As I pulled off my cowboy books and prepared to be sautéed in that human microwave now installed at the airport security circus, Mr. Glum Guard looked up and said, “So, should I invest in oil or gold?”
That was an easy answer. The world needs oil, I said. It does not need gold. Meanwhile my privates tingled a little as I looked at the full body scanner, manned by another giant uniformed dude decked out in blue latex gloves and a headset. It was pure intimidation. The least I could do as I stood on the yellow spots and raised my arms was give the machine two hand gestures that I’m sure by now are in my CSIS file. If this blog abruptly ends, you’ll know why.
The good news is my travels are ending. Almost. A little jaunt to the prairies in a couple of weeks. A talk in Toronto on November 9th. Then I am able to find more time to devote to other business interests, and my next book – which dives more into the reasons why people do what they do with their money, and how to profit from knowing that.
Interestingly, I was asked twice last night in Calgary – at two separate events – if the housing market was different there (and immune from nasty trends) in light of my call for $100-plus oil. Of course, it isn’t. With 90% of the population of Alberta not involved in the resource sector, there’s no reason to think oil inflation will end up increasing the salaries and wages of nurses, teachers, car dealers or the guys who work in Best Buy.
Meanwhile, whatever oil does, there’s no escaping the ravaging effects of record household debt, the last wheezing, sad years of the Boomers, a steady diet of higher taxes, tepid economy growth or creeping rates. A real estate salvation in Alberta (outside of Fort Mac) because of crude is akin to the rescue of Vancouver by those wealthy Asians or the stabilizing influence of the federal government in Ottawa – nothing by a blast of upskirt sunshine by the house pimps.
In fact, events of the last few days have me feeling more jaded than usual. Riots in France as the government tries to raise the retirement age from 60 to 62. Despair in Britain as the coalition leaders there slash half a million civil servant jobs, gut the navy and also bomb retirement benefits. Worry in the US as the foreclosure mess threatens banks and comes as mid-term elections are set to destabilize Washington. And reports like this from blog dogs around the planet:
“Garth: We live in Squamish and sold our house a year ago for $620K. I track the prices of houses faithfully now. A house that’s been on the market around the same time as ours (a year now), started at 649k, has dropped two times in listing price and is now sitting at 559k. Two well established town home developments I’ve been tracking since last year – the one development: peak prices were 425K, I just saw one listed for 337K and the other development mid to high 300’s now sitting at 289k. Doing the math, it appears to be a drop of between 13-17% just in the past year. Yes, there are starting to be fewer listings – but that’s because people are pulling their homes off the market after no action.”
All of this – spending cuts, austerity measures, social unrest, indebted citizens, bank woes, political morass – is pulling us in the same direction, towards a deflationary swamp. It’s consistent with what central banker Mark Carney was warning about earlier this week – crappy growth for the next two years – and with the warning from TD economists that too many Canadians are one financial shock away from being seriously screwed. Families have precious little in the way of savings or reserves, 70% of us have no pensions and we just finished borrowing obscene amounts to buy houses which are declining in value.
How does this possibly end well?
So my advice remains: (1) Shift wealth from real estate to financial assets. Now. (2) Invest in things that pay you to own them (like bond interest, preferred dividends, REIT income and sector ETF capital gains). (3) Avoid taxes – legally. (4) Be balanced and diversified with a proper asset allocation. (5) Love liquidity.
Deflation will eventually lead to inflation. But real estate’s done for a generation. Everybody’s standard of living is at risk. Nine in ten people have absolutely no idea those pictures of turmoil in Europe or anguish in America give glimpses of our own potential future. The best path ahead is the one few will take.
BTW, if ever in Calgary, come and see me in detention.
So, being a financial guru isn’t all groupies, untold wealth and babes throwing underwear at you. Well, not consistently.
I’m in trouble on this blog if I use too many pictures of women, fat people or cleavage. (Puppies, kittens and bears are okay.) Can’t say ‘Muslim.’ Sure as hell can’t comment on runny-nosed little screamers. If I mention gold, I spend the next fourteen hours pawing through Armageddon links. And it matters not what I decide to discuss – bonds, preferreds, equities or the orange guy’s shorts – a bunch of investment terrorists who know everything move onto the blog and establish a beachhead. Of course, I am routinely accused of being sexist, anti-Boomer, Albertaphobic and a rabbly, inconsequential, failed political outcast.
