Today’s theme: things are not always as big as they appear. Doesn’t apply to me or my important bits, of course, but otherwise is a rule of nature. First, let’s talk about a place with a big, international reputation – Whistler, never more immortalized than during last year’s Olympic thingy. Now let’s add something else big, a humungous 5,500-square-foot chalet-mansion, all glass and cedar, granite and marble.
Some British dude bought it for $5.4 million six years ago, and then two years later decided to put it on the market after spiffing the place up. The asking price: $8.9 million, which was outrageous but not obscene, given the coming games and the unbridled interest this would engender among the world’s jetsetting, horny classes (who can afford $28,000 a year in property taxes).
Well, 3815 Sunridge Place just sold. After four years on the market, it went for $4,475,000. That is a 50% discount from the original list price, and a loss of about 19% on the original purchase. Factor in six years of taxes, maintenance, insurance and a crew of locals hired to wax all those phallic posts and, well, stuff adds up.
Says a local realtor: “In Whistler, we are now back to 2002 prices and still very, very soft. Is Vancouver next? Probably not in the same way but we will see the froth come off the top.”
Big is good. Until you aren’t.
George Papandreou was big, the head guy in Greece. So was Silvio Berlusconi, chief squeeze of Italy. This week, as you know, they’re both toast. These two countries are now being run by unelected leaders, after the elected ones were tossed on dustbin of Euro debt.
So what? So more reason to expect deflation (not inflation) will be the big thing to worry about over the next few years. Both Greece and Italy (and Britain, France, America and Canada) are rushing headlong into an austerity kick that will change the face of life.
In Europe this means reduced government pensions and public service, along with higher property and VAT taxes, and a depressed real estate market. In Canada, less government spending, more provincial and property taxes, a smaller civil service, slower economy and stagnant household incomes. And a depressed real estate market. In the US, it could take Mitt Romney to the Oval Office, with consequences most of us have not dreamed of. Including a depressed housing market.
But what does this mean for one of the big investments of 2011?
Well. As you could tell by reading this blog for the last year or two, a lot of people believed big debt would be answered only by more big government spending, resulting in big currency devaluation and even bigger inflation. And it was this debasement of currency, the bullion bunnies argued, that would propel gold (and silver) into the stratosphere and eventually lead to a new, commodity-based money.
Well, that might still happen. But the commodity may have hooves and a raspy tongue.
The best-performing real assets this year? Pigs and cows.
Hm. So what to make of such fallen expectations?
Since this pathetic blog crawled from the primordial ooze (I should clean the Bunker more often), I’ve argued against our infatuation with the physical. For reasons I have pounded into sand, real estate will disappoint mightily in the years ahead, now completely unsupported by economic fundamentals and held aloft by duct tape, HGTV, fleeting aspirations and delusional mothers-in-law. No match for debt, lost jobs or swampy incomes.
Gold, too, rode a big, emotional path skyward before stalling – yellow stuff that pays no interest or dividends, has limited use and which 99% of people don’t have since an iPad is so much more fun. The metalheads thought a debt crisis would bring down America, usher in a cleansing depression and leave them resplendent with wealth. Instead they have pieces of metal they’ll sell for less in a few years to start an RRSP.
Sometimes big sucks. Especially for the suckers.