The big D

If the collapse in the price of houses from Florida to California should have taught us anything, it was deflation. It’s back. You should learn about this beast. It bites.

I’ve argued on this pathetic blog for more than a year that deflation’s what you need to worry about, prepare for and defend against. It’s worse than inflation. The latter we know how to deal with. The former’s a mystery. As far as economists can tell, there is no cure. Only attempts at prevention.

I was reminded of this in the last few days when the chief economist for the BC Real Estate Association broke down and admitted prices will be lower next year. That must have broken poor Cameron Muir’s heart, since it makes a lie of four years’ worth of media releases. At the same time, beware-deflation stories have started creeping into the mainstream media as central banks and governments everywhere jack down their growth forecasts, and commodity prices retreat.

Here’s the meat: Deflation is when prices fall, and continue to do so mostly because people expect them to. So, it’s inflation in reverse. Rather than buy a house quickly because you believe you’ll never be able to afford it later, deflation means you wait to buy since you’re sure it will soon be cheaper. If enough people agree, it’s a self-fulfilling prophesy. Sellers cannot sell unless they price below your expectation, which drags prices down more.

So deflation makes money more valuable. It buys more. In the US housing fell by 32% between 2006 and now. This asset deflation made money 32% more valuable. And along the way it cost about eight million jobs and destroyed the middle class.

As I’ve argued, you can have destructive asset deflation at the same time as price inflation. In fact, we have it now. Grocery bills keep rising in Victoria, for example, where the price of housing is falling. This pattern can last for some time, until deflation goes viral, starts costing jobs and profits, and everything trends lower. Hope that never happens. It’s called the Dirty Thirties.

While that extreme is unlikely, we don’t need a rerun of the 1930s to see what ‘moderate’ deflation can do to family finances. As I said, it’s already in front of us in the States, where 20% of all families owe more on their mortgages than their houses are worth and millions more have walked away from real estate they could no longer carry. About $5 trillion in wealth was destroyed when housing deflated – not bank money, but equity.

You see, when asset values fall and money gets more valuable, debts become harder to repay. Across Canada workers have been asked to take pay cuts in order to save jobs. The average wage gain is less than the price increase for food, which means people actually earn less. That’s deflationary. Now add in a decline in home equity as real estate values fade, and you can see where this might lead.

Central bankers know all this. It’s why emergency interest rates are still in effect four years after the financial crisis. It’s why the US Fed is spending $40,000,000,000 a month purchasing government securities, why the European Central Bank is on a bond-buying binge and why the American election is about tax cuts. If governments cannot stop deflationary pressures, they’re in serious trouble. So are most people reading this.

The telltale signs are structural unemployment, companies that take profits from productivity, not increased sales, sky-high bond prices, savings accounts that pay zip, government cuts, lower growth forecasts and, of course, falling real estate sales and prices. So, judge for yourself.

If it gets worse, the winners and losers are well-known.

Deflation destroys borrowers and rewards lenders. Mortgages can (as happened in the US) be worth more than the houses they financed, and homeowners forced to pay them back with reduced wages. Equity is erased. Now I hope you can see why I’ve spent so much time warning against 5% down payments, or encouraging those whose real estate soared to harvest those gains.

In deflationary times people who own bonds win. They mature and pay you 100 cents on the dollar, while preserving money which only grows more valuable. So, who needs to earn interest when the bond itself swells in purchasing power? See why trillions of dollars have surged into government paper that yields no return?

In deflationary times, real estate is usually crushed. Credit and liquidity dry up as the economy slows and consumer confidence fades along with jobs. The same with assets like gold and silver. Commodity values stagger as paper currency rises in potency. This is a reason why I have warned against over-exposure in both housing and PMs for a long time, since the future clearly belongs to those heavy in things that rise with cash.

Of course, this ain’t the Depression. It’s not even the USA circa 2009. Nor does it need to be.

Canadians are some of the most indebted people in the world, living in some of the most expensive houses with some of smallest savings on record. If there ever was a place where falling prices might suck, you’re in it.

231 comments ↓

#1 DC on 10.29.12 at 8:35 pm

oh boy… I hate to do it, but

first.

#2 rembrandt on 10.29.12 at 8:37 pm

No critique yet? All the rats are drowning under 5 foot of water in Eastern US. Markets closed. Boring!!!! Devastating damage in progress. I wish the neighbors to the South a lot of strength. May no one perish!

#3 Seven Stars and Orion on 10.29.12 at 8:43 pm

I could use a refresher on preparing squirrel. Thanks in advance.

#4 T.O. Bubble Boy on 10.29.12 at 8:44 pm

Bonds still lose if the $CDN tanks… investing in countries that aren’t selling commodities (i.e. Not Canada, Not Australia) helps maintain some purchasing power.

#5 Oasis on 10.29.12 at 8:50 pm

Credit and liquidity dry up as the economy slows and consumer confidence fades along with jobs. The same with assets like gold and silver. Commodity values stagger as paper currency rises in potency.

_____________________________________

and yet, Precious Metals have risen, not fallen. Sorry Garth, nice try. real estate has collapsed in the US, deflation. the economy has contracted, deflation. bla bal bla,…

why is gold at $1700, and not $200? your theory is simply wrong.

Wait and see. You will be most unhappy you did not exit at $1,900. Greed’s a dangerous thing. — Garth

#6 Redemtion on 10.29.12 at 9:06 pm

Garth ,
start deleting these “Firsts” blog polluters

#7 Smoking Man on 10.29.12 at 9:09 pm

Gartho your blog is about investing money, saving, hedging, risk avoidance, housing. Sort of boring, same shtic over and over with the odd entertaining distraction by me.

But for once, why don’t you do a piece on making real money. Owning the deal, making the sale.

Tell the tax farm slaves, a job f-en sucks, give them govt resources that will help em become self employed.

Tell them Working for some one else sucks, tell them to always have the eyes and nose sniffing in opportunistic mode, rather than enriching their slave owners.

But then again the audience here is more into wishing harm on rivals than actually getting a brain wave, going all in and conquering the world.

Damn writers block again, sorry fans.

#8 Visigoth on 10.29.12 at 9:11 pm

Deflation is actually a good thing. I know people like garth and economists sh*t their pants over it, but trust me it’s a great thing.

It helps reset prices of crap that had otherwise grown to ridiculous values, like houses.

So sit back, enjoy and get ready to pounce when the price is right.

#9 Richard Licker on 10.29.12 at 9:11 pm

So deflation makes money more valuable. It buys more. In the US housing fell by 32% between 2006 and now. This asset deflation made money 32% more valuable. And along the way it cost about eight million jobs and destroyed the middle class.

Did the cost of rent food gas……all that other stuff fall by 32% too?

Some did. Some will. Ain’t over yet. — Garth

#10 Randy on 10.29.12 at 9:14 pm

“This is a reason why I have warned against over-exposure in both housing and PMs for a long time, since the future clearly belongs to those heavy in things that rise with cash.”

Garth…Can you provide a short list of things that you think will rise with cash ??

Sure. Cash equivalents. — Garth

#11 Fort Mac Flatlander on 10.29.12 at 9:14 pm

Good evening Garth,

If we are heading towards a stagflation scenario and most idustrial based commodities decline, will we continue to see strong agricultural commodity prices? If so, does this not at least partially compensate for rising farmland prices?

Thanks again.

#12 Hurly on 10.29.12 at 9:15 pm

I had more purchasing power ten years ago. Now a box of cereal costs the same but holds half the amount. Fuel was $0.49. The only things cheaper are consumer electronics. Inflation has been taking my money for years, now real estate deflation is going to take the rest. :(

#13 Smoking Man on 10.29.12 at 9:19 pm

#192 Old Man on 10.29.12 at 8:15 pm
#185 Smoking Man – I keep my party yacht moored at the Port Credit marina, and if you want to get lucky in the Spring of 2013 just might invite you for a trip, as have a free bar, and food with lots of babes; you just might get lucky, and I check all ID’s before a cruise to make sure all are legal age.
………………………….s…………………………………….

Perhaps you could help me get a slip. Waiting list.

As far as babes, you know I only go with short term rental contracts.

Not doing Grass Roots, no tickets, waited to long to get em.

So I will have to settle for the center bar.

I’m Jealous Old man.

#14 CP on 10.29.12 at 9:19 pm

Garth, since we’re on the topic at the moment, where do you see silver going in 2013? I know… long shot for an answer, but a guy can try?

No. — Garth

#15 AA on 10.29.12 at 9:19 pm

Garth,

I was going to write and ask you to give some investment advise (more detailed than ETFs and …) to short real-estate slow-down in Canada or slowing economy. I guess you somehow answered it in last thread. Thank you for elaborating further.

#16 martin9999 on 10.29.12 at 9:23 pm

it was deflation. It’s back”” – Garth

I dont know what you taling about dude. Have you gone out lately?! everything costs more by 30% minimum. go and dine out and you see what’s up. go into any bar in toronto 7 bucks a corona

And check out the cost of reading comprehension classes. Shocking. — Garth

#17 dosouth on 10.29.12 at 9:26 pm

Someone forgot to tell these “Canucks” about the big D –

http://tinyurl.com/96bqbd9

#18 Babblemaster on 10.29.12 at 9:26 pm

Bonds are good, but not great.

– If interest rates go up, bonds trade at a lower price.
– If the Canadian dollar goes down, bonds are also impacted.

So, in the current scenario of interest rates potentially rising, why not just chose bank accounts over bonds?

If we get deflation bonds could yield capital gains plus protect wealth. — Garth

#19 M G on 10.29.12 at 9:28 pm

Please Garth explain why throughout history all countries with fiat currency system ahve seen the purchasing power of their paper diminish year after year? Are you saying “its different here”? And by the way, many real estate markets in the USA were not wiped out as you suggest in exaggerated language “from Florida to California.” Their real estate tanked because mortgage brokers were fraudulently lending money out to people who never deserved it for the commissions. longer term what the Feds have done here, to tighten borrowing rules, will benefit real estate prices because these new rules will keep financial losers out of the real estate market. So they will not panic dump their homes when they lose their 10 dollar an hour job at Mc Walmart.

Many people here in Canada are simply not forced to sell as we have alot of equity in our homes. This will lead to a more balanced market, but not a 40 per cent correction as you have suggested.

I have suggested 15% with more severe corrections in vulnerable markets. Your comments on currency are simply wrong. — Garth

#20 martin9999 on 10.29.12 at 9:31 pm

Wait and see. You will be most unhappy you did not exit at $1,900. Greed’s a dangerous thing. — Garth

Gold hill hit again 1900$ probably by 2014, till that happens it needs to correct and find a better bottom at around 1400$

#21 GTA Engineer on 10.29.12 at 9:33 pm

Deflation will actually save the US government. Why? The destruction of money (via asset deflation) offsets the great money-printing going on (QE1/2/infinity) and keeps inflation from going rampant and devaluing the currency. The US could print itself out of a good chunk of debt without worrying about inflation. In other words, asset deflation will prevent price inflation. So don’t go getting your hopes up that the stock market will take off, and gold will be worth $3000 an ounce, because it ain’t gonna happen. Food and fuel inflation will continue due to scarcity and cost of production, so don’t use those arguments. The ultimate loser in the US is the homeowner, who is financing this printing via the loss in equity in their homes. So deflation isn’t all bad – as long as you’re on the right side of it..

#22 Victor on 10.29.12 at 9:36 pm

http://www.theglobeandmail.com/report-on-business/economy/economy-lab/finance-official-questions-link-between-cooling-housing-market-mortgage-rules/article4741736/

The association’s chief economist, Gregory Klump, told The Globe and Mail at the time of the report’s release that the data were linked to Ottawa’s June moves.

“The recent mortgage insurance changes are working, it is cooling the market and sales have ratcheted down compared to a year ago,” said Mr. Klump.

It is the kind of analysis that leaves Mr. Horgan unconvinced. While he says there is likely some cause and effect at this point, he suspects it is more likely that Canadians are starting to realize their household debt levels need to be addressed.

Mr. Horgan pointed to data released this month that the ratio of market household debt to disposable income hit 163 per cent in the second quarter, which the deputy minister noted is at similar levels as those in the United States before the recession.

“We do have a home-grown risk,” he said, as he listed Canada’s housing market among a group of factors that could throw Canada’s projections off track. “This is something we pay a lot of attention to.”

Mr. Horgan has been Mr. Flaherty’s deputy minister since September, 2009. The career federal public servant was Canada’s representative at the International Monetary Fund before becoming the Finance Canada deputy.

During an appearance on CTV’s Power Play, Mr. Flaherty was asked about his deputy minister’s comments.

“I’d certainly agree that the full impact [of the changes to mortgage rules] has not been felt yet,” said the Minister.

==============================

Can someone pass the popcorn?

#23 William of the North on 10.29.12 at 9:37 pm

It’s demand destruction. “Deflation makes the money (insert-currency) more valuable. (your words) Which I agree with. However, if we were truly suffering from deflation, the prices of everthing would be going down. Not only would the price of houses be tanking, but also the price of a loaf of bread, meat, corn, fuel …. everything across the board.

What you have here is the popping of a bubble. The destruction of demand.

The supply of money is not shrinking (deflation). Central Banks across the globe are printing cash like it’s going out of style. (That includes the Bank of Canada) That my friend, is INFLATION.

#24 S on 10.29.12 at 9:44 pm

On the bright side savers might for once in a long, long time come out ahead. Somehow, those least liquid appear the most comfortable borrowing and spending turning normal order of things on its head. Perhaps a little deflation – like a little spanking – might serve a proper purpose.

#25 will on 10.29.12 at 9:49 pm

Ok I’m still in econ 101. What happens to stocks in this deflationary scenario? Or is the question about which industries you should not be in and which may thrive? Garth, what happens to stocks?

Depends on profits, of course. — Garth

#26 Don't read his post on 10.29.12 at 9:58 pm

Garth, great post tonight! I believe your correct about deflation. It only makes sense. It’s too bad a lot of people follow the heard and continue to keep there money in precious metals. The run is over!!!

Gold is not the problem. Houses are. — Garth

#27 MarcFromOttawa on 10.29.12 at 9:59 pm

1 year chart of gold resembles a cup-and-handle pattern (or so I’ve heard).

…here is my handle…here is my snout… — Garth

#28 Jim on 10.29.12 at 10:08 pm

“Central bankers know all this. It’s why emergency interest rates are still in effect four years after the financial crisis. It’s why the US Fed is spending $40,000,000,000 a month purchasing government securities”

Well, check out interest rates before the crisis.

Also, what hard assets is the ‘Fed’ offering up to purchase government securities? What land, gold or other assets are changing hands? None. Just money printing, otherwise known as currency debasement. Shuffling stacks of zeros.

The velocity of money is falling. That dooms real assets. — Garth

#29 Rain bird on 10.29.12 at 10:11 pm

How a out commercial real estate?

Since you get a certain %age income, would that be similar to bonds? In other words will commercial real estate gain in value as time goes by just like bonds?

#30 JRH on 10.29.12 at 10:12 pm

Boy that F guy sure seems to think it’s all peachy in Canada. I think with commodities withering we might get a nasty surprise. Thanks Garth for the work you do.

#31 happy renter on 10.29.12 at 10:12 pm

Currency wars are coming.Listen to max Keiser,he’s been a stockbroker for over 25 years and he says gold and silver are going much higher.Bonds are going to get annilated.

