Baleful

SCHOOL modified

We should all get out more. Like Steve and his family. They’re in Vegas this long weekend, where his bother just go hitched (I wonder if it was in an Elvis Church?), and they decided to rent a three-bedroom condo for the extended stay.

“Being the faithful blog dog that I am,” Steve reports, “I decided to Google the hood and see what a place like this sells for in the desert sun of Vegas.” So he did. And here is what you get for $83,000 in a northern burb of the city.

This unit was built in 2006, has three bedrooms, a one-car garage, balcony and comes with community amenities including spa and pool. The property taxes are $707 (that’s per year, not month) and with 20% down ($16,500) plus a 4% mortgage guaranteed never to increase for 30 years, the monthly is $432.

By the way, it was foreclosed on two years ago. That’s when it was worth $241,753.

CONDO modified

“The people of Vancouver and Toronto are delirious if they think a small 1 br condo is worth upwards of half a million when a 3 br condo down here goes for $80k,” says our Vegas dog. “Everywhere down here homeowners are desperate to sell their sinking ships, while the supply clearly outweighs the demand. Take all of those condos being built in TO and eventually the economics of supply and demand will hit home there too.  People will realize that it is in no way different there.  The poor saps who are underwater here in Vegas must look at TO and Vancouver while shaking their heads.”

But, of course, we’re special. Here, things only go up.

*  *  *

What follows may be boring. And technical. It may hurt your head a little. But you need to read it, as much as I must write it.

On Friday of the long weekend, at 4:41 pm Ottawa time, after the Parliamentary Press Gallery had gone home and reporters for all major media across the country were (like the rest of us) screwing off, the feds let loose with a major announcement. Three days later no Canadian media has reported the story – only New York-based Bloomberg was awake enough to give it a little ink.

This is how it looked in my email in-box.

The following News Releases or Speeches has just been posted on the Finance Canada Site.
Government Launches Public Consultation on a Taxpayer Protection and Bank Recapitalization Regime
http://www.fin.gc.ca/n14/14-099-eng.asp

Who would imagine anything important lurked here? Don’t worry. Have another brewski.

On the surface, the story is that Joe Owe has launched a consultation process on bank bail-ins. The announcement was clearly designed so nobody would actually hear it, and the entire consult period will last a scant month, winding up just after Labour Day, when most people become sentient again. It begs a question: what’s he hiding? And if I were a doomer, I’d be all over this.

As you recall, it was a ‘bail-in’ process that rescued failing banks in Cyprus over a year ago when monetary authorities ordered that depositors’ money be siphoned off and used to prop them up. The outrage was universal. No wonder. Nobody saw it coming. And even though the theft came from the deposits of Russian oligarchs who probably stole it in the first place, the action scared a lot of people.

So a ‘bail-in’ is the opposite of a ‘bail-out,’ in which governments use taxpayer dollars to prevent the collapse of a financial institution – as was done during the crisis of 2008-9. The idea is that the risk should not be borne by the public, which is cool. But what happens in a country like Canada where we have but five major banks, who own everything except tat parlors and dog-walking agencies? The economy as we know it probably couldn’t survive the collapse of RBC or BeeMo.

So here we are. The feds have finally (18 months later) released the rules for bail-ins that might be needed here, in a country with ‘systemically-important banks.’ Here are the highlights:

  • If a Canadian bank starts to wobble, the feds can ask CDIC (which provides deposit insurance) to set up a ‘good bank’ and transfer over to it all of the viable assets of the failing bank, including deposits. This state-owned bank could run for five years.
  • The remaining assets would stay in the ‘bad bank’, which would be liquidated.
  • Ottawa would cancel all of the outstanding shares of the troubled bank. Yes, cancel them. Poof.
  • People owning bonds issued by the bank could also have their assets cancelled, and converted into common shares.
  • This would include new ‘bail-in’ bonds, which are now being offered or designed, by the banks
  • Deposits (including those insured to $100,000) would be excluded. Good. But, “the Government plans to undertake a broad review of Canada’s deposit insurance framework by examining the appropriate level, nature, and pricing of protection provided to deposits and depositors.” Let’s see what that comes up with.

So, no Cyprus-style theft of your money if Scotiabank goes paws-up. But the implications for those owning bank securities are not so clear – which is a big deal, since there’s hardly an RRSP or pension plan in the land that does not have exposure to the Fat Five.

Bail-ins are better than bail-outs. And the feds have to do this or break ranks with the global financial regulatory structure. But to sneak all this stuff out on a hot Friday afternoon when people are more concerned about whether to choose trunks or the Speedo? C’mon, Joe. Grow a set.

If you’re still awake and want to know more, the consultation announcement is here. The bail-in proposals are here, and there’s a backgrounder here. As well, here are some FAQs that the Finance Department has turned out.

No, it’ll never happen. But your leaders hope you never read this.

179 comments ↓

#1 Gerry G on 08.03.14 at 4:59 pm

First!!

#2 Patient in Richmond on 08.03.14 at 5:07 pm

you have no life ….

You just discovered that? — Garth

#3 T.O. Bubble Boy on 08.03.14 at 5:09 pm

I’m confused… if “it will never happen here”, why bother with this consultation at all?

#4 pravchaw on 08.03.14 at 5:18 pm

What does that mean. Will bank shares go down?

#5 Brian Ripley on 08.03.14 at 5:22 pm

While we wait for the bulk of real estate boards to publish July data, Calgary released theirs and I have updated my Calgary Housing chart:
http://www.chpc.biz/calgary-housing.html

Seasonals continue to be dominant. Sales are now down 17% from the seasonal high. I suspect we will see similar patterns in the rest of the hot Canadian housing markets next week.

#6 moneymike on 08.03.14 at 5:23 pm

Harper you sleeze..
But if it’ll never happen, then why bother?

#7 Al on 08.03.14 at 5:24 pm

Thanks for the heads-up Garth on what the Feds are up to and great job as always Garth!

#8 Kurt on 08.03.14 at 5:29 pm

Never say Never.

It probably won’t, but this is also over-due. Canadian banks have enjoyed an implicit government guarantee that makes them startlingly profitable (which is why they are in all of our portfolios.) It’s time for that to end, and with a defined process for dissolution, it now can.

BTW, thanks very much for sharing this with us Garth. It was obviously intended to fly under the radar. My question is “why”? As a Canadian taxpayer, I find this good news, not bad.

#9 Herb on 08.03.14 at 5:30 pm

Thanks for being on the job despite the holiday weekend and passing the word to the kennel.

Hope you Neandercons are proud of the democratic practices of your government.

#10 NostyVlad the Snugglebombed on 08.03.14 at 5:31 pm

“It may hurt your head a little.

I respectfully disagree with this sentence, on the sole basis that the space between my ears is constantly full of emptiness (except for the whistling wind). Consequently, there is nowt to damage.

As to the rest: Is this what Harper meant when he said you won’t even recognize this country when Im through with it?
*
#167 Toledo Water Salesman on 08.03.14 at 1:05 pm — “400,000 people, no water, workplaces shut down this week, and it’s just the beginning of algae season on Lake Erie.”

Ah yes, A21’s new totalitarian govt. rears its ugly head again. First Detroit, Mich., California and now Toledo, Ohio. Along with the illegals coming across the border, gun control everything is shaping up nicely for another civil war.

To wit: Nestle, US Govt. 1 and US Govt. 2 and Patent Why does the US Govt. own a patent on ebola? As far as depop., all the feds. need do is turn it into a pandemic, and that’s when the illegals will be very useful TFWs. Obama’s new E.O.

#11 OttawaMike on 08.03.14 at 5:34 pm

So load up on more preferreds?

Enjoying the Sunshine at Osheaga music fest in Montreal. What a great city. Toronto: Look and learn.

#12 DV01 on 08.03.14 at 5:34 pm

Many thanks

#13 Marco from Van on 08.03.14 at 5:35 pm

The bail-in system is far more desirable than the taxpayer funded bail out. Ultimately, if implemented in a balanced way, this system will help in distributing the appropriate risk so that market forces can do their job.

Just like the effect of government guarantees on the real estate market, the expectation that banks are backed by the tax payer as a lender of last resort does make it more likely that moral hazard biases the behavior of the institution and investors.

This is only a good thing.

As for the government (Big “O”) announcing it so late on a Friday, that’s no different from any other self respecting democracy. They do it because they know they can get away with it, and they can get away with it because we (the public) let them by not caring.

Garth, you do us a service and I for one appreciate it deeply.

Btw. I understand you are not “anti” real estate, you are for a balanced portfolio with implicit risk managent and when you see one asset class rising in value with no fundentals beyond the very low cost of money and resultant leverage ratios, you caution against the risk.

The fact the whole RE industry in Canada is so opaque and misleading makes your mission appear much more like a sport.

RE today is like .com a few months before that asset bubble crashed. Full of blind retail investors who only believed asset prices would increase forever (crazy PE ratios were a mere entertainments metric), and everyone was a trading expert “playing in the market”.

That was when I got out. This is when I also stay out of RE while getting a huge subsidy from my landlord to enjoy all the benefits of his huge leverage and risk.

#14 Nebbio on 08.03.14 at 5:38 pm

All the bank shares dropped on Friday. I thought it was because of the Argentina default, but perhaps I was wrong?

#15 JG on 08.03.14 at 5:46 pm

One thing Steve forgot to mention. The HOA fees are probably the same number as the taxes, except paid monthy.

bail-ins or bail-outs…scary shit either way

HOA fees $156/month. — Garth

#16 Temporary Foreign Prime Minister on 08.03.14 at 5:47 pm

“……The announcement was clearly designed so nobody would actually hear it, and the entire consult period will last a scant month, winding up just after Labour Day, when most people become sentient again. It begs a question: what’s he hiding?…….”
===========================

trans•par•ent: adjective \tran(t)s-ˈper-ənt\

– free from pretense or deceit
– easily detected or seen through
– readily understood
– readily understood

….as in,

“….For those Canadians seeking accountability the question is clear: which party can deliver the change of government that’s needed to ensure political accountability in Ottawa?

We need a change of government to replace old style politics with a new vision. We need to replace a culture of entitlement and corruption with a culture of accountability.

We need to replace benefits for a privileged few with government for all.

Everyday Canadians – the hardworking people who pay their taxes and play by the rules – want and deserve a new government that will put the people’s interest ahead of self-interest….”

– Stephen Harper, “Stand Up for Canada” election platform, 2006.

(Epic Fail)

#17 Ben on 08.03.14 at 5:47 pm

Great – let the people who invest in crappy banks take the hit. When you buy shares you lend that company money and expect more back in exchange for “risk”. What’s the risk? There’s an outside chance you won’t get your money back. Welcome to capitalism. As it should have been done, not as the US and UK know it which is capitalism for the poor, bailouts for the rich.

#18 Herb on 08.03.14 at 5:52 pm

#14 Nebbio,

insider trading would really make this interesting.

#19 Temporary Foreign Prime Minister on 08.03.14 at 5:53 pm

Wondering if Smoking Man will chomp down hard on the photo bait?

Then again, this is the long weekend…

#20 Temporary Foreign Prime Minister on 08.03.14 at 6:00 pm

#11 OttawaMike on 08.03.14 at 5:34 pm
Enjoying the Sunshine at Osheaga music fest in Montreal. What a great city. Toronto: Look and learn.
=========================

Clearly a frequent whiner, and not a frequent flier.

There’s so much going on in the GTA this summer, it’s almost impossible to choose…

#21 Temporary Foreign Prime Minister on 08.03.14 at 6:04 pm

#2 Patient in Richmond on 08.03.14 at 5:07 pm
you have no life ….
=========================

Au contraire…..thanks to a crippled Hawg rider, we all enjoy a better life….

