When I started this blog 28 months ago, oil was $110 a barrel, inflation was 4%, five-year mortgages were 7%, people slept on Toronto sidewalks to buy condos and the Canadian real estate market was booming as never before. So I sub-titled this site, “the troubled future of real estate.”
Among the comments that greeted my work was this from UBC economist Tsur Somerville: “I think you will have a very tough time finding any economists who agree with Turner on this.”
Six months later, the wheels came off the economy. The housing market staggered and fell, only to be revived in Canada by emergency mortgage rates as low as 1.2%. But the reprieve was temporary. Now the trouble picks up from where it left off.
My conviction is that, before long, far more Canadians will arrive at a conclusion Americans reluctantly formed two years ago: real estate’s a wealth trap. Those who have the bulk of their net worth in it will suffer substantial losses. Mortgage debt will prove to be a massive economic drag. And we’ll witness asset deflation at the same time as the cost of living rises.
The good news is you still have time to escape this mess.
The first step is to reduce your real estate exposure. If a house constitutes more than 40% of your net worth at age 40, you’re at serious risk. If it’s more than 30% at age 50, ditto. If you’re not mortgage-free at sixty, I have a village that needs an idiot.
Second, get more and more of your wealth into financial assets. In a deflating world, the value of money rises as asset prices decline. Simply put, your cash will buy more land, more car and more hi-def TV three years from now than today. So, whatever you learned in the Eighties, do the opposite.
Third, even if it takes all the money you have, trash debt. Inflation makes loans and mortgages easier to pay since wages and salaries climb. Today more people get income cuts than increases, and deflation means debt grows larger and more difficult to service. Remember what is now killing off the US middle class – negative equity. House values fall. Mortgage debt does not. Coming to a hood near you.
Fourth, don’t hold mutual funds because in a low-yield world high management fees will suck the juices out. Don’t buy individual stocks, unless you have a couple of million dollars and horseshoes coming out your rear. This is no market for amateurs. If you do decide to DIY invest, use low-cost sector ETFs. If you don’t know what that means, get help. And not from your brother-in-law.
Fifth, understand what demographics are about to do. Almost 80 million diseased, wheezing old Boomer farts like me are about to dump more real estate, raise cash, then look for someplace safe to stash it. This is one reason you want investment grade bonds and near-bond investments like preferreds (neither of which you get at the bank or in the Dutch guy’s shorts). As the debt-drenched world deleverages, deflation will goose bond prices and depress yields even as central banks jump short-term rates. In fact, in 2010 to date, more money has been made in the bond market than in stocks. Or houses.
The best defence against what comes next is the balanced portfolio I detailed in my recent book, and have been telling you about here. The coming months and years will bring real estate shock, equity market pandemonium (and opportunity), an unstable economy and a massive rush into liquidity and security.
Don’t believe me?
Wait.
172 comments ↓
Good advice Garth, I am now convinced real estate is doomed. I don’t know about holding anything but cash and keeping with the nice dutch man on TV.
“I think you will have a very tough time finding any economists who agree with Turner on this.”
Hey, I know an octopus that can make better predictions than any economist. Yes, Spain did win the cup. An economist: lower life form than an octopus.
Garth, you probably already know that there are very few economists that aren’t charlatans. Have you read the latest gem from the American Fed that explained how “hard” economics is, and that people should stop listening to “amateurs” without eCONomics phds?
“Simply put, your cash will buy more land, more car and more hi-def TV three years from now than today.”
This sounds reasonable, however the price of necessities will continue to rise with the inflation you discuss and financial assets do not provide inflation protection, only deflation protection. If central banks continue their printing orgy, the value of financial assets will fall relative to the value of goods that are needed to keep one alive.
The solution is called ‘investing.’ — Garth
I believe you. Although, I may think it could even be worse than what is often conveyed. In my humble opinion, I feel it is too late to do the right thing as Canadians. Doing all of the steps you outlined (and I agree with each one of them), is probably on the 11th hour for most people.
Blog Dogs…question for you all (Garth feel free to chime in)…girlfriend finally agrees to sell, we list 2 weeks ago, we get offer late last week…now my question is how do I convince her to wait for a year (and ‘rent’, she doesnt like that word) before buying a house?? The regular obvious reasons dont work with her…
Cash is King today
Love the “limecat”
known for fabulous contributions at REtalks.
LOL
DELETED
“The solution is called ‘investing.’ — Garth”
Damn, that means one has to think.
Garth wrote: “If a house constitutes more than 40% of your net worth at age 40, you’re at serious risk.”
So basically if you live in Vancouver or Torona, if you’re not a millionaire by 40 you’re in trouble…
Guess 95 percent of all 40 year olds are in trouble…
Might be slightly less… — Garth
Garth,
Are you now saying NOT to hold common shares(that pay 4 -5% dividends) in defensive companies in a balanced portfolio? You say in your column not to buy individual stocks – seems confusing and in contrast to your advice in your latest book.
Thanks
Gary in Kelowna
I said own them if you have enough money in your portfolio to sustain the volatility that individual stock selection brings. That is 2% of the population. Otherwise, ETF. — Garth
Hi all …found this little tidbit at http://www.penticton-realestate.com/blog/penticton-real-estate/lots-of-listings-to-chose-from/#more-269. It was posted July 2, 2010
“The strongest sector of the market are single family homes priced between $200,000 and $300,000. With current inventory levels to date we have 7 months of inventory!!! …
The next sector being homes priced $300,000 to $400,000 there are 4.5 months of inventory.
$400,000 to $500,000 the inventory levels jump to 14 months supply.
$500,000-$600,000 a scary jump to just over 18 months of inventory.
As we jump in hundreds to the million dollar mark we are seeing a trend of increasing inventory levels.
$600,000-$700,000 shows 19 months of inventory.
$700,000-$800,000 a whopping 33 months of inventory.
$800,000-$900,000 shows 41 months of inventory.
$900,000- a million 47 months of inventory and 1 million to 1.5 million 57 months of inventory.”
I would think this would be a yikes for Penticton RE.
I wasn’t sure you would stick to your guns,but good on you Garth. Enough of Nost Jr and his stupid discourse, back to intelligent discussion. (Well mostly) but thanks.
Garth said:
The first step is to reduce your real estate exposure. If a house constitutes more than 40% of your net worth at age 40, you’re at serious risk.
*************************************
So if the 40 year old has a house with zero equity that is okay? (House constitutes 0% of net worrth.)
To me the better statement is the house should not constitute more than say 60% of assets and it should be at least 40% paid for at that point.
Obviously a 40 year old with a paid for $500k house and no other financial assets is in fine shape compared to his friend with no financial assets and who has the same house and little equity in it. (But according to Garth’s rule the first guy has too much of his net worth in real estate).
But basically I agree with most of what Garth says. Get out of debt and do invest. Seek good of advice for your investing.
You can’t reduce your exposure to real estate by mortgageing your paid for house. Why not? ‘Cause you still own the whole house.
If you have a paid for house, and not much else that’s still great, but now start saving to invest.
Net worth is assets (in your example 0% equity) minus liabilities (a 100% mortgage) = negative. My formula was clear. — Garth
I sold my house in April. The buyer took possession in late June. It wasn’t our original plan but we ended up renting the house back from them. There have been about 5 or 6 house that have sold since April in my subdivision and I’d have to say that house prices here are pretty flat. They are not going up or down. I only had about 35% of my net worth in real estate before I sold but now that portion is sitting in cash. I’m shopping around for financial advisor / investment manager now. I’m planning on a real estate correction over the next year or two.
Now if I could only get my parents to sell their place. They declared bankrupty about 12 years ago. Then a few years later they bought a house up the Fraser Valley. They think it is now worth about $330,000 and still owe about $75,000. They have had it up for sale a few times over the last 2 years but they refuse to drop the price. I think they should drop their price, invest in bonds and preferreds and find a place to rent.
#6 Chincy
Have her read today’s blog.
Show her how the HST will be affecting home owners with their bills- hydro, gas . You can now save this money
Get her involved with investing the money with a financial planner. Create a list of becoming financially independent with this advisor. or…Does she want to work until she is 70?
Remind her that it is not that she will never have her own place again but WHEN. Plus she will be better able to sleep at nights knowing she didn’t pay crazy realestate prices or more realtor fees.
If you both don’t agree on this, consider the big crack it will have in your relationship. Money is one of the main reasons why relationships fail.
Are you worth it?
“get more and more of your wealth into financial assets”
does that mean equities,,, ill assume it means bonds like in your fifth point?
#6 Chincy,
what did u tell her when talking her for selling ? That you will buy a bigger home?
Yes we all have to tolerate the limecat at REtalks Vancouver.
“I by fwee, wife buy fwee”.
“Chinese buy everything. You all become landless serfs”.
And other rubbish. Love the sound of air expelling out of a bubble.
In future years they will teach people about the nature of real estate bubbles and the mania of people when it becomes all consuming.
Just a second comment. What is it with women wanting to “own” real estate, and patience isnt an option.
Id love some women who see the opposite to give some anecdotal stories about men, who must buy and cant rent.
Hey guys:
See what Sean Penn is doing with his life since 5 months. A whole hour of interview by Amy Goodman.
The era of the granite counter top is about to be a bygone soon. Now, it is about our brothers worldwide.
Don’t miss the turn; check what Sean Penn has moved it…….
http://www.democracynow.org/
This is one reason you want investment grade bonds and near-bond investments like preferreds (neither of which you get at the bank or in the Dutch guy’s shorts). As the debt-drenched world deleverages, deflation will goose bond prices and depress yields even as central banks jump short-term rates. In fact, in 2010 to date, more money has been made in the bond market than in stocks. Or houses.
***************************
Agree with most of it-but also think that Corporate Bonds–might be too pricey hear and also-
MMMF’s are “all in” on equity’s with basically nothing in cash–which means sentiment is extremely high right now-
“If” markets tank and MF investors puke and force selling “again” like they did in Oct/08 and I think there is a high risk of that-Corporates will “likely” sell down as well-like they did–
They “might” escape-but I think they will likely repeat the 08 performance-when panic stricken investors and Hedge Funds–with no hedges-sold everything-
Maybe not as severe this time-but-I think there is a substantial risk of repeating there–
http://www.barchart.com/chart.php?sym=LQD&style=technical&p=WO&d=H&sd=&ed=&size=M&log=0&t=CANDLE&v=1&g=1&evnt=1&late=1&o1=&o2=&o3=&x=54&y=11&indicators=&addindicator=&submitted=1&fpage=&txtDate=#jump
Chincy,
Do what I did and entice her with a larger house on a rental website. Pick some good rentals out before you bring her over to the computer. We are in a great rental house 1700 ft2 at $1600/month in a nice Calgary neighbourhood. Landlords in Calgary get that the vacancy rate is high right now, and will give you perks. We negotiated all new windows and furnace to renew the lease… good luck. I am lucky to be married to a smart woman…
….I am growing doubtful that US equity markets will take much more of a hit. That casino is RIGGED, and no longer follows fundamentals. HFT super computers could send the Dow to unforeseen levels…..because they comprise the only volume left in the marketplace (one just has to look at the record outflows in mutuals and the ramp-up jobs at the end of trading days). So don’t worry about massive unemployment, record debts, deflated real estate because uncle Sam will ensure the Dow hits 15000…..for those who still have money left to gamble. It’s nice ponzi, crooked world we live in.