#32 Harlee on 10.29.12 at 10:17 pm

The weather is kind of cool here in S’toon this evening. Not – 60 though as one science fiction writer one wrote.
Not much wind – not even a breeze.No one getting hit by signs.
All is calm, all is bright…Sleep in heavenly peace….

#33 LJ on 10.29.12 at 10:22 pm

Technically, we are in a deflationary environment. If you accept that gold is money and not a commodity. Priced in gold, even Canadian house prices have deflated in the four years since the GFC. Even in the 1930’s the ‘fixed’ price of gold went up 40%, by government decree, after they made it illegal to own.

I’m not a “goldbug,” but it does have an important place in a well balanced investment portfolio, alongside bonds and equities (and real estate bought at a reasonable price).

#34 Rainman on 10.29.12 at 10:22 pm

Good post Garth! you are on fire tonight!!! what are you into the Whiskey?
The average person doesn’t understand deflationary assets along with an inflationary period. People are going to get hurt badly and don’t even see it coming..

#35 Gunboat denier on 10.29.12 at 10:25 pm

“In the US housing fell by 32% between 2006 and now.
This asset deflation made money 32% more valuable. ”

That would be 1 / (1 – 0.32) = 1.47ish

Therefore 47% more valuble.

Mathematically correct. Socially wrong. — Garth

#36 Realtors are in an all out panic on 10.29.12 at 10:27 pm

Visigoth on 10.29.12 at 9:11 pm Deflation is actually a good thing. I know people like garth and economists sh*t their pants over it, but trust me it’s a great thing.

It helps reset prices of crap that had otherwise grown to ridiculous values, like houses.

So sit back, enjoy and get ready to pounce when the price is right.
———————————————————-

Thank you. Deflation is the best thing that can happen for a country and it’s people. In 2008-09 I was able to shop and shop and shop like crazy as there were deals to be had everywhere. I was spending money like crazy since prices made sense. Inflation is horrible as your money is worthless everyday and you are able to buy less. Hmmmm deflation = money worth more and you can buy MORE goods or inflation = money worthless and you can buy less with your money. Bankers love inflation since you have to borrow more money to buy things. Back in the day people saved up money and bought cars with cash. Now people need 80 month payments. Ya inflation is so great.

#37 Ayn Rand Army on 10.29.12 at 10:27 pm

When interest rates are 5 or 10% then we’ll have some deflationary pressure and incentive for repayment of debts and corollary contraction of the previous 40 years of credit expansion.

Falling prices in real estate is not deflation, it’s falling prices. The inflation was the low interest rate credit expansion that inflated the houses in the first place, hence the large amount of mortgage debt now in the system.

When house prices fall, the mortgage debt remains. The seller or home builder who received the payment does not surrender the money back to the bank on behalf of the home owner. He keeps it and spends it into the system.

Contraction and deflation only happens by repayment which only happens in mass by higher interest rates.

Inflation is wiping out my debts. I’m a debtor buying gold in US dollars. When the dollar collapses I will be able to sell only a portion of my gold to repay my USD debt. Savers will be decimated. A $100k will buy a Ferrari today, but in 5 years your $100k will only get you a brand new Chevy Cavalier made in Mexico.

You got it all backwards. Again. Over-Out.

Bullion blindness. I hear it’s fatal. — Garth

#38 smartalox on 10.29.12 at 10:32 pm

Of course, this ain’t the Depression. It’s not even the USA circa 2009. Nor does it need to be.

Canadians should count themselves lucky that we’ve been spared this long. Surely our government has learned from watching what happened in Europe and the United States, and have a plan in place to minimize the damage in Canada.

Right? Please? Anyone?

#39 Devore on 10.29.12 at 10:35 pm

Deflation means people buy only things they need (or really really want). No one’s buying that fridge because SS is the new Harvest Gold, they only buy a new one when the one they have now, and that is working just fine, bites the dust. It is a natural brake on consumption, especially using borrowed money; unless you have to, why borrow, at interest, to buy today, when it will be cheaper, and a dollar more valuable, tomorrow. This is terrible news for a consumption driven economy, with built in expectations there will be even more consumption tomorrow. This is also terrible news for debtors, whose debts are becoming more difficult to repay every year.

I don’t think economists have any trouble with deflation. They understand it just fine. The trouble comes in because they know what it means for our economy and our governments, who need inflation even more than humans need air to survive, and they know the central banks and governments have no power to fight deflation. But they will anyways.

#40 Albert on 10.29.12 at 10:36 pm

printing money is inflation, i dont understand how can printing money and making money cheap is deflation.

can someone please explain ?

#41 Snowboid on 10.29.12 at 10:36 pm

#9 Richard Licker on 10.29.12 at 9:11 pm…

Last time I looked the median wage for Kelowna was about the same as the similar sized community we call our winter home in the NW valley of Phoenix.

We know that housing took a big hit there, with $ 450,000 homes from 2006 selling for around $ 150,000 in 2010. Same is coming for Kelowna, but hopefully not as bad.

Rents – about $ 1200 a month for a $ 150,000 home down south, $ 1200 for a $ 350,000 SFH in Kelowna. It makes more sense to own down south but many prospective buyers can’t get mortgages, but still rents haven’t gone up.

Overall, prices have gone up a bit down south, but are still on average about 35% less than the same items in Kelowna.

However, they basically make the same wages as us, with fewer taxes and 35% lower fuel and food costs.

Of course their medical costs are up-front and in your face, whereas ours are ‘free’ and hidden within our tax structure.

None of our US friends have suffered from the issue of medical coverage, makes you wonder if we aren’t the ones having the wool pulled over our eyes.

#42 Gogo on 10.29.12 at 10:37 pm

Garth, if you think there will be deflation in Assets, what real bet have you made with your own money? How will you profit from this?

Balance. Diversity. Liquidity. — Garth

#43 visorman30 on 10.29.12 at 10:41 pm

Hi Garth,

I’ve been enjoying reading your blog for the past 6 months. Prior to coming across your blog, most co-workers (all CAs) gave me a ton of shit about renting. So thank you for providing some comfort that I’m not crazy.

I do have a question, which I believe is touched on in some of the comments above. Specifically, what indicates that deflation (as you have conveniently defined as ” Deflation is when prices fall, and continue to do so mostly because people expect them to”) will occur?

A couple points:
– I absolutely agree that nationwide, there will be a significant housing correction.
– Canada has limited influence over the cost of items.

It’s this second point I would like to bring forward. I believe that Canadians, regardless of the period, have such limited ability to influence most prices that it would be difficult to say that prices will fall because people expect them to, in general.

My reasons are:
– Canadians have not been able to get pricing parity for identical retail items from those exact items in the US. Demonstrating an inability to affect prices.
– Inelastic items take up a huge % of average income (Food/fuel/utilities etc.) where pricing is a lot less responsive to the market.
– Market is a lot more global than it was in the 30s and Canada’s share of the world’s goods and services has shrunk with the rise of China/India/Brazil.

Perhaps I’m being nitpicky but in my peanut of a brain, I have a hard time reconciling the above with the definition of deflation.

Again, I love the blog and if I were ever so lucky, I hope that the gf and I could sit down and go over an investing strategy in the future.

#44 AprilNewwest on 10.29.12 at 10:47 pm

#19 MG -… and many people will be forced to sell which will drag the rest down.

#45 mb on 10.29.12 at 10:49 pm

Bonds would be a great place if the rest of the free world wasn’t in debt up to their eyeballs. Look at Europe, bonds are a terrible place to be. Soon it will be the US, and if we keep or act up, us. Bonds are in a massive bubble

#46 EJ on 10.29.12 at 10:52 pm

The deflation boogeyman again… These governments and banks print money like crazy, rewarding the irresponsible and punishing the responsible. As soon as the tables are turned, they are out in full force fearmongering the public because their little game is over.

Deflation only drives prices down to their utility value, stripping out the speculative value. Look at electronics for proof that deflation does not drive prices to “zero” like TPTB like to claim it will. Everyone knows that if you wait a year, you will get a bigger, better TV for a lower price. If you wait, a computer will get faster, store more data, and become cheaper as well. Yet, amazingly, people still purchase these items on a regular basis and these industries have thrived.

Like Walmart says: It’s time to roll back prices. Let’s bring value back to the dollar. Make the penny worth keeping. Undo the damage that has been caused by incompetent central bankers and spendthrift governments. Yes, it’s going to be painful, but blame the inflation that caused this situation in the first place, not the cure.

#47 Dave B on 10.29.12 at 10:53 pm

Hey Garth, I think Canadians can learn a great deal from this article. Thoughts?
http://www.vancouversun.com/business/Germany+Credit+wanted+cash+only+culture/7009135/story.html

#48 Buying houses in the US? Garth you still on board? on 10.29.12 at 10:58 pm

Garth do you still feel it’s of value to buy a house in the US? In the recent past you’ve viewed this to be true. I’m hoping that hasn’t changed.

Depends where, how and to what end. — Garth

#49 Devore on 10.29.12 at 11:00 pm

#16 martin9999

go and dine out and you see what’s up. go into any bar in toronto 7 bucks a corona

Because trendy idiots line up for hours, pay to get in, then pay whatever prices are asked inside. Or pay $500 for a $50 bottle of vodka (bottle service). I admit I did it, but it cost a “mere” $100, only a couple years ago. That’s not inflation, that’s stupidity. Always a high price to pay for that.

A bottle of Corona is still 2 bucks at the liquor store.

#50 KG on 10.29.12 at 11:03 pm

Garth, are you less bullish today on non-asset inflation as compared to a week ago ?

#51 Mark on 10.29.12 at 11:07 pm

Simple question; Do governments the world over prefer inflation or deflation? The one they like is the one you will get.

Deflation makes their unsustainable debt levels even more onerous. Inflation wipes them away.

If we were on a gold standard, then Garth is right, deflation. But the government can and will add zeros to the bills just like countless other historical examples. We may get mild deflation at first, then watch central banks and the IMF kick it into high gear.

Fiat loses value, for brief periods maybe not, but over time, always.

We live in dollars. You will die living in dollars. — Garth

#52 Dr. WAYNE on 10.29.12 at 11:08 pm

#1 DC on 10.29.12 at 8:35 pm

oh boy… I hate to do it, but

first.

Oh Boy !! I Love to do it … you’re and a$$hole …

#53 Old Man on 10.29.12 at 11:10 pm

My very young Amish housekeeper – Smoking Man – pay attention, as is not worried about deflation or inflation stuff, but with Sandy, as is worried about a power outage with rain and flooding in Ontario. So she has got out the hurricane lamps all fueled up with oil, and a cook stove as well. She said give me $100 in cash to buy some canned goods so if we get into trouble will survive this all; damn she is a woman with a brain just in case, and even bought some batteries for the radio too.

#54 rp1 on 10.29.12 at 11:13 pm

Gold does well in deflation because failing banks threaten the solvency of governments.

No banks here will fail. — Garth

#55 Canadian Watchdog on 10.29.12 at 11:14 pm

The velocity of money is falling. That dooms real assets. — Garth

If you’re betting on deflation, then you’re also betting on many government, municipal and corporate defaults. There’s no magical way around it.

#56 Hoof-Hearted on 10.29.12 at 11:18 pm

My crystal ball says the Canada will finally cut its ties with Britain and the Monarchy (aka Rothschild b’eatch) …have a debt Jubilee……buy Garth a gold plated Harley…and “Koom Bay Ya” for at least a Millenium

#57 Hawk on 10.29.12 at 11:21 pm

Where is the evidence of across the board deflation? Some measure of deflation in housing is long overdue as the market became over heated. That correction is inevitable.

For deflation to occur across the board you need massive job loss and unemployment levels to reach Greece or higher.

Other then housing & some information technology gadgets what is falling in price? Try to buy any other hard asset NEW (I don’t mean second hand) such as a car, boat, iphone, furniture, power tool or even get a haircut and tell me if any vendor is reducing his price simply because people have less money to spend. They aren’t and they won’t. They will cut supply, but not price.

Deflation for now is likely to be in housing and very high value illiquid assets.

That was enough to wallop the US. — Garth

#58 Charlie on 10.29.12 at 11:22 pm

I don’t buy that deflation is always bad. The greatest growth period in US history was in the late 1800’s where massive advances in the quality of life were accomplished – all through an acute deflationary period. When prices are low I buy because of the time value of money. When I need a new washing machine, I’m not waiting a year; the money I save through low prices I can spend on other goods. The most I ever bought was 2008 / 2009 when there were cheap prices everywhere.

#59 Hawk on 10.29.12 at 11:24 pm

#37 Realtors are in an all out panic on 10.29.12 at 10:27 pm

=====================================

Disappointing……you forgot to say…… “it’s gonna be a nasty crash realtors, a nasty crash” :-)

#60 OlderbutWiser on 10.29.12 at 11:28 pm

LJ #34 – you said “Priced in gold, even Canadian house prices have deflated in the four years since the GFC.”

*****************************
This is how gold bugs justify their investments. What a crock. Given what we know about the movement in Canadian housing prices over the last four years you actually think this is an argument for investing in gold?

Did you ever stop to think that perhaps it is Gold that is in a bubble? I have nothing against gold but pricing things in terms of the price of gold is a ridiculous method of determining whether anything is fairly valued.

#61 martin9999 on 10.29.12 at 11:30 pm

#50Devore on 10.29.12 at 11:00 pm
#16 martin9999

go and dine out and you see what’s up. go into any bar in toronto 7 bucks a corona

-well Devore, this trendy idiots gotta go somewhere to have fun and enjoy the social life. buying a corona at the beer store and drinking at home doesnt sound alot of fun does it?!
getting a drink at the local bar now days is considered luxury. shit i get it !!! i am autta here

#62 Hawk on 10.29.12 at 11:32 pm

#41 Albert on 10.29.12 at 10:36 pm

========================

It is possible for deflation to exist even when more fiat (paper) money is being printed, because if the fiat doesn’t enter the marketplace the amount of money going around (velocity) has not increased.

However, this is also temporary, since eventually the government in our Marxist worldview will be pressurized by their vote banks to distribute that fiat into the market place to fund their “entitlements”, so the inflationary spiral will continue, slowly but surely.

If we were a sensible people, we would mandate by law that food prices should be kept low, in a country as large and fertile as this it’s inexcusable that the people are getting killed with rising food prices.

#63 Derek R on 10.29.12 at 11:45 pm

#41 Albert on 10.29.12 at 10:36 pm wrote:
printing money is inflation, i don’t understand how can printing money and making money cheap is deflation.

can someone please explain ?

That’s true enough, Albert, but it’s only part of the story. The full story is that printing money and making loans is inflation. And taxation and repaying loans is deflation.

There may be a lot of printing money going on just now but there’s not nearly so much making loans as there used to be and while there’s no more taxation than usual there’s a ridiculously huge amount of loan repayment happening.

So on balance there’s more deflation than inflation happening. Basically money is being destroyed even faster than it’s being printed. That’s why Garth is spot on when he warns about deflation, printing or no printing.

#64 VancouverJoe on 10.29.12 at 11:52 pm

Garth, do you really believe that “…About $5 trillion in wealth was destroyed when housing deflated – not bank money, but equity.” ?

It was empty air, not the equity :-)
Just some bloated numbers in computers.

#65 city slicker on 10.29.12 at 11:55 pm

Doesnt anyone remember the term from the 70s – stagflation. Which rocketed gold to the moon. The only thing that stopped it was paul volker jacking up interest rate. Creation of debt money is inflation, draining debt money is deflation. Until interest rates rise to normal the game is on for pm’s. Yes folks its that simple. Sheesh.