#22 Macrath on 08.03.14 at 6:09 pm

Frequently Asked Questions: Taxpayer Protection and Bank Recapitalization Regime

Q#6 – what are preferred shares going to be worth by the end of trading tomorrow. I`m trigger happy and won`t be hanging around to find out.

Q#7 – what are bank common shares going to be worth by the end of trading tomorrow. I`m trigger happy and won`t be hanging around to find out.

Q#8 – what other insider economic dynamite is the Government trying to hide.

If those securities decline, buyers will be legion. — Garth

#23 Macrath on 08.03.14 at 6:30 pm

Oh [email protected], the markets are closed tomorrow and the americans can sell out first.

Q#9 can we sue these tory Bast^%ds

#24 Inglorious Investor on 08.03.14 at 6:34 pm

Since when do governments prepare for events that will never happen?

#25 ottawamike on 08.03.14 at 6:36 pm

Clearly a frequent whiner, and not a frequent flier.

There’s so much going on in the GTA this summer, it’s almost impossible to ..

———————

Nah.

We should be thankful for our Latin quarter. Mnakes Canada an interesting place.

French are cool WO even trying. T.O. tries way too hard and stumbles.

#26 Inglorious Investor on 08.03.14 at 6:44 pm

Ben on 08.03.14 at 5:47 pm

“Great – let the people who invest in crappy banks take the hit. […] Welcome to capitalism.”

I agree, accept…

What about people who purchased instruments such as bonds or depository notes with a long-term maturity before the bail-in rules were established? So now you can take your money and take a major hit or wait and risk it all?

I totally agree that bank investors and depositors should shoulder the risk. However, if the rules of the game are going to change now, the process should be transparent; they should make sure everyone is aware of the new rules; they should give people enough time to get out; and there should not be penalties for doing so if the original investments were purchased before the rule change because the original investment was made under different covenants.

That would be capitalism.

On the other hand, if investors are not made aware of the rules change, or feel trapped by penalties and fees, or are locked in to a new set of risks they never agreed to, that’s NOT capitalism. That’s fraud.

I will have to read the info very carefully. I suggest everyone else does too.

#27 OttawaMike on 08.03.14 at 6:50 pm

learly a frequent whiner, and not a frequent flier.

There’s so much going on in the GTA this summer, it’s almost impossible to ..

———————

Nah.

We should be thankful for our Latin quarter. Mnakes Canada an interesting place.

French are cool WO even trying. T.O. tries way too hard and stumbles.

#28 Ben on 08.03.14 at 6:50 pm

Inglorious – I can see you point, but I don’t have a lot of time for the banks. They shouldn’t have the public insurance scheme, they shouldn’t be so leveraged and they should not be infecting the country with debt thereby changing the focus from wealth generation to gaming the system. IMHO if you invest in these heavily favoured numpties you are going to find that at some point in the future they fall out of favour and then it turns out they are not smart just corrupt. Investors have had years of state backed subsidies, they can bite down on this :-)

#29 T.O. Bubble Boy on 08.03.14 at 6:58 pm

@ #14 Nebbio on 08.03.14 at 5:38 pm
All the bank shares dropped on Friday. I thought it was because of the Argentina default, but perhaps I was wrong?
——————–
I noticed that too… all reversed course on Friday with no real news.

#30 Westernman on 08.03.14 at 7:00 pm

Well, well Garth
The ” Doomers ” as you have been so contemptuous of, turned out to be right after all…
And be aware, this is only the beginning, a trial balloon to make sure the Canadian Sheeple are still asleep at the helm, which of course they are…
Next comes the direct confiscation of accounts…

#31 Landlord on 08.03.14 at 7:07 pm

Long live Canadian Bank Stocks and their wonderful Dividends! best investments I ever made!

#32 saskatoon on 08.03.14 at 7:09 pm

yay, freedom!

#33 Shawn on 08.03.14 at 7:09 pm

Debt Alarmists

USURY responded to me yesterday saying:

$223.3 trillion: The total indebtedness of the world, including all parts of the public and private sectors, amounting to 313% of global gross domestic product.

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

So total debt is 3.13 times GDP? Is that too high? Is there a rule it should be 1.0 times GDP? If not, how high is too high?

And thank you for providing the GDP to put the debt in context. That makes the debt figure meaningful.

How can world debt be too high if interest rates are so low? Seems the world is awash in savings to be loaned out. One man’s debt is another man’s savings. (Just read a bank financial statement, deposits back the loans. It’s not only loans that get multiplied by fractional reserved but also the deposits – seldom mentioned)

Let’s see at 3% interest (since a lot of this is government debt) That would mean 9.4% of GDP is going to pay the savers who loaned the money.

Now what would world GDP be without the savers through history who loaned the money that got (partly)invested in factories and buildings and houses and railroads and utilities and highways?

People don’t mind benefiting from borrowed money, but they seem to resent paying interest on it. Resorting to calling it usury. Usury is a concept that would not pass muster in a fifth grade lesson on finances. Second century called, it wants its word back.

How much of the earth’s debt is owed to anyone outside this planet?

Run a correlation on debt versus living standards. Do you think just MAYBE, living standards have risen as debt has risen. May not be causation, but certainly correlation. And pretty strong causation too methinks.

Since the earth’s economy is the largest it has ever been what else would we expect but a record world debt.

What else is at a record? Living standards? World GDP? The total value of all fixed assets in the world (farms roads, schools, buildings of all kinds, utilities, railroads, ships, airplanes, spacecraft)? Yeah, I AM okay with all of that.

#34 Retired Boomer - WI on 08.03.14 at 7:12 pm

Nobody buys fire equipment unless they are thinking a fire is possible.

The idea is being explored because the use of such an idea IS possible.

The use of such an idea is the wobbly nature of the debt held….ya think??

You might enjoy seeing the melting of values, unless your wealth back toward its normal value. Think of it as just less than you paid. see: Vegas, example

Naw, it could NEVER happen here…

#35 Yitzhak Rabin on 08.03.14 at 7:13 pm

As Captain Barbossa would say: “The rules are more like guidelines”. Meaning the government will change the rules to suit whatever it wants.

Though I would agree bail-ins are better than bailouts, the real hazard is federally insured deposit insurance in the first place. It leads us to spending more time choosing a cute shirt than a safe institution for our life savings (or debt?).

Wonder what happens when the CMHC needs bailed out?

#36 Daisy Mae on 08.03.14 at 7:15 pm

#3 T.O. Bubble Boy: “I’m confused… if “it will never happen here”, why bother with this consultation at all?”

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

It means the situation in Canada is very SERIOUS…and we’d better all pay attention.

#37 Inglorious Investor on 08.03.14 at 7:15 pm

Ben on 08.03.14 at 6:50 pm

“They shouldn’t have the public insurance scheme, […]”

That’s debatable, as there are pros and cons for everyone involved. However, according to the proposed rules of the Taxpayer Protection and Bank Recapitalization regime, CDIC insured deposits would not be subject to conversion.

From the Consultation Paper

“9) Transition

As noted in Scope of Application, the Government proposes to only have the Taxpayer Protection and Bank Recapitalization regime apply to liabilities that are issued, originated or renegotiated after an implementation date determined by the Government. It would not be applied retroactively to liabilities outstanding as of the implementation date (i.e., these liabilities would be “grandfathered”), in order to allow for a smooth transition for affected market participants and to maximize the legal clarity and enforceability of the regime.”

That sounds fair. But the part about “renegotiation” means that people who currently hold convertible investments better be careful and not let their investments lapse into the new regime unawares, as I can imagine the banks/gov would use a negative option approach in order to make administration easier and less costly. It’s not just what they plan to do, but how they plan to do it. Keep your eyes open.

#38 Spectacle on 08.03.14 at 7:15 pm

Big Thank You Garth.

Anyone else noticed how more recently, Garth’s supporting evidence & documentation is even Far more powerful & important than the original messages!

” It begs a question: what’s he hiding? And if I were a doomer, I’d be all over this.”

Garth, thanks for being all over this, again and again. Much appreciated.

Also, top kudos to #10 NostyVlad today.

NostyVlad …Your mention and supporting documentation of Agenda-21 is so appreciated. Yes, they want to own everything! It’s up to us after all, to change that. Next is our financial institutions. Anyone wonder why the US government patented Ebola virus ( thanks NostyVlad ) , and brought the virus into the US harvesting centre? Ouch!

Regards all & thanks “G”

#39 JG on 08.03.14 at 7:15 pm

“HOA fees $156/month. — Garth”

Thats very reasonable. In Henderson NV they can be as high as $700-800/mth

#40 Casual Observer on 08.03.14 at 7:17 pm

The government says that things are fine and we’re coming in for a soft landing, but actions speak louder than words.

They can see where this is going to end up and they’re trying to get investors to bear more of the risk. For that, I applaud their efforts, but it’s a little like closing the barn door after the horses have left.

The taxpayer is already on the hook due to all the CMHC guarantees. It’s the solvency of the mortgage insurers I’d be worried about.

Even if the gov’t plans on allowing CMHC to default on it’s MI obligations, and force the losses onto bank stock and bond holders, I can’t see how this solves anything.

So many other financial entities are also investors in the big six banks (insurance companies, pension plans, etc.) that the economic impact of wiping out bank investors would be enormous. Even though the banks may not need to be bailed-out, a lot of other institutions will, or the economy will still tank.

Unless the gov’t can offload the risk of having to bail-out CMHC, they are re-arranging deck chairs on the Titanic.

#41 bigtown on 08.03.14 at 7:19 pm

GROW A SET…GOSH I LOVE THIS BLOG. Trust me it is hard to get entertained in such high fashion. I mean I love being Canadian/….about the bail in.

Some historical background….we don’t remember the dirty 30’s but the RAILROADS were unable to pay their bonds so did the government hand out food vouchers to starving masses of Canadians….NO NO NO They paid up the bondholders and saved the railroads and let Canada starve in the dirty 30’s. We have been there before and just studying the Harper regime…no bank will go under. It would be outside our national frame of reference. We are not at all like our good friends from DON’T CRY FOR ME ARGENTINA.

#42 Pablo on 08.03.14 at 7:37 pm

Sell on rumor, buy on news. Moodys lowered the outlook for canadian banks in June based on this news. It was expected. A non event. May even be a good time to buy. I’m sure RBC is still making a killing on Garth’s 12.99% Harley note.

#43 AisA on 08.03.14 at 7:38 pm

I’ve just stopped caring altogether. It’s too much damn effort to give a damn anymore, not to mention obscenely depressing. I’m focusing on owning zilch assets in this cluster-coitus (yes I made that up) of a country. I’m realigning my gainful pursuits south of the border, when Cad dives another dime I will be rewarded with a 20% bonus for my efforts, without really trying that is. This sham of an economy combined with a government that is 10 shades paler a capitalist than Stalin can take a leap.

I’ll refrain from saying how I really feel about things on the off chance I might offend… someone.

#44 Setting the Record Straight on 08.03.14 at 7:43 pm

@16

““……The announcement was clearly designed so nobody would actually hear it, and the entire consult period will last a scant month, winding up just after Labour Day, when most people become sentient again. It begs a question: what’s he hiding?…….”
===========================

“….For those Canadians seeking accountability the question is clear: which party can deliver the change of government that’s needed to ensure political accountability in Ottawa?

We need a change of government to replace old style politics with a new vision. We need to replace a culture of entitlement and corruption with a culture of accountability.

We need to replace benefits for a privileged few with government for all.

Everyday Canadians – the hardworking people who pay their taxes and play by the rules – want and deserve a new government that will put the people’s interest ahead of self-interest….”

– Stephen Harper, “Stand Up for Canada” election platform, 2006.

(Epic Fail)”

Changing the government over and over again and expecting different results is a definition of insanity.