What the heck are:
investment grade bonds and near-bond investments like preferreds ???
“If a house constitutes more than 40% of your net worth at age 40, you’re at serious risk. If it’s more than 30% at age 50, ditto.”
Following this logic, what would you recommend as the max % for those who are 30-somethings?
50%? 60%?
Or are we young enough to just ride this decade long downturn out?
Two comments to an otherwise flawless posting.
1) You assume that asset deflation will translate into currency & stock deflation as far as I can tell. I hold the opposite to be true – asset deflation will be mitigated by currency inflation as well as stock inflation. The US Fed does not want a deflationary environment on his watch at any cost. Bernanke will, in my opinion, print whatever amount of money is necessary to keep the markets afloat – thus bringing about rampant price inflation in the years to come.
2) The stock market is dwarfed by the bond market, so to say that more money has been made in it is somewhat misleading as that is typically the case. The derivatives market dwarfs them all, including global GDP.
-
Is the ‘limecat’ the same person as “. . . UBC economist Tsur Somerville . . .”?
Don’t hold back, Garth! We can handle the truth! ‘Tho it would be awfully funny if it was.
“. . . before long, far more Canadians will arrive at a conclusion Americans reluctantly formed two years ago . . .” — Reluctantly? Come now, the lingo beeing used is more in line with Dilbert’s pointy-haired boss.
Try Tent City North after winter has been and gone.
Collapse of the Empire (US) sooner than expected? The karmic speed of time is in overdrive now!
The rich are getting high on success. Aaahhh, The Fall Of Rome!
Good description of George Soros.
Remember PIIGS? They’re still around.
Berlin pushing for new bankruptcy / sovereignty EU status.
Don’t ferget Monsanto, our good friends who (like BP, Wal-Mart and Realtors) continually poison us every day!
Great news! Historians have discovered King Arthur’s Round Table. Bad news: Graham Chapman (King Arthur) died in 1989 of lung cancer and chronic alcoholism.
Vacationing in Haiti is out, so is Costa Rica ready for blogdogs?
Ten min. clip Question: Did Blackwater / Halliburton play a role in the GOM?
Economists make weather forecasters look good…
#7 Squidly you are totally bizarre. You post things full of hatred and insults on your blog, then delete them a few hours later. Is it because you sober up and have drunk’s remorse?
Here’s an example of a recent posting which disappeared:
http://webcache.googleusercontent.com/search?q=cache:lif-HR8G5tgJ:albertabubbleblog.blogspot.com/2010/07/bob-trumans-blog-takes-turn-for-worse.html+Seriously+worse,+hes+now+posting+nonsense,+why+would+anyone+do+that,+is+he+desperate+beyond+belief,+has+he+lost+his+mind,&cd=1&hl=en&ct=clnk&gl=ca
#6 Chincy on 07.12.10 at 9:51 pm
Take the money and run…. split it 50/50 if so be it and say to her… you go your way I will go mine… I will rent and you can buy… meet me back at this spot in 2 years and lets see who was right….. nesting feelings with the wrong gal can cost you dearly. best to know when you are young in life….
Garth, have you done a Vulcan mind-meld with David “Rosie” Rosenberg? Whenever I read his “Breakfast with David” I feel like you guys call each other morning to consult…
Garth,
I think this is good advice as far as it goes, but I always wonder if you have thought through what happens when a highly indebted nation goes deflationary. With the exception (so far) of Japan, the usual pattern appears to be first deflation…then inflation (and big-time inflation at that).
Ironically, going to cash might save a folks for a while, but what if they are later wiped out by a high inflation?
I gave this issue a bit of thought earlier this year:
http://marketdepth.typepad.com/marketdepth/2010/06/cut-the-helicopters-cue-plan-b.html
and summarized the Reinhart and Rogoff book, This Time is Different, which is also worth a read:
http://marketdepth.typepad.com/marketdepth/2010/04/this-time-is-different.html
Came across on an article on mortgage aid (remember 18% mortgages folks?) from July 11, 1982 today. Home grants of $3,000 were given out, but only to those who could put 10% of the purchase price down, exclusive of the grant. This was done – wait for it – “to avoid putting people in homes they can’t really afford.” Hmmm. Sounds like a conservative policy to me – oh, but wait for it again – it was a Progressive Conservative policy. Truly no relation to the charlatans running the sham of government in Ottawa they have today.
I am still weary of cash and bonds. These are, in the end of the day, social contracts. We accept paper money as having value for only one reason: because we all agree to accept it as having a certain value. It is not, at the end of the day, final payment for anything but taxes. It is only the promise of final payment that must eventually be exchanged for some good or service. The magic of course is that because of the social contract cash and it’s derivatives including recently appropriately blessed electrons are widely accepted within the country of issue as an intermediate form of payment that can then be exchanged for any desired good or service.
But we live in a time where social contracts have been stretched to the max, and many of them have been initiated by force by the government and would not exist in a free society, or at least not in their present form. The “forced” social contracts will fail first, mostly because many of them are an abomination that can only provide a benefit to one interest group at the expense of other interest groups. But the amount of these forced social contracts is now straining society to the point where no amount of money thrown at the private (banks, auto manufactures, insurance companies, the mortgage market, etc.) and public (deficits, stimulus, war, etc.) markets seems to be enough to make good on all the best laid plans and promises.
Printing money won’t solve anything. It can’t. It doesn’t create anything new, it just reallocates what exists.
The social contracts may begin to break down. No doubt cash will be one of the last to go, so cash and bonds are a good choice right now. But there is a lit fuse attached to that powder keg, and it’s just a matter of how long we’ve got.
Dear Chincy
And the answer is … {drum roll} … get a new girlfriend!
Seriously, don’t let her drag you down into the poorhouse – if she doesn’t wanna “see the light”, let her follow her convictions with HER money, not yours.
Regards
Doctor Munch
Sometimes its simply not possible to follow your advice Garth. My spouse and I thought we’d done everything right, we have no debts, we paid off our mortgage years ago, and we have a small retirement nestegg. Then my hubby lost his job. It took 3 months to find another, during which time we managed to survive on my small paycheque (hubby didn’t get any EI because of his severance, which we managed to save to help pay for our move). Now we’re faced with having to move to a much more expensive location, as well as cover the cost of the move. It took almost 3 months to sell our house, and the money we got for that plus the severance money is still not enough to buy a much smaller house in our new location. So here we are, in our mid to late fifties, having to get a new (albeit small) mortgage. Renting’s not an option because we have pets that are virtual family members, so getting rid of them is unthinkable, and in BC it’s still legal for landlords to refuse to allow pets. By the time we’ve bought our new house, paid all the closing and moving costs, we’re going to have no financial cushion left if the worst hits, but what other choice do we have? My point is that, even though I think most of your advice is good, individual circumstances do not always make it possible to follow it. That doesn’t make people stupid, it just makes them feel like helpless victims of circumstance. Circumstance that is not of our own making.
Chincy…
1st – get a backbone
2nd – take the offer
3rd – buy her something nice or go on a vacation
4th – proceed with Garth’s SECOND step
5th – rent something she will like (you have the advantage as rents are going down)
6th – watch your money grow, your rent decrease, and buying opportunities for RE in next year or so
During rough times folks always seem to unload the things that add up to unnecessary carry costs such as:
cottages, boats, RVs, ATVs, snowmobiles, etc.
I suspect that those things will experience the greatest deflationary pressures. Too bad there isn’t a HBP long defensives (General Mills, P&G, etc)/ short discretionary spending (HD, BBD, Winnebago, etc) ETF. An investment vehicle product like that would probably be in very popular demand these days.
Now I’m confused. And I read the bloody book. This post is saying ETFs, Bonds and preferreds. But before it was commodities…maybe I need to “get help” as you said. Frustrated.
Not sure why you assume 80 million old boomer farts are about to dump real estate. I live in an 1153 square foot bungalow surrounded by boomer parents few of whom have dumped theirs yet. All still kicking at 80+ through the miracle of great big bags of free Ontario meds. You may have to wait 30+ years for the 50 year old boomer to sell theirs. Im not sure how much smaller a place I could downsize to anyway.
Deflation; yes, but I think for everything. Obama is shutting down offshore oil, not for environment, but to limit supply to keep prices up.
Aside; Obama may be reelected. Although the Repulicans will probably win in the fall, the economy will deteriorate so badly that voters will switch back.
As for forclosures the states most affected are rcourse states. No person just walks away. They lose their jobs first, and most homeowners who lose here will go back to their countries to escape our banks.
I am following most of your bullet points in the article. The exception is holding Mutual Funds. My IA has me in several of them, many that hold bonds. He has done well for me in the past. The last year or two hasn’t been great, but not losing more than the indexes. I’m conflicted on what to do.
Hey Garth….great advice!!! Love your posting as always.
We just sold our gold ETF for a reasonable profit and we’re planning to invest our cash in preferred etc. as you outline.
One of the products that we are looking at are guaranteed GICs linked to specific indexes on the TSX…. financials for example. There is no downside since the principle is guaranteed….the upside is capped depending on the sector a person chooses. What is your view of this kind of investment….’old fart’ like you here.
Bad idea. Most of the index-linked GICs give a miserable return and are 100% taxable outside a shelter. If you want to index the market, just buy an ETF. If you want guaranteed investing, buy a bond. Buy both and have a balanced portfolio. — Garth
Colleage in TO dropped his price from $595,000 to $550,000. Got an offer so he moved into his new condo and now the buyer has backed out on his house.
The state of economic forecasting is so bad that in Poland they are telling ‘economist’ jokes.
If you really believe in “deflation” – like Garth – buy Zero Coupon bonds.
I must say however, that the deflationistas have long been spanked hard and buried in 2009 when commodities such as oil increase 135% from the lows.
No Deflation spiral without a hard currency / gold standard. Get it?
Oh and no, bonds are not the best asset class this year, they actually lost value when priced in Gold (yes Precious Metals is the best asset class again this year, as it has been since 2000).
