaries, its the BoC 75th! No one parties harder than the BoC and anyone whos says they remember that party wasn’t really there.
I found this article on it to be a fascinating read:
“75 years ago the newly constituted Bank of Canada took over responsibility for Canada’s currency. Since 1935, when the Bank came into being, prices in Canada have risen 16-fold. What costs $100 now would have cost just $6.25 then.”
http://www.financialpost.com/news-sectors/economy/story.html?id=2667790
Don’t know if this video works or not but this is I think what Garth has in mind:
Okay, so it’s 11:30 pm pst….just finished reading the comments on “Chez Boomer”, less than 5 people spoke to Joshes’ problem or provided any solutions.
Josh is the canary in this particular coal mine. At some point in the not to distant future he will be talking to a Trustee in Bankruptcy and his reality will be shattered. He will have to come to grips with his long fall and after his trophy wife leaves him because he has failed her, Josh will give himself permission to move on.
Josh does have a future, it just doesn’t look like his past.
That is the key point, we all have a future, it just doesn’t look like our past.
Once Josh finally decides to capitulate, he will dump his house, because he has no other option, this will affect the prices of the other 4 houses in the same neighbourhood and the cascade is on.
This is how it works all of you dumb ass property consumers, investors, owners. This is exactly what our hero has written about today. It’s going to be head bashed in buffalo jump all over again.
Everyone of you guys is a Josh waiting to happen. If you didn’t get this out of the post then move on, you don’t belong here.
It ain’t rocket science, just history.
Don’t bother flaming me, I’m outta here.
I hear alot of you trying to claim that the government will shore up the problem as so many RE investors will be toasted and THEY wont let that happen to us!
It is this type of dillusional thinking that gets you in trouble. Papering over a problem just compounds the eventual outcome.
If the government forces banks to offer 50 years fixed mortgages at 5% it will only be to save the last 10 % or so as they will implement it way too late!
If you think you will see an 0.80 CAD you might be correct but only for a short flight to USD for the last time in the double dip and then the USD hits the skids and Canada is screwed as the CAD then runs past parity and beyond crushing any exports and GDP.
The USA is on a mission to bankrupt the world and it will succeed.
The only thing I have ever heard Warren Buffet say that makes sense is “When there’s blood on the streets, that’s when it’s time to invest!”
The question in a deflationary spiral is what to invest in???? RE bottom in Canada could be 7-10 years out!
US RE is another 2-3years from bottoming likely!
Sadly Garth only one old husband out here in Abu Dhabi!
Confused.
“So, be a seller, not a buyer. (1) Trade your bonds for equities (2). Get your assets in a shelter (3). Lock in your rate (4). Trash your debt. Buy commodities.(5)”
1, 3, 4 – ok, I get that
2 – Not getting that as much. Won’t equities be crushed in a stock market crash, even Dividends?
5. Do you mean oil, gold ETF’s?
I think we are in a sideways market at best and a false boom market about to crash at worst. The next 3 months brings turmoil in the USA, Canada, UK and Europe with elections, interest rate hikes, pulled stimulus, solvern debt bond issuance and much more.
They are still laying off in Calgary O&G btw. (2nd round of layoffs now in a month for this one big oil one)
Mike
Are you coming to the Vancouver area any time soon?
Speaking of the debt situation in the US, this article, posted on Fortune.com yesterday, draws an interesting analogy to the situation in Iceland:
http://money.cnn.com/2010/03/10/news/international/iceland_debt.fortune/index.htm
Per capita, the debt levels are not that far off. The author argues that it is mainly the ongoing strength of the US dollar that has saved them so far. I believe that is one factor. In my opinion bigger factor is the diversity and underlying strength of the US economy (compared to Iceland).
Also, check out the terms of repayment on the deal the Icelanders rejected. No wonder it was rejected!
By September it will be clear to everyone this movie ends badly.
Who knew that “Sell in May and Go Away” worked for homes as well as stocks?
“Trade your bonds for equities” – Garth
Be defensive on equity strategy, it’s also on life support. Pundits are cautioning significant downside risk during ides of March.
Through the decades of capitulation to welfare schemes we’ve built a built a pyramid of public parasites and entitlement programs. We’ve held our companies hostage to above-market wages, driving them out. When the majority of people can vote for wealth distrubition from the minority, that is the tipping point.
I agree with Garth. Avoid the herd, it is usually running around with its collective head severed.
Nostradamus Le Mad Vlad on 03.11.10 at 1:35 am ………….. I guess thats why Obama is so succesful as a politician….he does it better than the rest….lying that is..
Hey Garth, great talk in Kitchener last night. My thanks. I was sad to see the young blonde girl almost in tears trying to get out of a mortgage which she no doubt could not afford. On the other hand I took your advice last March. I did not sell off equities. I loaded up our TFSA with comodities. The result….mine is up 20% and my wife’s is up 25%. I bought several of your books Money Road last night to give to friends. Thank you for all the autographs. Met several bloggers also. It was a great evening. I am still curious about “then we fight”. Keep well Garth, we need you.
Where California goes, Canada follows… with BC in the front of the line.
Living next to a black hole… better than being IN the black hole, but not for long.
Interest rates won’t rise any time soon…and highly unlikely BoC would lead the Fed.
Wages are falling.
Commodities are topping…along with $CDN.
That won’t solve the RE “problem” tho. I know a family with “dodgy” credit that wasn’t a problem when they bought 4 years ago. Mortgage renewal time last year, with banks “tighter” and the market [at that time] softer, they were forced to take 12% mortgage renewal….the only thing offered. So it’s not simply about “official interest rates”.
Inflation is increased money supply RESULTING IN rising prices, but “money supply” includes credit. Any “money creation” has been – and will continue to be – offset by the record contraction on the credit side. [Not to mention that much of this "created money" was merely swapped for bad mortgages, etc].
The problem isn’t inlfation; it’s DEflation. ["Negative Inflation" in the media??].
“Buy Equities”??? Jeepers creepers, Man.
Someone once said, “…you’ll be more concerned with return OF your capital than return ON your capital.” We’re probably about there.
Sell out and sit in cash until the dust settles. Inflation’s inevitable down the road, but not until the credit bubble’s done bursting.
And you base that on…what? — Garth
…I believe it was Kindleberger, in his book “Manias, Panics & Crashes”, who said, “Commodities are the last act in the drama.”
Prepare for deflation short-to-mid term; inflation a few years down the road. Even the precious metals will take a hit…for now.
[...or please correct me on the source of that quote...]
Garth, I hope the market tanks in the GTA 40% over the next year or 2 so i can jump in its getting carzy out there specialy in Markham where a semi-detached was price at 400K and sold for 440K over the listing price it had 12 offers it crazy.
Mikey
Since no bear market has ever put a bottom such as the bottom on March 9th last year one should conclude we’re still in a bear market rally. By nature a bear market bottom takes a lot of time and erodes for a long period followed by an even longer period of flatlining. I believe the market bottom will occur in 2012 with the DOW around 4,500. I still believe the elliott wave theory not your theory.
http://www.insurur.co.uk/elliott-wave-forecast/
Just like the Bible, the EW theory is not to be taken literally.The markets are not going to lose two-thirds of their value. If that were to happen, you should invest in ammo and beans. — Garth
Chaostrology,
Having a bad day? Overwhelmed by impending chaos? Spring is just around the corner. Your post is uncharacteristic of you. Your posts usually contribute something without the small petulant attitude.
“Don’t bother flaming me, I’m outta here.”
Oh really? To borrow from popular culture, “Just when you think you’re out, they suck you back in.” You’ll be back. This blog is like that.
And you base that on…what? — Garth
Cash is the only thing that holds in a deflation. Even the metals fall.
Once credit bubble’s deflated, THEN inflation can take hold.
While there are deflationary tendencies, and while we are in the midst of an inflation-deflation war, deflation is definitely not winning. Inflation has risen from nothing to 2%, oil from $35 to $80, gold from $900 to $1100 and houses soared 19% in 12 months. Coming rate hikes, energy increases and tax changes will augment this trend (despite the housing bubble’s inevitable demise). Around the world money is going into commodities, which are far off peak prices in many respects, and will benefit from an 8% rise in GDP in Asia. Meanwhile governments have increased the money supply and will continue to do so. All this is inflationary, so in the short term investors should react accordingly and those staying in case will lose some value. However, as I detailed in my recent book, there are serious long-term deflationary pressures (like demographics) which will dampen economic growth and crash some prices. This blog is intended to be a daily map on this perilous journey. — Garth
Great post, Garth. Ten years from now, you can reuse most of it – below is an example of how the opening paragraph will look:
“Got your party hat on? It’s anniversary time.
Ten years ago today we were at the zenith of the real estate age. Vancouver and Toronto ruled. People with gimmick mortgages, impeccable timing, and limited knowledge of business were making millions. Vancouver crested at an average of $1,000,000/home, profits were without limit, buyers could not get enough and it was ‘different this time’.”
Unless this recovery comes in real strong, with all else equal, equities will have a significant dip when the US starts talks of raising interest rates.
I don’t think this recovery has any steam. The banks are still broke – they’re paying huge bonuses on capital they collected from shareholders thanks to modified accounting rules which allows them to lie about the assets on their books. Eventually they will spend that capital down, primarily on bonuses, and the game will be done.
Corporations on the other hand are just going with the flow, albeit a little more nervously than the gung ho propaganda about a strong recovery communicated by the media, central banks and elected leaders. It’s become a cheer-leading contest so they don’t have to avoid any meaningful reform – even though that is what voters want.
You have people in Canada high on massive amounts of credit that would make Americans jealous at the height of their bubble in 2006, with credit card debt up nearly 500% in the past 11 years, and personal lines of credit up nearly 1000% in the same time period.
In Canada, we all believe resources will save the day. Yet even at the height of the commodity boom, they only made up 4.5% of our economy. Yes their is significant multipliers required to measure the total economic impact on the broader economy, but the industry is not as significant as our reliance on credit.
We are headed towards a credit bust. No country has ever grown credit like Canada has without going through a significant and punishing adjustment when that credit ceases to grow. The removal of credit growth in Canada, would be similar to shrinking disposable incomes by 13%. That will certainly put retail, real estate and financials into recessionary territory – what are the multipliers of that on the broader economy? I suppose you can look south.
“”"Greed kills. Fear kills. But going with the crowd is the deadliest move of all. That’s roadkill.
This brings us to now.”"”
…Excellent…for an inflationary explanation.
Sorry to disagree, but in these deflationary times your predictions continue to be proven incorrect.
…imo, interest rates will not be raised significantly Garth.
If they are say goodnight to your home province’s Export Manufacturing Province.
…Ottawa (tax payer’s $$$ guarantee) is in bed with CMHC.
…I see foreign imports being taxed first before interest rates are raised significantly.
…I see continued low interest rates which in time will lower the Loonie to 80 cents, which in time will attract foreign immigrants to Canada, who will buy homes with their premium currency exchange.
…Canada is one of the few ” perceived safe havens” in the world.
Nostradamus jr.
#16 Chaostrology
Not sure what you mean that every one of us is Josh. I don’t think you know me or most of the people on this blog.
I’m still married to my first husband, my $700K house is paid for, none of the houses on my street are for sale and my husband isn’t leaving me for someone younger to start a new family anytime soon.
#11 jay
i feel for you man…I belive it was already crazy in 2004. They were already multiple bid on proprties then but it sloowed in early 2006 when i sold .