#45 Setting the Record Straight on 08.03.14 at 7:47 pm

Recession
Real estate crash
CMHC is allowed to fail
Banks fail
Successful income redistribution

#46 crowdedelevatorfartz on 08.03.14 at 7:47 pm

@#9Herb

“Hope you Neandercons are proud of the democratic practices of your government…..”
++++++++++++++++++++++++++++++++++++
Democratic processes? Nah. More like knee jerk reactions to wasteful spending practices that have finally come home to roost. All this just before the next federal election.

Hmmmm all the people that voted for Harper last time are to blame. Riiiiiiiiiight.
And next years fed election will be even worse.
Herr Harper. Justin (curly-locks) Trudeau or “Trotsky” Mulcair.
Just say no to herb, Herb.
Its ruining those random neurons that are firing off in your cranium creating an interruption between your thoughts and your typing.

:)

#47 Crossbordershopper on 08.03.14 at 7:53 pm

I tell people all the time that they are being screwed for buying and renting homes out here with negative cash flow. Like really, i tell them, you cant be that stupid, going in, knowing you are loosing 150 bucks a month net, and thats if all goes well, if the clown doesnt pay or a special condo assessment which always come, or if its a townie, for sure something goes wrong, you out thousands.
But then they say, ya but it will be worth 20,000 more next year, i said for sure, he said sure, i said all i know is your loosing 125 a month for sure.
In vegas like phoenix or other parts you can have POSITIVE cash flow, in America its all about the now, and cash, in Canada its about leverage, paying down mortgage payments etc. the tenant pays it bla bla bla. Some foreign guy without a job will pay me double what i paid seven years ago for sure.
Its all in the numbers, principal real estate sure, women like shinny things and overpay, but income properties are completely different, you need one, why go in knowing your loosing every month. The best answer is well, i can write it off. I say save yourself the time and trouble and just burn the 125 a month,

#48 JimH on 08.03.14 at 7:55 pm

#22 #23 Macrath

Re: drop in the price of Banking Sector shares.

Yes, Thursday and Friday saw significant price declines of Canadian Banks. However, those declines are directly off their 52 week highs after very plump YOY gains…
Even though the high volume of shares traded confirmed the decline, (and drops below an equity’s 25 day MA would tell me to tighten up stops, I wouldn’t be in too great a rush to bail out.

The fundamentals of the biggie piggies are still just fine, and remember that (IMO) the US markets are in correction. ( the Russell 2000 is down over 7.7% since July 3; the S&P500 is down over 3% since July 24 on increasing volume)

Friday’s news may shake out the nervous nellies, but it’s hard to see how this news is in any way, shape or form will influence fundamentals. The fundamentals of the big banks will be deep down in the sewers long before there will be any serious talk of bail-ins.

Granted, this news comes when markets are somewhat on the shaky side, so who knows. I do think that you’ll not have long to wait for a rebound and a good entry point. Good luck!

#49 JimH on 08.03.14 at 8:00 pm

Re: Bank share declines

I should note that TD (my personal best choice) is down a grand 1.7% of it’s 52 week high. This is far, far from valium territory.

#50 Linda Mulligan on 08.03.14 at 8:10 pm

I can see how this news might be pleasing news for some – but – surely some of the owners of bank shares are also Canadian taxpayers? And about that deposit review – just what is going to be happening there? Are the rules going to be changed so that depositors account can be utilized to pay off any default? In which case in Canada that for sure is mostly Canadian taxpayer money, as in the depositors pay taxes & gee, unluckily their bank went under. What the heck are we supposed to do? Start stuffing our money under the mattress or bury jars of cash in the back yard? I’m thinking the Canadian flag needs to be updated to a Jolly Roger with a maple leaf….. Argh.

#51 Lisa on 08.03.14 at 8:10 pm

Would the funds even be in the bank when the government claimed it to put in a safe bank? Don’t the banks lend out their money?

#52 Mark on 08.03.14 at 8:12 pm

What’s the big deal here? “Bail-ins” have always been the official method of resolving Canadian banks and other Canadian firms that become insolvent due to a bad economy/bad management.

The government is just proposing to outline some details of the process. This is a big nothing. Your shares (which you can easily sell on the NYSE since most of the Canadian banking sector is interlisted) won’t be affected.

#53 Mark on 08.03.14 at 8:30 pm

“Would the funds even be in the bank when the government claimed it to put in a safe bank? Don’t the banks lend out their money?”

The mistake in your thinking is believing that money is actually “in the bank”. All banks, in the ordinary course of business, almost immediately convert any money you lend them into the purchase of assets such as loans. Otherwise, they couldn’t make money, nor could they pay you interest.

#54 Cha Ching on 08.03.14 at 8:31 pm

It’s obvious that Steve doesn’t know anything about real estate if he’s comparing property in a dodgy zip in Las Vegas to Toronto and/or Vancouver as a whole. That kind of ignorance is the cornerstone of real estate hater knowledge. That is why they’ve been frustrated for almost 2 decades as real estate prices have risen, and continue to rise across Canada.

I feel sorry for him. But at least people like that can always find a landlord to take their money…

#55 Mic on 08.03.14 at 8:37 pm

Re: the “here is what you get” link – has anybody looked at the bird’s eye view of this property on the Zillow site? The place looks like a sand pit! I know it’s Nevada …but seriously …it’s still overpriced IMO.

#56 Sheane Wallace on 08.03.14 at 8:40 pm

Finance Minister Joe Oliver today launched a public consultation on a key element of the Government’s comprehensive risk management framework for Canada’s domestic systemically important banks. The proposed regime is aimed at ensuring:

that taxpayers are protected from having to bail out a systemically important bank in the highly unlikely event of such an institution running into difficulty; and,
that Canada’s financial system remains strong by clarifying that banks’ shareholders and creditors are responsible for bearing losses, thereby giving them stronger incentives to monitor the bank’s risk-taking activities.
………………………….

Why do we worry about highly unlikely events? Lets worry about more likely events like the failure of CMHC which is backed by taxpayers.

The real question is when the thingy hits the fan and if the government can’t cover the losses and transfers some of them to the banks as issuers of fraudulent securities aka mortgage backed securities which are in everyone’s investment plan what happens next?

I would not in any way understate the seriousness of this statement. Why keep over 100 k in banks is the question? Not return, but only risk.

#57 JimH on 08.03.14 at 8:40 pm

#15 JG
…”One thing Steve forgot to mention. The HOA fees are probably the same number as the taxes, except paid monthy…”
++++++++++++++++++++++++++++++

You’re correct to note HOA fees, and they can be a factor in some locations. But they are nowhere near as bad as you speculate.

My winter mountain-view home in Arizona, for example, is detached, in a beautiful, gated, 55+ community, and my fees are $76/month in addition to municipal taxes of $625 every 6 months. I carry no mortgage, but Zillow estimates it would be ~$600/month.

Our HOA fees cover road maintenance, night lighting, public land landscaping, 2 well-equipped recreation centers with training room, 2 swimming pools and several quarterly social events.

So, yes, HOA fees can be important.

#58 Smartalox on 08.03.14 at 8:42 pm

So is this bail in scheme for federally regulated banks only, or are provincially regulated credit unions subject to these rules as well? I’m betting we will see credit unions fail before one of the big banks fail.

#59 JimH on 08.03.14 at 8:44 pm

oh, and the army base golf course 10 minutes away charges $22 for 18 holes, including cart.

#60 Ross on 08.03.14 at 8:45 pm

Soon you will be able to get a condo in Vegas for free. I was just there this week and took a helicopter ride to the Grand Canyon. Pilot pointed out the Vegas water source which is rapidly declining with no hope of increase…ever. In fact they are scrambling to build a lower reservoir “drinking straw” if you will and don’t think it will be ready on time. Las Vegas could be without drinking water in the next couple of years. Anyone thinking of picking up cheap real estate there, don’t walk, run the other direction.

#61 TurnerNation on 08.03.14 at 8:50 pm

The desperate gold bugs were all over yesterday’s blog. See you at $999…

http://finviz.com/futures_charts.ashx?t=GC&p=w1

Say, I have a slightly used copy of Money Road available for sale. Suitable for anyone as its inside cover is marked with:

To: DELETED.
All the best, G.

#62 NS in Calgary on 08.03.14 at 8:55 pm

#33 Shawn on 08.03.14 at 7:09 pm says
“It’s not only loans that get multiplied by fractional reserved but also the deposits – seldom mentioned”

Can you explain more about this? Any reference links or examples?

#63 Future Expatriate on 08.03.14 at 8:55 pm

Viva Las Vegas!

#64 Sheane Wallace on 08.03.14 at 8:56 pm

#61 TurnerNation
…………………………….
You seem so excited. Are you shorting gold?

In that case I would recommend double set of adult diapers, you would need them.

If you are not shorting gold then your enthusiasm is truly strange.

#65 VICTORIA TEA PARTY on 08.03.14 at 9:01 pm

BAD SIGN OF OUR TIMES THIS IS…

Bail-ins are inevitable given the levels of debts amongst the world’s banking community, never mind sovereign debts as well.

What else was a “responsible government”, which juiced up our real estate market following the 2008 GFC with easy borrowing rules, and a central bank zeroing out lending rates, to do? Sleep on a summer beach?

Nope. Instead it muddies itself up further by panicking, something other governments have been doing since 2011.

How else to “rectify” a situation caused by endless QE in so many industrialized countries?

Bail-ins mean that the GFC is still underway and gaining speed.

The question is: Will anything be rectified or will the situation just get worse? Dont’ know.

But for starters, citizens must learn how to borrow and spend less and that will bring about a recession.

But we’re in one already which means things will get worse.

But they will anyhow; doesn’t matter. So bite the damn bullet and learn how to weather this ongoing monetary/financial hurricane that has no end.

Worried about losing the next federal election is why Joe O released the announcement on a lazy Friday afternoon. Of course, decisions will be made in a month by the time school renews.

Then the government will have its draconian bail-in powers in its back pocket and those’ll be acted upon when needed, probably sooner than later.

As for no taxpayers being affected, that is pure crap.

Every bank shareholder in this country will be directly impacted and not in a nice way. There is no way of putting lipstick on this oinker.

Bail-ins means that Canadian (and foreign)shareholder/taxpayers of all stripes and ages will be, overall and in the long run, poorer.

It’ll mean fewer consumers buying less crap with money they don’t have for things they never damn-well needed in the first place; another nail in the over-nailed middle class coffin.

It means that banks will have less credibility as compared other banks, I guess. Or, maybe not because some Euro banks, and others elsewhere, are basically tits-up but keep on staggering along to their own governments’ bail-ins or threats thereof.

Effects on real estate in Canada will be incalculable. The numbers of housing sales, and prices of said piles of sticks and concrete sitting on clumps of good Canadian dirt, will be in the economic gun sights for sure now.

Maybe one should be renting?

Good plan. Or not.

This government plan is not a good sign for the economy at all.

It is a distress signal going out to one and all that our banks are vulnerable and caveat emptor or whatever….

#66 OMG on 08.03.14 at 9:02 pm

On Friday of the long weekend, at 4:41 pm Ottawa time, after the Parliamentary Press Gallery had gone home and reporters for all major media across the country were (like the rest of us) screwing off, the feds let loose with a major announcement.
——————————-

Look at how some of the rocket scientists here are misinterpreting what the “bail-in rules” would mean.

Best to release this announcement the evening before the long weekend so the tin foil wackos do not have a chance to spin it (except for us losers here – go to the beach you pasty basement dwellers).

Our banks are OK. CMHC will not be on the hook for anywhere near $600B. Steven Harper is not trying to steal your bank shares.

BTW – long live the Rothchilds and lizard people.

#67 Sheane Wallace on 08.03.14 at 9:09 pm

#62 NS in Calgary

I thought that was pretty clear, fractional reserve banking leads to multiplication of money/currencies where money/currencies are loaned out and then when earned, deposited again with another banks.

I think the example was: bank gets 100 dollars as deposit and loans out 90 that are spent and then deposited in another banks, then our of these 90 dollars in new deposit 81 are loaned out and spent and then earned and deposited again..