- LargoWinch
iTulip.com
Gold pays no income. Bonds do. And zero coupons are a tax trap. — Garth
Garth = You’re probably right about the boomers and the effect their retirement will have on RE and investment markets.
But the timing of it all can be very hard to predict. for example don’t forget the bulk of the boomer cohort was born in years 57, 58, and 59. Those people will not retire before another 8 to 10 years. Meanwhile they will be in their most productive years with better wages and fewer debt, a great many of them will figure out they need to invest and they will need good returns to make up for lost time. In such conditions who’s to know which segment of the investment market will perform better?
Garth, what’s the difference between management fees on mutual funds and management fees paid to an advisor? Are advisor fees lower?
Advisor fees are (a) usually 50-60% lower and (b) tax-deductible. Plus you get active management, not dozy disdain. — Garth
Pretty good piece posted today in the G&M: Housing isn’t an investment
http://www.theglobeandmail.com/globe-investor/investment-ideas/features/lets-talk-investing/your-home-isnt-an-investment/article1592178/
Looks like limecat gave Nosti the frown of doom.
china just hit the us credit rating.
http://www.zerohedge.com/article/us-stripped-aaa-credit-ratingby-china
this may be a game changer in that eyes may be opened to see the us $ for what it has become.
the attack by us credit rating agencies on europe may be turning to bite the us sooner than anyone thought.
so you’re back on the ‘deflation’ bandwagon. I guess all of us tin foilers had it right from the beginning, which means no significant interest rates increases (though real interest rates are going up), no $100 oil (thank you Jeff Rubin for being the best contrary indicator by a mile!), lower commodities prices in general (Gold is a bubble?! please see article in this weeks’ The Economist), which along this the burst of the property bubble should lead to lower Canadian dollar.
Ladies and gentlement, fasten your belts, we are in for a difficult decade – consume less, invest conservatively
I’ve said consistently we would have asset deflation and price inflation. It’s here. — Garth
Hey Garth,
I’m thinking of investing in the Sunwise Elite Plus Fund. It’s a segregated fund that invests through CI Investments and offers a 5% return every year guaranteed with the Sunwise Insurance rider. You can also guarantee 75% of your principal at contract maturity by purchasing additional insurance guarantee’s. This product sounds like a great way to mitigate risk while be able to invest in the markets. The best part about this fund is your 5% guarantee every year is based on your deposit amounts which resets higher every 3 years when your investments go up. If your investment goes down in value the 5% is based on your initial deposit NOT the decreased value of your investment.
What do you think about this Garth?
Have you checked out the MER? Seg funds aren’t cheap for a reason. — Garth
Garth said:
The first step is to reduce your real estate exposure. If a house constitutes more than 40% of your net worth at age 40, you’re at serious risk.
To which I said: (number 15 above)
So if the 40 year old has a house with zero equity that is okay? (House constitutes 0% of net worrth.)
To which Garth answered:
Net worth is assets (in your example 0% equity) minus liabilities (a 100% mortgage) = negative. My formula was clear. — Garth
**********************************
Garth, here you seem to be saying negative equity in house is bad. Your main saying was don’t have MORE than 40% of your net worth in a house. Our negative equity guy has less than zero% so it passes your formula.
The proper measure I think is something like:
Have assets by age 40. But not all real estate. And make sure you don’t have too much debt.
(Having too much in real estate won’t kill you if there is no debt. It can hurt bad, but you can’t go bankrupt without debt)
It’s like any balance sheet. More assets is good, but not all in one sector like real estate. Too much debt risks bankruptcy.
You need both assets and net worth i those assets.
You confound me. A negative equity house constitutes debt only, which eradicates the value of other personal assets and wipes out net worth. Sounds like you want to play semantics. I don’t. — Garth
#38 Dot
Sorry to sound like a cold hearted bastard, but why would you let your pets cost you your financial security? Do you not have friends or family members who would take them for you? You say the circumstances are not of your making, but in the end you are chosing to buy a house. You are using your emotional attachment to your pets to justify your choice as the only one available when other choices exist, they might not be pleasant, but neither is living out your golden years eating the same food as your pets.
I find it interesting that people cite deflation, yet ignore the fact that gold has been rising since 2000. If you see gold at $1350/oz by the end of 2010 as I suspect, we DO NOT have deflation folks, we have inflation. Gold doesn’t lie.
Gee, what happened to $5K by the end of the year? — Garth
”During rough times folks always seem to unload the things that add up to unnecessary carry costs such as: cottages, boats, RVs, ATVs, snowmobiles, etc.” #40 JCon 07.13.10 at 4:03 am
I would tend to agree with you and suggest it would be those things that are unloaded long before real estate. It is that marketplace which might even be considered a bit of a leading indicator of the general state of the economy. Yet if you look into it there really is no indication this is happening… yet. My question is what is holding it back?
Clearly the economy is ailing despite the SPIN statements to the contrary. On the other hand, clearly it is not quite so desperate a situation as the bears, Blog Dogs, chicken littles and Doomsayers suggest (and I do consider myself closer to that latter crowd than the prior).
Might the truth lie somewhere in the middle?
Hey for each property blowout I can show you one of contrary robustness. There are areas in our city (Kelowna) which have actually experienced price appreciation over the last two years with nary a hint of waning demand. On the other hand there is the condo market here as so many place which in a word “SUCKS”, but that is due largely to the excessive supply levels which resulted from the ponzi “flip” market of the last few years which all came down to “greed” and that market was and still is in need of working toward an equalibrium that is, by virtue of the excess inventory that remains, a long way off.
The economy needs recessions – they cleans it of inefficiencies and corruption. I do believe we are facing a recession and personally welcome it as I believe we all must learn to. But wholesale slaughter of the real estate owning community as is being suggested by the far left on the matter – ain’t gonna happen.
There are a LOT of well thought out major private developments happening in Kelowna right now that are being built by well healed money from the deep pockets of those who see this as the BEST opportunity to get in at low cost in anticipation of the next cycle. These folks know that we haven’t hit bottom yet, but they also know you can not time the bottom of the market. They also know that, eventually, things will turn around and those new strategically thought out and well placed developments will then meet their market. Luck is when preparation meets opportunity… the opportunity will come again and they will be prepared. Think about it… their deep pockets aren’t the result of foolishness.
#9 nostradamus jr. on 07.12.10 at 10:09 pm
DELETED
Finally something from Nasty Jr… that makes sense!!!
sorry screwed up on the formatting of that last post – fat finger syndrome.
All is well ! ha!
http://www.winnipegfreepress.com/business/housing-sectors-continuing-strength-illustrates-confidence-98301299.html
Hi Garth,
You recommend here that we avoid mutual funds, and in past posts you eschew GICs. All my “investments” are in bank managed mutual funds, but they are also RRSPs.
I can’t take any money out of my RRSPs without paying an enormous tax penalty (been there, done that), so what options does someone like me have?
An RRSP is not an investment vehicle, but a tax shelter into which you can put whatever you want. You can easily sell the funds within a self-directed RRSP and replace them with fixed-income assets, ETFs or a mortgage on your house. — Garth
45 TS on 07.13.10 at 6:25 am Hey Garth….great advice!!! Love your posting as always.
We just sold our gold ETF for a reasonable profit and we’re planning to invest our cash in preferred etc. as you outline.
One of the products that we are looking at are guaranteed GICs linked to specific indexes on the TSX…. financials for example. There is no downside since the principle is guaranteed….the upside is capped depending on the sector a person chooses. What is your view of this kind of investment….’old fart’ like you here.
Bad idea. Most of the index-linked GICs give a miserable return and are 100% taxable outside a shelter. If you want to index the market, just buy an ETF. If you want guaranteed investing, buy a bond. Buy both and have a balanced portfolio. — Garth
Not sure what constitutes a ‘miserable’ return in your view. Some of these are capped at a 60% return over 5 years… with no capital risk at all that doesn’t seem ‘miserable’ to us…. like to understand more about your rationale.
If you want to index, then buy an ETF and do so, reaping 100% of the gains – and paying tax on 50% of the gain instead of 100% of the GIC return, which actually drops it to a 30% cap. I fail to see a reason to lock yourself in for minimal returns other than you want zero risk. In which case, don’t drive. — Garth
Well, I agree with you on real estate anyway…but then, I’ve ‘agreed’ with the bubble scenario since 2003 when The Economist first warned about a world wide housing bubble.
#38 Dot
Unless you have a farm of animals, I’m sure there are many many possibilities to rent out in BC. Fact is, you just don’t want to rent, so it’s your loss!
“If a house constitutes more than 30% of your net worth at age 50, you’re at serious risk….reduce your real estate exposure”
Garth, you need to clarify this, since the issue is leverage. If the above applies and the house is heavily leveraged than sure, perhaps you’re correct.
But obviously somebody with a paid-off, 400k house, plus another 800k in liquid assets is in good shape. Surely even you would not advise they sell the house, spend goodness knows how much on RE fees, moving expenses – its not realistic or wise
Why keep $400K sitting in declining equity? — Garth
Hey Garth,
looks like mainstream media is slowing recognizing your hard work! lolz! NO MONEY is gonna get smacked.
http://www.theglobeandmail.com/globe-investor/investment-ideas/features/lets-talk-investing/your-home-isnt-an-investment/article1592178/
Also, can you send me your contact info? Hopefully ur no Bernie Madoff. LOLZ
Blog dogs…thanks for your responses and advice. She actually said last night, “don’t show me any rentals until you are sure I will like them”….that, to me, is progress! Cheers.
Garth wrote: “If a house constitutes more than 40% of your net worth at age 40, you’re at serious risk.”
#11 Jack the Lad wrote: So basically if you live in Vancouver or Torona, if you’re not a millionaire by 40 you’re in trouble…
This is an excellent poignant observation. At least 90% of the population takes a great risk speculating with their net worth in the way Garth specifies. I think it would be nice if Garth clarifies his target market for this stuff, because it certainly won’t do most people any good.
As for 28 months ago, no matter what I do I can’t make the numbers work for Garth, and in that time we DID have a fat-tail (i.e. rare) global financial credit crisis which is unlikely to repeat itself in the short-term in either scope or scale.
Early adopters of the Greater Fool philosophy would have jumped on Garth’s advice 28 months ago, with approximately these returns:
Garth’s Bears (Mar 08 to now)
============================
Teranet Index: +8% (125 to 134)
GOLD index: +33% ($90 to $120)
Garth’s Bulls (Mar 08 to now)
============================
OIL index: -60% ($60 to $22)
XFN index: 0% ($22 to $22)
I haven’t compensated for Forex, but by now USDCAD over two years is roughly similar (near parity) so we’re nearly apples to apples now.