It will be a 20-25 % correction to get to 2006 levels and clodse to 50 % to 2004 levels depending on where you are at…not saying this to make you feel bad
but Van is not the end all.. be all of places. Happiness tied to material item is dangerous. just try to get the best home for yur money. It is also quite likely when yiou buy…some other issue will come up and you or your wife will be unhappy again. It may be tied to the property you bought. In other words…there will always be problems and there will always be ” I wish i had___”
instead ‘I glad I have___” we all do it.
just be ready for such feelings. I ‘ll buy again to someday but i ‘m single..it less complicated but I feel it too. buy a place …but hard to justify the high prices when your $$$ saved gives you interest and dividends covering most of your rent. Only sept 09 did my GIC matured and now giving me only a measly 1 % is this rental issue becoming a less favourable option
be careful out there. health above all else. I had 2 family friends die of cancer 2009…and I sure their families could care less about real estate or or other assets
We need to be careful when we say trade in Bonds for Equities as there are enough readers here that may follow blindly. I’m pretty sure Garth means sell your low yielding bonds and buy some equities at the right time. Equities are having a good run right now, investors may want to wait for a dip first.
Of course. When rates go up, bonds go down. Why not sell now if you have a capital gain, rather than waiting for a loss? As for bond funds, steer clear until the intensity of the rate storm is known. Short bonds with decent coupons held to maturity are riskless. Long bonds are toxic. As for equities, I have said often indexers will be unhappy, but active management in the right sectors is quite wise. — Garth
William K. Black’s Theory of Corporate Fraud
http://www.youtube.com/watch?v=pOgYbvWQYfQ&feature=player_embedded
The Economic Populist article reports:
“The year long stock market rally has managed to push bank equity values up and give them the appearance of health, but their underlying portfolios are still full of toxic assets that have continued to fall in price. Thus the insolvency of the banks has continued. William Black says that this is all by design.
The first step toward fixing this mess is creating accountability. The idea that it was a “few bad apples” has been floated, but few have fallen for it. Very quietly, Wall Street has been losing one lawsuit after another from angry investors. Wall Street has paid out $430 Billion in damages to victimized investors in 1,500 different lawsuits. Yet the SEC is unable to bring a single criminal charge against a bank CEO.
It isn’t just Black who thinks the crisis was caused by fraud. Elizabeth Warren also suspects massive fraud, as does Janet Tavakoli, Congress woman Marcy Kaptur, economist Max Wolff, and economics professor James K. Galbraith.
#12 Jay,
So long as she gives you the next year you will be fine. By the fall it will be clear to her that you were correct – at least for the past few years. However you may find yourself wanting to rent for a while longer. Hard to say right now.
Andrew,
Does Sam know? What does she think? Is she really your wife?
LOL.
Toronto to Sell First 30-Year Debt Since 1980s: Canada Credit
By Christopher Donville and Kevin Bell
March 11 (Bloomberg) — Toronto, Canada’s largest city, plans to sell 30-year bonds for the first time since the 1980s to take advantage of federal government matching funds for infrastructure projects.
The 30-year bonds are among C$700 million ($682 million) of debt the city plans to sell this year, up from about C$400 million in 2009, said Martin Willschick, the city’s manager of capital markets.
“We feel 30 years is more appropriate given the lifespan of the infrastructure projects we’re funding,” Willschick, 58, said by phone from Toronto yesterday. “People are expecting rates to go up in the next year — we want to lock in some of our borrowing before that happens.”
http://bit.ly/9A9gZo
Yea think!! Rates are going to go up! Hmmmmm! Whos been saying that!!
I said:
“Unless this recovery comes in real strong, with all else equal, equities will have a significant dip when the US starts talks of raising interest rates.”
There is a chance that, as sentiment towards bonds fall in expectation of rising interest rates, the sentiment for equities rises. But this would be an extraordinarily rare event given the weakness in the recovery. It would also be short lived and equities would probably correct themselves shortly thereafter.
Equities are one of those things that can be priced out of thin air. There valuations are primarily based on sentiment, whereas bond prices are generally more technical. So equities could double in price tomorrow, or they could fall flat on their face, with all else equal.
So to get ahead on equities, you have to gauge where sentiment is today. If it is elated, then you’ll want to bet against the market. If it is fearful, you’ll want to carefully make some bets in it.
I’d say given the expectations of a strong recovery by about every single bank and economist that sentiment is on the high end. These guys are eternally optimistic to begin with. Given the fundamentals of the economy, especially unemployment and the level of debt, I’d think the market stands more of a chance of a pullback than a strong movement forward.
I do believe US financials are in for a tough time in the near future. I think Obama’s political capital is running out on protecting them. Furthermore, one of their big sources of revenue is borrowing from the central bank at 0.25% interest and using it to buy US T-Bills. A rise in interest rates or a reversion in accounting rules will destroy their profits and most likely, send them to bankruptcy – which in all honesty, is where voters want them to be. All they are is a massive tax on the economy. Will the government once again act like a facist regime or will they listen to voters, and simply make the voters accountable for their decisions?
One last point. Don’t fall for the theory – and you will hear this in the near future – that people will sell bonds and that money will flow into equities. It’s an absolutely ridiculous comment. For every transaction, you have a buyer and a seller. Therefore the net impact of any economic transaction is zero. The market is not capable of moving money out of one area and into another. It is impossible for the broader market to move money to the sidelines. I hear this so often from some of the economists at the Canadian banks, and I find it laughable that they know so little.
While there are deflationary tendencies, and while we are in the midst of an inflation-deflation war, deflation is definitely not winning. Inflation has risen from nothing to 2%, oil from $35 to $80, gold from $900 to $1100 and houses soared 19% in 12 months. Coming rate hikes, energy increases and tax changes will augment this trend (despite the housing bubble’s inevitable demise). Around the world money is going into commodities, which are far off peak prices in many respects, and will benefit from an 8% rise in GDP in Asia. Meanwhile governments have increased the money supply and will continue to do so. All this is inflationary, so in the short term investors should react accordingly and those staying in case will lose some value. However, as I detailed in my recent book, there are serious long-term deflationary pressures (like demographics) which will dampen economic growth and crash some prices. This blog is intended to be a daily map on this perilous journey. — Garth
==================
Inflation’s gone from 0 to 2% on borrowing from tomorrow via goofy stimulus programs that are not sustainable.
Oil’s fallen from $140 to 80…and barely holding that.
Gold’s looking pretty toppy, having come off the $1200+ all-time high [see "Thunder" article above].
We agree housing’s days are #’d = deflationary.
I do not see energy or interest increases.
Agree on rising taxes [is that not deflationary??...robs purchasing power?? I don't know...you're the Finance guy!]
China’s got it’s own significant bubble problems…not to mention no market for it’s stuff…not even it’s own people at a few bucks/day wage.
Net terms, money supply is not increasing as money supply includes credit which is contracting at a record…”astounding”, according to D Rosenberg…rate.
I just think it’s the other way around. Deflating first…a few years…get the garbage out of the system…then inflation kicking in once credit’s wound down…because US can never cover debt + “unfundeds”. Even WSJ running the odd “Deflation” column these days!
All in all, “beans & ammo” makes more sense to me.
None of us can see the future, obviously…but however you see it unfolding, I agree with you wholeheartedly: It ain’t pretty.
I believe zero risk is the only sensible play, unless you’re wealthy enough not to care.
“Zero risk” does not include equities…in fact, it doesn’t even include bonds to my way of thinking. Probably some precious metals…and, again, I’ll go with the beans & ammo!
All the very best…
Garth,
Why would you recommend locking in our rates?
Let’s recap; this time last year, the best variable rate was prime 2.25 + .70 = 2.95%.
This year and just noticed your mortgage rate advertisement is prime 2.25 – .50 = 1.75%.
That’s half a percent, a whopper of a deal!
Side note: the 5yr fixed is back to what it was last year> 3.59%.
The VRM-discount is back and from the looks of it the big 5 have been scrambling to lower rates to compete. Bond yields have been rising, but BMO & Royal have done the opposite these last 2 weeks & lowered the 5yr fixed.
Our Can$ has been on a tear lately, I just don’t see rates going up for the time being.
Food 4 thought.
Commodities are a good long term investment, but you must weigh the risks for each type. China and commodities (i.e Canada’s economy) are now highly correlated. If China takes a hit so does our economy and our commodity reliant TSX.
The Asia GDP numbers are impressive, but are very likely overstated and don’t present the entire picture. China’s credit situation is worsening, more analysts are warning about a correction in China/Asia markets. Mal-investments and overbuilding in Real estate are almost a certainty there as well.
Commodities are a good long term investment, but be ready for a bumpy ride and cherry pick your assets carefully (Energy=good, Agriculture=good, Real Estate Related like copper=less good).
seriously enough with the dates, how do you know it’ll be September, weren’t you saying June / July like 6 months ago? it’ll happen when it happens, it’s impossible to tell exactly when it’ll happen. Who knew March ‘09 would be the turning point for equities, same will applies when real-estate. nobody can predict when these things will happen.
being wrong doesn’t sell books. just keep them guessing.
You obviously weren’t here last winter. — Garth
——————————————————-
actually, Garth called the turn in the equities market to the day. I was here for it.
I’m not sure what you’re pestering him about. If it’s about falling prices in real estate, I’ll say it again, bubbles take time burst. They already, in the bubble state, function irrationally, so it’s ludicrous to expect them to return to their fundamentals in some sort of timely, rational fashion.
Canada’s house prices on steady rise
http://www.theglobeandmail.com/report-on-business/economy/canadas-house-prices-on-steady-rise/article1497205/
Any day now-right?
Garth et al:
Okay – I have a question on bonds that nobody I know has been able to answer directly (the nice lady at the bank gave me a blank stare for 10 seconds and proceeded to tell me about another new product). With interest rates at 0%, an increase is a certainty. I would think that Real Return Bonds would be a slam dunk – except most real-return bonds have really long maturities. In a rising interest rate environment, long bonds are about to be slaughtered.
In a rising interest rate environment, do real return bonds fly to the moon or are they crushed with the other long bonds?
Time to take a bigger position in real return bonds (e.g., XRB) or pull the plug?
Any long bond is toast in an environment of sustained rising rates. — Garth
I posted this yesterday, all I can do is suggest everyone read it. Short 1 page summary (laser like clarity) of global economic situation right now, as it really is, from an Aussie who wastes no words, some great charts and graphs:
“Is This A real Recovery? You can’t borrow your way out of a financial crisis…”
http://www.incrediblecharts.com/tradingdiary/2010-03-09_economy.php
Outstanding and highly recommended.
Good summary of how debt constrained the USA is and the fundamental factors of their Bond market:
“As Budget Deficit Hits Record High, Interest On US Public Debt Hits Record Low”
http://www.zerohedge.com/article/budget-deficit-hits-record-high-interest-us-public-debt-hits-record-low#comments
“What is wrong with this picture: the MTS just announced that the February budget deficit was $220.9 billion, after receipts of just $107.5 billion with vastly surpassed by outlays of $328.4 billion. This is a record. Yet the interest on the public debt was a mere $16.9 billion…
Yet the logical next question is what happens when rates start going up? It was as recently as September 2007 that we had a interest rate on marketable debt of nearly 5%. The plunge to 2.5% took just over a year. Even the mere mention of actual tightening will spring rates right back to 5%. What does that mean for actual outlays. Well: if indeed we are correct that total debt will hit $14.3 trillion in less than a year, it means the marketable debt will be about $10 trillion, and the incremental 250 bps of interest will mean about $250 billion of additional interest outlays a year, or half a trillion annually. That comes to about $42 billion a month. In January this amount would have been double the net withheld income taxes.