So 100 dollars could lead to 450 in loans and deposits.

Some people argue that a a sense this is similar to a ponzi scheme where all deposits can not be withdrawn at the same time as this will break the scheme.

Note that with full reserve banking where banks loan against their capital depositors won’t have this problem.

I disagree with the hyperinflationsts and bank haters as central banks could provide liquidity as needed and stabilize the banks in the case of bank runs.

However there is a bigger problem that many investment banks are involved in derivative schemes and risks that are beyond the capabilities of the government to provide backup for and some of this banks contain significant deposit base.

So while disagreement with alarmists I would encourage more prudent lending (let the banks take their risk), break out of the investment branches of the banks in separate entities, strict regulation of derivatives, ensure higher reserves, including commodities and hard assets as collateral, not just paper assets.

#68 Sheane Wallace on 08.03.14 at 9:12 pm

excuse my spelling, these banks, not this and disagreeing, not disagreement.

#69 Macrath on 08.03.14 at 9:13 pm

#42 JimH

I`ve been meaning to ask you what you think about an individual investors ability to exit the market to 100% cash and sit out the storm . Fund managers can`t do this because of the pressure to preform.

Do I really give a crap if I miss out on the 2% dividend
from the s&p 500 when I`m getting 2.2% at the credit union. Wow I also miss the 20 to 50 % correction. Ya it`s market timing but it doesn`t take a genius to figure out the world is f^%ked and the markets are over the top. Interest rates are at medieval lows! what the hell is that all about.

I invest for enjoyment not out of necessity. No problem taking my chips off the table and sitting back to watch the fireworks.

#70 JimH on 08.03.14 at 9:15 pm

#46 crowdedelevatorfartz

I had an economics professor 100 years ago who was similarly despairing of politicians. His most memorable quote I recall went something like this:

“ALL governments… everywhere… are composed of cheats, crooks and liars, and you should never believe a word they say. The challenge for us is to cultivate those tactics and strategies that will enable us to prosper; not BECAUSE of them, but rather IN SPITE of them”.

(Garth, note that present company is excepted)

I have forgotten just about every other thing the man ever said, but those words somehow have always stuck with me. It ain’t the cards you’re dealt, or even who the dealer is that matters; it’s all about how you play the hand.

#71 takla on 08.03.14 at 9:16 pm

Nice the to see the doomers” getting some props garth,how many times do the doomers have to be proven correct to lose that lable??
When that story initialy broke I remember you stating that bail-ins could never happen in Canada.
Funny ‘”nevers” one word I generally try to avoid…{never say never}
Now your comment that the bailin’s in Cyprus came from corrupt Russian oligarchs is not fundimentaly true.In reality it came from ALL depositors holding accounts of 100,000.00 and up.Many Greek,Cyprus,and European legitimate accounts were skimmed by the banking thieves as well as Russian depositors,just more spin to lessen the public outrage!.
So in a nutshell these new banking laws are being brought in to thieve personal saveing of the people,to save the failing banking industry that got us into this extreme debt situation in the first place.
Long over due that any failing banks should be allowed to fail and criminal charges brought on banker elite,no consequences,and behavior never changes.I believe Greenland took this course.These rule changes would not be put in place unless they intended to use them,deposite your hard earned after tax savings at your own peril

#72 Montellino on 08.03.14 at 9:16 pm

Garth is open on a long weekend?! whoo hooo

thanks for this – truly amazing how timing of these things work

FYI to all HOA fees are not always present – bunch of places don’t actually have them so ask around

#73 Fed-up on 08.03.14 at 9:18 pm

@ #60 Ross on 08.03.14 at 8:45 pm

Soon you will be able to get a condo in Vegas for free. I was just there this week and took a helicopter ride to the Grand Canyon. Pilot pointed out the Vegas water source which is rapidly declining with no hope of increase…ever. In fact they are scrambling to build a lower reservoir “drinking straw” if you will and don’t think it will be ready on time. Las Vegas could be without drinking water in the next couple of years. Anyone thinking of picking up cheap real estate there, don’t walk, run the other direction.
——————————————————————————

Yes I’m sure the tens of billions invested in the insanely successful gambling, entertainment and tourist industry there, will simply be abandoned due to a temporary water shortage.

Sigh…

#74 Fed-up on 08.03.14 at 9:26 pm

#54 Cha Ching on 08.03.14 at 8:31 pm

It’s obvious that Steve doesn’t know anything about real estate if he’s comparing property in a dodgy zip in Las Vegas to Toronto and/or Vancouver as a whole. That kind of ignorance is the cornerstone of real estate hater knowledge. That is why they’ve been frustrated for almost 2 decades as real estate prices have risen, and continue to rise across Canada.

I feel sorry for him. But at least people like that can always find a landlord to take their money…
————————————————————————-

So your opinion is that real estate is justifiably worth 10 times more in Dampcouver and Moronto.

Got it.

#75 learningfromyou on 08.03.14 at 9:30 pm

I already noticed that the most important news come out in the newspapers on Friday, when people are tired of the week asking themselves why the have to work a day like this and they only dream about 4.30pm

I visited the link and I imagine that Garth will provide them some feedbacks.

quote.
Comments on the attached draft consultation paper can be submitted to the Department of Finance at [email protected] or to the address below. The closing date for comments is September 12.

Regardless of what the government does, the future is in your own hands and decisions.

Thank Garth for the post

#76 Joe2.0 on 08.03.14 at 9:36 pm

Weren’t taxes originally introduced as being temporary?
Kinda like aircare?

#77 JimH on 08.03.14 at 9:37 pm

#60 Ross

You raise many valid points. The Lake Powell/Lake Mead crisis is just that: a crisis.

However, I do take issue with your assertion that there is “no hope of increase…ever.”

This might be the pilot’s opinion, but it not universally accepted.

Over 70% of Las Vegas water use goes to landscape irrigation. Las Vegas may soon be forced to correct this, even if the tourists have to golf elsewhere. My point is that water use may be as important as water supply in all this.

There is a growing support for the “The Fill Lake Mead First Project”…
see http://www.glencanyon.org/glen_canyon/fill-mead-first

Aside from all this, I do agree that the great push in Las Vegas for “growth at any cost” is insane. Then again, most Vancouver are dependent on an aging pipe running under the narrows for their water, which is also in short supply, at least in the summer. Even a minor earthquake close by could really pee in everyone’s cornflakes out there.
Yet, growth goes on!

See

#78 Bottoms_Up on 08.03.14 at 9:46 pm

Prediction: Canadian bank shares down 5% Tuesday morning…buying opportunity?

#79 Cici on 08.03.14 at 9:46 pm

I’m with #3 T.O. Bubble Boy on this one.

Looks like they are putting a lot of effort into this one, and seem to be in quite a hurry to do so ;-(

#80 MH on 08.03.14 at 9:46 pm

I am choosing to live within 100 miles of the Canadian border. The Canadian people have a long history of helping oppressed Americans. To help end the scourge of the slave trade, the final destination of the Underground Railroad was that of Canada. When the Quakers and the Mennonites could not find religious freedom in parts of United States, it was the Canadians that took them in. In the late 1970s when Iran tried to kill the Americans held hostage in Iran, it was Canada that risked their people and embassy to get them out. No, this American must locate within 100 miles of the 49th parallel. This current Federal administration has repeatedly used the full weight of the Federal government against innocent groups within its borders. Those that carry the moniker of Christian Conservative have a great deal to fear from this administration. The bone chilling effect of the IRS- Lois Lerner scandal, along with the lost hard drive cover up, demonstrates that those that love the Constitution will continue to be the targets of oppression. I look upon Canada as the Switzerland of North America. My reasoning is simple, if Canadians draw close to the United States border for economic security, shouldn’t Americas draw close for political security? The question is worthy of debate.

#81 Sheane Wallace on 08.03.14 at 9:47 pm

http://en.wikipedia.org/wiki/Money_creation#Money_creation_through_the_fractional_reserve_system

http://en.wikipedia.org/wiki/Fractional_reserve_banking

#82 Macrath on 08.03.14 at 9:48 pm

#42 JimH
Talk about nervous nellies. I had buddies who were suffering from post traumatic stress after 2008 seeing the smoke rise from their retirement funds. Nothing like getting wiped out a few years from retirement for the moral.

#83 Inglorious Investor on 08.03.14 at 9:54 pm

#33 Shawn on 08.03.14 at 7:09 pm

“How can world debt be too high if interest rates are so low? Seems the world is awash in savings to be loaned out. One man’s debt is another man’s savings. (Just read a bank financial statement, deposits back the loans.”

The deposits likely originated as loans higher up in the chain. Haven’t you learned this yet?

———————————-

“People don’t mind benefiting from borrowed money, but they seem to resent paying interest on it. Resorting to calling it usury. Usury is a concept that would not pass muster in a fifth grade lesson on finances. Second century called, it wants its word back.”

The concept of usury, and the prohibition of it, was based on the idea that it was immoral to earn money from money. It was believed that wealth should be earned through productive work. In today’s world, where (almost) all money is interest-bearing debt, the concept of usury has evolved to mean excess interest rates.

I do agree that a lender of money should be compensated for the risk of default, inflation, opportunity cost, etc. That’s just the way things work today in our current system. However, even today there is an argument made by some economists that money lending and rentier investments are given too favorable treatment under our tax codes, given that the rentier or lender contributes disproportionate value to the real economy than the favored tax status warrants. Whereas as labour, which creates real wealth, gets taxed too high on a relative basis. It’s the result of collusion between the banks and the government. The government is willing to forgo some tax revenue and shift that income over to the banks where possible. The labourers have to make up the difference.

I’m not arguing against this, necessarily. Just keeping an open mind as to how we might be able to reform the system for the benefit of all and put real wealth into the hands of those who really earn it.

———————————

“Run a correlation on debt versus living standards. Do you think just MAYBE, living standards have risen as debt has risen. May not be causation, but certainly correlation. And pretty strong causation too methinks.”

No, it is causation. But when living standards are based on debt, remember that all you are really doing is time-shifting demand from the future to the present. So demand in the future will be lower. Unless you keep raising debt levels to compensate. But at some point there needs to be a reset because the living standards are largely illusory. And the claims on real wealth (the debt) far exceed the real wealth. When the reset occurs under a deflationary scenario, a large portion of the debt (IOUs) go bad can do serious economic damage.

——————-

“Since the earth’s economy is the largest it has ever been what else would we expect but a record world debt.”

You are confusing debt with wealth. They are not the same thing. In fact they are the opposite. Some people have learned this lesson painfully. No, not me, so save any derogatory rejoinder for someone else.

Self-liquidating debt, when used prudently, and for productive purposes is good and helps to drive innovation and economic growth. But just making a blanket assumption that debt is good shows a lack of understanding, willful or not.

#84 domain on 08.03.14 at 10:00 pm

From “Elevated Threat”:

“#154 domain on 06.13.14 at 1:07 am
So Garth, are you still 100% sure that there will not be a bail-in? And if there was one, do you still think there is no risk to depositors in the event that the systemically important financial institutions (basically all of our banks) become capital impaired? Your ‘hysteria’ post clearly stated your position on the matter, and that you believe that no deposits will be touched during a bail-in in Canada.

Very recently, Moody’s has changed their outlook from stable to negative “on some of the senior debt and uninsured deposits of Canada’s largest seven banks.” The article says they took these actions “in the context of previously announced plans by the Canadian government to implement a ‘bail-in’ regime for domestic systemically important banks.”

Since the 2013 Action Plan made mention to bail-ins that you said people mistakenly interpreted as a risk to depositors, has Moody’s also mistakenly interpreted these bail-in provisions as well?