As true as some of that may be, the most determined critics come back with two indefatigable points: Housing prices in Canada have not yet tumbled and, while sales have slowed, there seems no shortage of people lining up to buy. So, they conclude, the endless adulation and fawning media attention I bask in is largely undeserved. Sigh.
So, what is a tarnished guru to do? Explain it away, I guess, in the hopes the lingerie barrage will continue.
There is, after all, only one reason we had a real estate boom in the middle of a recession, and that’s cheap money. Mortgages at 1.5%, purposefully created by the monetary authorities to send us into an orgiastic buying spree (it worked), were then augmented by a sense of panic as Ottawa threatened to tighten mortgage rules and as the HST approached. Meanwhile a massive runup in prices, created by virtually free money, sparked bidding wars as property virgins fretted they’d never again be able to buy. Finally, our conservative, carrot-up-the-butt bankers decided to throw gas on it all with no-doc loans, cash-back offers, first-timer promotions, below-prime variables and an everyone-gets-financing attitude.
In almost all of the above – cheap money, teaser rates, lowered lending standards, greed, house lust, panic and price plumping – we aped the Americans. Now, for reasons which escape this wizened, booted, broken scribe, critics think we’ll escape the consequences Americans reaped.
Won’t happen.
The current buying activity, along with the refusal of many vendors to face reality (their last chance in a generation to sell at current prices), is zombie real estate. It moves. But it’s dead. These buyers are indeed greater fools, and no less a luminary than Mark Carney – Bank of Canada dude and blog reader – has been trying to make just this point.
This week he dropped a report stating the obvious: the economy this summer sucked. He also said the suckiness will continue, likely until the end of 2012. But between the carefully measured words was a message quite unmistakable – it could get worse. And we could follow the USA down its middle class-destroying, house-hugging path.
“If there were a sudden weakening in the Canadian housing sector, it could have sizable spillover effects on other areas of the economy, such as consumption, given the high debt loads of some Canadian households,” is the way he put it. For a central banker, this is the equivalent of dressing like Don Cherry. Look at me, dammit.
And he’s right. Cheap money created unaffordable real estate and made everyone forget about sound investing and prudence. Debt will change all that.
More evidence came today from the brave hearts at TD economics, where a surprisingly frank and useful report has been published (read it here) on the stupidity of our collective actions. Personal indebtedness is now “obsessive”, has tripled in the past two decades, and will screw a lot of households if there’s any kind of financial shock.
Canadian families are now just as indebted as American ones, but while the Yanks are spending less and saving more, we’re doing the opposite. In fact, TD says it expects our debt levels will swell even larger over the next five years, at which point only Allah knows what will happen.
“Canadian personal indebtedness has become excessive relative to what economic models would predict as appropriate. Growth in personal debt must slow relative to income growth over the coming years or else the risks of a future deleveraging will increase.”
The culprit asset, of course, is housing. We just couldn’t resist all that house porn. Now about70% of us own homes and with prices rising, it means a huge amount of net worth is buried in this one thing. Too bad. It also makes us as vulnerable to a wealth hurricane as American (or British, or Spanish, or French, or Italian or Irish) families discovered when it became clear the supply of greater fools had been exhausted.
So, this is why I do what I do. Warn of the inevitable. Try to guide your money into safer harbours. Explain the trends and gathering clouds. Offer better strategies than granite and stainless. Explore contrarian paths. Battle the extremists and special interests, the pumpers and the doomers.
And if I throw in a Venus in the mud, deal with it.
Despite house boom: debt up, assets down
Hear Garth here:
Calgary
EVENT FULL Thursday October 21, 6 pm, Leacock Theatre, Mount Royal University. Reserve seats here.
TONIGHT Thursday October 21, 7:45 pm, Chapters Dalhousie, 5005 Dalhousie Dr. NW
Toronto
EVENT FULL Tuesday November 9, 7 pm, Double Tree Hilton, 655 Dixon Road (airport strip). (Note: Additional seats will be available here on Monday, November 1)