Even supposing Garth is right going forward, look at that handicap to start with(!) Short of a miracle (i.e. depression worse than the 30′s??) you will never make your money back.
I wish I could shake some of you!
Those numbers mean nothing without the context of a balanced portfolio. Don’t know how many times I have to return to this, since it seems to be lost in extreme views (own all gold, own all real estate, own all oil, hide in all cash). This kind of thinking will end in personal disaster. — Garth
Lots and lots of signs on the lawns in calgary, big change from a year ago. Nothing like this was supposed to happen here, the land of milk and honey and tar sands. May pick up in a few years if the yanks,etc. really become desperate enough to ruin the environment.
http://www.winnipegfreepress.com/business/Manitobans-vulnerable-to-mortgage-rate-increase-poll-finds–97996219.html
I wonder if the numbers for Toronto and Vancouver are similar.
Quote from Garth: [Gold pays no income. Bonds do. And zero coupons are a tax trap. — Garth]
Garth, in this current piece, you clearly expect deflation correct? Hence, if you truly believe as such, can you please explain me why zero coupons bonds* are not be the best investment under such scenario?
(*important see my disclaimer below)
However, my main point is this: given that you provide financial advice, the onerous is on you to be very careful about the terms used in your articles, in particular are the following:
a) Deflation
b) Asset Deflation
c) Disinflation
Lastly, as I stated previously, your comments about gold “not paying income” is frankly misguided, since income (or interest) is only ONE aspect of risk-adjusted-total-return for a given investment.
- LargoWinch
iTulip.com
*Disclaimer: zero coupons bonds are not a recommendation in any way shape of form. In fact, I would stay away as far as I can from Zero Coupon bonds. I am simply trying to make a point with Garth here.
I said they are a tax trap. — Garth
#16 Wayne…
Good for you, I have been trying to do that for awhile but tough to find someone to buy and rent back to you. How did you do it?
#38 Dot….
It is always tough to balance financial decisions with lifestyle choices, and I don’t know your situation in the least, but I always think that we choose the circumstances we are in. I don’t know the rental market where you live but there must be rentals that will rent to people with pets, it might mean more of a commute for your husband perhaps but again it all comes down to decision making a prioritizing.
Chincy…
Part of a good relationship is compromise, perhaps she was brought up with an idea that home ownership is a status symbol. Sympathize with wherever she is coming from and then try to meet her somewhere in the middle to make her feel better. i.e., renting a nicer place than you may have wanted.
On the other hand, she needs to understand that you are looking out for both your best interests and embrace the fact that home ownership may not be the best idea. You can always agree that you will re-evaluate in a defined amount of time. If by then housing has declined you will be better off, if it has not then you can always entertain buying then and all you have really “lost” is the money towards the rental. But I would assume the equity you would invest would make up for that.
Best of luck.
As a 30 year old renter, in Calgary, with mutual funds a smattering of energy stocks and no debt what should I do?
69 Chincy on 07.13.10 at 9:09 am
Sounds like a high maintenance Barbie to me….
@ #38
You insist that you are a victim of circumstance but if your pets outweigh your financial stability and you make a choice to (holy smokes) purchase a house so you can keep 2 pets, then the only thing you are a victim of is your own horrific decision making.
As a per owner myself, I have to work extra to find rentals that allow pets (they do exist) and make sacrifices on size/quality/price of rent.
I can’t imagine the lack of responsbility it would take for me to claim that I couldn’t follow Garth’s advice because I had 2 pets.
Pets are a luxury.
Those numbers mean nothing without the context of a balanced portfolio. — Garth
No Garth, that is not true. Those numbers are the RETURNS on the investments that you chose to discuss here. You can mix them together any way you like, in any percentages, but given those returns, the portfolio that leaned towards your bull calls, and away from your bear calls, will be substantially worse off today than 28 months ago. That is your performance track record.
A balanced portfolio would not have saved anyone from being sorely hurt by these results. Portfolios are meant to spread risk and that is all.
Please remember too that selling a home requires massive costs, which happen twice if you’re thinking of timing a re-entry into home ownership. All in all, unless such fees are immaterial relative to your net worth, you are gambling.
Please Garth, make clear your audience. Surely you can’t be talking to the majority of Canadians here?
The point of a balanced portfolio is to have counterweighted assets to reduce volatility and achieve a more-or-less consistent return. Clearly you do not understand that, so good luck. — Garth
#6 Chincy:
My wife and I love to travel. We have had the necessary discussions about housing, investments, etc. and are on the same page… but it did take some time to get there.
We have decided that our home is nice because we can live in it, but if we want to retire early and travel the world, we also need some investments that generate a return (instead of working for it). Thus, we have set aside some money to grow in investments (stocks, bonds) in RRSP and TFSA accounts.
If you can get good investment advice and you have some years available for your interest to compound, you may be able to work for less years than everyone else.
Retire early and travel the world … it’s a compelling argument.
#28 Grandpa Grinch on 07.12.10 at 11:27 pm
Bernanke will, in my opinion, print whatever amount of money is necessary to keep the markets afloat – thus bringing about rampant price inflation in the years to come.
********************************
Bernanke doesn’t have the authority to print as much he wants–
He will print the amount–his handlers allow and his handlers are those-who will benefit from deflation-like all the people who hold money will-
***********************************
#58 Grandpa Grinch on 07.13.10 at 8:20 am
I find it interesting that people cite deflation, yet ignore the fact that gold has been rising since 2000. If you see gold at $1350/oz by the end of 2010 as I suspect, we DO NOT have deflation folks, we have inflation. Gold doesn’t lie.
************************
Your right–Gold doesn’t lie-
So how come you don’t listen to it–
Gold is not signaling Inflation-
Gold is signaling credit “risk” and has been since 01-
Same as the 30 year bond–
Gold does not perform well in Inflation–”ever”
Look at Gold performance over the Inflationary years from 1980 on–it did nothing-
Why hold Gold when everything else outperforms it?
http://www.barchart.com/chart.php?sym=GCQ10&style=technical&p=MN&d=X&sd=&ed=&size=M&log=0&t=CANDLE&v=1&g=1&evnt=1&late=1&o1=&o2=&o3=&x=70&y=9&indicators=&addindicator=&submitted=1&fpage=&txtDate=#jump
2001–Gold broke out of a 20 year bear market-
If you remember 2001-then you will also remember “Easy Al” stepping on the Gas–
This is what Gold reacted to-which we can see today as Hyper-inflation of the credit money system-
Now Gold sees default risk-same as the Long Bond does and defaults are Deflationary and today it is Deflation in play–
If I thought we were going to have Inflation-I would sell Gold and buy real-estate–
Note the exact correlation between the LB and Gold–2001
http://research.stlouisfed.org/fred2/series/DTP30A28
http://home.earthlink.net/~intelligentbear/com-dow-au.htm
@ hey guys
amy goodman and democracy now have no credibility whatsoever, it’s part of the MSM strawman controlled ‘truth movement’, like alex jones, rense etc. (typically they profess ’911 truth’ but never mention the word mossad)
Interesting……The next phase of this is BOND revulsion…….What happens when countries cannot borrow at 2%….then what?
Deerhurst, the resort site of the G8 summit now up FOR SALE.
Lots of interest abour real estate here, yet no focus on this marvellous property which has been generously upgraded with millions of your taxpayer money. You will be billed. A great case study of passing the cost off to the silence of the lambs and pocketing the profit.
The point of a balanced portfolio is to have counterweighted assets to reduce volatility… Clearly you do not understand that, so good luck. —Garth
I’m a little shocked. You’re using a lot of words to say just what I said: portfolio balancing is intended to spread (or minimize) risk. In other words, volatility=financial risk). However, if much of the portfolio does badly (especially compared to a previous version) then the most likely result is bad overall portfolio returns, right?
My original point was pretty simple: We had the worst post-war recessionary forces at work for over two years now, and Canadian home prices haven’t moved downwards meaningfully.
To move real estate down strongly, you need a new catalyst because most of the really really bad stuff has already happened (except maybe some sort of low-probability quasi-hyperinflation affecting mortgage rates).
Nothing is impossible, but given the investments you’re recommending, which have to-date fared relatively poorly, I don’t see how most people could have benefited from them. To say they should wait further is asking a lot given the current recommendations’ 28 month performance.
Now, some people maybe sophisticated enough to have gained some benefits playing the short-term trends, and trend reversals… but then I return to the main issue: These people are NOT average Canadians. Not nearly.
This is why I asked (and you haven’t answered), who is your target audience? It’s a simple clarification, which would provide a good context for reading your blog (or your books!).
More vacuous words, since you ignore portfolio weightings of various security classes. Asset allocation determines more than 90% of portfolio returns, and that is utterly dependent upon weighting. As for real estate prices, I have laid out my expectation for price declines several times. Read more, bluster less. — Garth
#38.Dot. Don’t part with your beloved pets, look for a decent rental, keep your money for more opportune days ahead.
I suggest that you offer a potential landlord a larger than normal Damage deposit, this will let him see that you’re a responsible renter. Write in the rental contract that you’ll take responsibility for any pet damage, then take photo’s of the inside of the house before you move in. Pets can also murder lawns, take photo’s as proof of the condition of the pre-rent lawns. Invest your money in some of the suggestions from Garth’s book, ‘Money Road.’
This way it’s a ‘win-win’ situation. Just don’t stress about having to actually OWN the roof over your head….for the time being. Hope things work out for you, we’re all dealing with big decisions these days.
I agree with you Garth….cash is King. I’m paying down my debts and keeping liquid.
I would be very cautious about the stock market right now. Mark my words, Garth….We haven’t seen the bottom yet. So the buying opportunity has not yet begun.
The great unraveling will suck all markets under the muck…including bonds! The high water mark is cash, baby!
There is no reason to anticipate a bond market collapse, while I do expect equity volatility and a major buying opportunity. — Garth
#67 Rosedale
We have made our house capital work for us. Good renters in our basement suite, leveraged 200K to balance our portfolio, and have good indexed pensions along with other investments. Our home may be reduced by 200K with the new realestate market twist but the costs of selling and finding a place to rent is something I don’t need to do. Our finances are fairly secure and I enjoy where I live
I think everyone has their own set of circumstances to decide whether to sell their house is the right thing to do.
The economists are so outdated, even the wolves now wear t-shirts with their faces on them!
Asset allocation determines more than 90% of portfolio returns…— Garth
Again, that is NOT true. Worse it’s dangerously misleading. And now I’m really shocked. Where did you get that from?