The article of interest is below, and I am curious what your opinion is:

http://business.financialpost.com/2014/06/11/moodys-downgrades-outlook-for-some-of-canadian-bank-debt-over-bail-in-regime/

No bail-in here. Ever. — Garth” – http://www.greaterfool.ca/2014/06/12/elevated-threat/

Garth, is your opinion 100% the same as it was when you responded to me in June?

I did focus on deposits in my question then, and your opinion did align with the statement in this current news release with respect to deposits.

However, as you have interpreted yourself, these plans continue to have vague language engineered to leave room for changes and interpretation, like lowering deposit insurance, thus working around the claim of not touching deposits.

And since those making the rules, can also change them (particularly under pressure to follow the global financial regulator structure, also subject to change), I think it is naïve to think that bail-ins won’t happen here, and that deposits won’t be touched.

Regarding the ‘rescuing’ of the failing bank of Cyprus 18mo ago, I’ve read that this bank is still in a position where they may not pass the ECB stress tests this fall due to the rising loan losses. So much for ‘saving’ a banking system with bail-ins, only to convert it into a forced-depositor/investor problem while a bunch of other people make off with their investments intact.

Moody’s rating was on bank securities, not the banks’ viability. And, no, there will never be a depositor-funded bail-in here. — Garth

#85 Mike T. on 08.03.14 at 10:12 pm

isn’t it awesome that the banks and feds introduce legislation to induce the majority to fall into a trap, and then offer terrible escapes from said traps?
#rentingandnotbeingstupidandpoisoned

#86 Mike T. on 08.03.14 at 10:13 pm

Do you want to come over and watch Ice Road Truckers with me?

#87 JimH on 08.03.14 at 10:34 pm

#69 Macrath
…”I`ve been meaning to ask you what you think about an individual investors ability to exit the market to 100% cash and sit out the storm . Fund managers can`t do this because of the pressure to preform (sic).”
——————————————————
Good question. Macrath, as much as I HATE sitting on the sidelines, there are times when that is exactly what I do. At the moment, I have been idling since I started taking profits in late June at about 80% cash as of last Friday. I had a great spring and just decided enough was enough. Besides, I had a few promises to keep this summer and I needed some time away from the trading turret.

It’s my opinion that we’re moving into a dip; a correction if you will, and have a “shopping list” of some 40+ stocks and ETFs that I wouldn’t mind being seen with in broad daylight.

These puppies (usually) have 50% or better Institutional ownership; average daily volumes above 250,000; low short interest; put/call ratios well under 1.00; solid and stable cash and revenue flows over the past 5 years; good earnings growth with preferably some +surprises lately; and while I sometimes deviate from it, I don’t usually bite at stocks with PE ratios much above 20.

With so many solid ETF’s to choose from (there are now about as many of them as there are listed stocks) that a portfolio made up exclusively of ETF’s is probably best for most investors.

I don’t so much try to time the market as look for good entry and exit points for individual stocks. There was no excuse for anyone taking a 40%- 75% hit in 2008.

Entry is usually after a dip followed by higher highs and higher lows in price, and with the price above the 25 day MA. That part is simple and has to be disciplined.

Exits can happen when initial protective stops are violated; the price gaps significantly down against the trend; the price hits a preset target of my making; trailing stops are violated; the price drops below the 25 day MA; or I see the price just start to stagnate over time. I never, ever ‘double down’ on a falling stock price; NEVER. Like buying, selling, too, is a matter of discipline.

I made a ton of rookie mistakes that were costly; in every case, they were made because I let my emotions, ideology, or conviction that a stock had to go up trump discipline.

That’s my system in a nutshell. It works for me. It took 5 years of full-time trading to make me a trader.

I don’t recommend my style and system for everyone; you have to find your own style.

Blindly following a “system” or “methodology” that doesn’t fit and you’re sure to fail. Sorry for being so long-winded.

Yes, CASH is a position, too, and has it’s time and place!

#88 NostyVlad the Snugglebombed on 08.03.14 at 10:45 pm

#60 Ross on 08.03.14 at 8:45 pm — “Las Vegas could be without drinking water in the next couple of years.”

Gadaafi guessed (correctly) that there might be fresh water under the Sahara, so he had a bunch of serfs dig massive holes and then — Bingo!

He had a brand new water system built with water coming from way below the surface. Of course, neocons and the like wrecked the infrastructure when Gadaafi was about to go to a gold-backed dinar and, like Sadaam, was going to go with the Euro and drop the petro-dollar.

Libya’s in great shape now! New Lake in Tunisia All sorts of weird and wacky things evolving here. Also, California.

#89 Retired Boomer - WI on 08.03.14 at 10:58 pm

Discussing the consultation papers of a “bail-in” to me, expresses the possibility -not probability- of future implementation of said “bail-in” protocol should conditions warrant.

That means, to me, a reassessment of my holdings (if any) with banking exposure.

Think of this as preemptive planning on all parts of this equation.

Worry Index merely jumped 2.225 points over this news.

#90 Shawn on 08.03.14 at 10:59 pm

Fractional Reserve Banking and Money Creation

2 NS in Calgary asked me:

“It’s not only loans that get multiplied by fractional reserved but also the deposits – seldom mentioned”

Can you explain more about this? Any reference links or examples?

******************************************
Here is an answer plus some related rambling. Long post here I got carried away…

I agree with Sheane’s explanation above.

The Banking system (TOGETHER WITH YUU AND I AS CUSTOMERS) creates money (deposits) and loans.

Step 1

You want a loan of $100K

Bank can credit you a deposit account of $100k and show you owe the bank $100k.

Since deposits count as ‘Money” but loans are not deducted, you now have $100k “money” created from thin air. But at this point the bank still has your money and you owe the bank $100k. You have borrowed $100k but left it with the bank.

I can personally loan you $100 million tomorrow if you agree to let me hang onto it. I will charge you 3% on the loan and pay you 2% on the deposit. No risk to me as I keep the “money” the whole time. I will give you a certificate you can show off showing you have $100 million on deposit with me, in the fine print it will note that you can withdraw any portion of the $100 million only after first paying the same portion of your loan to me. Ought to impress someone.

BUT, sadly for the bank comes Step 2

You write a check for that hot car and the car dealer deposits the check with another bank. Now the first bank has to transfer $100k of its funds at the clearing house to the second bank. That is done and the first bank is out $100k if you don’t pay back the loan. Even thought the first bank initially created the $100k from thin air it is out $100 if you don’t pay back the loan.

So, now banking does not sound quite as lucrative does it? Banks loan money at low rates but have to worry deadbeats won’t pay it back.

But back to fractional reserve… Well just look at the definition on Wikepedia

http://en.wikipedia.org/wiki/Fractional_reserve_banking

Yes, Virginia the banking system does create deposits and loans But generally the deposits are smaller than the loans as the bank has to keep some cash on reserve (like 5% as a fraction) whether by law or simply because depositors might walk in and make withdrawals or buy a hot car with a bank transfer.

The bank assets (loans) not offset by deposits are offset by bank shareowner equity and bank bonds issued to investors.

The big reason that banks can create money is simply that for whatever reason the definition of “money” is cash (how quant) plus deposits in a bank. There is no deduction for the loans created. Deposits are money because they can be spent like money (debit card, cheque or bank transfer).

A relative of mine once got a credit card with $3000 limit and considered that was as good as money – she had a point, it allowed spending just like money. The fact is that unused lines of credit and available credit card balances could be counted as “money” if we wished. They can be spent just like any other deposit created by a loan. A credit card is really just a way of creating instant mini loans.

Clearly “money” is different from wealth, in fact far different. Your money is a part of your wealth but you need to deduct loans and add other assets to get to your wealth. (I could say net wealth, but that is redundant, wealth by definition is net of liabilities) Your money is your money whether it was borrowed or not. The government counts all deposits as money, whether it offsets a loan or not. And basically almost all deposits are offset by a loan to someone or other.

When banks create a deposit and a loan, no one’s net worth changes at that point. Not the customer’s and not the bank’s.

All money including cash is a type of debt because if you have cash (or bank deposits) it means the world owes you some goods and services.

#91 Mary Donna on 08.03.14 at 11:06 pm

Canada should consider a political merger with Argentina….great way to high tail it to the top of the world soccer rankings…and just think of the Tango on Ice figure skating possibilities….

#92 Josh Renning on 08.03.14 at 11:08 pm

What is stopping municipalities of bailing in houses, condos and other primary and multiple properties, residences in Toronto, Vancouver, Victoria, Calgary, Edmonton, Saskatoon, Winnipeg, Montreal, Quebec City, Halifax, Charlotte Town, St. John’s, etc.

They can easily do it through a tax regime like the land transfer tax.

You know governments, once they see how they can get money from Canadians that was not possible before, they will do it.

I could easily see public and private pensions being bailed in also. Basically, a bail in is confiscation of your money.

Who knows what they call it in the next month, year, decade.

#93 High Plains Drifter on 08.03.14 at 11:28 pm

In Las Vegas, north of downtown might be five times as tough as anything on E. Queen.

#94 J Lo on 08.03.14 at 11:39 pm

J Owe, you are so low
Guess you learned it from Harpo

#95 young & foolish on 08.03.14 at 11:48 pm

Today’s post makes me think again about value. Where is it today? What is a fair price for equities during the extraordinary times of QE? How about debt? RE? Can you really avoid a downturn?

So, the implication is turn over your financial management to the professionals, since they may help you do a better job of protecting your wealth. Fair enough. Or, if time is on your side, you can become a Boglehead.

But of course, we all like to think we can beat the system.

#96 NS in Calgary on 08.03.14 at 11:50 pm

#67 Sheane Wallace on 08.03.14 at 9:09 pm

Thamks for taking he time

#97 Goldie on 08.04.14 at 12:21 am

in one of the other bubble places, london, traditional pubs are being replaced with condos.

http://www.youtube.com/watch?v=NVNMVrbBYb8&list=UUpwvZwUam-URkxB7g4USKpg

#98 Turtle on 08.04.14 at 12:22 am

#87 JimH

Thank you, that is a good stuff.

#99 Flawed on 08.04.14 at 12:33 am

#9 Herb on 08.03.14 at 5:30 pm
Thanks for being on the job despite the holiday weekend and passing the word to the kennel.

Hope you Neandercons are proud of the democratic practices of your government.

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

Canada? Democratic? HAHAHAHAHAHAHAHAHAHAHA

Since when does an MLA or MP do as the constituents ask? If they “do” have a spine, the PM or Premire BOOTS them out of the party.

Yes…..democracy in Kanada my friends.

Oh…….and yes Garth thank’s for telling us “bail ins” will never happen. I mean….will. I mean…..will but won’t. Oh forget it……

#100 Flawed on 08.04.14 at 12:44 am

Look at how some of the rocket scientists here are misinterpreting what the “bail-in rules” would mean.

Best to release this announcement the evening before the long weekend so the tin foil wackos do not have a chance to spin it (except for us losers here – go to the beach you pasty basement dwellers).

Our banks are OK. CMHC will not be on the hook for anywhere near $600B. Steven Harper is not trying to steal your bank shares.

BTW – long live the Rothchilds and lizard people.

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

Yes….our banks are in such great shape they were bailed out 114 billion dollars in 2008 and moodys recently downgraded them.

It’s the “anti” conspiracy nuts like you that give people trying to tell the truth about the way the world really works and not the way “6 media giants” try to spin it a bad name. Gee….maybe that’s why NO ONE listen’s to mainstream media anymore……you know…..YOUR source for info?

#101 @Mark on 08.04.14 at 12:58 am

What are you trying to say??

I just scroll past you posts. I read a few a while back and you tried to come across as a know it all.

Please limit your posts. I’m sure I’m not the only one who feels this way.

#102 NS in Calgary on 08.04.14 at 1:05 am

#90 Shawn on 08.03.14 at 10:59 pm

I appreciate the long response. Thank you.

#103 Basil Fawlty on 08.04.14 at 1:07 am

Well isn’t this special. A year ago Garth you actually called me a liar for suggesting that bail-ins were possible in Canada.
I feel you owe me an apology.