It becomes obvious why the Fed simply can not allow rates to go up. It has nothing to do with excess liquidity, which of course is a major concern as America goes from one excess-liquidity bubble to another. The problem is that the surging budget, which will need ridiculous amounts of debt for funding, will truly explode if rates were to go up merely to 5%….”
Much more at link with charts and graphs. The USA is stuck in a very difficult place, no easy way out. Made worse by lack of “leadership” in Washington where they are still completely delusional on Budgets and deficits. “Change You Can Believe In” indeed.
#44 Grantmi
“People are expecting rates to go up in the next year — we want to lock in some of our borrowing before that happens.”
Yea think!! Rates are going to go up! Hmmmmm! Whos been saying that!!
How do you get from “expecting” to “are”. If this is the new definition of “expecting” this is great news. I’m expecting to win the next Lotto 6/49, so using your new definition of “expecting” I going to win. Grrrrreat news, thanks.
While there are deflationary tendencies, and while we are in the midst of an inflation-deflation war, deflation is definitely not winning. Inflation has risen from nothing to 2%, oil from $35 to $80, gold from $900 to $1100 and houses soared 19% in 12 months. Coming rate hikes, energy increases and tax changes will augment this trend (despite the housing bubble’s inevitable demise). Around the world money is going into commodities, which are far off peak prices in many respects, and will benefit from an 8% rise in GDP in Asia. Meanwhile governments have increased the money supply and will continue to do so. All this is inflationary, so in the short term investors should react accordingly and those staying in case will lose some value. However, as I detailed in my recent book, there are serious long-term deflationary pressures (like demographics) which will dampen economic growth and crash some prices. This blog is intended to be a daily map on this perilous journey. — Garth
**************************************
Inflation has risen from nothing to 2%
Inflation needs to be defined–
I have no idea where you get your inflation numbers from–
“oil from $35 to $80″
Actually–Oil has gone from 147 to 80
“gold from $900 to $1100″
Gold has since 2001 gone from 250-1100–
Gold is pricing in credit risk–like it always does-
“houses soared 19% in 12 months”
Yes–but according to you–which i agree with-
That is about to reverse trend–
Around the world money is going into commodities, which are far off peak prices in many respects, and will benefit from an 8% rise in GDP in Asia.
That GDP is from a massive stimulus goose–
When China tells banks to lend–they do it–
When that money hits the economy–it causes inflation-
China will melt down–soon enough–and when it does-
commodities will roll over—
All world GDP is badly skewed to the positive–because of government stimulus–
World deflation–is where we’re heading–in fact–
We’re there–we just ain’t looked down yet–
Buy Equities??? Sorry that does not compute… the big run up was too far too fast…not even sure what to recommend…Real Estate???
What else would you buy going into a long and slow recovery? No index funds, but those sectors with wheels. — Garth
Hello Garth,
Be it inflation or deflation, as the Dow goes the TSX follows, though if you can find me a good non energy commodity that has a decent numbers and a good dividend I might consider buying a little bit.
I think 80 oil now is likely the equivalent, in this new and volatile economy, to that 147 oil when the only limit to spending was how fast the housing ATM could be accessed.
We are running on the fumes of stimulus spending and before I think of China bailing out our boat I will be checking barometers like that of the Baltic Dry Index (which while on the rise since the beginning of 2009 looks like it is just beginning to break it’s trend line).
My position is that as I own my home and have no debt, so for now I will hold 10%+ gold, 10%+ dividend energy stock and 70 -80% cash.
Cash is nice, but after taxes on interest and inflation of 2%, you lose. Why do that when there are lots of safe places to invest? Get informed, or get some help. — Garth
It was great meeting you in Kitchener last night. Some good questions and a nice mix of people in the audience.
Its going to be tough for boomers to yield your advice and to change their investing ways. Bonds/GIC’s have long been a staple to that generation.
Active management is great and sounds easy for guys like you that know that market and understand the dynamics. I have active managed my portfolio since day one. However, its a dangerous road for a lot of people.
Look at Bay/wall street, money is made by day trading and not buying and holding, thats why Goldman Sacs et all employ trading desks (equites/index/commodities/currency etc..) divisions. Looks like the common man is going to have to deploy the same type of investing stragedy that the big guys use to make a return and hedge against risk.
Just a word to the wise, Garth’s book is a great resource but please, before anyone starts to “manage” their own investments, do some research, by some more books. I would suggest going as far as starting off with a “mock” balance of 100K and just picking your trades and following them. That way you learn without the financial pain. I started doing that when I was 16 with a buddy just too see who could do better, it was a great learning experience.
I remeber to this day our heated argument in high school about Bre X, dot.coms and penny stocks. LOL
Everyone just doesn’t get it yet. WE ARE IN A DEPRESSION RIGHT NOW!!! This is the second year of a 10 to 15 year movie that is playing out for us. As I have said before I will now say again……….”DEPRESSIONS TAKE TIME”!!!
TC.
Any long bond is toast in an environment of sustained rising rates. — Garth
Yes, if your a bond trader. If your a bond holder then no. But why anyone would buy and hold a long bond is beyond me.
Garth,
Husband and I are wondering if this is a good way to go forward.
Both 30 years old, no debt
Husband has a company pension
I have maxed RRSP’s in a diversied portfolio of energy, financials, etc. Market will go up and down over 25 years, so I am not too worried about possible drop.
We both have 10 k each in TFSA ( not cash, but safe)
30k in cash in which we are saving for a DP on a house. My husband will GC our home if we build and save up to 30%. So if prices do crash 15-30%, over the next few years, we still would be ok. But I am concerned about the neighborhood. Would we want to be in the middle of a brand new neighborhood where a credit bomb went off? Or should we just vulture some RE in an established area later down the road?
One last thing: We make just over double the average household income but when factoring the average historical mortgage rate and with some kids down the road, we can only afford an average house.
You sound like you have your heads screwed on. But I hope hubs is a contractor, or you’re asking for trouble building yourself. Besides, given where the RE market is going, you will do better 10 times out of 10 buying a resale. — Garth
WOW! WOW! W..OUCH!
GARTH!!!!
WHAT THE HELL IS WRONG WITH THIS WORLD?
I have had 4, that’s right 4 people-2 realtors and 2 banks call in the last three days! Asking if I want to sell the house!
What is the problem here? Things are getting crazy!!
I think the recent Icelandic vote on debt was interesting and could well be starting to set precedent.
To me, the crux of the vote is that they as people, put themselves and the future of their children ahead of the financiers, they have refused to be slaves to debt.
If the attitude towards lenders is “if you don’t like it then get lost” they (the lenders) really have few choices, especially when dealing with huge amounts of national debt.
Regardless of the amount outstanding, the old saying about getting blood out of a stone rings true. It’s not like the lender is going to start firing missles over money….especially money that never really existed….digital money.
Same with the USA and it’s lenders. These lenders absolutely need to have the USA buying it’s goods. Entire economies around the world have been built on this consumption. China needs the USA far more than the USA needs China.
If the USA starts to default on debt and practice protectionism to dig it’s way out of this mess what do you think it’s lenders will do?
They will negotiate, believe me.
# 2
Garth: ” Where did I say the economy is crumbling? ”
Well, if you didn’t then I am missing something. How can massive layoffs be explained then and that many companies walking financial falures?
Garth” And as for your company, do you work for Lovecraft?”
No, it is another company, one of the famous, biggest retailers in Canada( Toronto) with stores across Canada.
Well, spit it out. — Garth
Garth,
I don’t know if enough people understand that if you are up on a bond, then you should consider selling it. I usually sell my bonds if they are up 10% knowing full well that I will eventually lose that 10% if I hold till expiration.
Responding to:
Of course. When rates go up, bonds go down. Why not sell now if you have a capital gain, rather than waiting for a loss? As for bond funds, steer clear until the intensity of the rate storm is known. Short bonds with decent coupons held to maturity are riskless. Long bonds are toxic. As for equities, I have said often indexers will be unhappy, but active management in the right sectors is quite wise. — Garth
Thanks
The best days for this blog are the days that Garth has the time to reply to our posts….
Thank You Garth.
#50 Tom
No, more specifically, the hammer comes down the 3rd or 4th quarter of this year. The reasons I have are best explained here:
http://americacanada.blogspot.com/2010/01/recession-to-continue-in-q3-2010.html
And if we are both wrong and this bubble inflates through to 2012? Lets suppose national RE values pop a further 20% more than it is right now. It won’t change the national RE value bottom Canada is poised to hit, just delay it. If valuations continue to rise it only delays the inevidable, the crater just gets larger as the bubble collapse becomes more extreme.
#64 Analyst Analyzer “I don’t know if enough people understand that if you are up on a bond, then you should consider selling it. I usually sell my bonds if they are up 10%”
Well, I thought I knew a lot about bonds, but I guess I don’t because I have no idea what you are taking about. Up 10%? What kind/type of bond is this?
Mike
#12 jay on 03.11.10 at 2:14 am
anyone have a suggestion for a better place near the ocean cause that’s what it looks like from here.
—————–
i hate to be such a miserable old curmudgeon, but i have to agree with your thoughts.. i think vancouver has priced itself too far outside of reality for it to make much sense any time soon. (counter argument would be 80% drops in some Cali markets in a two-ish year span.) personally, it goes well beyond the cost / affordability of the family home… i don’t how many millions i would need to have kicking around before i would feel ok about mis-allocating the million or so the house would cost. the fact is, there are so many other nice places out there. vancouver just isn’t that great, no matter how you slice it… personally i have turned down the opportunity to live there several times over the years… just couldn’t stomach the thought of the endless cloudy days, the horrible traffic, not to mention a steadily worsening collective arrogance that permeates the vibe there
whatever, just my opinion
Some Large Cap US Stocks are still a good buy. most still trading with an earnings multiples of below 16, very strong balance sheets, dividends payouts around 3% on the price of the stock,
and these are stocks with high ROE values (non capital intensive businesses throwing off lots of cash).
And the high CDN dollar buys you even more for your money.
Times are still good for some things
Not the greatest title, however an excellent article.
Publication: Canadian Business magazine
Title: Why buying a house is a bad investment
http://www.canadianbusiness.com/managing/strategy/article.jsp?content=20100315_10019_10019&page=1&scroll=rating
jay on 03.11.10 at 2:14 am
anyone have a suggestion for a better place near the ocean cause that’s what it looks like from here.
You want sea shore, mountains, as a bonus, golf coarse?? Look in Campbell river. I have friends on the coarse at Sequoia Springs. they love it and it is under 300K.
(I am not, and never was, a real estate agent. I get no finders fees.)
I do boost the North Island as a place to live and raise children. (My home is in the Comox Valley. AKA. Heaven – on – Earth!)
Heres a link that might be noteworthy. Prediction of rate hike before the US fed. He thinks our banking is more though. Geuss he didn’t hear about the housing shuttle currently exiting the atmosphere. This might stall it though.
http://www.creditwritedowns.com/2010/03/you-like-the-greenback-you-might-like-canada-more.html
more sound*
14 CSG
Good plan, man.
I hear the argument all the time that if house prices fall because rates go up, so what? You’ll just end up paying a higher interest rate on a lower priced house. Won’t it just end up being about the same monthly mortgage payment?
But no – most of the people buying now are going variable or maybe 2 to 3 year terms.
So 2 or 3 years from now when their mortgages renew they will have the pleasure of paying higher interest rates on circa 2010 prices.