Even Wikipedia is careful enough on this point (paragraph #4 under Academic Studies): ‘…it is misleading to make statements such as “asset allocation explains 93.6% of investment return”.‘
OK, sans bluster: Allocation, portfolio balancing or whatever is all about control over risk (volatility). Allocation does not somehow GIVE you better returns. The two-year returns on your investment selections (oil, financials etc…) versus plain vanilla buy-and-hold real estate are poor (to dismal).
Just how would you weight these four returns (0%, -60%, +8%, +33%) in a way favourable to your recommendations?
For everyday people with only their primary residences to worry about, there is very little supporting your argument going forward and even less reason to believe you when we look at performance to-date. I can only make sense of your attitude if you’re targeting house flippers. Maybe.
I’ve been reading you for awhile, and I think you offer an interesting point-of-view, but your responses to me are dismissive to say the least. And that is not encouraging. At all.
You deserve to be dismissed since you are trying to make a point, not consider the obvious. And asset allocation is the only major determinant of return. — Garth
I dont belive you….I will wait and see. I am not buying a house, I am not selling my house. I think there will be a cool down situation in the RE market, but a crash….nop.
Not a crash. A melt. — Garth
I thought the folks on this blog would find this interesting.
This house is owned by someone I knew many years ago. He was the CFO at our company.
http://51weybourne.com/home
About a year ago, the Globe and Mail wrote a piece on the house, which his wife designed. At the time the article was written, the house had been put up for sale for an anticipated move to Edmonton. 1 year later, it’s still on the market and the price has come down $100k.
The Globe piece:
http://www.theglobeandmail.com/real-estate/picture-perfect-the-second-time-round/article1131358/
What I find especially interesting is her tone. If anything good comes out of a long-term decline in housing prices, perhaps it will be a bit of an attitude adjustment among people like this. Then again, I’m probably dreaming…
#89 Wolf on 07.13.10 at 12:13 pm
—————————————-
Perchance are you referring to the ‘three wolf moon’ shirt?
http://www.amazon.com/review/R2XKMDXZHQ26YX
Garth How many posts do you censor each day? average
Several thousand. Care to be added? — Garth
Worthwhile.
Whttp://www.interfluidity.com/v2/907.html
Gee, what happened to $5K by the end of the year? — Garth
Those words never came out of my mouth. You seem to want to play semantics. I don’t.
Article on ZH today, “Rosenberg argues the nominal yield curve would be inverted right now if it were not for the fact that short term rates are essentially at zero.”
Inverted yield curve (short term rates higher than long term) typical indicator of economic trouble; where bond markets are expecting deflation ahead. It’s a bit of black magic right now, because short rates are so low, they’re looking at it with assumed inflation figures baked in to get the real yield.
And that’s the bond environment we’re in for the next couple of years.
dark sad person
while I agree gold doesnt do as well in an inflationary period , your point :
Look at Gold performance over the Inflationary years from 1980 on–it did nothing-
Gold rose and fell in predictable patterns.
an example of this would be the iran and iraq war.
they dumped gold to by new weapons every rainy season.
another example would be the harvest in India. A traditional time for the farmers to buy gold
one thing i am sure of though is gold is not at its top. Until the various governments get their acts together ,gold will do all right. A couple of finacial hot potatoes are still in the offing and this will feed the price of gold until people feel the worst is over.
eventually this happy day will come.
I certainly dont intend to hold my investments in it forever.
One-third of Canadians have no savings plan
http://ca.news.yahoo.com/s/capress/100713/national/canadian_savings
In 1970, who would have thought that a $25,000 house would be worth $700,000 in today’s market? And that an annual salary of $12,000 would have mushroomed to $80,000? Let me sound like the contrarian and say that much of what appears on this blog may be missing the point. Yes, we’re headed for some difficult times, but humanity’s overall trend will continue upward, as it always has. We will solve our problems of global warming, develop new and cleaner energy sources, produce more food for the world, better control mankind’s baser instincts for war and cruelty, do away with nuclear arms, create greater prosperity and increase everyone’s average standard of living. And employment, salaries and the values of real estate will increase, much as they did through the decades referred to above. Yes, keep your head down for the moment and read Garth’s book, but our long term outlook should be seasoned with optimism, enthusiasm and encouragement. To do otherwise is to unnecessarily limit our great expectations.
@ #37 Social Contract
Are you posting here at the behest of the Zeitgeist movement?
They have a similar philosophy that more money can’t solve the problem because it is the problem. They mention that the all money perpetuates is inequality and scarcity.
#2 Maxamillion on 07.12.10 at 9:37 pm
They (Octopi) have larger brains too!!
#59 Devil’s Advocate on 07.13.10 at 8:43 am
Dear Devil, Yes there are well healed developers but let’s not forget that they will:
1) stop building in an instant
2) Let fields go fallow
3) Cut a money losing development out like a cancer
all predicated on what the market does. In our biz if you haven’t prepped, or are prepared to step outside the box and shake the tree to see what falls then you’re toast.
Kelowna, like other places are not immune and there will still be a period that things (even healthy ones…) will inevitably freeze…
#99 DJH
700,000/25,000 = 28
80,000/12,000 = 6.7
I’m not seeing a picture of optimism here.
I agree that there is every reason to be bullish on humanity long term, globally technology advances, globally standard of living improves, globally lives get better, but short term there will be pain, and that much is obvious. It’s a question of how much, how soon and where it will be worst.
After so many decades of unrealistic and fake growth fueled by financial engineering and money created out of unproductive activities, concentrated in the western world at the expense of everyone else, there must be an unwinding. There are pipers that need to be paid, and mirrors that need looking into.
As always, the unsustainable will not be sustained. Before the world marches on, the plug must be pulled.
#98 bill on 07.13.10 at 1:33 pm
Gold rose and fell in predictable patterns.
an example of this would be the iran and iraq war.
they dumped gold to by new weapons every rainy season.
another example would be the harvest in India. A traditional time for the farmers to buy gold
**********************
Yes Gold did do all that-but the overall trend was flat to down-
Gold will spike violently to war and rumors of war-or Political risk in some areas-that are an overall threat-
I also don’t think Gold is near a top-but-I suspect Gold- especially the miners could sell down (initially)in an equity’s crash-as wrong sided Hyper-inflationist’s unload-
“If” this does come into play-I’ll add big-to good miners-
Physical Gold-imo-holds zero risk-when viewed as increased buying power-as Deflation guts out the price of other assets–
#100 DJH……..
You’re obviously a young ‘un.
Probably <30……..
In 1970 a chocolate bar was 10 cents and a bottle of pop was .08 cents if it was warm and 10 cents if it was cold….today a chocolate bar is $1.25 and almost 2/3 the size and a plastic bottle of pop is $2.00 +/-……..
“Advisor fees are (a) usually 50-60% lower and (b) tax-deductible. Plus you get active management, not dozy disdain. — Garth”
With a fee-based adviser, wouldn’t (a) depend on the portfolio size?
(and yes, I noticed the word “usually”; what is the usual portfolio of a Canadian family?)
Fees normally drop for portfolios over a million. The other comment I fail to understand. — Garth
#100 DJH,
While I am all for optimism it doesn’t help us to move forward if we are blindly optimistic either.
Just a few points to your post.
I note that in the values you used the home increased in value nearly 28 times whereas the salary only 6-7 times. Don’t you see something odd about that math?
The historical salary/home value is roughly 3-4 times in North America. We are way out of line with that now.
The reason is that we have masked the fact that real wages have not been increasing against the cost of living by giving people more access to debt. It is this debt bubble that has fueled the current financial crisis and will lead to the problems in housing in Canada.
The one thing I take issue with in your analysis is that I feel human beings are not well equipped to deal with future problems. We are reactive and not proactive.
We see this with the Canadian housing situation. Most of the population still lives in denial.
Climate change is even worse. A large segment of this blog does not even believe in it despite the overwhelming scientific evidence.
I want to be optimistic but I believe our human nature contains some deeply rooted psychological flaws that make it nearly impossible for us to change before we experience calamity.
I hope you are right. I fear you are not.
Garth,
If you have read “Retirement Myth” by Jim Otar – any thoughts?
Thanks,
AgAu
I read his mini-book. — Garth
Asset allocation determines more than 90% of portfolio returns…— Garth (per number 90 above)
And
And asset allocation is the only major determinant of return. — Garth (number 90 response)
That is indeed true Garth but only when the assets within each category (equities, bonds, cash , real estate) are very well diversidied across all the assets within that asset class.
That 90% figure came from (I believe) the Brinson / Roll studies which only looked at the return differences across pension funds all of which tend to be well diversified within their asset classes.
The 90% statement is obviously false when applied to portfolioes that are not well diversified within the different asset classes.
Example. I hold 50% equites but all in tech stocks and 50% bonds all long term. You hold 50% equites consisting of an index fund and 50% bonds consisting of a bond index fund. Our results will be vastly different despite the exact same asset allocation.
Read my book. Diversification is central to asset allocation in days like these. Sheesh. — Garth
@PointsForTrying: A good book for you to read…
http://www.amazon.ca/Four-Pillars-Investing-Building-Portfolio/dp/0071385290
A scientific look at asset allocation and why it is indeed the greatest predictor of future returns.
RE: #90 PointsForTrying
>Allocation does not somehow GIVE you better returns.
The wikipedia article you point to clearly demonstrates that asset allocation has a great bearing on one’s return.
#93 Bottoms_Up – Yes, you are right.
Also : People, please read Garth’s last book before expressing your astonishment at what’s written here. There’s a lot of info in there.
#107Junius-belief in climate change usually means blind faith in the solving of climate change if enough money is transferred from the unconnected to the likes of Goldman and Al Gore (among other connected players.)
what happened with this case below regarding Milan?
March 17 (Bloomberg) — Deutsche Bank AG, JPMorgan Chase & Co., UBS AG and Hypo Real Estate Holding AGs Depfa Bank Plc unit were charged with fraud linked to the sale of derivatives to the city of Milan.
============
The SEC alleges that since at least April 2009, Carol McKeown and Daniel F. Ryan, a couple residing in Montreal, Canada, have touted U.S. microcap companies. According to the SEC’s complaint, McKeown and Ryan received millions of shares of touted companies through their two corporations, defendants Downshire Capital Inc., and Meadow Vista Financial Corp., as compensation for their touting. McKeown and Ryan sold the shares on the open market while PennyStockChaser simultaneously predicted massive price increases for the issuers, a practice known as “scalping.”…
=
SEC Halts $105 Million Ponzi Scheme by U.S. Virgin Islands-Based Money Manager
=
SEC CHARGES HUNTINGTON BEACH-BASED STOCK PROMOTER WITH FRAUD
07/12/2010 13:53:00
The Securities and Exchange Commission filed a civil action against a Huntington Beach-based penny stock promoter, Songkram Roy Sahachaisere, and his company, InvestSource, Inc. for committing fraud while promoting stock of their clients through massive email campaigns
http://www.investmentfraudtimes.com/stock/3492.html
Munch-Welcome back! I thought you fell off the planet!