Bail-in legislation is not a bail-in. You are still wrong. — Garth

#104 We are nuts in Calgary on 08.04.14 at 1:09 am

Here is a listing from Fort Worth, TX (which is in a 6 million ppl metropolitan area):

http://www.homes.com/property/2704-los-olivos-ln-fort-worth-tx-76131/id-500023266930/

Listed for 287k, but probably selling for around 250k, costing less than $1500 per month, for 30! years, including everything. And there is a pool in there too…

We are nuts, up here.

#105 james on 08.04.14 at 1:13 am

Of course Vancouver and Toronto are special. Those semis and detach homes would be snatched by vultures over time with any major price correction. Thus the bounce back would be swift. It ain’t the 90s.

#106 NS in Calgary on 08.04.14 at 1:14 am

#67 Sheane Wallace on 08.03.14 at 9:09 pm

Correction: Thanks for taking the time

#107 cynically on 08.04.14 at 1:28 am

#80 MH – My advice to you is move 101 miles north to a very friendly country but leave your religious “tea partyer” beliefs behind because we don’t need that crap up here and to be fair to the US, Canadians have benefitted in many ways from the US, just ask the cross border shoppers–(joke).

#108 JG on 08.04.14 at 2:19 am

#57 Jim H

Just want to say I wasn’t “speculating”. While I realize most HOA fees are much lower than I mentioned, my point was the HOA fees weren’t mentioned at first. They can be very high

If you are looking at purchasing in a gated community, or guard gated community then you should carefully examine the rule of the Home Owners Association, and the fees it charges. These are defined in the Covenants, Conditions & Restrictions (CC&Rs). For example, the Lake Las Vegas HOA fees are some of the most expensive around at approximately $1 per square foot of your home’s area. Your get immaculately landscaped grounds for this, but on the other hand it puts downward pressure on net rental yield if you are purchasing as an investment.
Another thing to watch out for is any HOA fees that are outstanding at the time of purchase, particularly if you are venturing into the Las Vegas foreclosure market. Not only do you need to look out for the fees themselves, but also the charges from the agencies that collect delinquent payments. With no cap on these collection charges they can accumulate to a significant percentage of acquisition cost on low value properties – i.e. they can be a yield killer for the foreclosure investor.

source:http://www.lvre.com/tag/lake-las-vegas/

#109 Don Chemise La Fleur-Stank on 08.04.14 at 2:36 am

This Conservative government is acting/interfering with one business after another…..are they channeling the ghost of Hugo Chavez ? What is going on with the Harper gang ? Telecom, Rails, Mining, Banks, Income Trusts…….etc etc etc etc …..it’s really bizarre. Is Harper twisting in pink panties over the fabricated polls of Trudeau’s popularity? Doesn’t he realize the pollsters only make calls to Papineau and the police union hall phone?

#110 SHELTER THE MONEY NOT THE PEOPLE on 08.04.14 at 3:06 am

#44 Setting the Record Straight on 08.03.14 at 7:43 pm
___________________________________________

Yes we need a change of Government. Not simply a party change.
We need Direct Democracy like Switzerland.
There you will vote on all bills. The government can’t “slip” in a few lines on Friday evening and surprise us. After all We the Voters would replace the voting of the MP’s.
HAHA Fat chance that will ever see the light of day in this country.
Us mere peons cannot be trusted with something as important as our own affairs.
I think I’ll just pour myself another Scotch and dream some more……

#111 Tony on 08.04.14 at 4:13 am

The fact is and will be if the Canadian housing market implodes the taxpayers will be on the hook for almost one trillion dollars and no bail-ins or bail-outs will change that.

#112 pbrasseur on 08.04.14 at 8:30 am

which is a big deal, since there’s hardly an RRSP or pension plan in the land that does not have exposure to the Fat Five – Garth

Which is why you want to know what you are buying. Buy infividual stocks of great companies, don’t blindly buy crap via ETFs or mutual funds.

If the market tanks while you own great businesses they will lose value as well, the big difference is they will not only survive, they will use the opportunity to eat up weakk competitors: example Wells Fargo!

The opposite is true. Pick the wrong companies (over which you have zero influence or control) and you’re creamed. Buy the index – all the large caps on the TSX or the S&P – and diversification could save your butt. — Garth

#113 Exiled on 08.04.14 at 8:43 am

Sir Garth: bail-in, Isnt this what Iceland did? Nationalized the assets, and let the corrupt banks fail. Therefore preserving the monies?

No. — Garth

#114 Mark on 08.04.14 at 9:17 am

“Prediction: Canadian bank shares down 5% Tuesday morning…buying opportunity?”

The big-5 are all inter-listed on the NYSE, so if that was going to happen, it would happen today. Just looking at the screen this morning, there’s no evidence of anything of the sort in the works. So nice try.

#115 Inglorious Investor on 08.04.14 at 9:18 am

Shawn on 08.03.14 at 10:59 pm

“You have borrowed $100k but left it with the bank. I will give you a certificate you can show off showing you have $100 million on deposit with me, in the fine print it will note that you can withdraw any portion of the $100 million only after first paying the same portion of your loan to me.”

Nonsense. If that were true, how could you go and buy something with that money? You can use the whole nut at once. Debt service payments are made on a schedule, not based on how much of the loan you withdraw.

——————————————

“You write a check for that hot car and the car dealer deposits the check with another bank. Now the first bank has to transfer $100k of its funds at the clearing house to the second bank. That is done and the first bank is out $100k if you don’t pay back the loan. Even thought the first bank initially created the $100k from thin air it is out $100 if you don’t pay back the loan.”

So what! The banking system is a roiling sea of debits and credits. The loan is an income-generating asset to the bank, that YOU are liable for, not the bank.

“Yes, Virginia the banking system does create deposits and loans But generally the deposits are smaller than the loans as the bank has to keep some cash on reserve (like 5% as a fraction) whether by law or simply because depositors might walk in and make withdrawals or buy a hot car with a bank transfer.”

Canadian banks have zero reserve requirements today as per Bill C-19 of 1991. As for holding reserves as a matter of prudence, using various interbank lending facilities they can effectively maintain negative reserves. Nothing new.

And bank lending is probably the least risky venture one can engage in. First of all, as you acknowledge, they create money out of thin air, so realistically, what’s there to lose if the loan goes bad? Second, banks only lend against collateral. Therefore, the wealth you are borrowing typically already exists. The banks simply have the legal right to seize the real collateral in the event the made up money was not paid back. If the collateral is wages, the banks can take your wages. In lines of business where the risk is high, e.g. credit cards, the interest rates reflect the risk. Don’t worry about the banks, Shawn. Before they lose a dime, things have to get really bad. You should only wish you had as much clout and protection from your government as the banks have.

———————————–

“The big reason that banks can create money is simply that for whatever reason the definition of “money” is cash (how quant) plus deposits in a bank. There is no deduction for the loans created.”

Again, loans are bank assets, not liabilities. To see what’s actually considered money in Canada, see http://www.bankofcanada.ca/rates/indicators/key-variables/monetary-aggregates/

———————-

“A credit card is really just a way of creating instant mini loans.”

Yes. But more to the point. When you spend credit you are creating money. Remember, (most) money is debt. Therefore, when credit becomes interest bearing debt via, say a credit card purchase, the credit card holder just created new money. In our system, money is a debt obligation. Credit is just potential money.

#116 Dr. Wu on 08.04.14 at 9:20 am

Hey it’s the anniversary of WWI, 37 million dead.
They’ve actually gotten more millage (in years) out of the War on (fake) Terror, it just wont end and it’s been going on longer than WWI & WWII combined!

Speaking of war, usury, economics, and treason, how bout a little Ezra Pound summer reading-

http://nationalvanguard.org/books/mullins-eustace-this-difficult-individual-ezra-pound-1961.pdf

Actually 37 million casualties, of whom 16 were fatalities. A horror, by any definition. ‘The war to end all wars.’ — Garth

#117 Mark on 08.04.14 at 9:22 am

“What are you trying to say??

I just scroll past you posts. I read a few a while back and you tried to come across as a know it all.

Please limit your posts. I’m sure I’m not the only one who feels this way.

My posts are fairly clear and concise. I think you’re the only one who feels that way. And yes, I probably know a lot more than you. :)

#118 Mark on 08.04.14 at 9:30 am

“The fact is and will be if the Canadian housing market implodes the taxpayers will be on the hook for almost one trillion dollars and no bail-ins or bail-outs will change that.”

I don’t think it will get that bad. After all, CMHC only has to pay out on the deficiency, not on the basis.

Having said that, CMHC is dangerously under-capitalized for its portfolio of subprime loans. If you figure the average subprime loan will experience a 20% loss, this means that, at worst, 5X leverage is feasible.

5X leverage for a $900B portfolio implies that the CMHC needs around $180B of capital to back such.

$180B exceeds CMHC’s currently available capital by $160B or so.

Remember that bank shareholders and other counter-cyclical players in the economy, will provide a ‘floor’ beneath the housing market, as they acquire the distressed property. So its not really a situation where RE will literally go to zero, although credit to subprime borrowers (ie: the entirety of CMHC’s clientele) may very well go to zero, as we saw in the United States during the so-called “credit crisis”.

With any luck, the international markets will create some form of demand for Canadian goods and services (ie: gold), and we’ll at least some domestic demand restored. If this doesn’t happen, well, its an awfully long ways down. I actually believe that some of the bubble in Vancouver is implicitly based on a strong belief amongst investors that the Vancouver-based mining firms are going to do awfully well in the future.

#119 JimH on 08.04.14 at 9:47 am

#108 JG

Good points! HOA agreements and “by-laws” are lengthy and there is always some fine print that is important!

Also, in addition to the HOA, there are often contracted Management Companies somewhere in the background. It’s important that potential buyers find out just who wears the pants; the HOA or the property management company. In our case, the management company is just there to ensure that the HOA does it’s job, and that the original builders live up to any and all of their responsibilities; it has no say in the day-to-day running of the place.

My wife and I took an entire day and parsed ours very carefully and asked a lot of questions of the locals to make sure we could live with our version of the KGB before we bought!

It is important to remember that most HOA’s are made up of homeowners just like you, and that the best way to ensure you’re happy with it is to get involved yourself.

#120 Sparky on 08.04.14 at 9:57 am

Garth;

What would happen to any mutual funds purchased through the banks in case of a ‘failure’.

That depends on the corporate structure of the fund you buy. Be aware that most bank funds can suspend redemptions at will, meaning you might not be able to sell in a crisis. If you own individual (non-fund) securities, this is not the case. Remember, a bank failure is a highly unlikely event. — Garth

#121 Toledo Water Salesman on 08.04.14 at 10:19 am

Forget bank stocks, dump ’em I say.

Buy these:

Group Danone (Evian)

PepsiCo (Aquafina)

Coca Cola (Dasani)

Garth is totally right – in the coming environmental and real estate meltdown….

Stay Liquid!! ;)

#122 Big Ed on 08.04.14 at 10:29 am

@ #60 Ross on 08.03.14 at 8:45 pm

Soon you will be able to get a condo in Vegas for free. I was just there this week and took a helicopter ride to the Grand Canyon. Pilot pointed out the Vegas water source which is rapidly declining with no hope of increase…ever. In fact they are scrambling to build a lower reservoir “drinking straw” if you will and don’t think it will be ready on time. Las Vegas could be without drinking water in the next couple of years. Anyone thinking of picking up cheap real estate there, don’t walk, run the other direction.
——————————————————————————

No water, no problem. Let them drink beer.

#123 Macrath on 08.04.14 at 10:37 am

Jim H~Blindly following a “system” or “methodology” that doesn’t fit and you’re sure to fail.
——————————————————-

Experience matters, you have to know your risk tolerance or you will panic, sell at the bottom and suffer. A lot of people thought they knew before 2008. You have to have chromium cojones like perma- bull G.T. to ride out a crash and buy amid the howls of anguish.