#67 Mike (Authentic)
Well, I thought I knew a lot about bonds, but I guess I don’t because I have no idea what you are taking about. Up 10%? What kind/type of bond is this?
Shhhh, no one tell Mike about bond trading. He is suppose to be a financial guru, let him figure it out by himself.
junius Elizabeth Warren has more credibility than just about anyone in the U.S. these days and she says almost 3,000 of the 8,000 banks are in trouble with their commercial loans. This is the next banking crisis and it is coming soon.
I saw her on youtube.com I was impressed with her credentials and sincerity. She says that the banks in the US are afraid. She says she is afraid.
Chaostrology: Josh will dump his house, because he has no other option, this will affect the prices of the other 4 houses in the same neighbourhood and the cascade is on.
It will. My sister lives in an executive enclave north of Toronto. The executive enclave is only as good as the executives in it. I think the best neighbourhoods will be the ones with the lowest loan-to-value (LTV). An example would be a street where each house is worth $300,000 with a mortgage of $75,000.
#29 & 30 GTA Realtor
Just had to say, your deflation-then-inflation outcome (after this mildly inflationary stimulus bounce) makes the most sense to me too.
There’s many a historical study of how financial crises unfold, and this most recent 2008 housing/credit initiated one is certainly textbook thus far. Note how in the Harvard data below (page 5) the average equity peak-to-trough is 3.4 years duration.
http://www.economics.harvard.edu/files/faculty/51_Aftermath.pdf
This should lead to an ultimate stock market low in ‘real terms’ by sometime 2011 (latest 2012). The Dow could possibly go as low as 5 times gold – there’s historically strong support at 5x. My best guess is gold bottoms somewhere between 700-900 an ounce (although I hope I’m out-to-lunch on that one). There are many other studies on financial crises if anyone is interested in some of the links or book references. One of the key takeaways from these rare & protracted events is that the deleveraging process doesn’t really begin until almost 2 full years after the financial seize up (autumn ’08). Anyway, from the reading I’ve done on the subject, this gov’t led ‘bounce’ stage (return-to-normal, Elliot B wave, bull trap, Fib retrace…) is for obvious reasons the most confusing stage, hence the bounce.
Why buying a house is a bad investment
More than two centuries ago, the economist Adam Smith produced his landmark tome, An Inquiry into the Nature and Causes of the Wealth of Nations, in which he wrote, “a dwelling-house, as such, contributes nothing to the revenue of its inhabitant.” The father of modern economics placed housing in the same category as clothing and furniture — useful consumer goods that do not generate wealth. For the homeowner, a house is a “part of his expense, and not of his revenue.” Were Smith alive to make such a statement today, he would no doubt be regarded as a heretic.
http://www.canadianbusiness.com/managing/strategy/article.jsp?content=20100315_10019_10019&page=1&scroll=rating
#66 Daystar,
Thanks for posting this. Jonathan Tonge is dead on.
The line about real estate is dead on – “Real Estate doesn’t provide any future benefit to the economy, so you are effectively been borrowing against nothing. This choice of investment (which is really an expense) has of course forced debt to unheard of levels, despite economic growth.”
Just a bit of digression,
I wanted to present some thoughts I’ve been having reflecting my own personal situation. Maybe you guys can comment or at least learn from my situation.
My future MIL is holding onto a second house (approx 2900sqft) as if it’s a stock. Her mother(grandma) does live in it, but she’s alone so it’s basically a huge waste cashflow-wise. MIL is still paying off second house. First house is now fully paid for. She’s 58′ish in age.
She’s basically seriously invested in Real estate in this scenario. I don’t THINK she has any significant money in RRSP’s or any other type of retirement equity funds because they are a middle middle class family. A lot their past, present, future income has been going into these two homes. She believes that when she retires, she can “give” her first home to her son. Take over his newly bought smaller home(son is moved out). She will also give her second home to my fiance (when grandma passes on). and I guess live a miserly lifestyle on CPP and some of her RRSP with her husband. She thinks that because she has a paid-for house in retirement that she’ll be fine with her smaller than average retirement income.
She’s not the easiest person to get a long with but I still do care for her because it’s my Fiance’s mother. Moreover, I don’t know if it’s being selfish but knowing that her retirement is taken care of would be less burdensome for all her children in the future. But, I don’t think she’s really considering her retirement at all…it seems like her “concern” is that she can pay off this second house so that she can give it to my Fiance (to help us get ahead). EVEN THOUGH we did not ask for this house. Well, even though it’s HER money and she can do whatever she wants with it and I don’t want to butt in on their family finances since I’m not even married yet but it seems like I might have a small window of chance to convince my future MIL that she’s probably making a big mistake.
IMO (i’m not an estate expert) she should sell both houses and then downsize to smaller duplex(grandma lives in other section). Take the capital gains and then diversify – MAKE SURE she has enough to retire with her husband. THEN she should start thinking about setting things aside to willable assets.
How the hell do I go about this? I know an estate lawyer is probably the first visit but approaching them first is just a huge issue. Help me, Garth.
#46 GTA Realtor
Government stimulus is not meant to provide a replacement for the real economy, it’s meant to provide a spark to re-ignite it. So, in theory, once it’s pulled the real economy should starting ticking along by itself. So if you look at it that way, the real purpose of Government stimulus is to improve peoples sentiment from negative to positive, ie make people feel that better times are ahead. Anyone that has followed markets knows this.
As with all markets when the herd is in a positive frame of mind the chances of there being a positive outcome is greatly increased. No market works strictly on fundamentals and/or sentiment, but right now I know sentiment is leading the way, people are finally starting to see the light at the end of the tunnel. Once the dust settles (which could take a long time this time around) then fundamentals can once again regain their place at the top of the list. Think of it this way, once you get the a supertanker going in one direction it takes a lot of time and energy to turn it around.
Well that’s the hope anyway. So with that being said, I like you have no idea what direction that supertanker will end up going, but I do know one thing and that is at this moment that supertanker is going in a positive direction.
#68 Sean
… “”"personally i have turned down the opportunity to live there several times over the years… just couldn’t stomach the thought of the endless cloudy days, the horrible traffic, not to mention a steadily worsening collective arrogance that permeates the vibe there
whatever, just my opinion”"”
…Sour $$$ grapes Sean…
Nostradamus jr.
#80. Stay away and keep your thoughts for yourself.
Re: #80 Larry
Thanks,
It makes sense to just keep quiet since I KNOW that they are RE bulls. Anytime I bring about the possibility of prices heading downward, they cite radio news and TV news that say prices are going to go up up and up forever. *sigh*
I just know that if I were close to retirement age…The BEST thing I can do for my children is to make damn sure that I will most likely be comfortable in my retirement. The last thing I want to burden them with is having to take care of me early in my old age. I’d want them to visit but having the retirement funds for good care can go a long way for their peace of mind. I think this is one thing that a lot of older generations don’t realize…They think that if they want to be good parents they need to spend crazy amounts WHILE kids are growing up and set them up early in their life while neglecting their own retirement. A word to all the parents out there! WE DON’T NEED YOUR HANDOUTS!!! Worry about yourselves!! HOLD ONTO YOUR MONEY FOR RETIREMENT! Live healthy lives! Just give us room to grow on our own and stop worrying so much. Love, strong moral principles, propensity for independent thought, common sense, shelter and food is really all children need! Young people will survive! We are resilient and have a better quality of life than most older people could have ever imagined compared to earlier decades and also compared to the rest of the world.
Garth,
Got this today: “Garth Turner in Calgary: Sold Out”
[Who says Calgary isn't listening? Way to go!]
Of course, hub and I signed up early, we’re looking forward to “Garth Turner live….31st, 7:30 Radisson” (hmm, the last time we were at the Rad it was for a rodeo in their parking lot.)
Barb
I’m bringing my cowboy boots & my bull. — Garth
81 DaBull on 03.11.10 at 2:05 pm
#46 GTA Realtor
Government stimulus is not meant to provide a replacement for the real economy, it’s meant to provide a spark to re-ignite it. So, in theory, once it’s pulled the real economy should starting ticking along by itself. So if you look at it that way, the real purpose of Government stimulus is to improve peoples sentiment from negative to positive, ie make people feel that better times are ahead. Anyone that has followed markets knows this
************************************
http://www.nakedcapitalism.com/2010/03/the-empire-continues-to-strike-back-team-obama-propaganda-campaign-reaches-fever-pitch.html
Garth,
I like your blog and agree with you on real estate. However, your recommendation to buy equities and commodities might imperil the wealth of those you are trying to save.
Indeed we might see “some” inflation in terms of CPI. The past year’s reflation has succeeded in bringing commodity and oil prices up. Much of it is speculative since oil demand in terms of barrels consumed is NOT rising but in fact falling.The boom for industrial commodities (zinc, copper, lead, etc) is most likely over and prices are going to plummet. That’s right. http://www.dailymarkets.com/contributor/2010/03/10/zinc-make-sure-you-dont-own-this-commodity/
Are we going back to a 17 million vehicle per year sales in the US? Is China going to start building even more commercial and residential real estate when it is already overbuilt? Please. If commodities fall, the TSX is going to collapse. Think Canadian banks are safe? Think again. BMO had to get bailed out last year to the tune of 1 billion bucks by AMERICAN tax payers (see AIG bailout). We Canadians need to get real as do Americans. If you buy equities minimize exposure to commodity related stocks, please.
North Americans as a whole have been bombarded since the mid to 80s with marketing of securities as a way to a solid retirement. The belief that markets always rise became religion in the late 90s and now is being questioned, that’s good! Let’s get back to basics: do the best at your job, save a portion of your earnings and yes, put SOME in globally diversified equity markets.
My two cents worth.
Garth,
You keep mentioning financial preferreds as a great and safe place to earn income in this climate. However, when one checks their prices in the last three years, they are hardly stable. Granted, they provide tax-advantageous dividends but capital preservation is a question mark. For example, here is one CIBC preferred for the last three years:
http://cxa.marketwatch.com/TSX/en/Market/intchart.aspx?symb=CM.PR.P&sid=50602
You can notice swings from over $26 to under $16. Granted, not a Nortel but no bond either. How many different preferreds (financials, utility etc.) are needed to ensure capital preservation?
This chart doesn’t look so bad – financials dropped during the credit crisis, as to be expected, and recovered nicely. Preferreds pay great income and give it to you virtually tax-free. If you want a bowl of ice cream too, look elsewhere. — Garth
@Gary
This is why Garth needs forums.
Gary, you should keep your fool mouth shut and take the free house.
Green Home???
Another bargain!
GTA realtor would have you believe that energy savings alone would justify asking price.
http://watch.ctv.ca/news/top-picks/green-home/#clip274969
Bubble?
According to KMPG’s fraud -o-meter
Fraud rises to record levels in New Zealand: KPMG
• NZ$ 100 million defrauded in 2009
• NZ $76 million defrauded in last 6 months
• Managers remain greatest risk to business
There has been a massive increase in the value of frauds in New Zealand in the second half of 2009, according to the KPMG Fraud Barometer report released today.
The total amount defrauded was $ 76 million in the six months to December 2009. This compares with $ 22 million in the first half of 2009 making a total of $ 100 million being defrauded for the 2009 year. In 2008 there were approximately $ 70 million of large frauds in New Zealand
http://www.scoop.co.nz/stories/BU1002/S00382.htm
===============================
To help taxpayers recognize potential schemes, the IRS has compiled a list of transactions that are abusive tax shelters. If a tax shelter resembles a listed transaction, it is considered abusive and the users may face penalties.
http://money.howstuffworks.com/personal-finance/personal-income-taxes/tax-shelters.htm/printable
“The wealthy have always paid more than average citizens. But not according to KPMG,” Everson declared. “KPMG’s actions were a direct assault on our progressive system of income taxation,” he said. “Accountants and attorneys should be the pillars of our system of taxation, not the architects of its circumvention.”