Rory-Welcome back also! (although we totally disagree on the “government pension” issue)
It’s nice to see some of the old familiar bloggers back!
#100DJH-the median global standard of living peaked in 1998 so you are not speaking for humanity in general.
#103 InvestorsFriend
If I may, you’re being too kind. Basically, Garth’s statement with respect to the investment universe of most Canadians is false. Capital F false. Which is why I was curious about his target market; for him to be right, he must be talking about a minority of investors out there. And very well off ones to boot.
All in all, especially after today, I think Garth is leading folks to believe that they can sell their house, or at best extract significant home equity, and put it at market risk, and somehow beat the major indexes.
To borrow the phrase “personal disaster”, this is exactly what such a strategy entails. And this is what vast amounts of well-intentioned finance research would suggest also. Research is just research, however. Results are results. And I posted those too, or at least a reasonable approximation without knowledge of Garth’s asset allocation strategy (or similar fairy dust).
As for this:
Diversification is central to asset allocation in days like these. — Garth
I don’t even know what that is supposed to mean. Do you InvestorsFriend? Perhaps you’ll have a better luck than me.
There is more risk in real estate than a balanced portfolio. And, sadly, too many folks like you. It will not end well. Good luck. — Garth
#107
“Climate change is even worse. A large segment of this blog does not even believe in it despite the overwhelming scientific evidence.”
Yes, us tinfoil hatters do not believe because the scientific evidence has been manipulated. Don’t look to mainstream media as they won’t publish anything about the leak or blow it off as a hoax.
It’s all about money (carbon credits) and the control of energy. Why did it take so long to get the BP Gulf spill under control? Why turn away foreign help to protect the beaches? Why delayed a mammoth ‘Whale’ skimmer just because it didn’t clean the water to 99.9%? WTF!!! “Never let a serious crisis go to waste!”, especially when you have a tough energy bill to pass.
BTW, I chuckle every time I see it called ‘climate change’ instead of ‘global warming’. I guess when the warming doesn’t materialize and cooling occurs it’s time to change the name otherwise you look kind of stupid.
Where is Al these days, seems like he is kind of hiding…
Alysen Place in Penticton is auctioning units August 21st. Homes will be listed at up to 50% off the original purchase price.
http://www.alysenplaceliving.ca/
It’s well built concrete brand new product.
Here’s what the Vancouver Sun had to say in 2007:
http://www.canada.com/vancouversun/story.html?id=b75ca71e-d87f-431e-b715-badaaf459cff
Penticton has beautiful weather, water views, outdoor recreation, access to skiing, is land locked, and doesn’t have a heck of a lot of good full time primary industry jobs. Sounds like a microcosm of Vancouver.
Re #54 Toronto Bull;
%110 correct.
You don’t have to be a rocket scientist to understand that the more money we print the more we deflate our assests , therefore have price inflation.
Here lies the problem; Our wages are not going up in proportion.( in regards to the cost of living…).
The more money you print the less its worth.(Since it is not based on any real value).So who cares how much you make.I want to know what I can by for my $1.00, compared to 10 years ago.
Contrary to what some people are saying real estate is still a good value , if bought smart, ( Hobby farms (self sufficiency), rental properties..
Rental properties which generate enough income to put away for a rainy day.
Alot of people commuting to Toronto from Eastern
Ontario have abit of property growing own produce , a few livestock and fowl, being more self sufficient.
Government will keep putting more money into circulation, greating false hope in Sheeple, in hopes of get re-elected. If they don,t oh well already lined their pockets.
Next party gets elected blames previous party for mess. Go to the above paragraph and repeat.
We are going to be in real fine shape for the next generation over here. Should have the same standard of living as the rest of the 2nd and 3rd world countries. Wake up sheeple.
Remember all you people who made alot of money in the stock markets about 5-10 years ago by investing abroad in other countries, Well it has finally come back to bite you as well as the rest of us. ( hope you all lost it plus more). IF YOU DON’T AGREE , GET THE F#@K OUT OF CANADA AND GO LIVE OVER THEIR. Since thats where you chose to invest , Hypocrits.
Unfortunately the majority over here became fat and lazy , producing less. How long do you think this would last, before BIG BUSINESS had enough and went elsewhere.
Now you really aren’t NAIVE ENOUGH to believe our government will put tarrifs on imported goods to create an equal playing field. ( Since big business put the government in power by monnies donated to their campaigns.)
A friend of mine works in the states for a large kitchen door manufacturer. In the last 5 years they have cut staff by 35% at least , still producing the same amount of doors.
Both Government and people I blame for our mess we are going into. Governments for lining their pockets at taxpayers expense and people for allowing it to happen.
All to chase that propped up currency, which has less REAL VALUE every year.
If thats the governments solution, why not just make everybody a millionare overnight, it really worked well for APPLE COMPUTERS , didn’t it?
CASH WILL BE KING for a while, GOLD is a good tangible asset for those rainy days ahead.
Keep telling younger kids learn a trade; plumber electrician, Heating / Refrigeration, will be busy all the time. Seems they all want to go and get universified , expeting to make the big bucks.
Really can’t see a bright future for North America unless we make some huge changes with ourselves/ our government policies / our banking system/ our education system…
Sad thing is this has been going on for along time, so why would it change now.
#105 Keith In Calgary
“#100 DJH……..
You’re obviously a young ‘un.
Probably <30…….."
…………………….
Keith, Wrong. I'm pushing 70. And although occasionally pessimistic about human nature and the world, I do feel that our history on the earth shows we have resilience and enormous potential. We'll work out our problems.
#107
((Climate change is even worse. A large segment of this blog does not even believe in it despite the overwhelming scientific evidence.))
everyone believes in climate change … most of us know there was an ice age once upon a time.
the question being debated is whether mankind is the cause of gw.
#6 Chincy -
If you keep focusing on the bigger picture, and slide in a few nice surprises along the way (e.g., a surprise vacation together or dinner at a favorite restaurant), that will help your case immensely. I’d go so far as to point out to her by putting off the immediate gratificaiton of a new XXXpensive house, there a few fairly inexpensive things you can actually afford and enjoy while you wait….of course, if you take her for dinner regularly and spoil her to bits, then no promises.
Self-regulation eh?
http://www.youtube.com/watch?v=wWW1vpz1ybo&feature=related
*substitute child for adult, and marshmallow for house
Vankouver
#103 DEVORE
Thanks for your comments yesterday, much appreciated.
Don`t hold your breath Garth. Yes, real estate is going to drop, but it will be in demand and climb once again: globalization my friend. The classic sine wave is characterized by ebb and flow.
Down it comes, but up it must go, regardless of 80 million retirees in the near future.
Does it matter if you`re right or not?
Come on Garth
“I tell you, on the day of judgment people will give account for every careless word they speak, for by your words you will be justified, and by your words you will be condemned.”
—Matthew 12:36-37
so haven’t these payday loans gone online and no longer need bricks and mortar?
Advance America (AEA) said it is shuttering 47 loan centers and could lay off as many as 100 employees because it cannot afford to stay open with a 36% interest rate, said company spokesman Jamie Fulmer.
….
Fulmer said that in Arizona his company typically charged $17 per $100 worth of borrowed money in a 14-day loan. While this exceeds a 400% annual interest rate, he said that would only apply to a borrower who carried over the loan over a full year. …
Colorado legislators just passed a law that will go into affect in August, which will cut payday loan interest rates by two-thirds and extend the minimum loan term to six months, said King
#38 Dot – we rent with a big dog and two cats. Before I last moved, I even called ads that said “No Pets” and talked people into accepting us with pets. Landlords, if they’re smart, want good tenants. Convince them that you are. Being well-spoken and polite, and a professional couple, overcomes a lot of objections.
Some people may still say “No”, and property managers won’t deviate from guidelines given to them, but many owners can be talked into accepting pets if they recognize that you’ll look after the place well.
Yes, pets can cause damage, but so can lousy tenants.
While I agree with many things Garth says, and many things are logical. However, you cannot make a one liner statement like
“wheezing old Boomer farts like me are about to dump more real estate, raise cash, then look for someplace safe to stash it. ” Without many other facts to support the claim
Yes this is probably true but and there are allot of buts and scenarios that can happen to change the future.
I agree demographics will play a big factor in the future of real estate., I do not agree that every boomer will want to sell their real estate to many factors play into the one liner.
So read this article, Demographics, Destiny and Asset Markets. from The Boeckh Investment Letter
http://www.boeckhinvestmentletter.com
6 pages of information that follows Garth’s one liner, it also has many facts that support Garth’s comments, therefore it is worth a read. It also recommends two books on the aging boomers.
While I do not agree (perhaps I am just in denile) but I like to pass along information that informs all readers of the same or different arguments.
Cheers and see you all in the old folks home, is there a silver lining Investment opportunity there?
#103 Devore – nicely stated!
How bad will it get? Recession, Depression…
Here’s your minority report
http://www.alternet.org/economy/147501/joe_bageant%3A_our_plunder_of_nature_will_end_up_killing_capitalism_and_our_obscene_lifestyles/
-
#113 BrianT in response to #107 Junius — Where was Al Gore when Mt. St. Helens blew its top? Will he sue Toba, Yellowstone or Etna if they blow off much-needed CO2 again?
For all those (like Gore) who fail to realize that CO2 is necessary for life, I suggest researching David Rockefeller’s quote about Copenhagen being a front for a one-world govt., and the introduction of carbon taxes to fleece the middle- and poor classes — i.e., we pay so they can have a more luxurious life. It’s on YouTube.
A link I posted a few nights ago stated quite clearly that human-caused activity accounts for less than three per cent of a warming trend, and that oceans and sunspot cycles are by far and away the driving force in CC.
Right now, sunspot cycles have all but dried up and a few of the oceans are declining in temps. while others are slightly increasing.
Coming soon: Empty store shelves. “The National Inflation Association today issued a warning to all Americans that empty store shelves will likely be coming to America as a result of government price controls during the upcoming hyperinflationary crisis.”
China trashes western credit ratings. So does everyone else!
Interesting Gulf update.
Words can come back to haunt anyone. “There is an enemy that lurks, a dangerous group of people that want to do harm to the American people.” — George Bush
Potpourri of Rothschild’s fingers in the jars.
Figures from the Gulf mess with Cdn. help.