I`m quit high up on the G.T. wuss scale 85% government bonds in 2008. Not a lot of analysis, just a what`s with these McDonald`s workers buying 550K shacks in Frisco.

Were back in LA LA Land and I`m outta here.

http://dshort.com/articles/2011/NYSE-margin-debt-and-the-market.html

#124 Daniel Clements on 08.04.14 at 10:41 am

The first bullet point (re: transferring all the viable assets to the “good” bank) says deposits would be included.

The last bullet point says deposits would be excluded.

Since deposits would be considered “viable assets” it makes sense they would go to the government controlled bank, rather than be liquidated with the failed bank.

Confused.

Deposits are excluded as convertible assets for recapitalization. — Garth

#125 Big Ed on 08.04.14 at 10:43 am

#101 @Mark on 08.04.14 at 12:58 am
What are you trying to say??

I just scroll past you posts. I read a few a while back and you tried to come across as a know it all.

Please limit your posts. I’m sure I’m not the only one who feels this way.

————————————————-

I second the motion!

#126 -=jwk=- on 08.04.14 at 10:49 am

re: the condo in question

In 2004/5/6 Vegas was the fastest growing city in America, with the best real estate market, the highest level of immigration and a massive shortage of land (water rights). So the couple that bought this pre construction were probably relieved they finally got in on the market.

It sold new in 2006 for 232,500
Sold in 2012 for 82k.
According to Zillow it’s worth about 74.5k now.

It’s lost about 10% of it’s value in the last two years and is now worth about 32% of the original purchase price.

Of course that could never happen in Canada – we’re different!

#127 Macrath on 08.04.14 at 10:52 am

Why do I only see the spelling mistakes after I post ?

#128 Daisy Mae on 08.04.14 at 11:02 am

#110 Shelter: “We need Direct Democracy like Switzerland.”

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

And didn’t our government study their health system a year or so ago, and concluded it was very efficient? An excellent model? However, that was the last we heard of it….as we continue to muddle along.

#129 The Canadian Government Is Now Fully in the Cyberwar Battlefield on 08.04.14 at 11:03 am

http://motherboard.vice.com/read/canadas-cyber-infrastructure-is-under-attack

#130 crowdedelevatorfartz on 08.04.14 at 11:04 am

@#122 Big Ed
“No water, no problem. Let them drink beer.”
++++++++++++++++++++++++++++++++++++

Personally I’ve never had an issue with choosing beer over water but it does tend to give me gas and I ride elevators a LOT.

As for Las Vegas running out of water. Nah. Never happen. The US will convert one of those Canadian Tar sands pipelines into a water pipe and Voila! Problem solved.
Or they will just dust off the US Army corp of engineers plans of NAWAPA circa 1964.

The diversion of water from Alaska, Canada and Mexico to make the US midwest a much more fertile growing area………….

Bring on the atomic bombs Dr. Strangelove.

http://books.google.ca/books?id=zwYAAAAAMBAJ&pg=PA9&lpg=PA9&dq=Canada+US+water+diversion+NAWAPA&source=bl&ots=w5lWn75GGp&sig=zW0Z09DfYNHkfnRDHPrWsQrFRsg&hl=en&sa=X&ei=-Z_fU6q7Goq6igL1lICoAw&ved=0CC8Q6AEwAw

#131 Basil Fawlty on 08.04.14 at 11:23 am

“The feds have finally (18 months later) released the rules for bail-ins that might be needed here, in a country with ‘systemically-important banks.’ Here are the highlights:”

“Bail-in legislation is not a bail-in. You are still wrong. — Garth”

Based on the 2013 Federal Budget and Fridays new “consultation process”, one would think you would accept that there is more to this than you originally thought. Instead, you still have to be the smartest guy in the room. You owe me an apolgy for calling me a liar on potential bail-ins.

Actually, you were wrong to suggest bail-ins were a certainty or that depositors would be affected. I apologize for leading you to believe an apology might be necessary due to your malinformation. — Garth

#132 Asking $78,000 on 08.04.14 at 11:46 am

In the vicinity of Spencer, NY was asking $78,000 and included these tidbits:

6.8 ACRES WITH POND & BARN

3 TO 4 BEDROOMS

1ST & 2ND FLOOR BATHS

UPDATED UTILITIES

NEWER ROOF & WINDOWS

STREAM ON PROPERTY

QUIET COUNTRY SETTING

GOOD FLOOR PLAN

#133 Slim on 08.04.14 at 12:03 pm

Employment growth has picked up in the USA, increasing consumer confidence. But median incomes are still 4% below pre-crisis levels. There is little hope it will ever catch up.

Ironically, as a result the Federal Reserve could cut stimulus spending sooner, hurting working people.

If ‘working people’ had not speculated in residential real estate, as Canadians are now, they would be in far better financial condition. — Garth

#134 Water Crisis on 08.04.14 at 12:06 pm

What will happen if there is a looming shortage is NO NEW WATER HOOKUPS! Meaning limit on new construction.

Will pish the value of existing housing stock up tremendously.

Is happening in other countries as we speak. The present owners like this option best and vote accordingly.

#135 Basil Fawlty on 08.04.14 at 12:47 pm

“Actually, you were wrong to suggest bail-ins were a certainty or that depositors would be affected. I apologize for leading you to believe an apology might be necessary due to your malinformation. — Garth”

I never mentioned the certainty of bail-outs, or that they would affect depositors directly. My only point was that there must be something to the fact that bail-ins were mentioned in the 2013 budget. All I know is that the government has now mentioned on two seperate occasions that banking risk has been taken away from tax payers (bail-outs) and transferred to the private sector (bail-ins).

I wish you would just apologize and quit putting words in my mouth.

Happily. After you apologize for telling us to buy gold in 2011. — Garth

#136 EJ on 08.04.14 at 12:52 pm

The rot in this broken system we have is starting to surface. More people need to take notice and stand up against the “privatized profits, socialized losses” scam that goes on in most of the world’s banks and financial institutions.

Studies have shown that worker productivity has gone up 160-170% over the past 30 years, yet your earnings have remained stagnant, or even decreased. This is the result of the theft-through-debt-inflation that is occurring on a mass scale by our governments and banks.

#137 Jim on 08.04.14 at 12:54 pm

Moral hazard or self interest?

#138 Jim on 08.04.14 at 12:58 pm

What do your monthly CDIC repayment checks look like on the 15 year servicing plan?

Your richer than you think?

#139 Lisa on 08.04.14 at 1:07 pm

“Would the funds even be in the bank when the government claimed it to put in a safe bank? Don’t the banks lend out their money?”

The mistake in your thinking is believing that money is actually “in the bank”. All banks, in the ordinary course of business, almost immediately convert any money you lend them into the purchase of assets such as loans. Otherwise, they couldn’t make money, nor could they pay you interest.

Exactly, there would not be any money left in the bank for the government to claim and put in a safe bank for depositors. It sounds like a very flawed plan.

#140 Millenial on 08.04.14 at 1:25 pm

Garth, you hear about Puerto Rico owing Scotiabank over half a billion dollars?

They ain’t gonna get it! Olé!

#141 David Hawke on 08.04.14 at 1:26 pm

Closed my accounts in Canadian banks a couple years ago due to their usurious fees. No bail-in/out money from me no matter what they do!

#142 Jim on 08.04.14 at 1:39 pm

Banks lost their usefulness to society when they stopped using deposits to back loans.

#143 Joe2.0 on 08.04.14 at 1:46 pm

It’s a good time to consider shorting certain airlines as well as other industries that will be effected by the scare of Ebola in Europe.

#144 Basil Fawlty on 08.04.14 at 1:57 pm

“Happily. After you apologize for telling us to buy gold in 2011. — Garth”

What the heck does gold have to do with you calling me a liar, even if I made a recommendation at $1900/ounce, which I did not?

You seem to be suggesting a moral equivalence between calling someone a liar and making an investment recommendation.

You have considerable time to waste, I gather. So, send me the original comment and I will reflect on it. — Garth

#145 Casual Observer on 08.04.14 at 2:02 pm

If mortgage defaults increase substantially due to a 20-30% drop in RE values, the only way for CMHC to remain solvent (assuming no bail-out) is to deny paying some of it’s mortgage insurance claims.

It will be in CMHC’s self-interest to accuse the lender of being negligent during the origination process. If they cast doubt on the lender’s due diligence during approval, they can deny paying out if they default, on the basis that the borrower shouldn’t have gotten the mortgage in the first place.

Depending on how bad things get, it still may not be enough to stop CMHC from becoming insolvent, but I doubt they are going to sit quietly and shoulder all of the losses when things go south.

Perhaps this is why the gov’t is creating legislation to force bank bond and share holders to pay-up when it comes to re-capitalizing.

I sense many lawsuits during the aftermath.

#146 devore on 08.04.14 at 2:11 pm

#44 Setting the Record Straight

Changing the government over and over again and expecting different results is a definition of insanity.

You mean hope and change was just a pipedream? Opiate of the masses? Why rational people get so emotional about politics, I will never understand. I think it is well past the point of speculation that to effect change, the government has to change. Having two teams change sides every half-time not gonna cut it. 

Real change is about taking a risk. As the saying goes, everything you want is just outside your comfort zone. If you never step outside it, it will always be the same old same old for you. Which is fine, but don’t fool yourself into believing you’re accomplishing something you’re not. 

#147 JimH on 08.04.14 at 2:11 pm

#130 crowdedelevatorfartz

…” Personally I’ve never had an issue with choosing beer over water but it does tend to give me gas and I ride elevators a LOT…”
——————————————————
I suspect that this is as close to a full confession we’re going to get?

I wondered why so many on your floor took the stairs!

#148 maxx on 08.04.14 at 2:31 pm

Garth, a huge vote of thanks for all that you do. You’re one in a million.

#149 mike in kelowna on 08.04.14 at 2:47 pm

Garth ,given that CDIC will cover up to 100K in an account, and a person has a RIF in one financial institution valued at approx. 350K ,can it be split up into smaller quantities ( under 100K each) and then transferred to different financial institutions? I’ve never heard of this being done but are there any other options to protect securities over 100K in a RRSP or RIF? Thanks for your kind assistance.

#150 45north on 08.04.14 at 2:55 pm

@Mark : What are you trying to say??

Please limit your posts. I’m sure I’m not the only one who feels this way.

sorry you are the only one. Mark is great.

#151 Flawed on 08.04.14 at 2:57 pm

#128 Daisy Mae on 08.04.14 at 11:02 am
#110 Shelter: “We need Direct Democracy like Switzerland.”

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

And didn’t our government study their health system a year or so ago, and concluded it was very efficient? An excellent model? However, that was the last we heard of it….as we continue to muddle along.

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

The Canadian Govt and its Public Workers are the antithesis of the word efficient. Why do you think our taxes are so high with the worst services in the OECD?

#152 kike on 08.04.14 at 2:59 pm

In my humble opinion, house prices are going to freeze. Even with an increase in interest rates in 3-5 years people will die first before given away houses for a 20% off. Those who have to sell will get affected but most of people will eat craft dinner if need it.

#153 Snowboid on 08.04.14 at 3:04 pm

#39 JG on 08.03.14 at 7:15 pm…

The only HOA fees in Henderson at $ 700-800 a month are for luxury units $ 750,000 and up.

Where are you finding condos in Henderson under $ 100K with $ 700 monthy HOA fees?

In our managed community of 5000 homes in Phoenix we pay $ 50 a month for HOA fees. Our annual taxes are a bit high as non-resident owners at $ 110 a month…

But for a total of $ 160 a month this includes all roads, common area landscaping, two rec centres, three pools, a gym, library and several shops for woodworking, lapidary, etc. Golf fees are extra for the two 18 hole courses.