Although KPMG as an entity was charged with conspiracy in a criminal complaint, the firm was granted a “deferred prosecution” and can avoid a grand jury criminal indictment by paying the penalty, submitting to an independent monitor, and continuing to cooperate with federal investigators.
KPMG sold the allegedly illegal tax shelters for a seven-year period ending in 2003, the indictment says.
http://www.howstuffworks.com/framed.htm?parent=tax-shelter.htm&url=http://money.cnn.com/2005/09/09/news/fortune500/scandal_taxshelters/index.htm
“You want sea shore, mountains, as a bonus, golf coarse?? Look in Campbell river. ”
North Island or Comox Valley or somewhere would be awesome. The question always arises though – how to make a living in these places?
Hi. I’ve been a ghost reader for a few months. I don’t have as much financial expertise as many commentators here but I appreciate the learning opportunities as well as GT’s daily blog and books. I’m a GenX’er, married, one baby, reasonable asset diversification (a-la Money Road advice), but nowhere near financially independent yet, and moderately worried about the state of the global economy / environment.
First, thanks for the sensible and useful daily comments by people like junius, Got A Watch, daystar, nonplused, et al. Nost LMV: Always interesting. Thanks. This is 21st century investigative journalism. Cool.
Some hot-headed bull posters, attacking others, etc – makes me wonder if they are just compensating for underlying doubt in their own theories & predictions. I guess emotions run high when yr home is yr castle or if yr high on inflated RE / low rate dust. Maybe they’re just bitter in general and antagonizing others for ‘fun’. If they’re genuine then they’re probably falling victim to the cognitive distortion known as the self-serving bias whereby people are more likely to claim responsibility for successes and externalize blame for failures. In fact, I found that this wiki of cognitive biases is useful as a kind of ‘check in’ to see if any are unduly influencing my own financial planning:
http://en.wikipedia.org/wiki/List_of_cognitive_biases
I feel for the posts with stories of growing hardship in the industrial heartlands, having lived thru this in the 80’s as a kid with a blue collar dad as hard working and versatile as a swiss army knife who was shut out by industry and undercut by immigrant contractors. I feel sooo lucky that he was wise enough to convince me to stay in school for long enough to land a high-paying recession-proof job. On the other hand, can you feel all that sorry for high-school dropouts expecting $100-120/hr jobs and the accompanying lifestyle to last forever?
Most here seem to be blaming the government (when do we ever not?) and fair enough, especially these days. I think the majority of our current mess (personal & family discontent, economic and environmental degradation) relates to the rampant consumerism that plagues us and that fuels a never-satisfied mentality compelling us to live above (?way, way above) our means.
So, for what they are worth, my suggestions include (1) a daily dose of gratitude for the basic good luck that is likely responsible for most of our personal / financial success, (2) simplify life and resist the craving for things we don’t actually need in order to be happy, (3) prioritize time spent with family and friends.
Thanks again GT and commentators for yr ongoing helpful posts.
#22 Genghis,
Also, check out the terms of repayment on the deal the Icelanders rejected. No wonder it was rejected!
At this time the situation is that the economically “stronger” countries are offering bailouts (although reluctantly perhaps) to the weaker ones, but really it is the blind trying to lead the blind because all or most western countries are bankrupt. But, it is getting easier to see where this road leads and that is to a giant world central bank that MOST countries will eventually be forced to make a deal with.
For the common folk, it’ll be hand to mouth except without today’s frills trying to pay off “sovereign” debt that can never really be repaid. And if and when it does get paid, it won’t matter because the people will have already been under a feudal like system. The middle class will never come back.
In the deliberate take down of the world economy/financial system, “they” are making the bed which we’ll soon be sleeping in and they’ll have us exactly where they want us…in perpetual servitude. The only thing that has any real value is the labour of the people, which creates the wealth that is being funneled to ever fewer hands and thus the emergence of the “too big to fails”.
The very term too big to fail denotes an entity that is determined to stay alive no matter what the size and scope of the collateral damage (the wealth and health of the people) is needed to sustain it. To borrow yet again Garth’s line…This can’t end well.
#79 junius
Yup. The link above explains it well. This one below is a historical of interest rate prime since 1935. What’s worth noting with this is how higher interest rates always drag economic growth and often create recessions depending on where debt levels are at. Canada’s recessions are most easily seen by the rise in interest rates. Obviously, credit contracts when interest rates rise, reducing the amount of money consumers can borrow and as a consequence, devalue RE which is most often bought with credit.
If readers can’t connect the dots with where interest rates have to go from here, or what the consequences are if interest rates stay this low for any length of time (Prime has been at .25% for almost a full year now. Note that the U.S. housing bubble had 3 full years of record low interest rates and what happened to them as a consequence. Note Japans disasterous debt to GDP ratio as a consequence of near zero rates for more than a decade) or… what happens when interest rates rise… (RE values fall, credit contracts, people get poorer, economies shrink, debt service crushes debt holders) then God help us all. We literally are on the edge of a cliff right now and the longer near zero rates continue in the face of loose CMHC regs (unchanged 35/5’s) increasing the numbers of people taking on debt at or near RE’s peak, the farther the fall.
Left, right, these acronyms don’t apply. This is disfunctional political policy that if left unchecked, will devastate this nations finances.
http://www.bcrealtor.com/d_bkcan.htm
#92 Burnt Norton on 03.11.10 at 3:49 pm
“I feel sooo lucky that he was wise enough to convince me to stay in school for long enough to land a high-paying recession-proof job.”
only 2 things in life are 100%…. death and taxes, you must be an undertaker.
#82 Nostradamus jr. on 03.11.10 at 2:24 pm
…not to mention a steadily worsening collective arrogance that permeates the vibe there
whatever, just my opinion”””
…Sour $$$ grapes Sean…
Nostradamus jr.
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Not at all, my friend! I lived in Victoria for many years… equally bubblicious, but that was not my point. To reiterate, vancouver really isn’t that nice. it was always a depressing change when i had to go over there from Victoria for a few days… invariably worse weather, relentlessly worse traffic, and (I hate to generalize) but a truly unpleasant and delusional perspective on the world on the part of so many vancouverites. it’s like they can’t poke their heads out of the clouds far enough to see the rest of the country, or even the rest of the coast.
So to the previous poster… yes, the better places are… Victoria, Langford, Sooke, Comox Valley, Courtney, Campbell River, Ladysmith, Nanaimo… you get the idea
#92 Burnt Norton,
Good post. Thanks for the Kudos.
I agree 100%. The Consumerism that you noted is clearly one of the root causes of problems. Our consumer is pumped up with debt through credit cards, cheap mortgages and a host of other spending incentives. We are over-extended financially and spiritually bankrupt. We need a new way forward.
Your words on cognitive bias are very helpful. I would highly recommend books like Jonah Lerner’s “How We Decide” or Dan Ariely’s “Predictable Irrationality” if you are interested.
The human behvioural side of economics is fascinating. It is also what makes this time in history so fascinating and so scary at the same time.
#80 Gary
…Do yourself a big favour…butt out.
Your MIL knows what works for her, she’s successful
The day you are at least as wealthy as her is the day you can advise her.
Go build your own Empire first.
Nostradamus jr.
#84 Gary,
I agree with Hoon (#89). Take the house.
If you feel guilty put the money you save into a TFSA account that you can use to take care of her in her old age.
Enjoyed meeting you at Chapters, Garth.
Of course I only made a dumb comment, which took up my time to say/ask something more meaningful.
Ahh, well, got my personalized autographed, priceless now, ‘Money Road’. (Which I would have gotten earlier from you in mail, but moving complicated things)
Even got an iRewards card. (Waiting for next bestseller,
@ time management, but then, can get directly from Xurbia)
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Re: # 84. Gary
I have an inkling you oughtta look into getting into some kind of political (in a good way) role.
Some good advice, also, for parents.
Although,… there are those grown kids that may disagree, as they fumble with their finances, and try to get what they can now, justifying it with, ‘well, they’re going to give it to me later anyways.. why wait’.. and they’ll blow it now, just as they will if they’d gotten it later. Don’t do it parents.
#94 Daystar,
I agree. What is interesting is article are appearing the press – even the MSM – now more frequently about how difficult the road ahead is. Of course, the usual cheerleaders will be back at it tomorrow trying to turn us back into mushrooms. Isn’t time we start dealing with reality?
#81 DaBull
Totally agree with the mechanics of this but would like to take it one step further. What you are essentially saying is that government is investing our money in “peoples sentiment”. This may in fact work but I would chararacterize “peoples sentiment” as an extremely risky asset that can melt away to nothing (along with a lot of other “real” assets) and then where are we?
legal cover for the torture memos
don’t we have some blacked out memos?
This short film examines the role lawyers played in authorizing torture under the Bush Administration. It features excerpts from Marjorie Cohn’s congressional testimony.
http://www.youtube.com/watch?v=gJnQbPtgMAU&feature=player_embedded#
Dick Cheney has publicly confessed to ordering war crimes. Asked about waterboarding in an ABC News interview, Cheney replied, “I was aware of the program, certainly, and involved in helping get the process cleared.” …
…the Constitution requires President Obama to faithfully execute the laws. That means prosecuting lawbreakers. When the United States ratified the Geneva Conventions and the Convention against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment, thereby making them part of U.S. law, we agreed to prosecute those who violate their prohibitions.
Based on the types of questions being asked, the anecdotes of friends renting/buying, and the level of argumentative sophistication, it is fair to say that most bears here have never bought and not in a position to do so. The heavy reliance on deterministic economic models and fundamentals analyses prevent the incorporation of non-rational factors affecting the markets. They believe that it is only “logical” that market corrects, all the while imposing their wishes of a collapse on to their “analyses.”
The fact is that most of the bears on this site failed to pull the trigger since 2005 while the rest just complain because they feel they deserve an affordable house fresh out of university. Sorry twenty somethings, your culture of entitlement and instant gratification means you are going to have to pay the steep prices demanded from the baby boomer owners if you want to get into the property market. Just because you don’t know patience, and are financially immature for the most part, doesn’t mean your wishes of a housing collapse and hence increased affordability will materialize.
And all this talk of the baby boomers retiring, downsizing, and creating a flood of listings is pure garbage. That theory has been around since the late 1990s, especially in terms of the labour market (massive retirements), and it has yet to play out. Those baby boomers will stay in their house for as long as they can, and with paid off mortgages, their income needs are minor.
The value of ownership is so ingrained in Canadian society that all those retires would rather die in their homes than give them up. Take a look around many Vancouver neighbourhoods for examples of seniors that are cash poor and house rich. Despite being able to secure millions from the sale of their properties, they prefer to stay in their homes. Think about it…
Do you guys realize that unlike any other city, Vancouver is a mortgage helper city. While many recent homeowners are admittedly unable to afford their places without these helpers, the sheer fact that so many people are willing to rent basement suites and rooms in houses demonstrates that there is, and never will be, any shortage of people willing to rent and or buy.
If prices every drop again, you have a ready pool of potential buyers as they move from basement suites to condos. And while there is the potential for those homeowners dependent upon mortgage helpers to be financially constrained in such a scenario, the fact is that there will always be people to rent them – ESL students, transient workers, those relocating for work (and yes, there are not corporate headquarters, but people still relocate here).