Nuke War Russia is there now, so Castro seems correct in his assumptions. The US has nothing to lose anymore.
UK1 and UK2
Famine It’s still here.
Walnuts, not Walmart will help me to remember who I am. At least I thunk so!
To all the desperate idiots on this site: real estate in Canada ain’t going nowhere but up. Sure it may stagnate here and there, but come on people, this isn’t the States. History has shown time and again that real estate is the only safe investment. Grow some balls and get into the market. Lets be honest, this site is only visited by dumb people desperate to buy a house, and jerks like me who come here to mock you. Get with the program and just buy something(you can probably get in without a down payment if your credit doesn’t suck). Here’s the headline of a future Greater Fool post: I started this blog 228 months ago and though real estate has yet to drop in price……. Blah, blah, blah
#48 largowinch on 07.13.10 at 6:33 am
I must say however, that the deflationistas have long been spanked hard and buried in 2009 when commodities such as oil increase 135% from the lows.
No Deflation spiral without a hard currency / gold standard. Get it?
***************************
You seem to have missed the reversal in Oil from 145 to 70–
You also fail to see that “commodities” have “crashed” since “2009″ when you “somehow” think deflationists got spanked-
http://www.barchart.com/chart.php?sym=%24CRB&style=technical&p=WO&d=M&sd=&ed=&size=M&log=0&t=CANDLE&v=0&g=1&evnt=1&late=1&o1=&o2=&o3=&x=61&y=6&indicators=&addindicator=&submitted=1&fpage=&txtDate=#jump
“No Deflation spiral without a hard currency / gold standard. Get it?”
***********
Ummm–what about Japan?
You obviously do not understand what deflation is-
And further more–no understanding of Fiat money-which includes “credit”
Why is everyone/the Fed/The Euros/Japan fighting Deflation–if there can be no such thing-in your view?
http://research.stlouisfed.org/fred2/series/MULT?cid=25
http://research.stlouisfed.org/fred2/series/TOTBKCR
http://research.stlouisfed.org/fred2/series/LLRNPT
http://research.stlouisfed.org/fred2/series/NREVNSEC
re #117 Master Chief
Yes, us tinfoil hatters do not believe because the scientific evidence has been manipulated. Don’t look to mainstream media as they won’t publish anything about the leak or blow it off as a hoax.
——————————————————————
Not only has the scientific evidence been manipulated but so have the weather patterns : with man made technologies.
http://www.cuttingedge.org/news/n1197.cfm
#102 JM in London on 07.13.10 at 1:49 pm
Actually, after a short absence away from Kelowna I drove into the Okanagan Valley with it’s vineyards, tranquil lake, desert hills sprinkled with Ponderosa Pine, warm summer breezes lushly landscaped city with an almost tropical fregrance I came to realize… “Yes, yes it is different here”.
Actually, after being dragged into an emphatic “we love to visit Kelowna and would like to retire there tell us about real estate in Kelowna” conversation with a couple Calgary friends I came to realize… “Yes, yes it is different here”.
Actually, after listening to a friend tell me how happy they were to have been afforded the opportunity to move to Kelowna from Toronto and all the reasons why and how envious his old co-workers are I came to realize… “Yes, yes it is different here”.
Actually, upon returning to Kelowna after spending some time in one of Mexico’s finest locations, flying into the Okanagan Valley and realizing how much I missed it here I came to realize…. “Yes, yes it is different here”.
Are we immune? Not at all. But, if Canada does fall into a recession and pulls out in short order we typically never experience the slightest glitch. If Canada falls into a prolonged recession yes it eventually will work it’s way here but not as harsh as it does others. When Canada enjoys robust economic growth we are one of the very first regions to feel it as Canadians from all over the country come here to spend some of those extra disposable dollars. THAT is the way it’s always been and, while not guaranteed, is likely to continue to be so.
Yes there are people who would rather live elsewhere in Canada than Kelowna, but I would venture to say there are a whole lot more who would rather live here than anywhere else if their finances would permit it and THAT makes us different. But believe what you want to believe. Quite honestly we would prefer you continued to think Kelowna, the Okanagan Valley and British Columbia a hell hole in the boonies. Works for us…. How’s it workin’ for you?
Remember the three most important things in real estate 1. location, 2. Location and 3. LOCATION.
#110 DJH,
See what I mean about climate change. Just read the posts #113, #117 and #121. Hard to be an optimist when so much blind ignorance still exists on such fundamental issues. Solving climate change is going to be much harder than you think. These attitudes are pernicious and willfully uninformed.
Recently there was a UBC Professor who stated at an event here that he doesn’t think we will wake up until there is a catastrophic event. I fear this is true. Look at the situation in the Gulf. Even that is not enough to change most opinions on off shore drilling.
Hard to be an optimist in this environment.
#127 James in Ottawa,
Clearly lots of boomers will stay in their homes. However selling or not selling their properties is only part of the equation. They have also left their peak earning years which has an inpack on our overall productivity as a society and on tax revenues not to mention the drain on resources due to medical costs and other social programs.
And of course one of the reasons quality bonds and dividends start to look attractive even at low rates during a deflation is the same reason we chase high yields during an inflation. So a bond that returns 3% when annual deflation is running at 2 percent yields a real return of 5% and that is not bad. Of course in a real depression, annual deflation rates can be much higher so the guys who took long bonds at what look like ridiculously low rates actually come out OK in the end. Capital preservation and decent returns.
I do think the bond market is now telling us that deflation is the expectation. Why else would they settle for such low rates on offer.
#117 Master Chief,
You said, “BTW, I chuckle every time I see it called ‘climate change’ instead of ‘global warming’. I guess when the warming doesn’t materialize and cooling occurs it’s time to change the name otherwise you look kind of stupid.”
You have a bizarre sense of humour. Stanford University released a study on this issue today. If your tin-foil hat wasn’t screwed on so tight you might want give it a read. Although I am sure you and the rest of them will have yet another reason to dismiss this one and continue to live in blissfull (and increasingly warm) ignorance. Anyway, enough climate stuff. I proved my point.
Here it is: “Devastating heat waves that result in fatalities and crop losses may increasingly become a common occurrence in the United States over the next three decades, according to a team of Stanford University researchers.
“Using a large suite of climate model experiments, we see a clear emergence of much more intense, hot conditions in the U.S. within the next three decades,: Noah Diffenbaugh, the lead author of the study, told the Stanford Report.”
55 TC,
Industrial Alliance offers a similar product, the Ecoflextra. Same principle, 5% guarantee annually for 15 years. The only catch is that you have to convert it to a RIF and maximum distributions are capped at 7%. If you wish to take out more, your account value will equal market value at the time of withdrawal.
It is a real great product for individuals in their 50′s as asset allocation limits allow for an 80-20 split in favor of aggressive investments.
Garth, the MERs are similar as mutuals ranging from .9 to 3.3%.
You are welcome to it. — Garth
#59 DA
Kelowna real estate is toast without well heeled retirees coming here. If their real estate in Van. or TO decreases in value they have less money to spend here when and if they arrive. Kelowna’s economy is a joke. Without money coming in from the Big Smoke we are going to flame out big time.
Great commentary from John Hussman.
“There is little question that we have, for more than a decade, squandered our productive resources in the pursuit of bubbles. Almost unbelievably, real private gross domestic investment is lower today than it was 12 years ago, and much of the gross domestic investment that we have made in the interim has been destroyed in mispriced speculative activity such as residential construction and commercial real estate development.
If our only response to excess consumption is to pull out all the stops trying to “stimulate” consumption every time it falters; if our only response to reckless lending is to defend the bondholders every time their poor allocation of capital threatens to produce a loss for them, then quite simply, we will destroy our economy, our future, and our standard of living. The last thing I want to be is a cheerleader for the bears here. But quite honestly, it’s difficult to envision a return to long-term saving, productive investment, and thoughtful allocation of capital until – as happens every two or three decades – the speculative elements of Wall Street are crushed to powder.”
Here is the full article:
http://www.hussmanfunds.com/wmc/wmc100712.htm
#129 Oil Amen,
You said, “To all the desperate idiots on this site: real estate in Canada ain’t going nowhere but up.”
Yet it is already turned down and this is just the beginning. Buckle up.
Or perhaps you were thinking of the price of oil now that we have passed peak oil?
Gold is a wonderful inflation hedge!
In 1950 you could buy a coke for 5c. For $100 you would get 2000 cokes. If you stashed the $100 under your mattress, and pulled it out today, you would only be able to buy 100 cokes. Thats a 95% loss in purchasing power.
However if in 1950 you took the $100 and bought 3 oz of gold and stuffed it under your mattress, and retreived it today at $1200 per oz, you would be able to buy 3600 cokes, a increase in purchasing power of 180%. Compared to the dollar, gold has outperformed it by 3600%.
DELETED
#133Junius-sure, Goldman is going to fix the climate if they are given enough money (why not, they are doing a great job fixing the economy). I like the way you use their mess in the gulf to justify more scams-classic.
The housing crash must be getting worse as the lies from the realturds is getting more and more pathetic.
China’s latest export: home buyers
http://www.theglobeandmail.com/report-on-business/economy/chinas-latest-export-home-buyers/article1638953/#comments
CRASH……………………….
NO MONEY…………..We will have to go bankrupt.
NO MONEY………….Unless we sell to one of the 30 Chinese RE investors.
LOL…those realtors are pathetic and true scum of the earth.
#132 Devil’s Advocate :
Inspiring post. You might be interested to learn that real estate prices in Beverly Hills enjoyed a 31% haircut since last year.
http://tinyurl.com/2dorfb6
Yes, LOCATION makes a great difference!
#113 BrianT on 07.13.10 at 3:35 pm #107Junius-belief in climate change usually means blind faith in the solving of climate change if enough money is transferred from the unconnected to the likes of Goldman and Al Gore (among other connected players.)
–
What a ridiculous statement. Reducing GHG emissions is only achieved by a global effort on the part of governments and industry to implement renewable and non-emitting energy sources and innovation that supports it. Al Gore and Goldman Sachs are (collectively) smart enough to recognize this, even if you are not. I don’t agree with some of climate change policy such as agriculture offsets, which is merely a way to buy the agriculture lobby’s support, but there are many effective ways to reduce GHG emissions that are a worthy effort.
#133 Junius “Hard to be an optimist in this environment.”
Junius, Be whatever you must be, but nothing positive will get done about global warming or any other serious problem if pessimism dominates our mindset. In a world filled with enormous and difficult challenges pessimism is a useless indulgence.
#127 James Ottawa
We don’t need every boomer to sell their house to tank real estate. In a market where about 1% of total housing stock changes hands annually, it doesn’t take many sellers to make an impact. Just think about the numbers and the asset class we’re dealing with here.