#66 a prairie dawg on 10.30.12 at 12:10 am

#3 Seven Stars and Orion

I could use a refresher on preparing squirrel.

– — –

Turns out you can drink squirrel too.

“and Hop City Brewing Company with its flagship Barking Squirrel Lager.”

http://business.financialpost.com/2012/10/29/moosehead-breweries-battles-the-big-guys-with-new-initiatives/

#67 Vancouver Thunder on 10.30.12 at 12:36 am

I agree with Garth ….all you metalheads should pay attention and learn. Who cares what those Central Banks around the world are doing investing billions and billions of dollars in gold. They are living with blinders on and haven’t read Garth’s blog. They will be sorry, Central Bankers never get the inside scoup.

January of 2013, the classification of gold is going to be changed to a Tier 1 asset

As of 2012, the world’s central banks are now massive, net buyers of gold; on pace to add more gold to their reserves than any other year in history. GFMS Ltd (formerly Gold Fields Mineral Services), the quasi-official record-keeper for the gold industry estimates that total purchases will approach 500 tons this year alone.
Brazil and Turkey’s central banks increased holdings of the precious metal and amid signs that purchases are rising in India, the world’s biggest buyer
The SCO is an economic bloc consisting of China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. Between them they produce about 26% of the world’s gold, none of which leaves the SCO
According to the International Monetary Fund (IMF), Russia added 18.6 metric tons of gold in July. South Korea bought 16 tons — a 30% increase. Kazakhstan increased their bullion reserves for a 12th consecutive month.
Turkey, Ukraine and the Kyrgyz Republic also joined the party.
Germany is planning to start bringing its gold home from England and the USA…makes no sense, both these countries never lie and are completely trustworthy.

Boy will they have egg on their faces when deflation sets in. Dont they know that what happens in Canada affects the whole world.

#68 JuliaS on 10.30.12 at 12:40 am

Which do you lie better – inflation, with prices rising faster than wages, or deflation, with wages falling faster than prices? I like neither. Heads – bank wins, tails – you loose.

Deflation destroying the middle class? Nonsense! It destroys debtors (pretend-middle class) and rewards savers – the actual middle class. If you have no debt, if you didn’t gamble your wealth away on asset speculation, then you have nothing to worry about.

Money appreciating in terms of purchasing power a bad thing? Come on!

The popular example when defending deflation is the price of cell phones and computers. They’re getting cheaper so fast, that even the effects of inflation aren’t able to overwhelm in the increases in manufacturing efficiency. Is anyone complaining? Is anyone thinking computers and phones should be getting more expensive each year like food and gas do? No!

Deflation bashing means focusing on the effects of overindebtedness as oppose to causes. Easy money is to blame for the housing bubble and for erosion of the middle class. Deflation means things returning to normal, it means price discovery, it means elimination of jobs that shouldn’t have existed in first place.

Deflation is bad for debtors, and as we all know, it means mass defaults that are bad for lenders as well. It’s bad for gamblers and to that I can only say: good riddance.

#69 Dan7 on 10.30.12 at 12:50 am

In a Deflationary environment will Dividend Stocks like ENB, BCE, CM, Inter pipeline, Rci.b, CGX. etc be at risk would their Dividends be cut?

#70 n1tro on 10.30.12 at 12:56 am

How can you write in the same article that as the US prints $40billion a month to buy bonds which pay nothing to artificially keep interest rates low that commodities would stagger? Commodity prices dont go down with this type of activity, it actually stays the same. Its the value of the dollar that has gone down since it can be easily generated by a few keystrokes that is affecting how much you can buy the same commodity for.

In the case of Canada, the housing prices has gone stupid and people who bought high deserved to be screwed. But once the housing bubble pops, we will still be in an inflationary environment. Only difference is we wont be able to afford food and shelter because our money is worth less from all the government intervention.

My point is we can have a housing correction yet not be in the asset deflation you are calling.

#71 Mr Buyer on 10.30.12 at 12:57 am

You sir are an enigma. It is clear you have a very keen understanding of Canada’s situation yet the take home message is always ‘it will not be so bad here.’ I am left wondering if you are simply doing mass expectation engineering (a respectful way of saying propaganda ) or if I am missing a huge piece of the puzzle. It is almost like you are reading my mind word for word except for the parts that I see as minimizing. While I can certainly fall victim to my own desires I am hoping my perceptions are not leaving huge blind spots in my awareness. Successive rounds of inflation appear to be in a word unsustainable but I will not bore you with reasoning you clearly are aware of. Let me just end with this. We went out for lunch yesterday at a noodle shop with locations all across Japan. All five of us ate, 2 adults and three kids, total price about $16 Canadian dollars. After that we went over to the grocery store and picked up boneless chicken breasts on sale for $4 Canadian for a pack of 3 big pieces (there is cultural pressure behind that pricing but it is still a low price PS, I didn’t get my Geiger counter yet so I can not tell you the level of radioactive contamination). Massive real estate bubble followed by 21 straight years of property price decline, much of the economy motoring along but deflation in large parts of the economy. There is only so much mental engineering that can go on before a large group of people take it as an object lesson and come to understand its smoke and mirrors and you will likely run out of time before you will ever recover. I am sounding like a doomer I know but unfortunately deflation appears to be ‘a’ if not ‘THE’ logical next step. PSPS…I am not joking about the Geiger counter, it costs about $1000 Canadian and it is on its way. I am confident in the government radiation measures taken nationwide on a daily basis it is the private enterprise aspects of the food chain that have left me somewhat doubtful. With a huge proportion of the children that developed health problems due to Chernobyl having contracted their diseases through contaminated milk I have become unbearably uneasy of late. Especially since my youngest puts back a liter a day at least. My neighbor has been testing the milk himself but he has moved away and contamination levels are a moving target.

#72 Mr Buyer on 10.30.12 at 1:07 am

#48 Dave B on 10.29.12 at 10:53 pm
Hey Garth, I think Canadians can learn a great deal from this article. Thoughts?
http://www.vancouversun.com/business/Germany+Credit+wanted+cash+only+culture/7009135/story.html
…………………………………………………….
Large parts of the Japanese economy are the same. While credit cards have certainly increased in popularity there are still large nationwide chain stores that do not accept credit cards or do so with an added percentage tacked on to the price.

#73 Dandy Dan on 10.30.12 at 1:09 am

I believe and follow you, but here in the Lower Mainland I’m not sure what I’m seeing is what you’re talking about. We’ve still got houses in the tri-cities (suburb of Vancouver/Burnaby) that are selling 1-2 weeks after going up; good locations are getting 85-95 % of asking price – crappy houses and poor locations hang on the market longer but seem to still move for some ungodly reason. I’m seeing proof that house beyond the Million$ mark are experiencing 15-25% price reductions, but the houses in the 600000-700000 are still stuck and so slowly nudging downward — with some selling!

#74 Mr Buyer on 10.30.12 at 1:13 am

#61 Mr Buyer on 10.30.12 at 1:07 am
#48 Dave B on 10.29.12 at 10:53 pm
I wonder if many German homes have their own safes like the homes of people that saw the end of WWII here in Japan do.

#75 Palky on 10.30.12 at 1:21 am

Hate to say it Garth, but Canada has a industry the world needs, energy. Chances are demand will not be going anywhere. As bad as debt gets economy will slow but not deflate.

#76 Mr Buyer on 10.30.12 at 1:22 am

#58 Hawk on 10.29.12 at 11:21 pm
They aren’t and they won’t. They will cut supply, but not price.
……………………………………………………
And there we have it. The naked truth. The free market is truly a myth. Cut prices, no just limit supply or better yet every vendor agree on the same price. This should be all she wrote for the rugged individual free market types. Let me say this, the kind of grinding deflation that may well be upon us may not be measured in quarters but rather decades and this will test the cohesiveness of even the price fixers and monopolists. One or two knives in the back and they may well break ranks but it is a long shot, unless of course they are hugely leveraged.

#77 Freedom First on 10.30.12 at 1:30 am

Garth has said it before. “Blessed are the liquid”. And once again he has said…….”balance, diversity, liquidity. This will protect you from inflation, and deflation.
Biggest risk of deflation for “Joe average”……not only will his equity in his house disappear, but then the unemployment rate spikes. Then the prices of things starts to drop, and people wait to buy, so unemployment spikes some more. And on it goes. End result…….the “liquid” see the “blood on the streets”, and buy, buy, buy. For years now, I have called this the game of “takeaway”……the true essence of buying low.

I liked your post Garth, and especially your comment about “mathematically correct”, but not “socially”:)…..I am glad I can write with anonymity:)

#78 Mr Buyer on 10.30.12 at 1:31 am

My brother was a carnie for like a thousand years before he broke down and got a real job as an electrician. He ran a bunch of food joints among other things and he used to say that if at least ten percent of customers are not walking away after asking the price of something then you were not asking enough for that said something. Max price per unit is a business philosophy that works well in an expanding economy. Lets just see how it stands up to deflation. I am guessing a more volume type business model will work best but that is hard to say. Quality and service along with volume pricing would be a hard business to compete with but who is competing recently, price fixing seems to be accepted and the norm.

#79 Mr Buyer on 10.30.12 at 1:50 am

I have to get back to work.

#80 Not 1st on 10.30.12 at 1:51 am

Fearmongering much Garth. None of that is going to happen and if it does I look forward to buying a car for $15000 again.

#81 Jounce on 10.30.12 at 1:52 am

Gold will rise and fall in price but not in ounces. It is paper assets that are schizophrenically altering between fever and draft … not gold.

An ounce is an ounce … today or …. 5000 years past.

Paper is a derivative notation, a method of accounting for hard assets as long as there is trust. It remains a future call on some else’s wealth. A tenuous promise to deliver, unless there is a crisis. Conveniently, as with MF Global, force majeure cancels paper promises and liabilities.

Depressions a a systemic reset button on the flywheel of the economy. In a depression trust vanishes and most paper as promises becomes worthless, like 90% of bonds did in the 1930’w.

On the draughty walls of farmer’s outhouse one could see plastered with bankrupt paper promises. At least the quality rag paper they were printed on were water-resistant and took a second life as wall paper.
Don’t delude yourselves.

Gold may be up or down, no matter … it will still be there after all else has been either looted, rotted, or burned.

When gold passes over $ 3,000 an ounce it will be nationalized, as always happens when a corrupt government needs to restart an economy after a a self induced economic stroke.

Oh well it was such fun while it lasted.

#82 picasso on 10.30.12 at 2:03 am

Funny reading the house pumpers comments, of course with their life savings tied up in that box they would be in denial.
Just like the markets, the longs pump and the shorts trash.

#83 Mr Buyer on 10.30.12 at 2:25 am

I am just wondering out loud how many municipal, provincial and if even the national government would be willing to throw up green lights to a nation wide fiber optic to the home internet network. It could be and likely should be nationalized. If every level of government were to put their hands back into their pockets the material and manpower requirements are well within our reach. 21st century and beyond bandwidth would be highly desirable and the benefits not easy for me to imagine (hopefully that is not because there are none). I think it is high time the for CRTC to be called to task for marginalizing fiber optic to the home technology through its support of cable and dsl internet along with bandwidth caps. Lets build it and see what happens, to hell with the media and communication conglomerates worried about preserving their non- internet business models. We are paying way to much money for our communication and media services at decade old bandwidth levels (in IT a decade is presently equivalent to about a million years in traditional evolutionary terms, not really but you know what I mean). You want revolution, start with 95% plus penetration of fiber optic to the home and burn bandwidth caps. Lets manufacture the cable in Canada as well, it is old enough technology that I imagine patents have expired on some really high spec fiber optics. Instead of ‘the last spike’ it will be the last photon, How Canadians stopped producing so much CO2. I should say though that the whole Home Office thing doesn’t work with the my 3 year old running around screaming with no pants on while my wife chases after him and I am on HD Quality video and audio chat through Skype (It is interesting that Skype recommends 1.5 mbit upload bandwidth for HD quality and the communication conglomerates provide 1 mbit upload bandwidth citing those bad pirates strain upon the infrastructure while the conglomerates can turn around and charge a premium for minute by minute HD quality video chat/conferencing. It seems the bandwidth may be there if you are willing to pay a huge premium for it.) BTW, video conferencing/chatting in any professional sort of manner is in my experience hugely irritating if it is not HD Quality.

#84 skip on 10.30.12 at 2:27 am

Ha ha, I love when the Capitalist get all up in arms over their shitty economic system. Fact is people don’t care about deflation. They will just go about feeding themselves using some other form of economy. The people that fear it are the ruling class and their Capitalist wealth. Under deflation their system of control and power come under direct attack…

Bring it on…I can’t wait……

#85 Mr Buyer on 10.30.12 at 2:43 am

There it goes, another dinner time wasted tapping nonsense out with two fingers. Has anyone noticed that on a societal level computers have become a massive time sink instead of a great time saver. I do not know if that is a good thing or bad thing I can just say that it is. I remember in something like 1993 or 1994 I stumbled upon a computer lab at the University I was taking courses at and I asked the guy if I could get a membership or something and he asked for my student card and five minutes later I was sitting in front of a computer. Well even in the age of gophers and University sites with little more than text and the occasional photo I managed to spend 26 hours straight in front of that computer my first day ‘online.’ Fast forward 18 or 20 years and there is an exponentially growing body of information a few mouse clicks away. This is revolution plainly and simply. There was a guy called Gregor Mendel that did some breeding of peas and pattern matching and came up with the basic notions behind inheritance and genetics. His work sat on a shelf for decades (maybe even a hundred years) before science fiddled around with it again. Fast forward to the SARS break out a few years back and I downloaded the complete genomic sequence 4 hours after it was completed on the other side of the world. There are huge parts of our national modus operendi that are pretty much the same as they were in Mendel’s time. We are now working on at least the same level as the virus (nucleotides) at a tenth the speed of light with exponential growth in knowledge and this is only the beginning. Lets burn the dead wood and get on with it. Brought to you by the National Coalition for 95% penetration of Fiber Optic to the Home.

#86 cynically on 10.30.12 at 2:43 am

#57 – if only your crystal ball was right then this country could become great!

#87 Canuck Abroad on 10.30.12 at 3:12 am

Deflation is a good thing. Garth if people have done what you have been recommending for the last four years and have “harvested the gains” from their houses, why on earth should they fear deflation? They have cash to buy later when prices are lower. Deflation is a godsend to your readership. Governments don’t like deflation because governments hold too much debt. Boo hoo hoo. Doesn’t make it bad for the rest of us.