Even with the current anemic immigration and net migration rates, our market has been remarkably strong. It would be one thing if our market was inflated because of a massive number of people coming here, but that is not the case. We are pretty much in a “worst case scenario” with immigration/migration rates, and a doubling of unemployment within a year. Things can really only improve, unless of course you are praying for a double dip recession (which I am sure most bears believe will happen).
This is not a city of SFHs with one nuclear family in residence. It is a dense city, with lots of rooms and basement suites to be rented (and which are rented). To be sure, new developments could impact the markets, but any potential excess supply was mopped up with the credit crisis. Developers learned that they were close to the abyss, but they stepped back in time. The irony was that bears here were giving themselves virtual high fives as story after story of developers went under with the 2008 credit crisis. They should have been praying for the developers to complete and increase supply…but of course bears do not know what they are doing.
And while rents may drop a bit if supply ever increases, a drop in rents will not be enough to put those homeowners dependent on mortgage helping units to become underwater. Big deal, your basement suite drops from 700 a month to 550. That will likely not spell the end of homeowners…
For anybody that has missed it, here is the official announcement on the CMHC changes: http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2010/03/official-announcement-on-qualifying-rate.html
In essence, if you are trying to get a variable rate mortgage, or a fixed term of less than five years, you will be qualified on the benchmark rates, or the non-discounted rate of the big 5 / BoC. If you are trying to obtain a 5 year fixed term, you can get qualified on the discounted 5 year fixed rates. So I suppose this really is an effort to force folks into a 5 year fixed term.
Doubt this will affect home prices much here in Calgary. Perhaps in more bubblelicious areas that might be different.
Got this today: “Garth Turner in Calgary: Sold Out”
wow, will have to get there early for a good seat
And please, don’t give in to the stereotype, riding in on the bike will be fine
#34 GTA Realtor
Agree with your talking points. If you are a realtor you seem eminently more sensible than most I have met. Disagree with Garth on inflation being the problem. If it was, long term Treasury rates would be waaaay higher by now. Sorry but that hissing sound is air still going out of the equity/commodity balloon.
The only thing keeping the Canadian economy afloat and the Loonie elevated are the purveyors of mortgage debt delusion. There has yet to be an example of a country successfully borrowing its way to prosperity so I doubt Canada will prove an exception to the rule. Oh and when housing goes the last thing you will have to worry about is higher interest rates.
#45 Jonathan
Love your caution about trading bonds for equities. Criminy the whole world has been in a torrid love affair with equities for the better part of the last 30 years. Interestingly, US households are putting more money in Treasuries now although they still have a long way to go to equal or exceed their current equity holdings, even after the pasting many of them took in the last couple of years. Assets never top when they are universally despised such as are Treasuries. My take: The reports of the death of the Treasury Bond market have been greatly exaggerated.
#56 Whiffinpoof
Stick to your guns man. You don’t need any help but you could probably charge to dispense some of your wisdom.
#87 Marc
Nice comment. I get the distinct feeling that very few folks pay attention to history. If they did they would see this “rally” in everything except common sense closely resembles various “rallys” in the Nikkei index over the last twenty years. Manias do not die easily. When this one is over, equities will be eschewed by an entire generation and, if I am still alive by that time, I will be buying dividend paying stocks and forgetting about them. This however is a traders market and is going to chew through a lot of wealth, long and short, over the next few years. The guy who stays the course in cash or cash equivalents will probably end up looking like a hero because this is a strategy that seems to be universally derided by all the “experts” and deflation deniers.
Junius,
You mentioned spiritual bankruptcy in today’s society. If you get a moment, check out Karen Armstrong’s “A Short History of Myth.” She takes a detailed look at this very phenomenon.
Burnt Norton,
Thanks for the insights. Always nice to hear from a former lurker turned poster. Sounds like we have similar fathers. As a med student, I feel like I am also headed down a pretty secure career path. That being said, I fully expect to see some serious cutbacks aimed my way as well. How could there not be? We are in unchartered territory. It is going to be a different world when all of the dust settles. Good luck man!
#80 Gary
“I know an estate lawyer is probably the first visit but approaching them first is just a huge issue.”
Yes mention it to MIL, so you can get a big slap in da face! What a dilemma, son & daughter get 2 paid 4 homes and thereafter mil retires in a paid off home with little or nil savings. Geez whiz Gary, throw the mil a few bones instead of the bank you rather marry. Basically butt out and kiss that blessed mil azz or better yet just do it yourself, you can do it. Jus MHO.
In keeping with Burnt Norton’s comments, what do people consider to be recession proof jobs? Does anyone have a top 10 list? Maybe a top 5?
I think divorce and bankruptcy law would be a pretty good field to be in. Any other ideas?
What about least recession proof jobs?
#26 goldenfox — Agreed. This is dubya’s never-ending term continuing ad infinitum — just a change of face, that’s all.
The elite are telling Obama what and when to do things. As such, he has increased the wars and violence thrives in the globe.
People got what they voted for, but it is interesting to note that in parts of the US, there are some billboards up with dubya’s picture on, and the caption “Miss Me Yet?”
Apparently some folks became so enraged by that billboard they started shooting at them. The simple fact is it doesn’t matter about right- or left-wing anymore. What will make the end result very bloody and messy is that Crusades #? is well underway now.
#33 Canned Goods and Buckshot — “This blog is like that.”
It’s a voluptuously sexual thing which cannot be explained. Trust me. I haven’t got the foggiest idea of what I’m yapping on about anymore!
#92 Burnt Norton — ” . . . (3) prioritize time spent with family and friends.”
Good post and #3 is important. We’ve had family, friends, co-workers etc. turn ill one day and suddenly, they’ve passed across to the inner plances (other worlds).
Look after the pennies, the pounds will take care of themselves.
#104 Stupid Bears — “. . . all those retires would rather die in their homes than give them up.”
If the opportunity presented itself to sell our home at an average price, I would do so in a heartbeat. As Garth has said, the age of the house and GIC are dead.
Invest the net amount in long-term Cdn. equity mutuals, bank preferreds for a monthly income and live well within one’s means.
Strangely enough, it can be done.
——
ChiMerica Don’t forget ChIndia. 5:27 clip.
Somewhat surprised goldbugs haven’t been chatting here about it; seems gold is having a tantrum of sorts. Then again, Soros and other members of the elite are buying it. Something’s up.
Got to Love the US Education Industry
http://fdlaction.firedoglake.com/2010/03/11/112-billion-student-loan-industry-bailout-a-lesson-in-corporate-welfare/
#104 SB,
You sound surprisingly familiar. All been said and refuted before. Yawn.
While there are deflationary tendencies, and while we are in the midst of an inflation-deflation war, deflation is definitely not winning. Inflation has risen from nothing to 2%, oil from $35 to $80, gold from $900 to $1100 and houses soared 19% in 12 months. Coming rate hikes, energy increases and tax changes will augment this trend (despite the housing bubble’s inevitable demise). Around the world money is going into commodities, which are far off peak prices in many respects, and will benefit from an 8% rise in GDP in Asia. Meanwhile governments have increased the money supply and will continue to do so. All this is inflationary, so in the short term investors should react accordingly and those staying in case will lose some value. However, as I detailed in my recent book, there are serious long-term deflationary pressures (like demographics) which will dampen economic growth and crash some prices. This blog is intended to be a daily map on this perilous journey. — Garth
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yeah, but, these price rises in oil from $30 to $80, copper from peanuts to $3 bucks and change, don’t signify inflation, these are just correcting prices for the party that led up to the crash in 2008. Everything overshot to the downside after the credit mania. As Jim Rogers has stated, Europe and the U.S are 10 times the economy of China, so, Chinese spending isn’t going to bring inflation if the western world is in the gutter.
Re: #89 Hoon, #99 Junius, #100 Increasing that 1%
Thanks for the advice, guys. I’ll take it all into consideration
Re: #98 Nostradamus Jr.
Ignorance is bliss, right?
Re: #104,#105 Stupid Bears
Why don’t you ask a suffering senior if he’d rather have comfortable, personal care or debilitating bricks&mortar.
Doesn’t matter how many basement dwellers there are in a city. If they can’t get a mortgage they won’t be buying anything. Watch as credit tightens and taxes rise.
105 Stupid Bears on 03.11.10 at 5:09 pm
Even with the current anemic immigration and net migration rates, our market has been remarkably strong. It would be one thing if our market was inflated because of a massive number of people coming here, but that is not the case. We are pretty much in a “worst case scenario” with immigration/migration rates, and a doubling of unemployment within a year. Things can really only improve, unless of course you are praying for a double dip recession (which I am sure most bears believe will happen).
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Wow–there’s some pretty sharp posters on this site–
And then there’s some–
That really have no clue-about economics–none–
Garth” And as for your company, do you work for Lovecraft?”
No, it is another company, one of the famous, biggest retailers in Canada( Toronto) with stores across Canada.
Well, spit it out. — Garth
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Marina, do you work for Zellers but in the C.I.A division? What the heck. You’re talking about the biggest retailor, yet you’re paranoid to mention the name. Maybe you “work” out of a white room in a hospital?
#105 met a bear.
The bear was bulgy
The bulge was #105.
Many who follow this blog would appreciate it if you’d supply the street addresses of your properties so they can enjoy slathering in advance.
Nuts. I meant #107
#104 SB, love your work…and those just like you!
No harm in letting the Bear rest a little longer until Boomers emotional and paper imbalances implode.
This blog will outlast you and all of those like you.
and Onemorething…those not sold yet, you will never time the turn in RE during the GREAT GLOBAL RESET!
Liquidity = Opportunity
for the rest of you
Liquidity = Survival
#119 Jr.,
Sounds like Andrew (my wife left me) doesn’t it. Enough to send this bear back into hibernation.
I am ready to change my name to “Searching for an intelligent bull”.
119 Junior
What insights! What commentary! Way to add value with your superior economic knowledge to what is a reasonable comment from a bull…
Oh, the young’ins always think they know everything…
#104 Reasonfirst
but I would chararacterize “peoples sentiment” as an extremely risky asset that can melt away to nothing (along with a lot of other “real” assets) and then where are we?
So we should just sit around and do nothing? That would have guaranteed the even Greater Depression II or the new era of Mad Max. People don’t realize how close the World economic systems came to the edge of the Abyss. Doing nothing would have surely pushed it over into the Abyss. It wouldn’t be pretty.
Garth’s saying if you’ve got debt – get rid of it. Don’t lock it into RE. If you’ve got cash make use of a TFSA.
Don’t follow the herd and don’t swallow the media speil.
I have read through the entire list of comments on this blog page today. One major theme emerges, complete divergence on what is happening or will happen. This is the same as all the talking heads on BNN or in Globe and Mail or Bloomberg or whatever. All different ideas of what will happen based on what school of economics or charting you follow. I would surmise overall, not one of you know really what is actually going to happen, because if you did and knew exactly what to do, then you would be very very wealthly, and might pitch Carlos Heliu Slim off the Forbes rich list as #1.
Long Bond yields falling–
There’s been a few here-that have been saying this for quite awhile–
There have been many more–saying up–and anyone who says down–doesn’t understand the market–
One sale does not make a trend–but–
Every journey–begins with one step–
“The 30-year bond yield fell 2 basis points, 0.02 percentage point, to 4.67 percent at 1:54 p.m. in New York, according to data compiled by Bloomberg. The yield had climbed as high as 4.72 percent prior to the auction. The 4.625 percent security due February 2040 rose 10/32, or $3.13 per $1,000 face amount, to 99 8/32.”