“don’t hold mutual funds because in a low-yield world high management fees will suck the juices out”
I would have to disagree with this one as some mutual funds will do well.
There are still fees attached to etfs no matter what.
The Eighties called to say thanks. — Garth
141 Gfox – arguement for a “coke” standard?
148 Devore – 1%? Seems low. Doesnt that equate to a house selling once in a century?
#145 Nick in L.A. on 07.13.10 at 7:47 pm
This one is the better read…
http://www.doctorhousingbubble.com/realtor-bubble/
#146Prairie-on this subject you are either misinformed or trying to misinform (IMO). Perhaps you could do some research-you could start anywhere but China will do.
48 YRS OLD. 22 YEARS AS AN INVESTMENT ADVISOR. Clients enjoying 10-18 % simple return- in their accounts (net to them) and through investments in mutual funds- you know – those high fee investments that are slammed here on this Blog. Lets not confuse fee paid to a well deserved advsior vs going it alone in an ETF, you pay for what you get. I sold my house in fall 2010, and advise clients who are risk averse to consider same.
Here’s the real action in Guelph, people are buying foreclosure’s which are seeing walls down to the studs, floors lifted, toilet and sinks are being taken, furnaces removed, knobs on cupboards gone….and Guelphites are bidding on these things…..Fools they are….as Garth says- they are the ‘greater fool’
Keep it all simple- the KISS approach-take a look at whats been making money in the past 10 years….it should continue for the next 2-5 yrs…..get rid of not your mutual fund, but the advisor who has you in regular equities, within a mutual fund…..
#139Junius-I wonder if Hussman would consider a gigantic scam carbon credit trading market to be “speculative”.
Devil’s Advocate:
The Okanagan is great for views and outdoor recreation. When its unbearably hot in the summer, the lake is nearby. It lacks well-paying jobs. Its laid back on the surface, but it also has a dirty underbelly with rampant property and drug crime. I wouldn’t want to raise my kids there. Lots of violence among young men and women.
Kelowna is the worst part of the Okanagan. I’d much rather live on the Naramata bench or in Penticton, where the spoiled, idle white trash element is more subdued.
Other than that, its a nice place to live.
#154Living-jeez 18% a yr for the last 22 yrs-good thing you didn’t invest your own money-you would own this country by now if you had.
#74 Mr. Plow
I was looking to rent after I sold my house and the buyers were planning on renting their new house (my old house) for a while. So it just worked out for both of us.
#151 Taxpayer like everybody else
Shoulda been 10%.
#100 DJH
“Let me sound like the contrarian and say that much of what appears on this blog may be missing the point. Yes, we’re headed for some difficult times, but humanity’s overall trend will continue upward, as it always has. We will solve our problems of global warming, develop new and cleaner energy sources, produce more food for the world, better control mankind’s baser instincts for war and cruelty, do away with nuclear arms, create greater prosperity and increase everyone’s average standard of living. And employment, salaries and the values of real estate will increase, much as they did through the decades referred to above. Yes, keep your head down for the moment and read Garth’s book, but our long term outlook should be seasoned with optimism, enthusiasm and encouragement. To do otherwise is to unnecessarily limit our great expectations.”
D please tell me you’re being ironic—phew! you had me goin’ for a bit there.
@#131 dark sad person
Sorry, but USA 2010 is not Japan 1989.
Do you understand the difference between net creditor and net borrower?
Still with me?
Ok.
Now, even in Japan’s envious position, “deflation” was no more than 1 or 2 pct for SOME years starting 1989…
Now, tell me, when you take a cab from Narita airport is it cheaper now than in 1989?
- Largowinch
iTulip.com
#142 goldenfox on 07.13.10 at 7:32 pm
Gold is a wonderful inflation hedge!
In 1950 you could buy a coke for 5c. For $100 you would get 2000 cokes. If you stashed the $100 under your mattress, and pulled it out today, you would only be able to buy 100 cokes. Thats a 95% loss in purchasing power.
However if in 1950 you took the $100 and bought 3 oz of gold and stuffed it under your mattress, and retreived it today at $1200 per oz, you would be able to buy 3600 cokes, a increase in purchasing power of 180%. Compared to the dollar, gold has outperformed it by 3600%.
*********************************
No argument-that Gold has been a good store of value-
and has held its buying power against the $–
However had you bought 3 oz of gold in 1980 at $800/oz and sold in 2001 at $250/oz-
Which were the years of rampant Inflation-
http://barchart.com/chart.php?sym=HOG&style=technical&p=MO&d=X&sd=07%2F13%2F1980&ed=07%2F10%2F2001&size=M&log=0&t=CANDLE&v=1&g=1&evnt=1&late=1&o1=&o2=&o3=&x=67&y=15&indicators=&addindicator=&submitted=1&fpage=&txtDate=#jump
Example
Had you invested $100 in HOG at $2.50 in 1980 and sold in 2001 you would have beat Gold % by a mile-
You couldn’t say that Gold was a wonderful Inflation hedge during that period-but–HOG was–
That’s the point-in saying Gold is not a “good” inflation hedge compared to “other” assets–
You could buy a new suit for an ounce of Gold in 1950-
It will only do that today-with little change handed back-
I expect this will change in the next while-as we deepen into deflation and all assets fall against Gold-
Deflation makes Gold shine–not Inflation–
Hyper-inflation makes Gold scream-
Somewhere down the road maybe-but-not in the foreseeable future–imo–
To Dark sad person
You only used one side of the equation.
In 1950 the average wage was $7.00 per day which by your example would buy 140 bottles of coke at 5 cents.
Today the average wage is $ 70,000 or $191 per day even if I buy a coke at $1.00 at the vending machine I can buy 191 bottles of coke. But if I buy it on sale its double.
In response to #85:
That is the exact kind of attitude that is getting our country further and further into trouble – the NIMBY attitude. So what? So what our prices didn’t “meaningfully” come down in the past couple of years, even with the downturn economic forces at play. All it means is OUR VERY OWN BANKING SYSTEM HAS ACTED IRRESPONSIBLY, still allowing absolutely STUPID loans to be made which continued the driving upward of prices. We’ve done this now for an additional 3 years beyond that of the U.S. and Europe, which only means we’ve now got further to go downward. This is a very simple concept. And the beginning trend we are witnessing today with longer-sitting inventory, prices starting to drop slightly, the media silencing itself all of a sudden, etc. is EXACTLY the way it all went down in the U.S. We’re just getting started, people. So, enough with the b.s. rhetoric and “what ifs” and “oh, we didn’t do the same things as those *other* countries.” I truly believe the ONLY reason we were dubbed the healthiest banking system is because SOMEONE had to be it, and frankly, we’re not as important relative to the eyes of the G20. Our system is so much smaller and more easily and readily manipulated that the EU’s or the US’ For f*ck sake, we’re less than 11% the population of the U.S., and 6% the population of Europe. We can turn more easily. Our banking system SHOULD be the healthiest because we have less excuses. However, history will prove that our Banks acted more crazily than any others probably most anywhere else in the world through this crisis.
If you don’t think with populations of the EU’s and US’s size that they didn’t have some basis of high-level cognitive thought into how this crisis plays out, then you’re sadly mistaken. At this rate, I’m beginning to believe Canada’s own worst enemy is your kind of thinking. We’re, unfortunately, going to be THE example of exactly WHAT NOT TO DO in an economic downturn. We blindly stuck our heads in the sand and acted as if it wouldn’t happen to us in the same way, changing very little about the way we go about our business (and the way we conduct it is no different than how the U.S. was conducting it at the peak). But, those intruding economic factors that you’re so confident we’re impervious to outshine are the same factors that will ultimately burst your little bubble AND the real estate bubble, or dare I say damned hot air balloon, we’re in right now.
In response to #130:
“To all the desperate idiots on this site: real estate in Canada ain’t going nowhere but up. Sure it may stagnate here and there, but come on people, this isn’t the States. History has shown time and again that real estate is the only safe investment. Grow some balls and get into the market. Lets be honest, this site is only visited by dumb people desperate to buy a house, and jerks like me who come here to mock you…”
Wow, you’re quite a small-minded fool. You are right about one thing, though – this isn’t the States. We’re smaller, draw from a smaller population pool for tax base, we do not receive nearly the unbiased media coverage (contrary to popular belief), and our education system is often referred to as “elementary” compared to the States. Why is it we’re always talking crap about the States, but NOBODY in the States ever talks about us good or bad? Oh yeah, we’re inconsequential in their eyes, and in response, we act like an annoying, retarded little sister who throws a temper tantrum for attention. That’s why we’re referred to as “the room above the party.” Stop acting so childish and start acting like a responsible adult.
#121 DJH…….
OK……..so you’re senile…….same thing as being under 30 in my books.
So, just wondering out loud here, but if the whole market goes into pandemonium, and real estate tanks, and people are poor and can’t invest…won’t the stock market drop too? Won’t your preferred shares decrease, or won’t bankrupt companies have to cut dividends or go under? Not sure this financial investing idea is great at this time either….but then again, I’m not a finance guy, so I may be mistaken there.
Where did you get that extreme view? Not from here. — Garth
2 X 4′s
Lumber’s nominal dimensions are given in terms of green (not dried), rough (unfinished) dimensions. The finished size is smaller, as a result of drying (which shrinks the wood), and planing to smooth the wood. However, the difference between “nominal” and “finished” lumber size can vary. So various standards have specified the difference between nominal size, and finished size, of lumber.
Early standards called for green rough lumber to be of full nominal dimension when dry, but the requirements have changed over time. For example, in 1910, a typical finished 1 inch board was 13/16. In 1928, that was reduced by 4%, and yet again by 4% in 1956. In 1961, at a meeting in Scottsdale Arizona, the Committee on Grade Simplification and Standardization agreed to what is now the current U.S. standard: In part, the dressed size of a 1 inch (nominal) board was fixed at 3⁄4 inch; while the dressed size of 2 inch (nominal) lumber was reduced from 1+5⁄8 inch to the now standard 1+1⁄2 inch.
#163 james
Bad math!
$191/day = $955/week
$955 X 52 weeks does not equal
$70K
Wait the minute, weren’t people writing mutual funds off after the 1987 crash and look what happened after that. It’s all relevant on how you judge the future at current time. ETFs are tied to indexes and the index is tied to stocks, so if the stocks don’t do well you are at a losing end anyway. I think if you are very selective and the mutual fund manager has a stake in the fund the fund usually does quite well.
Generalizing one investment over another is just plain silly. It is all about looking what is behind a particular investment.
You obviously do not know what ETFs are. — Garth