#88 Mr Buyer on 10.30.12 at 3:37 am

About 15 years ago I saw photos of DAPI stained chromosomes during early stages of cell division in a research article (unfortunately the paper’s name and researcher’s name are lost to me, if anybody knows please post a comment). They looked like Xs trying to form into a line. These photos were beside photos of cells in the same phases of the cell cycle except these cells were exposed to microwaves similar (or maybe not similar enough though) to cellphone microwaves. Well these exposed cells did not have X shaped chromosomes but rather little balls which suggests the chromosomes were broken apart. Now in all fairness the intensity of the microwaves may or may not have been a good match and the cells were in a petrie dish rather than in somebody’s head but the DNA appeared to be visibly damaged. Our bodies have DNA repair mechanisms and I do not know if such cells could continue to divide but there is certainly evidence out there somewhat supporting the WHO’s warning that microwave exposure (cellphone) is potentially carcinogenic. Now I am a bit nuts anyways so I turned around and put a huge copper plate and a thick piece of plexiglass in my fanny pack at the time an put my cellphone in there hooked up to a head set. The only problem was that by the time I got the whole setup out to answer a phone call the caller invariably gave up and hung up. Now I shut the phone off while carrying it around and check messages and email periodically throughout the day. The skull penetration for adults is a few centimeters past the ear into the head but for a child it is clear across to just short of the other ear. I cringe when I see cellphone games geared towards kids.
I think we may ultimately have to rethink the cellphone carrier wave but more research is certainly in order. I am very surprised that over a decade later we have not seen dramatic increases in glial cell cancers and the like so I can understand why the WHO has not just come out and said microwaves are carcinogenic. Maybe it is going to take a little longer or maybe it is not going to matter that DNA is breaking apart at low rates in the body (this can potentially happen naturally but it is a question of frequency, how much can the body cope with).

#89 Mr Buyer on 10.30.12 at 4:03 am

I also wonder about the impact of microwaves upon the sensory structures of the ear and eye

#90 Mr Buyer on 10.30.12 at 4:22 am

BTW, while I have had a hell of a time implementing parts of Flash’s video features as it turns out the late (and great) Steve Jobs may not have been looking out for us technologically speaking when Apple decided not to support Flash technology but rather he may have been trying to prevent non-Apple based app development and deployment outside the Apple App Store. Long story short, I think Flash is fantastic and even Apple is fantastic even though it took a big dump on Flash.

#91 Taipan on 10.30.12 at 4:58 am

Garth you and I have been singing the same message about housing bubbles for the last 4 years.

Technically vancouver is over valued 3x – eg a 60-70% fall. Will it happen? Probably not – but 50% is on the cards.

And why – because of too much debt. Caused by lax lending standards, terms too long and historically low interest rates. So far you and I are on the same page.

And where we depart is you ignore the fact of the massive amounts of freshly printed money. QE1 QE2 Twist QE3, let alone what they are doing in europe which is even worse!

Gold isnt going up in value – money is going down in value – the very opposite of todays post.

It is now taking more money – because they keep creating fiat currency – to buy the same amount of gold.

So what is really happening is that house prices are deflating and at the same time the purchasing power of $ is deflating. Gold, isnt rising in value, its just staying the same.

Massive warning – do not buy paper Gold – buy physical gold and if need be take physical delivery. There is over 50x the amount of physical gold being traded on paper around the world. If a % all demanded delivery the paper market will collapse and physical gold will sky rocket.

But when people realise that property is falling, stock markets are falling, the purchasing power of their $ are falling they will all rush things like gold, and in the end it will turn into a bubble. The gold bubble will shortly kick off.

#92 groovin123 on 10.30.12 at 5:33 am

Ding ding ding, we have a winner #23 William of the North.

Demand destruction (velocity of money) is taking down assets, such as housing.

What we are witnessing is central banks printing vasts amounts of money to try and offset the slowdown in money velocity to keep asset prices propped up. You know, so people “feel” wealthy.

This is inflationary.

Anyone that operates a business in the the real world, on planet Earth, has seen input costs skyrocket over the last 10 years.

People will always have to eat. Demand for food is a constant. Prices are rising because of inflationary policy, the value of money is FALLING and will continue to fall until budget surpluses are restored, and that isn’t happening anytime soon.

Reading that the value of money is rising actually makes me cringe.

Oh, and the bond market will be the mother of all bubbles to pop. Fixed income markets are beyond overbought to the point of being ludicrous. Credit spreads are way, way, too tight for the amount of risk involved. The inevitable bond market implosion should dwarf the real estate implosion to the point of being forgotten in the history books.

#93 John on 10.30.12 at 5:35 am

As I said, it’s already in front of us in the States, where 20% of all families owe more on their mortgages than their houses are worth and millions more have walked away from real estate they could no longer carry. About $5 trillion in wealth was destroyed when housing deflated – not bank money, but equity.
———-

What was that you said was right in front of us? You didn’t mention the bailouts and frantic money printing spearheaded by the Fed, a private institition. That means you don’t get to talk about erosion in equity. It becomes meaningless with the stimulous.

You’ve also seemed to have left out the deleveraging urgency hanging over the banking cartels ( you do realize that even the average Joe found out that it was a cartel with the LIBOR scandal, right?).

Banks must deleverage, and can’t.

If I were one of the several hundred that are now in crisis mode in managing this ponzi, I’d be thinking “distraction” right now. The election is a non-event that works, for now.

The question is, what can happen when the “assets” and “money” the middle class “have” are inevitably revealed as part of the ponzi? When the cartels actually have to start cashing in? When the greater fool ( expanded version) can’t be a “buyer” on the ponzi?

You’re in the “heads up” business, and your suggesting a “heads down” way beyond the point where you could reasonably suggest that strategy as real.

Not that we have a ton of control or anything, but enough “heads down” and your head’s in the sand.

#94 EIT on 10.30.12 at 6:34 am

Don’t worry folks, all the central bankers are looking out for us. They’ll do what they can.

#95 Cow Man on 10.30.12 at 7:12 am

Amigos:

Just filed for a new passport. As of January 1 cost of CDN passport goes from $87 to $120 for five years. $160 for a 10 year passport. I guess “money is going to be worth more” all right. No new taxes my foot!

Who gave you permission to leave? — Garth

#96 Charles Ponzi on 10.30.12 at 7:26 am

Of course, this ain’t the Depression yet.

#97 Jeff in Moose Jaw on 10.30.12 at 8:48 am

Deleverage sure is a bad thing in the short term, but with years and years of excessive leveraging, this deleveraging is the cure, the return to the mean.
The US has gone through this more than most, and now look at how competitive they are, and how cost of living is much closer to being back in line than we are.
What a consumption party we’ve had, now time for the hangover so we can get back to the regular day to day, no more booze please I’m done….

#98 };-) aka D.A. on 10.30.12 at 8:56 am

Deflation? Ya right. Who hasn’t looked at the price of groceries lately?

It’s the price of the things you want that are going down but the price of those things you need are going up. Those things you need are going up so much in price you can’t afford that which you want as you struggle to make ends meet on the things you need.

Shelter is one of the things you need. Be it bought, borrowed or rented you need shelter and the cost of basic shelter is going up along with the taxes and utiltiy costs to maintain it. There is no escaping that fact. Not even renting will let you avoid it as ultimately it is the end user who pays.

The component of housing which is dropping is the excess; that component you don’t really need. Granite, hardwood and stainless have all dropped dramatically and they along with triple garages, home theatre rooms, man caves, and lavish spa like ensuites which too have experienced a waning demand that have all created the illusion that real estate prices are falling. But don’t be fooled, the price of housing, basic housing, shelter ain’t goin’ anywhere but up.

The good news though is, beyond that basic cost of shelter you can get a whole whopping lot more bang for each additional buck. Unfortunately there’s a flip side to that coin and that bad news is; as close as that extra bang for your buck is it might still be beyond your reach as you struggle financially to meet even those basic ends meet.

I’m watching it unfold and if you take off your blinders you will have to admit so too are you. It’s not the price of housing which is not dropping. It’s the price of housing’s options, those options you really don’t need but want yet now can’t afford which are dropping. But the price of shelter just like all life’s necessities is going up with no end in sight.

Deflation? Yup it’s here all right and fact is we needed it. We lost sight of what matters most in life. What matters most in life is not big screen TVs, Hummers, man caves, granite or stainless. What matters most is… well you’ll figure it out… };-)

#99 Canadian in Malaysia on 10.30.12 at 8:57 am

Interesting to see Calgary in the newspapers here. They are having property shows and showcasing properties in Chestermere as well as other place around Calgary.

I’m from Calgary and wouldn’t touch real estate there, but there is demand from Asia – Malaysia anyway.

On Gold / Silver
Arbitrage opportunity. You can’t really buy silver here, so it’s selling at a premium … buy silver maples in Canada for $2 over spot and sell here for $10 over spot to local dealers, who sell at $15 over spot.

Gold / Silver will do well in stagflation, which Garth is describing (almost), without actually using the word. People will be in cash, and cash equivalents, ie. Gold and Silver.

Stocks will take a hit, as the exploding housing market will force people to rethink their risk-tolerance.

Still predicting $5000 gold $5000 Dow. Look at the historic charts, Gold and the Dow should be at the approximate same value.

Silver is typically worth 1/20 of gold (as high as (1/8)) – that leaves silver at about $250 per oz in the long run. You should have about 5 – 10% of your portfolio in PM (at least that was Garth’s advice a year ago).

#100 };-) aka D.A. on 10.30.12 at 9:05 am

Haste makes waste. But I think you got my point.

#101 };-) aka D.A. on 10.30.12 at 9:16 am

There is what I call a ‘black hole’ in real estate which exists in the market between that core fundamental need housing component and that of opulent decadence. It is that housing segment which typifies the middle class which is taking the biggest hit. Yes to a large degree they deserved it as they thought they had ‘finally arrived’ and their hard work until then had finally come to pay off. But it was an illusion, their starry gaze what caught by bright shinny things and they were distracted off the proven path to one of fantasy and make believe. Well we all know now, in retrospect, that could not have gone on forever. It’s the plight of the middle class.

This too shall pass. But return someday once again and a lot sooner than you might think. For it’s the middle class which fuels the economy like the shepple they are soon to be fleeced once again. But really it is they who fleece one another as much as anything else.

#102 W-Hat on 10.30.12 at 9:16 am

Cow Man it’s pretty obvious they are just incentivizing the 10 year option. It’s cheaper than two 5 year passports at the lower $87 price (today’s price according to you), and a huge value in terms of the $120 5 year.

This is just an operational cost savings measure.

#103 ricster3 on 10.30.12 at 9:18 am

Garth:

Failed economies scoreboard : Hyperinflations : 56 – Hyperdeflations : 0. Sorry, inflation is much more of a disaster. Deflation only punishes indebted people and wipes out bad credit.

#104 Dupcheck on 10.30.12 at 9:34 am

If I was US, I would print all my debt in paper money and put in a big container and pay the Chinese debt with this devalued paper. After I would start a new currency with a different but slightly similar name. US Dallar.

#105 Stickler on 10.30.12 at 9:37 am

Stagflation (A condition of slow economic growth and relatively high unemployment – a time of stagnation – accompanied by a rise in prices, or inflation.) is the future for developed countries, inflation for developing.

Falling values for expensive items that require credit (houses, cars), and rising values for necessities:food, utilities, oil.

Im not sure about gold…isn’t gold in the process of being counted as a tier 1 asset on bank balance sheets? I’m thinking gold will rise in USD terms.

What to own? well I think short Canadian govt & corp bonds, preferred shares, certain REITs, dividend paying oil, utility, energy stocks, strong market leading sellers of consumer staples.

What you guys thinking is best to own?

#106 Pr on 10.30.12 at 9:38 am

…I’ve spent so much time warning against 5% down payments…

Yes, 5% down combine with emergency low rate, those two alone, is a recipes for disaster, if, rates goes up.

#107 Aussie Roy on 10.30.12 at 9:54 am

Aussie Update

Last Monday, the Federal Government released its Mid Year Economic and Fiscal Outlook (MYEFO), hoping growth in the residential housing construction sector would take over from our deteriorating mining boom .

Today
A Housing Industry Association (HIA) report released today show residential construction activity continues to decline as the number of new home sales fall a further 3.7 percent in September to an now 18 year low.

http://www.whocrashedtheeconomy.com/blog/2012/10/new-home-sales-plunge-to-18-year-lows/

Meanwhile

Buried in debt after property promises fail

DANIEL BOSTOCK’S foray into the heady world of property investing ended in bankruptcy at the age of 22.

Now he is left wondering whether the cards were stacked against him from the start.

http://www.theage.com.au/national/buried-in-debt-after-property-promises-fail-20121029-28drp.html

Deflated and deflating, Condo Condo Condo……

THE 77-storey Soul supertower – the second-tallest man-made peak on the Gold Coast skyline – has fallen into the hands of receivers.
It is the latest victim of the tourist strip’s embattled apartment market, which has led to corporate doctor being called in to several major developments in recent years.

The 288 apartments in Soul still had a price tag of no less than $1 million each despite values of Gold Coast apartment plunging by up to 40 per cent.

http://www.news.com.au/realestate/selling/australian-supertower-the-latest-to-fall/story-fndbawks-1226503844425

#108 };-) aka D.A. on 10.30.12 at 9:59 am

#86Mr Buyer on 10.30.12 at 2:43 am
There it goes, another dinner time wasted tapping nonsense out with two fingers. Has anyone noticed that on a societal level computers have become a massive time sink instead of a great time saver. I do not know if that is a good thing or bad thing…

I look forward to the day I can throw my iPhone, desktop, laptop, notebook, netbook and iPad into the lake, not long after followed by my car.

#109 Nemesis on 10.30.12 at 10:07 am

Ooops… it would appear that you forgot to include two policy variables in your model, OldPol. Competitive currency devaluation and protectionism. Either can make such a mess of even the best forecasts/markets.

Rather like “Sandy”.

#110 live within your means on 10.30.12 at 10:15 am

#86 Mr Buyer on 10.30.12 at 2:43 am

So true. I spend far too much time on my PC. I worked on the first ‘desk top’ computer our prov. govt. purchased – an IBM – in the late 70/early 80’s, IIRC. I worked for the dept. that was responsible for the govt. mainframe. Wow, have things changed. Now I rely on my tech hubby to explain stuff to me, which I forget the next day.|

#111 Gunboat denier on 10.30.12 at 10:15 am

64 Derek – repaying loans is deflation? Not sure about
that as labour is created to repay.

Not repaying the loan is deflationary. The promised
labour is not performed.

Mr. Buyer – go to bed

#112 Inglorious Investor on 10.30.12 at 10:18 am

There seems to be quite a bit of confusion on the topics of inflation, deflation and prices.

First of all, you have to define ‘inflation’ and ‘deflation’. This is not as simple as some might like you to believe because the definitions of both are contingent on your definition of money––which itself is not so simple to define. Central banks, in fact, have many definitions called ‘aggregates’, such as M1, M2, and M3 in the United States.

Without getting into the monetary-based definitions of inflation and deflation, it is quite clear that for the layperson what truly matters is the purchasing power of money––how much stuff can money buy?

As is typical of so much public discourse, the debates over inflation and deflation have inevitably assumed a binary nature: the economy is either experiencing inflation or deflation. Inflation and deflation are either good or bad. Of course, in both cases the situation is much more nuanced than that.

First, we need to understand that prices are determined by two things, and two things only: supply and demand. Changes in prices (up or down) are affected by RELATIVE changes in supply and demand.

Increasing the money supply faster than the the supply of goods and services is simply an artificial way of boosting demand for goods and services by decreasing the demand for money. Value is based on scarcity. So when you have more money in your pocket, its value declines and you are willing to spend more of it. But so is almost everyone else, so there is greater competition for goods and services and their prices go up.

When money becomes more scarce, its value increases, and demand for money increases. People have less money, so they are willing to spend less, and thus prices go down.

But changes in the money supply is only one way of affecting demand.

When defining inflation and deflation as changes in the purchasing power of money, is too simplistic to think of the economy being either in inflation or deflation. Prices for different goods and services can be inflating or deflating at the same time because each good and service has its own supply and demand determinants. Therefore, the prices of houses can be declining, while the price of gasoline is increasing.