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aMEm6wcA8PPo
#113 Jake
What about least recession proof jobs?
One of them is a Pharmacist. (5yrs of post secondary school required) There is a shortage everywhere, both hospitals and private sector. The Drug industry is huge and will only increase with an aging population.
What will the CMHC mortgage changes do to the Canadian real estate market? Less people will qualify!
“The head of the Federal Housing Administration is warning that boosting the minimum down payment borrowers must provide to qualify for home loans backed by the agency could threaten the housing market.”
“FHA commissioner David Stevens said at a House hearing Thursday that his agency would insure 300,000 fewer loans per year if the mandatory down payment was hiked from the current level of 3.5 percent to 5 percent. That’s a 40 percent drop.”
http://finance.yahoo.com/news/Govt-official-warns-on-home-apf-59447291.html?x=0&.v=10
#94 Burnt Norton
I am glad I scrolled through this blog’s comments today as I really enjoyed reading your post! I agree wholeheartedly with your thoughts concerning fortune and success…sometimes the most successful engage in a bit of personally flattering autobiographical revisionism, yes? During arguments with the ‘big swinging d#%ks’ of the world, I usually point out the same things…being born in the right place at the right time constitutes a significant portion of the reasons one ends up being successful or not successful (by this blog’s standards anyhow).
You should post more!
Ellen Brown, Web of Debt, 2010
Economic Fearmongering
“What invariably kills any discussion of this sensible solution is another myth long perpetrated by the financial elite — that allowing the government to increase the money supply would lead to hyperinflation. Rather than exercising its sovereign right to create the liquidity the nation needs, the government is told that it must borrow. Borrow from whom? From the bankers, of course. And where do bankers get the money they lend? They create it on their books, just as the government would have done. The difference is that when bankers create it, it comes with a hefty fee attached in the form of interest.
Meanwhile, the Federal Reserve has been trying to increase the money supply; and rather than producing hyperinflation, we continue to suffer from deflation. Frantically pushing money at the banks has not gotten money into the real economy. Rather than lending it to businesses and individuals, the larger banks have been speculating with it or buying up smaller banks, land, farms, and productive capacity, while the credit freeze continues on Main Street. Only the government can reverse this vicious syndrome, by spending money directly on projects that will create jobs, provide services, and stimulate productivity. Increasing the money supply is not inflationary if the money is used to increase goods and services. Inflation results when “demand” (money) exceeds “supply” (goods and services). When supply and demand increase together, prices remain stable.
The notion that the federal debt is too large to be repaid and that we are imposing that monster burden on our grandchildren is another red herring. The federal debt has not been paid off since the days of Andrew Jackson, and it does not need to be paid off. It is just rolled over from year to year, providing the “full faith and credit” that alone backs the money supply of the nation. The only real danger posed by a growing federal debt is an exponentially growing interest burden; but so far, that danger has not materialized either. Interest on the federal debt has actually gone down since 2006 — from $406 billion to $383 billion — because interest rates have been lowered by the Fed to very low levels.
They can’t be lowered much further, however, so the interest burden will increase if the federal debt continues to grow. But there is a solution to that too. The government can just mandate that the Federal Reserve buy the government’s debt, and that the Fed not sell the bonds to private lenders. The Federal Reserve states on its website that it rebates its profits to the government after deducting its costs, making the money nearly interest-free.
All the fear-mongering about the economy collapsing when the Chinese and other investors stop buying our debt is yet another red herring. The Fed can buy the debt itself – as it has been stealthily doing. That is actually a better alternative than selling the debt to foreigners, since it means we really will owe the debt only to ourselves, as Roosevelt was assured by his advisors when he agreed to the deficit approach in the 1930s; and this debt-turned-into-dollars will be nearly interest-free.”
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#136 jr. from yesturday… thks for the song. Just for that, you can call me The Dude…. I agree inflation can’t occur with deflation, like putting a humidifier and dehumidifier in a room and letting them fight it out. But with the Euro , the Pound and the U.S dollar there is one more factor that can cause inflation. That is a loss of confidence in paper money, which could have instant and salient ramifications for all fiat money worldwide.
Post #61 Jen How much construction experience do you two have? Unless you are doing a lot of it yourself or have some friends helping you out 30% savings seems optimistic to me. But…. I don’t know your circumstances etc.
So I hope that you have the experience. Just concerned. Let us know.
#125 King of Queens on 03.11.10 at 7:04 pm
119 Junior
What insights! What commentary! Way to add value with your superior economic knowledge to what is a reasonable comment from a bull…
Oh, the young’ins always think they know everything…
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So your saying that incoherent drivel-made perfect economic sense to you?
lol
Just a bit of a global reminder to those who “think” we’ve “turned the corner”
This is where we are all headed-as a world economy-
http://3.bp.blogspot.com/_ngczZkrw340/S5iXK1w1J5I/AAAAAAAAQew/ex2s6_CTZ6Y/s1600-h/german+exports.png
Garth Wrote:
Got your party hat on? It’s anniversary time.
Ten years ago today we were at the zenith of the dot-com age. Nortel ruled. Pimply-faced kids with no business plan and a cool domain name were making millions in IPOs. The Nasdaq crested at 5,048, profits were without limit, buyers could not get enough and it was ‘different this time’.
I recall your book “New Rules for a New Age” basically said “it is different this time” during the dot com era. Correct me if I am wrong?
You’re wrong. — Garth
34 The BigLebowski on 03.11.10 at 8:09 pm
#136 jr. from yesturday…
That is a loss of confidence in paper money, which could have instant and salient ramifications for all fiat money worldwide.
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Hey dude–
For sure–That’s always the-hidden snake–
I think–at least in the foreseeable future because–of deflation–decreasing money in circulation–people start to strengthen their perception,that because of its sudden scarcity-in the economy–it does have an increasing value–which is all it needs–to be money–
But your right–when faith is lost–its over–
http://www.youtube.com/watch?v=1EBw_da7BZk
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#124 junius on 03.11.10 at 7:03 pm
#119 Jr.,
Sounds like Andrew (my wife left me) doesn’t it. Enough to send this bear back into hibernation.
I am ready to change my name to “Searching for an intelligent bull”.
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Junius–Your right–
I read a link yesterday–can’t remember where–
That pointed to government shills-being planted on economic blogs-to strengthen–the bull–bullshit–
Andrew/Sam/stupid bears-whoever he/she is –today–
fits that mode–
Just as the USSR broke up into smaller republics around 1990, so will the US eventually break up. Supposed to happen anytime from 2010 on, the article below the map details reasons.
The following is another way to look at it — California
The link I put in Nutbars tells of how two such ‘quake-producing machines are located in Alaska. The map in the above link says Alaska is going to return to Russia, but Russia has built two nuke power plants for Iran.
As Iraq and Iran have never had any WMD (Israel does), what will the US gain from ‘quaking Iran (other than destroying another country)? Bear in mind that China has developed several businesses there, and they will never give that oil up.
That leaves only one country who is hiding behind someone else’s cloak. It is not difficult to figure out who. Meanwhile, the downfall of The American Empire continues . . .
The US social security system is leaving sooner than expected, so where are CPP / OAS / GIS now?
Hawaii not so good.
These are excellent clips which lead to what is already known.
Italy is in worse shape than Greece.
Another Bre-X in the making. Neil Young has a song “Rust Never Sleeps”. Evidently, greed neither.
Chinese inflation.
Now this is great surfing!
‘Net freedom is going the way of the dodo bird.
I have read through the entire list of comments on this blog page today. One major theme emerges, complete divergence on what is happening or will happen. This is the same as all the talking heads on BNN or in Globe and Mail or Bloomberg or whatever. All different ideas of what will happen based on what school of economics or charting you follow. I would surmise overall, not one of you know really what is actually going to happen, because if you did and knew exactly what to do, then you would be very very wealthly, and might pitch Carlos Heliu Slim off the Forbes rich list as #1.
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typical response expected by a person who has an inferior complex. Encountered so many of these in my life. Felt like they can’t do anything meaningful to put themself ahead, and so makes sure to let everyone know that they are just as dumb as him. What a wonderful attitude. Chalk everyone up as morons and then you’re just as smart as everyone. I guess this gives someone comfort in a life unfufilled.
Also enjoyed your talk at Chapters last night although I was disappointed Starbucks was under renovation. Sad to see only 100 people attending out of 500,000 in Waterloo Region. Keep up the good work!
“As I’ve tried to point out here, the economy is hopped up on government meth and will be coming down over the next few months. There can be no meaningful recovery without new jobs being created.”———-How very true Garth…anyone who thinks otherwise is living in a dream world,every day we move a little closer to the edge of the cliff. I think we are in for a hell of a ride …… what in the world can save us?
Rural blockwatch: Officer, I’d like to report a crime.
The house across the street from my rental sold yesterday. I have a weakness for old houses and have renovated a couple in my time. But this place has only stimulated me to keep the curtain closed on that side.
RE death rays have, in fact, struck our little village. The mid- and top-range properties (yes, there are radioactive granite countertops EVERYWHERE in North America. I postulate a theory that these countertops are spreading the RE death rays, causing Canadians to self-destruct by rushing out to buy a house, any house, before it’s too late) are continuing to languish on the market. The nice properties are reasonably priced by city standards, in the $130,000 to $400,000 range, and the owners are willing to sell for less.
The latest listings (and there continues to be an accelerating amount), are ancient crap houses begging for mercy killings. Further, these crap houses are being listed at wildly inflated prices.
To give you the full picture: These are houses with Red Green plumbing, sagging floors (no basement) and/or built on concrete pads above the frostline. Most have old wiring and all have flooding problems–this is the kingdom of the sump pump. The house that just sold, in fact, has three feet of water in its basement and incredible mold. Ducks Unlimited could use it for fundraisers.
These wretched places, along with 1970s-era mobile homes, are SELLING STEADILY. To me, this demonstrates we really are further along the path than the metro centres. People here, who can’t afford much, are already down to buying only what they can afford (and largely still getting ripped off in the process).
The only thing currently holding the local economy together is a ball game between a small local mill and the two levels of government. For two years, the B.C. govt has stepped up to the plate, just before the laid-off workers’ EI benefits run out. They grant monies to the mill owners so they can open the mills (a second mill jumped on the gravy train in the past few months) and rehire the workers. The workers are employed just long enough for them to re-qualify for EI benefits. The ball is then passed back to the federal government which resupplies EI to the workers.
This is the antithesis of a free market economy. It plays deliberate havoc with employment stats, too. I have no doubt that similar ball games are underway across the country. Don’t believe the govt. job figures fed to the see-no-evil hear-no-evil speak-no-evil media.
The local situation provides an opportunity for me, at least. I’ve been dithering over listing my own (inexpensive and paid-for, but not crap) house. Yesterday’s sale was provoking and then today, when an even worse house went up for sale at an outrageous price, I hit the wall. NOW I’m listing.
It’s been decades since I fooled around with stocks and such, but there’s excellent advice out there. Not the least of which is coming from Garth and others on this blog (she said graciously).
I’d rather be a dragon sitting on a pile of gold than living in a ditch a few years hence.
#77 45north (#17 Chaostrology)
100% correct.
Its the 3 D’s, death, divorce and debt(unemployed).
These factors, especially in a stagnate RE market will do exactly what you say to prices.