Monetary inflation has its greatest effect on demand for essential goods and services whose demand is inelastic (doe not easy change). Because there is a natural floor to the level of competition (we all need gasoline) more money in the system (especially a system whose reverse currency is largely based on the very oil that make the gasoline) tends to drive up prices for gasoline and other essentials.

Deflation (lower prices) is a natural consequence of an economy that grows increasingly productive. Higher productivity increases supplies, making goods and services cheaper. During much of the 19th century while America was experiencing its Industrial Revolution under a gold standard, the economy was in general deflation: gold-backed money kept the currency stable while industrial productivity dramatically increased the supply of goods relative to the population.

Today, we have credit-based money and a highly productive economy. In a credit-based monetary system it is very easy to increase the money supply because money has no intrinsic value (it does not require energy/work to make it). Over the past forty years or so the rate of real wealth creation has declined relative to the amount of credit being created.

Furthermore, the economy and the monetary system rely on money/credit being created at an ever increasing rate because debt can only repaid with more debt in an endless game of catch-up with a receding horizon. The result, after four decades, is an entire society virtually drowning in debt but without more capacity to take on more debt.

In a credit money system, deflation means deflating debt. When there is no more capacity to carry more debt, debts can go bad in a chain reaction of defaults that sees money/debt being destroyed in a downward spiral that, if not stopped, and get out of control until enough debt is destroyed to rebalance the system. But when one is highly leveraged (e.g. the banks) it only takes a slight decrease in the value of debt (bank assets) to destroy equity and wipe you out. The same goes for home owners. When you have a huge high LTV mortgage, it does not take a large drop in your home’s value to wipe out your equity, or put you in negative equity (mortgage greater than the value of the home).

That’s why deflation is “bad” today. And that’s why The Bernank and Mr. Dragon et al are printing money like there’s no tomorrow. The system wants to deflate because we’ve run out of debt carrying capacity. But if they let monetary deflation take hold, it will destroy the banking system. So they have created and continue to create trillions of dollars and euros to offset the deflation in bank assets caused by a sick economy filled with people and companies maxed out on debt.

But prices for goods and services are affected by the velocity of money (how many times the same dollar is used over and over to purchase something). Right now, velocity is very low.

Think of money as the people’s water. The central gangsters are filling a huge man-made reservoir with the people’s water, but there is only a vey small spout from which the people can drink. At the same time, the reservoir has a huge leak, but the water that gushes out is not recoverable, so it’s wasted. But the banksters like to play in the water with their yachts and speed boats and jet skis, so they demand the central gangsters keep the reservoir filled.

#113 Eaglebay - Parksville on 10.30.12 at 10:19 am

#85 skip on 10.30.12 at 2:27 am
“Ha ha, I love when the Capitalist get all up in arms over their shitty economic system. Fact is people don’t care about deflation. They will just go about feeding themselves using some other form of economy. The people that fear it are the ruling class and their Capitalist wealth. Under deflation their system of control and power come under direct attack…”
__________________

This is not Capitalism.
This is socialism going rampant and supported by an entitled majority.
People that cannot face their responsibility and rely on the government to rule their lives.
You fit right in. Duh.

#114 whale_oil_beef_hooked on 10.30.12 at 10:21 am

Interesting to note some recent stories and possible indicators in Toronto.

Lots of shameless free media was given to this story recently (why?)….but the results have been pretty weak:

http://www.thestar.com/news/gta/article/1278882—5-7m-bridle-path-house-fails-to-sell-at-auction

Followed by another story, suggesting it ‘has’ sold (below asking and well below what some here have suggested, even with the alleged “land value”)

http://www.moneyville.ca/article/1279329–bridle-path-home-draws-three-bids-over-5m

And in the same paper last week, a bit of real estate hype from the land of denial:

http://www.thestar.com/specialsections/realstateofrealestate/article/1277929–opportunity-talks

(you just gotta luv “Why the right time to buy real estate in Toronto is always right now”)

I enjoy reading this site, as I am trying to gather up some useful advice for self-employed people on their financial planning journeys.

I am thinking of adding my own economic indicator:

The BSI

No, not that kind of BS. This is the Ballet School Indicator.

This spring for the first time, my kid’s ballet school had signs in its halls for weeks about how some parents’ fees were ‘seriously late’. Last week, they sent home a letter with one inch lettering about the need for fees to be paid on time, and new charges of $40 for dishonoured credit card payments. Never seen this kind of thing over the past three years. This, in a midtown Toronto area (Humewood, Corso Italia etc..)where single family homes have been snapped up quickly when on offer, an area many think will be immune to any market pressures. Some people who have borrowed their way into the middle class are now finding that a $200 ballet school payment every few months is just too much.

The BSI appears to be trending down. More on this later….

#115 Ayn Rand Army on 10.30.12 at 10:29 am

Bullion blindness. I hear it’s fatal. — Garth

EXACTLY!

#116 NoOneOfConsequence on 10.30.12 at 10:36 am

To all you ‘fiat currency’ guys….

The thing you are all forgetting is that all the money printing is NOT hitting the general market. This is closed end printing…printing to purchase government bonds – a large portion of which is simply paid back to cover interest.

Because this money isn’t flooding into the hands of consumers…we will never see runaway inflation.

sorry…ain’t going to happen.

Gold is going to be the biggest bubble in history….even worse than real estate.

All you PM suckers are going to get smoked.

#117 Daisy Mae on 10.30.12 at 10:39 am

#62 Martin: “well Devore, this trendy idiots gotta go somewhere to have fun and enjoy the social life. buying a corona at the beer store and drinking at home doesnt sound alot of fun does it?!
getting a drink at the local bar now days is considered luxury. shit i get it !!! i am autta here…”

*********************

Vancouver in the sixties — some nightclubs allowed us to take our own liquor, hidden from view on built-in shelves under the tabletop. The establishment provided the mix. However, there was always the risk of a police raid….and that happened alot! LOL

#118 Blacksheep on 10.30.12 at 10:40 am

OlderbutWiser # 61,

“Did you ever stop to think that perhaps it is Gold that is in a bubble?

I have nothing against gold,

but pricing things in terms of the price of gold

is a ridiculous method of determining whether anything is fairly valued.”
————————————————————–
How many people do you personally know? Of those people, how many currently own, any gold?
The Cattle are selling, not buying, even Garths beats
it down, given the opportunity.

Please share a more accurate way to value anything other than comparing to other assets, or commodities. Long term ratio:

barrels of oil to one once of gold is 15 to 1.

With $ being created at infinitum, that yard stick is broken. Gold is not increasing in value, dollars have been losing purchasing power. It’s a currency race to the bottom, hoping to aid exports and thus jump start the economy.

Don’t misinterpret my comments. I sold 75 % of my holdings (all $1000) recently and believe gold may pullback hard. The Cattle, (not Dogs) best stick to the four letter Gov. investment plans (to be taxed at a later date) Garth promotes. When Central banks on mass start selling, then I get concerned about my modest holdings.

take care
Blacksheep

#119 Daisy Mae on 10.30.12 at 10:52 am

#69 JuliaS: “Deflation means things returning to normal, it means price discovery, it means elimination of jobs that shouldn’t have existed in first place.”

**********************

And…that’s it in a nutshell. Very well said, Julia.

#120 pbrasseur on 10.30.12 at 10:56 am

A rare interesting take on this subject:

http://scottgrannis.blogspot.ca/2012/10/inflation-deflation-and-ipad-mini.html

Some prices are going up, others are going down

That is not deflation, not by a long shot.

As others have mentionned, in the face of so much debt central bank adopt inflationary policies. The future is inflation not deflation.

#121 Daisy Mae on 10.30.12 at 10:59 am

#81Not 1st: “Fearmongering much Garth. None of that is going to happen and if it does I look forward to buying a car for $15000 again.”

**********************

And that will be quite likely possible. Prices will be based on the consumers ability — and willingness — to pay.

#122 maxx on 10.30.12 at 11:07 am

“….structural unemployment, companies that take profits from productivity, not increased sales,…..”

This is a greatly increasing trend as well. In tandem, I also see people rediscovering their adaptability and spending creativity.

I wonder if retail has even begun to calculate its losses to discount stores, second-hand shops and charity shops. It’s HUGE and growing fast. These places are a veritable treasure trove of both high-end and practical, every-day items. More often than not, they are also of a much better quality as many were manufactured in North America, Europe and Japan. You rarely can buy them full retail any longer. This is a veritable tsunami of cash which has been diverted away from retail registers. Charity shops charge NO TAX! Also, these shops have superb service and make shopping a LOT of fun. I have a “gold card” from, of all things, a church charity shop. In addition to the ridiculously low prices, it gives me 20% additional discount on any purchases over $5.00! The card costs $5.00 a year. They also have a weekly draw whereby you can win your purchase free! I won once last year. Compare that to the bloated retail environment with its often surly service. No thank you!

Supermarkets see many more buying day-old items, with people being creative and starting to cook for themselves again. Many are also becoming vegetarian- now there’s a way to save a ton of money and gain healthy years! Restaurants? The trend is definitely way down, with owners we know saying that patrons are sipping (regular) coffee, rather than having a meal.

Reduce, reuse, repair and recycle. It’s so easy, and getting into the habit yields huge savings. It’s a habit that, once formed, sticks. Even the rich are getting into it.

Loss-leaders are de rigueur now, and if they aren’t forthcoming, many people will simply pass on the purchase and wait. People are really questioning and parsing the difference between “want” and “need” and getting surprising answers. This inevitably spills over into the whole RE requirement arena.

Bartering and trading are back and so much fun.

TPTB can keep printing money and damaging the future all they want, but until rates are raised to normal levels, many will carve huge amounts of money out of their former spending habits to protect themselves from irresponsible government, and this makes enormous sense.

There should be no cost (soft or hard) that shouldn’t be on people’s radar and under their microscope. Any increase in cost should be argued, argued, argued and any useless “upsold” fluff you don’t need sloughed off .

Get busy filling your coffers, or get busy filling someone else’s.

#123 };-) aka D.A. on 10.30.12 at 11:23 am

#121Daisy Mae on 10.30.12 at 10:59 am
#81Not 1st: “Fearmongering much Garth. None of that is going to happen and if it does I look forward to buying a car for $15000 again.”

**********************

And that will be quite likely possible. Prices will be based on the consumers ability — and willingness — to pay.

Might as well give up on the ‘power to the people’ B.S.. Not gonna happen. The ‘people’ are their own worst enemy. Look around you. Look at yourself. Why do you think prices are eventually going to shift to your advantage? BECAUSE YOU WANT WHAT YOU PERCEIVE EVERYBODY ELSE HAS THAT YOU DO NOT. Why not take a deep look at what you do have – what you have that others do not and not necessarily that which can be bought and sold but rather things like your health, family and relationships.

What is prolonging this SHIFT from completing its innate cleansing cycle is peoples persistent preoccupation with the bright shinny things that would fall off in the wash.

#124 Home prices crashing in the GTA on 10.30.12 at 11:26 am

Prices all over the GTA are dropping HARD!. This one house a few months ago in C6 would of had a bidding war at $850k but now nothing and is dropping in price and now sits at $750K. If people continue to stop buying prces will continue to crash. People need to sell before they go bankrupt. This home still can not sell after over 12% drop in price.

http://www.google.com/url?sa=t&rct=j&q=164%20faywood%20blvd%20toronto%2C%20ontario%20&source=web&cd=4&cad=rja&ved=0CDAQFjAD&url=http%3A%2F%2Fguava.ca%2F%3Fp%3D3119&ei=gfCPUMGtFOXL0AG2y4CwBw&usg=AFQjCNFphcZc9jepvvK4KwczvCa7C__TcA

http://www.google.com/url?sa=t&rct=j&q=164%20faywood%20blvd%20toronto%2C%20ontario%20&source=web&cd=2&cad=rja&ved=0CCYQFjAB&url=http%3A%2F%2Fguava.ca%2F%3Fp%3D3142&ei=gfCPUMGtFOXL0AG2y4CwBw&usg=AFQjCNHWVXznx1RmZy4iwAYnlEaRVH8TOA

http://www.google.com/url?sa=t&rct=j&q=164%20faywood%20blvd%20toronto%2C%20ontario%20&source=web&cd=1&cad=rja&ved=0CCAQFjAA&url=http%3A%2F%2Fguava.ca%2F%3Fp%3D3168&ei=gfCPUMGtFOXL0AG2y4CwBw&usg=AFQjCNFWo6o7ULd32_d7I4h67FYOrbcXow

#125 Ronaldo on 10.30.12 at 11:26 am

http://www.theglobeandmail.com/globe-investor/inside-the-market/market-view-video/video-consumer-debt-burden-less-alarming-than-appears-cibc/article4754205/?cmpid=rss1#latest-comments

So you see, according to CIBC, Canada’s debt burdern is less alarming than appears and there is not going to be a housing crash like in the U.S.

Nobody credible has forecast a ‘US-style housing crash’ in Canada. It’s a straw man argument. Instead we’ll have a Canadian-style crash – correction, then melt. — Garth

#126 picasso on 10.30.12 at 11:35 am

#62 martin9999 on 10.29.12 at 11:30 pm
#50Devore on 10.29.12 at 11:00 pm
#16 martin9999

go and dine out and you see what’s up. go into any bar in toronto 7 bucks a corona

——————————————————-

$13 for a dozen of them in Texas.

#127 Bottoms_Up on 10.30.12 at 11:49 am

And check out the cost of reading comprehension classes. Shocking. — Garth
——————————————
Since these are an asset they’ve come down in price c/o stagflation.

#128 mel in victoria on 10.30.12 at 12:16 pm

TAIPAN post # 92

One of the better gold posts I’ve read here.

#129 jjpetes on 10.30.12 at 12:28 pm

Why won’t you post my comments Garth? Can’t come up with a rebuttal to what I said? Only from an ex MP can you decide whom freedom of speech applies to, when it supports the states arguments only…pathetic Garth, pathetic.

Your comments will be published when not ad hominem. Try again. — Garth

#130 EIT on 10.30.12 at 12:31 pm

The epic battle between free markets and government pull rages on. The bad news is that it’s totally hopeless and we are set on our path. The good news is that it’s not serious and life will go on.

#131 Derek R on 10.30.12 at 12:33 pm

#112 Gunboat denier on 10.30.12 at 10:15 am wrote:
repaying loans is deflation? Not sure about
that as labour is created to repay.

True, it is. But inflation and deflation are monetary phenomena, GD. You have to pay back the loans with money. Sure, most of us have to sell our labour to people with money in order to get that money but we don’t sell it to the bankers, we sell it to each other. The bankers want cash, not labour. They couldn’t care less whether we sell our labour, our Beanie Baby collections, or our daughters in order to get it. They will only accept cash on the nail.

And when we pay them, the money is removed from circulation as if it never existed. On the other hand when we default, we are no longer taking that money from other people and giving it back to the bankers, so the money remains in circulation. Hence defaulting on your loan is actually inflationary.

Not repaying the loan is deflationary. The promised
labour is not performed.

Think about it: more money in circulation and less good and services to buy means money is worth less (inflation). Less money in circulation and more goods and services to buy means money is worth more (deflation). That’s why not repaying is inflationary.

#132 Dontcallmeshirley on 10.30.12 at 12:40 pm

#123 };-) aka D.A.,

“The ‘people’ are their own worst enemy. Look around you. Look at yourself. Why do you think prices are eventually going to shift to your advantage? BECAUSE YOU WANT WHAT YOU PERCEIVE EVERYBODY ELSE HAS THAT YOU DO NOT.”
———–

Geez…that was convincing. You get a lot of BRA’s or listing agreements signed with that routine?

I love you bro’

I was trying to imagine getting lectured like this, with say a British accent, and you know what…it would work on me.

Yeah right!!! Hahaha!!!

#133 T.O. Bubble Boy on 10.30.12 at 12:41 pm

we can all stop worrying so much about CMHC costing the Canadian taxpayer tens or hundreds of billions… maybe it will just be a few billion in losses! (which, when you think about it, is just a couple of F-35 fighter jets, or a few gazebos)

Fannie and Freddie just announced that they are expected to ONLY cost U.S. taxpayers $76 billion through 2014, instead of the previous projection of $142 billion.
http://blogs.reuters.com/felix-salmon/2012/10/26/counterparties-fannie-and-freddies-slow-metamorphosis/

#134 Mike W on 10.30.12 at 12:53 pm

Re: deflation

Does this mean that Carney’s been bluffing all this time about raising interest rates? Because if I understand the premise correctly (money rises in value relative to other things) interest rate hikes would make this problem even worse, no?

#135 Dontcallmeshirley on 10.30.12 at 12:59 pm

#70 Dan7,

Dividends cut?

Maybe in the most dire of situations…aka on the brink of a CCAA filing.

Otherwise think of who owns these shares and is relying on them for $$$. Not just sh*t kickers like us.

CEO’s, pension funds, important people.

You think a bank CEO would ever willingly reduce their share value and dividend cash flow by reducing the div?

They’d borrow to keep the div going…go worry about real problems Dan7.

No major Canadian bank has ever missed a dividend. Or ever will. — Garth

#136 Victor on 10.30.12 at 1:07 pm

hi Garth, I thought Central banks in the world are flighting a war with asset deflation (while others inflated along the way). Where is the deflation other than real estate?

Checked growth rates lately? Unemployment? Net income? — Garth

#137 ozy - the crude Truth on 10.30.12 at 1:22 pm

The crude Truth is kanatians and amerikans are paid way way way too mucho, baby, in this global world.
So, a multitude of economic forces like RE price crash, unemployment, and inflation will put thighs where they need to be. No one is entitled to a middle-class life-style based on welfare or jobs that anyone can do. Unless they somehow unite and re-program their washed brains (see Spartacus revolt in Roman Empire) and take power from upper-class and made the United Soviets of Amerika, the middle-class will be only 10% of populus, where it should be.
We want more than we deserve, so we suck, admit it and pay it back, baby, God bring inflation and deflation sooner!

#138 brainsail on 10.30.12 at 1:35 pm

#126 picasso

“$13 for a dozen of them in Texas.”

Last Xmas my wife went home to Alberta and was invited for a dinner and decided to go to a liquor store and get a bottle of wine. She was shocked at the prices. She chose Lindeman’s Cabernet Sauvignon. $17 dollars while we pay in Texas about $6 including tax at the local HEB grocery store.

#139 kreditanstalt on 10.30.12 at 1:38 pm

Kudos to #92!

Stuff in restricted supply is rising in terms of our constantly-inflating CAD money supply. That means chiefly gold but also food & fuel.

#140 martin on 10.30.12 at 1:40 pm

126picasso on 10.30.12 at 11:35 am
#62 martin9999 on 10.29.12 at 11:30 pm
#50Devore on 10.29.12 at 11:00 pm
#16 martin9999

go and dine out and you see what’s up. go into any bar in toronto 7 bucks a corona

——————————————————-

$13 for a dozen of them in Texas.
—————

well,go live in texas then

#141 kreditanstalt on 10.30.12 at 1:41 pm

#116 NoOneOfConsequence,

YES, gold will be a big bubble – one day – but the important thing is that it will be the LAST bubble.

#142 martin9999 on 10.30.12 at 1:46 pm

#117Daisy Mae on 10.30.12 at 10:39

DELETED

#143 brainsail on 10.30.12 at 1:49 pm

#126 picasso

Just in case nobody believes me…

http://www.wine-searcher.com/find/lindemans+bin+45+cabernet+sauvignon

#144 Esmerelda Fitzmonster on 10.30.12 at 1:50 pm

But its different here,
we are
better,
smarter,
faster,
stronger
and nicer
than those gun toting American crazies.

Everyone knows that right, right…right?!?!

#145 Westernman on 10.30.12 at 1:54 pm

Harlee @ # 33,
I see our local Saskatoon booster has timed in to remind us that once in awhile Saskatoon has decent weather for a 24 hour period …
It’s weak, Harlee and you shouldn’t be trying to sell it …

#146 Jeff in Moose Jaw on 10.30.12 at 1:56 pm

Just watched Jim Flaherty in this documentary which is focused on Wall Street, what the heck is the Canadian Finance Minister doing here?

http://www.youtube.com/watch?v=JYTyluv4Gws&feature=related

#147 OkanaganInvestor on 10.30.12 at 2:11 pm

This is another way to understand the economic cycles we live with:

“Rothschild created boom-and-bust cycles which were highly profitable for his bank, but depended upon the support of the government when the “bust” part came along.

As described above, the bank would offer loans to the public on generous terms, then suddenly rein in those terms on all future loans. The claim the bank would make would be that inflation was taking place and the bank was taking action to control that inflation. (Of course, Rothschild did not bother to mention that it was the bank itself that had caused the inflation.)

The net result would be a “panic,” or, in today’s terms a “depression.” Everyone involved would be harmed by the event except the politicians and the bank.”

http://www.ino.com/blog/2012/10/the-bank-was-saved-and-the-people-were-ruined/

#148 Not an expert on 10.30.12 at 2:17 pm

I have been laid off for the past 3 weeks. (i am back to work tomorrow).
I have been looking for work and notice the employers who are bold enough to say what they will pay for my trade per hour are offering the same wage as when i got into this trade 12 years ago.

Is this not deflation?

#149 Franke le Skank on 10.30.12 at 2:19 pm

I remember not too long ago (a few months) Benjamin Tal use to say there would never be a reduction in Canadian house prices. Now he admits that there will be a reduction, but has changed his rhetoric to stating that there won’t be a US style meltdown.If prices drop 20%, he will say that prices will never go lower than 20%. This pattern of denial continues until the bottom is reached, its common in people who stand to lose something.

http://www.cbc.ca/news/business/story/2012/10/30/cibc-housing-tal.html

#150 Jeff in Moose Jaw on 10.30.12 at 2:20 pm

Last one, by pbs called Breaking the Bank.

http://www.youtube.com/watch?v=X93RsNA_DBM&feature=related

#151 Ad Hominem, aka jjpetes on 10.30.12 at 2:24 pm

Garth

You

Suck

End

Of

Story

The metalheads speak. — Garth

#152 Dontcallmeshirley on 10.30.12 at 2:34 pm

No major Canadian bank has ever missed a dividend. Or ever will. — Garth

—–

Absolutely, my future is premised on this.

And the reason for the perfect dividend record isn’t just company performance. Those divs are cash flow for some bit time folks who won’t accept anything less.

I like how you snuck in the qualifier “major” though. You sneak devil you!!!

#153 OkanaganInvestor on 10.30.12 at 2:47 pm

Further to my understanding of how economic cycles work, I’ll have former PM of Canada Paul Martin explain where money come from:

https://www.youtube.com/watch?v=0mgs_n9mh84

#154 Fartweezel on 10.30.12 at 2:48 pm

What happened to Nostradamus the mad lad?

His links were very entertaining and a welcome relief from the usual ” If I change my socks to a different colour and do what Garth advises against will I still come out on top?”.

#155 Bigrider on 10.30.12 at 2:56 pm

Deflation say you Garth. Don’t try to convince the Germans.

Anyway, tough history lesson to deny.

http://www.zerohedge.com/news/art-cashin-most-important-history-lesson-last-century

Give it up. There will be no hyperinflation. Such silly fears. — Garth

#156 picasso on 10.30.12 at 2:57 pm

#140 martin on 10.30.12 at 1:40 pm

well,go live in texas then

…………………………………………………

I am in Texas, but from Alberta. No work in the telecom industry up there unless you want to pull cable or punch down 2 pair for $20 an hour. No thanks, not interested.

Contracting to AT&T down here for $50 an hour writing scripts/translations so all the 20 somethings can text each other while sitting at the the same table. lol

Not only is the cost of living half of what it is up there, but housing is a third of the cost!!

Oh ya… it’s mid 80F too.

#157 John on 10.30.12 at 3:01 pm

Garth wrote:

“No major Canadian bank has ever missed a dividend. Or ever will. — Garth”
——-

The worst case scenario would be if this were actually true as an absolute. Imagine the range of enforcement required. That question would make sense if you did a serious risk analysis on the world economy. You have not.

Your argument ( a long-term dance with the ponzi) weakens further as the cause and effect dance of the global economy continues.

Not looking doesn’t change what’s happening.

Whatever the hell that jumble of nonsense means, no major Canadian bank has ever missed a dividend. Or ever will. — Garth

#158 ronthecivil on 10.30.12 at 3:06 pm

105 Dupcheck on 10.30.12 at 9:34 am

“If I was US, I would print all my debt in paper money and put in a big container and pay the Chinese debt with this devalued paper. After I would start a new currency with a different but slightly similar name. US Dallar.”

Why the need for a new name? Deflating the hell out of the dollar and eliminating large amounts of debt and it’s interest would be the ultimate “buy american” program. Not only at home but even abroad!

Why would someone bet against the US when all their debts are based in a currency they control and can produce in endless amounts? Sure, they might not show up with the fabled suitcase with 5 trillion in cash next state visit to china but they are doing the exact same thing peicemeal through the endless currency printing.

#159 Snowboid on 10.30.12 at 3:16 pm

#126 picasso on 10.30.12 at 11:35 am…

$ 11.49 for same in Phoenix, but still $ 4-5 a bottle in the bars and restaurants.

#138 brainsail on 10.30.12 at 1:35 pm…

$ 3.97 at the Glendale AZ Total Wine!

#140 martin on 10.30.12 at 1:40 pm…

I expect you would be in shock to see how low prices are in the US compared to Canada.

Maybe the point of these posts is to illustrate how Canadians are getting ‘ripped’ off!

Of course, there are also thousands of Canadians happily working in the US (such as Picasso), and several hundred thousand that spend all or some of the winter down south (like us).

#160 Inglorious Investor on 10.30.12 at 3:28 pm

#134 Mike W on 10.30.12 at 12:53 pm

“Does this mean that Carney’s been bluffing all this time about raising interest rates? Because if I understand the premise correctly (money rises in value relative to other things) interest rate hikes would make this problem even worse, no?”

Carney does not set interest rates. The BoC tries to influence short-term rates, but the forces at work are much bigger than the BoC. Carney persistently warning that interest rates (particularly longer term mortgage rates) may go up (at some point, whenever that is) is just evidence that it’s beyond his control as he practically begs Canadians to reign in their debts. At this level it has more to do with the demand and credit risks of banks as they lend money to each other.

Without getting into how credit markets work (and I am by no means an expert), longer term interest rates are determined by a few main factors, including: inflation expectations, repayment risk and demand for credit (which can be viewed as economic growth expectations). As the biggest, bad ass debtor around, government bond rates generally set the tone for other interest rates, though the spreads can be quite high, especially in short-term consumer credit markets (credit cards, car loans, etc.)

The key factor (but certainly not the only factor) as far as stable governments are concerned, is inflation risk. If lenders (bond buyers) think monetary inflation will be high due to, say, big debts and growing deficits, they will demand to be compensated with higher interest rates in order to protect themselves against the falling value of the currency. This is why you can have a stagnant economy and sky-high interest rates, like we had in the early ’70s.

But today, things are a bit different. Central banks are distorting credit markets by strategically buying government bonds and other securities, like Mortgage Backed Securities (pools of mortgages that dealers turn into bonds). This artificial demand by central banks is keeping interest rates low and bond traders are taking signals from the central banks to buy bonds, not for the coupon per se, but for short-term capital appreciation.

In short, credit markets, and stock markets are now somewhat detached from the economic reality and Wall Street has tremendous power to affect interest rates. For example, I invite people to check the correlation between the Ontario gov’s getting religion and deciding it was time to start cutting costs and the negative reviews of Ontario’s credit worthiness by the Wall Street ratings agencies.

#161 Franke le Skank on 10.30.12 at 3:36 pm

#157 John on 10.30.12 at 3:01 pm
Whatever the hell that jumble of nonsense means, no major Canadian bank has ever missed a dividend. Or ever will. — Garth

LMFAO – I enjoyed that!

#162 picasso on 10.30.12 at 3:48 pm

#159 Snowboid on 10.30.12 at 3:16 pm

$3.50ish for a gallon of gas too

What is it up there now per litre in Alberta and they export it to the U.S.

#163 GTA Girl on 10.30.12 at 3:49 pm

I had a recent disagreement with an old Liberal colleague of yours, Garth.

He was adamant that the children of boomers would do quite well in the coming years. That they stood to inherit a trillion dollars from their parents.

When I pushed him on Canadians personal debt issue, he waved it away saying this inherited trillion would ease debt loads.

Frustrated with his rosé colored glasses, I asked him in what form this trillion dollars of inheritance would come.

“Real Estate, boomers have paid off homes and vacation homes. They wisely put money in RE!”

Did I mention that your former colleague didn’t get re-elected in 2011? Lost his seat to a Real Estate developer’s niece.

#164 World View on 10.30.12 at 3:59 pm

Since we are on this topic….The “deflation” in housing is not really deflation, because the house prices were inflated to begin with. As far as unemployment goes, well they should lose jobs with “deflating” house prices because if no one wants Apple products people who work in Apple factories lose jobs, but they can use their skills and make something else or if they love building houses migrate where they would like to pursue their dream job.
And most importantly, if US were to suffer serious deflation, the US government will not be able to collect tax dollars to service its debt. There is no way the US would like to default. So they will only choose to inflate their debt away. Since the whole world absorbs US dollars, inflation will take a while , but it will come. Any country with a pegged currency will see inflation or if floating, see their currency appreciate.
Or US will lose reserve status and suffer domestic inflation much faster than expected..
If Canada repeats US mistakes, then first deflationary pressures, and then in resisting that Canada will see higher inflation. Deflation is not dirty if one is living in an inflated balloon. In fact I would love to get more value for my cash to purchase everything, not just houses. And those jobs that are lost should not have been there to begin with.
Stagflation is dirtier than 30s.

#165 Derek R on 10.30.12 at 4:03 pm

#134 Mike W on 10.30.12 at 12:53 pm wrote:
Because if I understand the premise correctly (money rises in value relative to other things) interest rate hikes would make this problem even worse, no?

Mike, you got a pretty long and detailed answer from Inglorious Investor with which I fully agree. However the short answer to your question is “Yes, interest rate hikes would make this problem even worse”.

#166 Dave Freiday on 10.30.12 at 4:06 pm

You have the definitions of inflation/deflation wrong. Look them up: Webster’s maybe. Falling prices is NOT deflation, it is a SYMPTOM of deflation. Same goes for inflation. Prices can fall in many different assets at once but there still can be inflation.