I think we’ve all covered the near future of debt/employment as well as how top heavy we are(and becoming) on blue hairs…
#139 NLMV
Wonder what other tools besides slashing stimulus the Chinese might have in their belt?
What Tao Wang said…
Thanks for the post.
#142 john m on 03.11.10 at 9:49 pm
“As I’ve tried to point out here, the economy is hopped up on government meth and will be coming down over the next few months. There can be no meaningful recovery without new jobs being created.”———-How very true Garth…anyone who thinks otherwise is living in a dream world,every day we move a little closer to the edge of the cliff. I think we are in for a hell of a ride …… what in the world can save us?
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The free market would save us–if it was allowed to to function-without government manipulation–
Had it been allowed to price/bankrupt the banks–when this thing blew up-
We would have been on bottom very fast and likely starting a “real” sort of recovery-
There would be dead bodies floating everywhere–
This is what’s supposed to happen–
People/Corporations are supposed to fail-when they take risks and are wrong–
They are supposed to win–when they’re right–
We have our governments interfering in this process–
They think–
If they make TBTF banks and Corps/GM etc whole–with taxpayer money–they can stop this from happening–
They’re wrong–The market will “put” us-where it wants us–it will only take it longer-to do it–
The bankers/GS–will win as well–they always do–
Garth:
Excellent post on the subject of the Thunder-of the bulls or most probably the bears! , It seems that many Canadians have forgotten the events that happened between September 15-2008 and March 2009. Some of the reasons for the Global Financial Crisis (GFC) are below:
Some interesting facts to ponder:
1971-President Richard M Nixon closes the gold window. Why, because during the Vietnam War his predecessors allows banks like Citycorp to offer CD with higher interest rates to attract hot money from foreign governments, criminal enterprises and investors from around the world. The US in turn was able to pay for the war, allow a mini economic boom during the 60’s and finance the Great Society programs. Just before the end of the Vietnam War, France wanted its money paid back in gold and the US could not /refuse to pay it. When the gold window was closed the US dollar suffered 30% devaluation.
1974-The Commodity Future Trading Commission (CFTC) was considering the regulation of Existing non-exchange traded financial “commodity” derivatives markets (mostly “interbank” markets) in foreign currencies, government securities, and other specified instruments were excluded from the CEA through the “Treasury Amendment”, to the extent transactions in such markets remained off a “board of trade.” The expanded CEA, however, did not generally exclude financial derivatives (Wikipedia, 2010)
Not all derivative contracts are “future delivery” contracts. The CEA always excluded “forward delivery” contracts under which, for example, a farmer might set today the price at which the farmer would deliver to a grain elevator or other buyer a certain number of bushels of wheat to be harvested next summer. By the early 1980s a market in interest rate and currency “swaps” had emerged in which banks and their customers would typically agree to exchange interest or currency amounts based on one party paying a fixed interest rate amount (or an amount in a specified currency) and the other paying a floating interest rate amount (or an amount in a different currency). These transactions were similar to “forward delivery” contracts under which “commercial users” of a commodity contracted for future deliveries of that commodity at an agreed upon price.
Based on the similarities between swaps and “forward delivery” contracts, the swap market grew rapidly in the United States during the 1980s. Nevertheless, as a 2006 Congressional Research Service report explained in describing the status of OTC derivatives in the 1980s: “if a court had ruled that a swap was in fact an illegal, off-exchange futures contract, trillions of dollars in outstanding swaps could have been invalidated. This might have caused chaos in financial markets, as swaps users would suddenly be exposed to the risks they had used derivatives to avoid (Wikipedia, 2010)
1980-President Ronald Wilson Reagan is elected. OMB Director David Stockman implements “Reaganomics” program
1987-US government incurs a $2.1 trillion debt due to huge tax reductions in 1981 budget, elimination of bracket creep, allowing companies tax advantage with debt as opposed to equities, painful domestic program cuts and a massive $1.7 trillion defense build up. US trade deficit averaged between $500-600 billion/year as manufacturing started to move offshore. The FIRE (Finance, Insurance and Real Estate) sector begins to make up a significant portion of US GDP.
Did you know that in 1993 the OTC derivative market stood at an astonishing $27 trillion dollars and no one paid any attention to it?
Brooksley Born (a securities lawyer) attempts to regulate the OTC derivative market as CFTC chair in the Clinton Administration in 1994 with no success. FRB Chairman Allan Greenspan, Treasury Secretaries Larry Summers and Robert Rubin block her at every turn forcing her to resign in mid 1999. Her story was shown in a PBS Frontline video documentary called “The Warning”.
In 1998 the investment banking firm Long Term Capital Market (LTCM) lost money when Russia defaults on its loans. Although it made money using a Black-Scholes mathematical model that locked in differences in currency spreads, it could not predict systemic risk and the resulting panic that forced investors to sell stocks and bonds. The model predicted stability when the market said sell during a panic resulting in a $1 trillion dollar loss. The FRB of NY and a number of banks covered the shortfall to prevent a worldwide market meltdown.
Did you know that the OTC derivative market stood at $85 trillion in 2003 and no one paid any attention to it?
Did you know that Jamie Diamond CEO of JP Morgan/Chase Manhattan Bank and reported to be the next US Treasury Secretary when President Obama sacrifices Timothy Geitner, fire bombed( started rumors, pushed stocks lower, credit downgraded and destroyed investor confidence) Bear Sterns to prevent its $88 Trillion of derivatives from imploding in March 2008?
Did you know that the OTC derivative market stood at $700 trillion with the credit default swap estimated at $62 trillion by the Bank of International Settlements (BIS) in September 2008? And the total number of all derivatives was $1.1 quadrillion? At this point the government, media and investors started paying attention to it. If it imploded it could cause Great Depression 2.0.
What is interesting is that many people did not realize that the Lehman Brothers bankruptcy was a $1 trillion default which triggered huge CDS claims resulting in a number of Asian banks losing hundreds of millions of dollars. On the next day September 16, AIG (the world’s largest insurer) created a division that sold $3-4 trillion of derivatives and $400 billion of Credit Default Swaps out of their London England office and could not cover the losses. US Treasury Secretary Hank Polson and Federal Reserve Board Chairman Ben Bernanke authorized a bailout package of at least $80 billion. At the time of this writing it has already borrowed $167 billion. The $1.7 trillion commercial paper market froze at the same time preventing business access to badly needed credit-See Part 2
#133 jess on 03.11.10 at 7:59 pm
Only the government can reverse this vicious syndrome, by spending money directly on projects that will create jobs, provide services, and stimulate productivity. Increasing the money supply is not inflationary if the money is used to increase goods and services. Inflation results when “demand” (money) exceeds “supply” (goods and services). When supply and demand increase together, prices remain stable.
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This can’t work-except a bit-in the short term–imo–
Government cannot “create wealth” by printing money and having us fill potholes–
We need an economic engine–something–that we have to build and manufacture things for–
Like the automobile or airplane industry–
Maybe green technology with nuclear would be a good one–war would be better–in terms of constant demand-
I think her mistake-is thinking deficits don’t matter–
We cannot ignore the debt–
Sure governments can roll it over–for now–but–
at this point–government debt–isn’t the problem–
The immediate problem is public debt and high and growing unemployment–
Governments only survive via their taxing–
How do they raise money–with declining tax revenue?
If it was so simple–wouldn’t we just-print–give everyone a shovel and a paycheck and everything would be good again?
Money is only money–
Wealth is another matter–that is when you build/sell,grow and trade that–for something else–that both party’s “believe” is a fair trade value–
Yes the Fed can buy the debt and keep treasury demand up–but-that too can only carry on for so long–
Actually longer then we think–but–there is a wall at the end of that road too–
We need to default and get this debt wiped out–then print money-to recapitalize/make depositors whole–
When you print against debt–you lose–
if there was “no debt”–then–new money would have some zing to it–but–the way we’re doing it–is crazy–
I think Helen thinks–that we can reflate this zombie economy–by printing and paying people to lean on shovels–
The USSR tried that game–
“We pretend to work and they pretend to pay us”
One of them is a Pharmacist. (5yrs of post secondary school required) There is a shortage everywhere, both hospitals and private sector. The Drug industry is huge and will only increase with an aging population.
A massive new supply of pharmacists is in the pipeline (in the 90s, it wasn’t uncommon to see the Pharmacy schools running at 30% of capacity, now they’re opening up new Pharmacy programs, and only accepting students who legitimately will make a career out of pharmacy, as opposed to using Pharmacy as a pre-med program). And generic drugs have severely reduced the overall profitability of the industry.
Walk into a typical drugstore, and 80% of what’s behind the shelves is generic, 20% is proprietary. When I was growing up in the 80s and working in my father’s pharmacy, it was the other way around; only 20% generic, 80% proprietary. Prescription volume has gone up (doubled), but the per prescription price has been in freefall for at least the past decade, with plenty of pressure from government to reduce costs even further.
#141 Jeff – Sad to see only 100 people attending out of 500,000 in Waterloo Region…
You must be kidding! Where on earth would Chapters have put any more than the 100 who turned up there last Wednesday night? There wasn’t enough chairs for those who did come and no space to put more anyway. Altogether, an unsatisfactory venue for such a popular author and speaker though I did enjoy the intimacy such a small group afforded. Having seen Garth at a larger setting (last year in Listowel) it was great to be able to easily hear the questions of others.
I’m with you about Chapters…I had been counting on at least a coffee since I arrived at 5:45 to assure myself of a seat.
#144 – Sorry, should have said “with you on Starbucks” … attribute to too little sleep and still no coffee.
#133. Interest rates have been kept artificially low in several ways. First, the Working Group On Financial Markets created in 1988 by Ronald Reagan. It was established to stabilize markets in the event of unforeseen turmoil and volatility. Since then via the Fed, it has been used and abused 24/7 to suppress the gold price and manipulated stock and currency markets worldwide. Gold is like the canary in the coal mine, a rising gold price signals inflation and pressures interest rates higher via the markets. The Fed secretly monitizing T-Bills under the title “Household” in 2009 is insane. First who believes mom and pop bought 80% of U.S 30 year T-Bill garbage in 2009? Well that what they claim happened un the heading of household. In other words 80% of U.S long term debt is being bought by the Fed because everyone else has figured out they will never be paid back. This is a path that is going to lead to default and a currency devaluation and the markets will force much higher rates on the debt cause the U.S to file for bankruptcy at the city,state, and /Federal levels. Just follow the U.S bond auction calendar. Everytime their is an auction gold is pounded down$20-$40 by the U.S Gov via the bullion banks and the dollar is propped up. This helps flog off their worthless debt to investors at a better price. The next day gold goes back up and the dollar goes down. This is what is happening in the real world. The catch is, Central banks have runout of gold to sell into the market and are now net buyers for the first time in ten years. Interest rates are going higher based on the simple fact that the Fed can no longer hold down the gold price so in turn debt intruments are about to get reamed. The Canary is about to scream foul !
RE: “Stupid bears”? If bears are stupid, bulls are insane, and that’s far worse. Stupid can be fixed.
#12 jay,
My life mirrors yours – two kids, 2005, all of it. Except that my wife has never pressured us to buy a house. What a relief. I’m sorry you’re in this position.
Fortunately, there are many signs as discussed on this blog and elsewhere that the Vancouver market has lost its momentum and will start running downhill (quickly) later this year. Once your wife sees the news stories about the undoing of the Vancouver property market, she’ll thank you for holding back all these years.
Gary,
Mil, Mother,Father, FIL.. whatever… if they needed me in their retirement…I would be there to help them and I wouldn’t care if they had two nickels to rub together.