If the money supply explands, for example, that inflation can SHOW UP anywhere, including equity prices, even though consumer prices fall (denoting deflation). If you are predicting FALLING consumer prices and/or commodities or equities. Take a look at other asset classes at the exact same time…. precious metals, bonds (which is a HUUUUGGGE bubble).

Anyways, falling/rising prices is not inflation/deflation, they are not synonymous, only related.

Even if I’m wrong, and the real definitions of Inflation/Deflation are wrong, then you can be sure that Central Banks will print our way to inflationary crisis as they read false signals.

They’ve been trying, and failing. Worry about that. — Garth

#167 Inglorious Investor on 10.30.12 at 4:08 pm

#148 Not an expert on 10.30.12 at 2:17 pm

“[…] employers […] are offering the same wage as when i got into this trade 12 years ago. Is this not deflation?”

In real terms, yes. Catherine Austin Fitts opines that price inflation is purposely being off-set by wage deflation. It’s part of her “slow burn” thesis.

#168 Derek R on 10.30.12 at 4:10 pm

#154 Fartweezel on 10.30.12 at 2:48 pm asked:
What happened to Nostradamus the mad lad?

He’s putting his feet up on a well-earned vacation at the moment. Don’t worry he’ll be back in a week or so.

#169 Bottoms_Up on 10.30.12 at 4:18 pm

#148 Not an expert on 10.30.12 at 2:17 pm
—————————————–
No, that’s new employees to the field getting screwed by inflation. Just like those earning minimum wage. If you had to choose, would you rather live today making $10.25/hr, in the early 1990’s making $6/hr, in ’79 making $3/hr or ’69 making $1.3/hr?

http://timerime.com/en/timeline/37363/The+history+of+minimum+wage+in+Ontario/

#170 Dan from Richmond Hill on 10.30.12 at 4:19 pm

Is there any place where I can see the final selling price of a house?

#171 jess on 10.30.12 at 4:29 pm

for the un “sophisticated”

good read!

CSFICentre for the Study of Financial Innovation
http://www.scribd.com/doc/56919393/Private-Equity-Public-Loss-437

#172 Eaglebay - Parksville on 10.30.12 at 4:40 pm

#105 Dupcheck on 10.30.12 at 9:34 am
“If I was US, I would print all my debt in paper money and put in a big container and pay the Chinese debt with this devalued paper. After I would start a new currency with a different but slightly similar name. US Dallar.”
__________________

Do you realize that most of the US debt is owed to Americans and some Canadians?
Smart one.

#173 Eaglebay - Parksville on 10.30.12 at 4:46 pm

#117 Daisy Mae on 10.30.12 at 10:39 am

Remember ‘The Cave’?
Chuck Berry and all.

#174 mac on 10.30.12 at 4:47 pm

Deflation and inflation all at once. Well, you’ve got your bases covered this time.

#175 jess on 10.30.12 at 4:48 pm

inflation on elections

All Prominent PACs $479M http://projects.propublica.org/pactrack/#committee=all

#176 martin9999 on 10.30.12 at 4:51 pm

jeez men, silver and gold is dead for real today. gotta take my dinero out before election

#177 Eaglebay - Parksville on 10.30.12 at 4:56 pm

#143 brainsail on 10.30.12 at 1:49 pm

It doesn’t come with a free dinner though.

#178 martin9999 on 10.30.12 at 4:59 pm

#159Snowboid

toronto, better quality of life dude.

go to yellow knife i am sure they probably give mini coronitas for free there just to keep you in town.
no comperison

cheers

#179 Snowboid on 10.30.12 at 5:09 pm

#162 picasso on 10.30.12 at 3:48 pm…

Regular in Calgary at about $ 4.16 a gallon, Kelowna $ 4.80 !!

Premium is $ 4.99 in Calgary, $ 5.41 in Kelowna, $ 3.75 in Phoenix.

#180 };-) aka D.A. on 10.30.12 at 5:11 pm

#132 Dontcallmeshirley on 10.30.12 at 12:40 pm

That message would not need to be directed toward anyone of psychological profile I would want to do business with so whatever point you’re trying to make is probably irrelevant.

#181 NI on 10.30.12 at 5:14 pm

http://www.vancouversun.com/news/national/Many+Canadians+rely+winning+lottery+inheritance+financial/7471603/story.html

#182 Canadian Watchdog on 10.30.12 at 5:16 pm

#153 OkanaganInvestor

“Further to my understanding of how economic cycles work, I’ll have former PM of Canada Paul Martin explain where money come from:”

All explained in one chart.

#183 };-) aka D.A. on 10.30.12 at 5:24 pm

#148Not an expert on 10.30.12 at 2:17 pm
I have been laid off for the past 3 weeks. (i am back to work tomorrow).
I have been looking for work and notice the employers who are bold enough to say what they will pay for my trade per hour are offering the same wage as when i got into this trade 12 years ago.

Is this not deflation?

You need to pursue a different line of work. Maybe become your own boss by hiring those skilled in your trade and hiring THEM out a rate higher than what you pay them?

#184 D man on 10.30.12 at 5:29 pm

Does this means Real Return Bonds are a bad idea?

Not so far. — Garth

#185 anotherwhistleblower on 10.30.12 at 5:29 pm

I don’t think that many people really understand the ‘inflation/deflation argument.

1) Inflation is an increase in the money supply. Last quarters M2 ( M3 shadow stat) was 15.7%. This means that every dollar in your pocket becomes less valuable by 15.7% the minute it hits the street. We see the obvious product of this in direct consumables like gas, groceries etc. Look at the price of gold…in fact overlay a chart of gold and M3 since the Greenspan Intervention began and you’ll see that these tow issues are exactly correlated 100%.

2) Deflation has nothing to do with the curent state of real estate ‘prices’. The fact is that government interferance with the rate markets ( creating bonds to buy back in order to subsidize ballooning overhead on the cheap) with the ZIRP and NIRP setting effective rates at bargain basement prices ( to the detriment of the taxpayer but great for unions) that caused ‘values to skyrocket in a way which is an entire disconnect to market value.

Allowing prices to fall from artificial highs is not deflation……and therefore a non issue from an economic perview. The real estate bubble was nothing more than speculation and going forward will have zero effect on the fundamentals of demand and supply…once a free market is restored.

Wrong. Money supply can increase but if it does not find its way into the consumer economy (70% of GDP) the increase is largely irrelevant. The velocity of money is what matters, or the speed at which it moves through the economy, chasing prices up. Velocity has been tanking. So will will assets. Get a new theory. — Garth

#186 dv8 on 10.30.12 at 5:32 pm

The velocity of money is falling. That dooms real assets. — Garth
the velocity of money will increase when the central banks buy up everything in the big deflation that is coming with their massive reserves ,once those reserves
are spent then inflation will ravage the dollar
deflation always precedes hyperinflation always .

You made that up. — Garth

#187 brainsail on 10.30.12 at 5:50 pm

#159 Snowboid

“Maybe the point of these posts is to illustrate how Canadians are getting ‘ripped’ off!

Yep, the price differences are alarming. I am certainly not a financial expert and I’m trying to fully comprehend the deflation/inflation posters from Garth of late.

Some of the American housing markets have been hit hard and now some owners have under water mortgages and have lost their homes and jobs yet basic groceries have only seen little increases. Beef is up because of the drought, but little else.

We live in an city that did not bubble and our house has not lost or gained a dime in the last 11 years while groceries have increased very little. We pay about $1.20 for a dozen eggs and $3.50 for a gallon of milk. I saw milk on sale for $2.49/gallon a few weeks ago. Power is $0.13/KWH. An 18 pack of Bud is $13.49.

Canada concerns me. In the last ten years the cost of groceries has increased at a alarming rate and almost as much as housing. What happens when housing deflates, interest rates go up, the unemployment rate increases and people give up their houses? Do the costs of basic essentials go down or keep increasing?

#188 espressobob on 10.30.12 at 5:52 pm

Garth, This is by far the best post I’ve read on your blog , Thanks

#189 Kelowna down 5 years in a row on 10.30.12 at 6:04 pm

Lots of snow birds have said even with their cost of accommodation it is cheaper to live the US for the winter months than at home.

#190 cofessions of a real estate bear on 10.30.12 at 6:10 pm

Gta girl. This is what i have been telling everyone. The assets that are to be inherited, mostly have to be sold to be realized. With the debt levels and social security obligations i highly doubt these assets will be liquidated at the present values

#191 brainsail on 10.30.12 at 6:12 pm

#177 Eaglebay – Parksville

“It doesn’t come with a free dinner though.”

Excellent point but it was a dinner with boring relatives!

#192 Bigrider on 10.30.12 at 6:25 pm

#155 Garth to Bigrider- ” Give it up, there will be no hyperinflation. Such silly fears”.

Perhaps you are correct. Afterall, the velocity of money is non existent. You can print all you want but if it does not get into the broader economy then no HI… agreed.

If velocity does suddenly occur however, it will be swift, the ramp up will be parabolic and those wishing for an entry point in real assets and an exit from cash equilvalents… left in the dust.

#193 Inglorious Investor on 10.30.12 at 6:34 pm

On another topic: Disney buys LucasFilm in an apparent attempt by the Mouse House to finally destroy what little nostalgic value remains of the original trilogy after Lucas himself did a great job all on his own in ruining his own creation with Episodes I, II and III. Disney also owns Marvel and Pixar.

The next instalment in the Star Wars saga, which is slated for a 2015 release (projected directly into your brain via specially equipped CIA-Disney drones), will no doubt be a completely 3D-animated/virtual reaity farce staring Woody as the product of a previously unknown union between Amidala and the Scarecrow; Buzz Lightyear as C3-PO’s yokel cousin; while a grotesque conjoining of Darth Vader and Doc Oc is rumoured to play the villain–strangely he also has large, round, black ears. Yoda makes a cameo appearance in the guise of a talking toad and Goofy narrates the flying words intro, which, whatever it says, will end with a hardy “Gorsh!”

#194 Eaglebay - Parksville on 10.30.12 at 6:40 pm

#187 brainsail on 10.30.12 at 5:50 pm
#159 Snowboid

“Maybe the point of these posts is to illustrate how Canadians are getting ‘ripped’ off!”
_________________

The bulk of the difference in prices is probably taxes,
marketing boards, quotas and other government interventions and interferences.
These factors do affect productivity.
Many Canadians want the government to mother them
and provide jobs and various entitlement.
Somebody has to pay and screw the savers and enterprisers. Long live socialism.

#195 Smoking Man on 10.30.12 at 6:57 pm

Rosie says no real estate melt. Wft rosenberg.

I go on mls. Seams owners not co operating by dropping prices.

No inventory. Which means pent up demand over the winter. Around spring when C is forced to drop the overnight rate. Baboom.

Watch and learn grasshoppers.

#196 smartalox on 10.30.12 at 6:58 pm

Garth, did the cops find your bunker?

http://m.theglobeandmail.com/news/national/haz-mat-team-arrests-caledon-man-in-sewer-who-was-fleeing-police/article4773956/?service=mobile

#197 };-) aka D.A. on 10.30.12 at 7:09 pm

#189 Kelowna down 5 years in a row on 10.30.12 at 6:04 pm
Lots of snow birds have said even with their cost of accommodation it is cheaper to live the US for the winter months than at home.

What’s your point

Kinda been that way for as long as I can remember. Of course there’s always more to the story that causes more people not to do it than do. I do know a lot who live in Mexico a good part of the year not so much because it’s warmer but more because it’s cheaper. Storage insurance on the car, shut down most utilities but for those necessary to keep the freeze out lock ‘er up and leave. But again, that’s nothing new – been that way for years.

So really what is your point?

Oh and P.S. Kelowna hasn’t been ‘down 5 years in a row’. Check out the numbers I posted in a chart on this blog some days back…

http://tinypic.com/r/15d428j/6

Of I’m sure you must suspect I had time to dream all those numbers up put them in that format and post them there. Check ‘em out, they’ll hold up to anyone’s scrutiny. Your call…

#198 Canadian Watchdog on 10.30.12 at 7:10 pm

“The velocity of money is what matters, or the speed at which it moves through the economy, chasing prices up.”

You almost got it Garth. Now what else happens when velocity tanks?

#199 Dontcallmeshirley on 10.30.12 at 7:37 pm

#180 };-) aka D.A.,

Be open minded and widen your scope.

The low hanging fruit has been picked, you’re on the 8 ft ladder now.

Never lecture, most folks tune that right out.

#200 Hawk on 10.30.12 at 7:46 pm

#61 OlderbutWiser on 10.29.12 at 11:28 pm

=============================

Gold suffers from one disadvantage unlike other assets. It’s value remains low because of ETF and other paper assets backing it and therefore it inches up slowly.

This ofcourse can’t be avoided, but if tommorow you demanded that all people cough up physical gold in trading, then you would see what the price would become.

#201 OkanaganInvestor on 10.30.12 at 7:46 pm

#182 Canadian Watchdog on 10.30.12 at 5:16 pm

Thanks for the chart. I did read that much of Bank of Canada’s gold went missing! Since Nostra is on vacation, I’ll refer to his comment a few days ago:

Thought For The Day! “”I’d be dead before morning.” — Canadian Prime Minister Paul Martin, on being asked what would happen if the Canadian government started issuing its own currency rather than borrow paper notes from the private central bank. (wrh.com).”

We do not have a private central bank. — Garth

#202 Linda Mulligan on 10.30.12 at 7:51 pm

What bewilders me is the reliance on gold, silver et al – sure it is pretty & glitters. Sure the metals have practical properties for industrial use & are not just to wear but – it is a hunk of shiny metal, folks. You can actually eat it in leaf form but nutritional value it does not have, though some claim health benefits (dubious look here). So why do people obsess/rely on it? Magpie genes? In true dire times, give me a nice store of seeds & spices, dried fruits, nuts, other stuff you can actually drink/eat/grow or wear to keep warm/cool – the shiny hunk of metal really not much help there except possibly as a way of purifying water. Now there is value, as opposed to a shiny chunk of junk.

#203 Daisy Mae on 10.30.12 at 7:54 pm

#99 DA: “But the price of those things you need are going up…..”

**************************

And if the price isn’t going up…you can be sure the volume/weight of the product is being reduced. Experienced that just today….

#204 Silver on 10.30.12 at 7:54 pm

While everyone is watching the Residential Housing market….
…. small business is getting hammered into the ground.
If you don’t think that is going to have an effect your blind.
Every one I know who has a small business, some 10-15 mil. worth of combined, is half a step away from, if not actively engaged in shutting down, and disposing of their commercial and residential property and winding down business. Time to go away, the deals on rec property are starting to get very interesting. Lots out there taking a bath already. lots of borrowed money in trouble. can buy a shit load for less than the cost of building it. Lower property taxes to.

Have fun guys….
love’n vancouver right now.
Silver

#205 brainsail on 10.30.12 at 8:05 pm

#194 Eaglebay – Parksville on 10.30.12 at 6:40 pm

“Many Canadians want the government to mother them
and provide jobs and various entitlement.
Somebody has to pay and screw the savers and enterprisers. Long live socialism.”

Yep, we early voted a few days ago for the R guy!

#206 Daisy Mae on 10.30.12 at 8:13 pm

#122 Maxx: “Reduce, reuse, repair and recycle. It’s so easy, and getting into the habit yields huge savings. It’s a habit that, once formed, sticks. Even the rich are getting into it”

*********************

Isn’t it the truth? History repeats itself. It’s what past generations simply did, without giving it a second thought.

#207 will on 10.30.12 at 8:15 pm

“. . .companies that take profits from productivity”

Garth, what do you mean by this? I know you’re talking microecon, but I can’t get my head around it.

Making the same products with fewer workers means higher productivity. Lower costs, static sales, more profits. — Garth

#208 Daisy Mae on 10.30.12 at 8:21 pm

#122 Maxx: “This is a greatly increasing trend as well. In tandem, I also see people rediscovering their adaptability and spending creativity.”

***********************

Loved this post. Agree with it all! :)

#209 Realtors and bankers in an all out panic on 10.30.12 at 8:26 pm

Nothing is selling and sellers are starting to panic as they drop their prices by 10-15% and still they sit on the market. Realtors like smokingman continue to post on garths blog as they are unable to sell a single home. Many realtors haven’t made a single sale in months and many are in financial trouble now. It’s going to be a nasty crash realtors……A nasty crash!

#210 Gunboat denier on 10.30.12 at 8:41 pm

113 II – excellent post.

“Money supply can increase but if it does not find its way
into the consumer economy (70% of GDP) the increase is
largely irrelevant. The velocity of money is what matters,
or the speed at which it moves through the economy,
chasing prices up……” – Garth.

131 Derek – say a purchaser borrows $400k to buy a house. Let’s look at following possibilities.

A) Vendor immediately spends the $400K into the economy. The money has velocity. I think that would be inflation.

B) Vendor uses proceeds to live on and balance is
reduced to zero about the same time the purchaser pays
off the mortgage. Though the money supply has been
increased, I dont see this as inflation as the debt repaid
by the borrower is offset by vendors spending into the
economy. We could even eliminate the bank from the
equation if the vendor supplies the financing. The “money” is never destroyed as it just works its way through the economy.

C) Purchaser renegs on mortgage. The vendors “savings” are now gone (ignoring “inflationary” deposit
insurance) The “money” is destroyed and cant be used. This has to be deflationary.

I guess we can have D) as well – vendor keeps “money” in bank. Shows up as increased money supply, but I think this is deflation as well as the money taken from
the purchaser has no velocity.

#211 get me a seat on the plane outta here! on 10.30.12 at 8:41 pm

Garth is the sort of guy I would love to talk with in the check-in line when the plane is overbooked and I really want a seat. I am sure he can talk a lot of people out of taking the flight by talking stats of “I expect this plane to drop a few hundred feet, several times during the flight, and even though it is unlikely, there is a chance of crashing on this flight. In fact, in the last 4 years, there have been over a dozen flights lost over the Atlantic alone.” Even if the real estate is to fall by Garth’s projected 15%, homes have acquired over 40-50% since 2008 in several cities in Toronto, and with the expected low interest rates in Canada until the rest of the world economy picks up (in order to avoid having the CAD$ skyrocket), expect a dip in prices and sales, but many people will feel quite silly waiting at the Gate for the next plane, which will only cost more!

#212 Daisy Mae on 10.30.12 at 8:41 pm

142martin9999
#117Daisy Mae

DELETED

********************

Does Martin9999 have a damn PROBLEM?

#213 Junius on 10.30.12 at 8:43 pm

#193 Inglorius Investor,

You mentioned, “Disney buys LucasFilm.”

Lucas had to cash out at some point. 4 Billion dollars is a lot of money.

Interestingly Disney used to be called, “Mouseswitz” in the entertainment industry but have changed somewhat under Bob Iger’s leadership. Much different than under Michael Eisner who was authoritarian and often very nasty. They have done a great job with the Pixar properties.

#214 Daisy Mae on 10.30.12 at 8:50 pm

#173Eaglebay – Parksville on 10.30.12 at 4:46 pm
#117 Daisy Mae on 10.30.12 at 10:39 am

Remember ‘The Cave’?
Chuck Berry and all.

***********************

I do!

But ‘The Cave’ was NOT one of the establishments I referred to.

Weren’t those great times?

#215 Mister Obvious on 10.30.12 at 8:51 pm

#202 Linda Mulligan

I’m not a ‘gold bug’ by any means, but unlike real-estate you can’t arbitrarily bulldoze in a new subdivision of gold, and, unlike fiat money, you can’t simply declare more bullion into existence.

That, coupled with the fact that gold is an inert element reacting with practically nothing else, made it at one point in history, the perfect metal to which a more convenient means of exchange (i.e. paper promises) could be coupled.

Those ties are now completely severed and all we have left are the promises. A gold bug believes very strongly we will, someday soon, abandon our worthless paper and return to tangible metal. They aim to be prepared when this happens. Then you will witness smugness of biblical proportions.

Myself, I own no gold. I still buy stuff with paper.

#216 Form Man on 10.30.12 at 8:59 pm

#207

Making the same products with fewer workers means higher productivity. Lower costs, static sales, more profits. — Garth

Nicely put. In addition, employers retain their ‘better’ employees, making the productivity gain even easier to attain.

#217 Will smoke for mentoring on 10.30.12 at 9:44 pm

Smoking man I am seriously in need of a mentor! I don’t want to be a tax slave and I want to learn how to think – will you teach me???

#218 chaser on 10.30.12 at 9:47 pm

What a load of rubbish. Deflation and inflation have nothing to do with prices. Prices only go higher or lower (not inflate or deflate, learn the difference) and MAY be the RESULT of inflation or deflation.

Prices are MAINLY (not exclusively) determined by supply and demand.

Inflation and deflation only deal with money and credit.

US dollar is not worth more because of the “deflation in house assets”. What a joke to think that.

#219 Derek R on 10.30.12 at 9:51 pm

#210 Gunboat denier on 10.30.12 at 8:41 pm wrote
A) Vendor immediately spends the $400K into the economy. The money has velocity. I think that would be inflation.

Agreed

B) Vendor uses proceeds to live on and balance is
reduced to zero about the same time the purchaser pays
off the mortgage. Though the money supply has been
increased, I don’t see this as inflation as the debt repaid
by the borrower is offset by vendors spending into the
economy. We could even eliminate the bank from the
equation if the vendor supplies the financing. The “money” is never destroyed as it just works its way through the economy.

The money makes its way through the economy from the Vendor to the Purchaser who is paying the mortgage back to the bank. The principal gets destroyed as the bank receives it. The interest is put back into the economy via dividends, wages and bonuses and continues to circulate even after the mortgage is paid off. In order for the Purchaser to get the principal from the Vendor so that he can pay the mortgage, the Purchaser needs to provide goods or services to the Vendor (directly or indirectly). The purchaser needs to get the interest from other people with money. But over the term of the loan, I agree that this shouldn’t be particularly inflationary or deflationary with the scenario you created.

C) Purchaser renegs on mortgage. The vendors “savings” are now gone (ignoring “inflationary” deposit
insurance) The “money” is destroyed and can’t be used. This has to be deflationary.

This is where we see things slightly differently. The Vendor’s savings aren’t necessarily gone just because the Purchaser reneged on the mortgage. Say the Vendor was with Bank A and the Purchaser is with Bank B. In 2007 the Vendor sells her condo to the Purchaser for $200,000. The Purchaser got the cash via a mortgage from Bank B. As a result of the sale the purchaser now owes Bank B $200,000 and the Vendor has $200,000 saved in Bank A. Now during the next few years the Vendor has a great time and spends money like water on Wine, Shoes and Spa Treatments. So by the end of 2010 the money is well and truly circulating in the wider economy. However things have not gone so happily for the Purchaser who discovers in 2012 that he can no longer afford the mortgage. He defaults and declares bankruptcy. Bank B is not happy but it cannot get the money that it loaned back from the wider economy since that was given to Bank A and then spent into the wider economy long since. Furthermore it has to dip into its reserves to make sure that it can meet its obligations to its savers. The money that the Purchaser should have been pulling in through his labour from the wider economy and giving to Bank B for destruction is staying out there. The only thing that has been destroyed here is the Purchaser’s debt to bank B, not the money that he gave to the Vendor.

On D) I agree with you: if it stays in the bank, it’s neither deflationary nor inflationary. Money has to be spent to cause inflation. Hence Garth’s talking about “velocity”.

#220 Snowboid on 10.30.12 at 10:09 pm

#178 martin9999 on 10.30.12 at 4:59 pm…

You are joking, right? Toronto is an interesting city, but better quality of life? You need to get out more.

#189 Kelowna down 5 years in a row on 10.30.12 at 6:04 pm…

In our case it costs about the same to maintain a rental property in Kelowna and a purchased SFH in Phoenix as it cost to maintain our former home in Victoria.

This would not have been possible five years ago.

#194 Eaglebay – Parksville on 10.30.12 at 6:40 pm…

Some of the differential is taxes, that I concede – but corporate executives themselves are quoted as saying they make more money in Canada, and won’t change prices as long as Canadians pay the price. We are so easily fooled.

And BTW, infrastructure investment by corporations (or the lack of it) also affects productivity.

And I ask, why is that both the provincial (BC) and federal governments have been right-wing, so-called conservatives for many years now and we still have ‘socialism’? Maybe we have been wrong all along?

#221 will on 10.30.12 at 10:12 pm

#207

Making the same products with fewer workers means higher productivity. Lower costs, static sales, more profits. — Garth

Nicely put. In addition, employers retain their ‘better’ employees, making the productivity gain even easier to attain.

I work for one of those companies that are becoming more productive. We are proud of this. There are stories all the time in the papers that Canadians are relatively unproductive industrially compared to other nations. Is there a problem with increasing productivity?

#222 Snowboid on 10.30.12 at 10:50 pm

#189 Kelowna down 5 years in a row on 10.30.12 at 6:04 pm…

If you haven’t received a raise since 2007, you would likely say that the buying power of your salary was down about 11.5%

If you look at average SFH September prices as published by OMREB, from 2007 to 2012 prices fell from $ 512,649 to $ 488,788.

But wait, that’s not including inflation – so although some desperate realtors may point out that in 2011 average prices were $ 517,864 – the bottom line is prices are down almost 17% from 2007.

So in the real world your blog name is perfect, in the fourth dimension where some RE pumpers still live, it’s not.

#223 Gunboat denier on 10.31.12 at 2:02 am

219 Derek – hey this is good! So we’re down to item C, or in your example a combination of A and C. In that case,
the bank assumed the liability for the bad loan. Now it
comes out of bank reserves or capital, which means the
bank has to shore up their reserves/capital in some
manner at some point or reduce the balance sheet by
calling in a demand loan or not loaning out that amount
they were hoping to. Either CDIC or CMHC can step in to save the bank and with their action re-inflate.

I try to follow the “money” (the promised labour aka debt) in these scenarios and I always come back to
deflation. While the vendor is safe, somebody somewhere goes without benefit of that promise.

#224 Alohajim on 10.31.12 at 5:28 pm

Derek # 219

Bank B takes the collateral (the condo) and sells it for way way more that it would ever make collecting interest no matter how much the value of the condo dropped.

#225 Mr CommonSense on 10.31.12 at 7:27 pm

Falling prices? Oh gee, what a TERRIBLE idea… NOT!

#226 Derek R on 10.31.12 at 8:31 pm

#223 Gunboat denier on 10.31.12 at 2:02 am wrote:
…the bank assumed the liability for the bad loan. Now it comes out of bank reserves or capital, which means the bank has to shore up their reserves/capital in some manner at some point or reduce the balance sheet by calling in a demand loan or not loaning out that amount they were hoping to.

Yes, or perhaps there’s just a drop in the bank’s profit.

I try to follow the “money” (the promised labour aka debt) in these scenarios

I think this is where our fundamental difference lies. You see the labour/debt as money whereas I see the labour/debt as something that can be bought with money. But I’m with you on “Follow the money”. That’s always good. No question.

And in case C, the labour that would have been supplied by the Purchaser to an employer in exchange for the money to be used to pay the bank will almost certainly still be supplied to that employer. It’s just that the money received in exchange will no longer be given to the bank. Instead it will be spent in the wider economy.

#227 Derek R on 10.31.12 at 8:36 pm

#224 Alohajim on 10.31.12 at 5:28 pm wrote
Bank B takes the collateral (the condo) and sells it for way way more that it would ever make collecting interest no matter how much the value of the condo dropped.

Fair enough, Alohajim. It probably does. But where did that “way way more” come from? It almost certainly came from a loan which some poor sucker took out to buy the condo. And where did that loan come from ? Quite possibly from Bank B itself.

#228 Derek R on 10.31.12 at 8:48 pm

#223 Gunboat denier on 10.31.12 at 2:02 am wrote:
While the vendor is safe, somebody somewhere goes without benefit of that promise.

Sorry, GD. I should have included this in my last reply. I agree completely that somebody somewhere goes without benefit of the promise. That physically manifests itself in the fact that they don’t receive the money, so they can’t buy the labour (or the goods produced by that labour) that they thought they would be able to. The labour may still be supplied: just not to them. And that is the essence of deflation: a drop in the average level of monetary income relative to goods and services.

#229 therooster on 10.31.12 at 11:31 pm

We are getting into a stagflationary environment. Stagnant economy with rising prices on consumables. Markets that suffer price decreases will be markets that are encompassed in a great geal of debt, such as real estate and automobiles. Consumables and commodities that are not so encompassed in debt can experience prices rises. It’s the respective debt levels of those markets that determine whether prices rise or fall. Banks are playing their part as “necessary evils” by cranking the presses to drive us toward precious metals and the subsequent market driven monetization of PM;s , bottom-up …. in REAL-TIME.

#230 Del.usion on 11.01.12 at 12:02 pm

I think this deflation/inflation argument is misplaced. So is the talk of collapsing currencies. Currencies don’t matter. What matters is country’s ability to produce and trade surpluses. Look at Japan, for example: they have been printing for ages, their currency is not even the world reserve currency and yet Japan’s economy is doing well and Yen is far from collapsing. Why? Because Japan creates and sells things that the rest of the world wants. US is different: it is not producing enough even for domestic consumption, thanks to outsourcing to Asia and South America. That’s the real monster in the room, unlike inflation/deflation. However, this doesn’t mean USD is going to collapse, for 2 reasons: world reserve currency status and most importantly the fact that USD is backed by the mightiest military in the world. Although, some important countries are working to evade dollar denominated trade, they won’t succeed in overcoming the second factor (mightiest military). In the long run, though, US supremacy will disappear (again not because of printing/deflation/inflation, but) because of inability to produce.
Now, Canada: in terms of creating things that the rest of the world wants, Canada only have oil to rely on. Hence, Canada does not need that made in America “creative” financial engineering to substitute for the loss of production. That is why, Canada is not going to have the kind of devastation that is occurring in the US.
By the way, both inflation and deflation are good since they are great mechanisms of self-regulation in a free market. The problem is there is no free market, which is bad. Nonetheless, no amount of financial engineering can resolve (or even address) the problem of monster in the room. And the only way for the US to escape economic collapse is to turn protectionist and start bringing industries home.
I think Garth couldn’t be more wrong when he talks about deflation or when he says currencies will appreciate during deflation. Currencies appreciate when countries produce and sell more, because everyone wants the currency of that country (look at Germany and Switzerland). Look at the US: there is both deflation and inflation and yet USD is in a downward spiral. Look at Japan: they are desperately trying to debase their currency. Ain’t gonna work…

#231 Inflation & Deflation | Gerold's Blog on 11.01.12 at 7:07 pm

[...] Garth Turner in his latest blog The big D finally gets what I’ve been saying all along. Yes, you can have inflation and deflation at the [...]