We do pay extra for water and sewer, but still less than what the cost is in Victoria!

I’ve said this before but it’s worth repeating. Our overall costs to maintain the home in Phoenix as well as the luxury condo we rent in the Okanagan isn’t much more that it cost to maintain our former mini-McMansion in Victoria.

Of course, most of our rent is covered by the after-tax returns from our investments (proceeds of Victoria sale minus the cash spent on Phoenix home) thanks to the suggestions of this wise professors’ blog.

#154 OffshoreObserver on 08.04.14 at 3:14 pm

F.Y.I. The Economist article on interest rates:

http://www.economist.com/news/finance-and-economics/21610268-when-interest-rates-start-rising-how-high-will-they-go-rate-expectations

#155 Singaporean Investor on 08.04.14 at 3:18 pm

Who gives a damn about negative cash flows if the property values keep on rising, huh? Garth mentioned that Price-to-Rent over 21 means that the landlord is subsidizing tenant (http://www.greaterfool.ca/2013/08/13/renting/) Look at the real estate in Singapore.., the P/R is 27.47. http://www.numbeo.com/property-investment/country_result.jsp?country=Singapore

#156 Basil Fawlty on 08.04.14 at 3:21 pm

“You have considerable time to waste, I gather. So, send me the original comment and I will reflect on it. — Garth”

I don’t know how to find the original comment, but I appreciate the fact that you are willing to reflect on it.
I will leave this issue alone and quit wasting time.

#157 Doug in London on 08.04.14 at 3:23 pm

If there was even a threat of a major Canadian bank going under, chances are the other banks will be experiencing hard times also. In such a case, it could create a buying opportunity for XFN. Don’t put in any buy offers yet, it’s just slightly under its 52 week high.

#158 pbrasseur on 08.04.14 at 3:24 pm

diversification could save your butt. — Garth

True for most because most prefer speculation (trying to guess what others are going to do) over investing (buying assets which intrinsic value rises). That strategy (speculation) usualy ends badly for most and diversification can limit the damages…

But for a true investor diversification is like taking preemtive medication because you plan to eat out of the garbage

Not useful nor necessary if you understand what you invest in.

#159 bigtown on 08.04.14 at 3:32 pm

Is the government seeking public input on potential bank failures CODE for trying to get a “feel” for the public’s acceptance of BANK MERGERS? Now it makes me think who is going to get invited to the dance? Ya might have to buy all five banks.

Never in my wildest dreams did I ever figure myself to be a bank analyst but God sure knows how to pick em. Thank-you Lord for such divine inspiration.

#160 Slim on 08.04.14 at 3:39 pm

#116 Dr. Wu

The Sleepwalkers: How Europe Went To War In 1914

Is an excellent book if you’re into war history.

#161 Mister Obvious on 08.04.14 at 4:03 pm

#151 kike

“In my humble opinion, house prices are going to freeze. Even with an increase in interest rates in 3-5 years people will die first before given away houses for a 20% off.”
———————————-

It’s good that keep your opinion humble. I do that too.

My humble opinion is that the first significantly sized group of boomers who discover they need immediate cash will sell in a hurry and unwittingly initiate a cascade of decreasing prices.

The remainder, who will be needing their equity a bit later on, will have to face that precedent and ride the wave even lower.

In some places that dynamic is already underway. For example, take a look at recreational properties in the Gulf Islands where the phrase ‘asking price under assessed value’ is used often these days. Optional real estate is the proverbial ‘canary in the coal mine’.

#162 Macrath on 08.04.14 at 4:04 pm

#157 pbrasseur

Do you have some secret formula to find these great companies . Bombardier was long touted as one of these great companies. People are still waiting 15 years later to see their $26 a share.

http://tinyurl.com/knys8vr

Enron was another famous great company and we know
that story ended in tears. How about Nortel the Canadian blue chip legend a must have at $150 a pop.

The trash bin is overflowing with great companies.

#163 Irene in Salmon Arm on 08.04.14 at 4:09 pm

Garth ,given that CDIC will cover up to 100K in an account, and a person has a RIF in one financial institution valued at approx. 350K ,can it be split up into smaller quantities ( under 100K each) and then transferred to different financial institutions? I’ve never heard of this being done but are there any other options to protect securities over 100K in a RRSP or RIF? Thanks for your kind assistance.

#164 JG on 08.04.14 at 4:10 pm

#152 Snowbird

reread my post with link. its all there

#165 takla on 08.04.14 at 4:31 pm

#re 151 kiki…to many variables for your statement that homeowners will eat KD before selling into a 20% correction,
There are a myriad of reasons people have to sell, devorce,health issues ,Job loses,and banks requiring negative equity top ups on renewals,Just the fact that morgagees are entering their working twi-light yrs{55-65} makes them a bad bet for the banks on renewal of morgages.
As well increasing interest rates and decreaseing home values will be straw that breaks the camels back.
I seen it 83′ /84′,as interest rates skyrocketed,property values plummeted,homeowners were suddenly underwater on equity,many takeing 2 jobs,cutting back,only to realize they were priced out and had to flog the house before bankruptcy

#166 Shawn on 08.04.14 at 4:38 pm

Bank assets (loans) versus their liabilities (deposits)

Lisa at 139 said:

Exactly, there would not be any money left in the bank for the government to claim and put in a safe bank for depositors. It sounds like a very flawed plan.

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

Banks lend out deposits. Banks get in trouble when the loans are bad due to deadbeat borrowers.

The safe bank would take on the liability for and guarantee the customer’s deposits (liabilities) and would take over the loan collection.

Since the bank is in trouble its equity holders would be wiped out. Same thing happens when most any company goes broke.

Investors who bought bonds of the bank might get shares in the new safe bank. This would mean the sick bank could stop paying interest on those bonds.

When commenting on banks let’s first make sure we understand that deposits are liabilities’. On the asset side a portion of the deposits might be reflected as cash in the vault. Most of the bank’s assets are loans receivable.

The bank is at risk because even if loan goes bad, the depositor can still withdraw his deposit.

If you don’t like it , lend your own money to your neighbor.

And for goodness sakes buy bank shares.

#167 Andrew Woburn on 08.04.14 at 4:41 pm

#101 @Mark on 08.04.14 at 12:58 am
Please limit your posts. I’m sure I’m not the only one who feels this way.
==========================

Every couple of months, we get a spate of schoolyard monitors who want to ban or suppress one of the contributors. It’s Garth’s blog, his rules.

One of the secrets of the blog’s lasting success is the sub-communities that gather here to trade information about their particular interests and incidentally inform the rest of us about new ideas. Aside from the house people and the investment people we have Smoking Man fans and anti-fans and a never-ending parade of neo-Millerites wailing about the End of Days. Some people apparently just come for the dog pictures. It’s great entertainment. Nobody has to read everything.

Mark may lack the fake humility that so many Canadians wear like a shield but he is well-informed and factual. I do a lot of research trying to figure out how things actually work and I rarely disagree with his points.
He keeps his comments concise and focused and I appreciate the time he takes to share information.

#168 Coho on 08.04.14 at 4:53 pm

This bail-in business smacks of peoples’ personal cash being brought under the umbrella of eminent domain. Just like having the power to take private property for public use (the pretext being for the greater good), government is maneuvering to give itself the power to do the same with your bank deposits. This of course is done on behalf of the British Monarchy who own this land and most everything on it, including we the people. Our personal property is ours until it is deemed the property of the Canadian Government.

They don’t pass legislation for no reason. Anything is possible, and indeed probable, the way things are developing in this world. Our masters are simply getting their ducks in row.

#169 AfterTheHouseSold on 08.04.14 at 4:55 pm

In the unlikely event that the banks do wobble, is your money out of reach of the banks if it’s in a money market account? Thanks.

Yes, that is risk-free, as the returns suggest. — Garth

#170 Blacksheep on 08.04.14 at 4:56 pm

“sorry you are the only one. Mark is great.”
————————————————-
No, he’s not the only one that skips, but Mark should still be free to ramble ad infinitum.

Just like I’m free to ignore. There is nothing worse than censorship (even if self applied due to social pressures). Let er rip and let the critical thinkers figure it out for themselves.

Right Garth?

#171 Andrew Woburn on 08.04.14 at 5:06 pm

#100 Flawed on 08.04.14 at 12:44 am

Yes….our banks are in such great shape they were bailed out 114 billion dollars in 2008 and moodys recently downgraded them.
———————————————-

I understand that not everybody wants to spend time studying how banking works, but if you accept doomer info uncritically you will lose out.

Banks make their money by borrowing short term money at low interest rates and lending it out longer term at higher rates, exactly the opposite of what individuals should do. They can only keep going as long as they have access to short term credit including deposits.

Every once in a while there is a financial crisis which dries up short term credit. Even though the banks are awash with assets they don’t have enough cash on hand. That is when the central bank steps in and lends them the cash they need until markets unfreeze. Then they repay the central bank. That is what central banks are for. It is not a bailout. Bailouts are only used when the bank actually runs out of capital.

Bail-in’s on the other hand, as Mark pointed out, are simply banking as it has always been. When Depression-era banks folded, depositors lost some of their money if there weren’t enough assets to repay senior creditors. That is why deposit insurance was invented, to keep people from pulling all their cash out on every new rumour.

#172 SRV on 08.04.14 at 5:29 pm

Well Garth finally waking up… over a year after he decried the efforts of (some of us) to call out the Tories on the non reported budget bail-in policy!

The fantasy of deposit protection is just that… “certain bank balance sheet liabilities” include up to 80% deposits, and anyone who believes the Canadian government could cover all of the deposits in the Big Five is dreaming!

They are all interconnected with hundreds of billions in derivatives, and if one goes down they all go down… the (very) ugly truth.

You got the bail-in wrong a year ago. Deposits will not be affected, and a big bank will never fail. — Garth

#173 Stickler on 08.04.14 at 7:02 pm

And, no, there will never be a depositor-funded bail-in here. — Garth

————————-

If a bank retains deposits that is deposit funded. CDIC will pay the depositor up to the insured amount only.

The important point is that the Bank eats your deposits. The $ you get back is from CDIC -> not the bank.

Will it happen, hopefully not. But the framework is there.

#174 Nomad on 08.04.14 at 9:30 pm

Regarding:
““The people of Vancouver and Toronto are delirious if they think a small 1 br condo is worth upwards of half a million when a 3 br condo down here goes for $80k,” ”

I don’t understand that man’s surprise. In his own country, in high-demand centers such as New York, San Francisco, Palo Alto, a small 1 br condo is even more pricy.

#175 Setting the Record Straight on 08.04.14 at 9:52 pm

@170
“When Depression-era banks folded, depositors lost some of their money if there weren’t enough assets to repay senior creditors. That is why deposit insurance was invented, to keep people from pulling all their cash out on every new rumour.”

What is the record of bank failures in Canada in the depression era?

When was a central bank first created in Canada?

#176 T.C. on 08.05.14 at 10:03 am

You forgot to mention that other announcement – that natives can now make a claim on any fee-simple title owned by any Canadian thanks to the liberal Supreme Court of Canada.

#177 jimmy D on 08.05.14 at 1:05 pm

Well it was real at one time but based on his dates it’s BS, the condo in the picture looks to be Terrasani in Aliante which is nice but also it’s in North Las Vegas which isn’t exactly a prime location by any stretch but also not a bad spot. When they were first built back in 2006 at the height of the market it was worth $240k and when it was a foreclsoure if it would have sold in 2010 or early 2011 it might have got down in to the $80’s but unless it was totally stripped it hasn’t been that price for a very long time. Right now those are going for around $120-$140,000 for the 3 bedroom units. Tell the guy who wrote this article to get some damn facts about our prices before publishing since every Canadian that reads this that is looking to buy in Vegas now is goign to believe him and not us which is a giant pain in the ass to tell them that the newspaper guy doesn’t know Vegas real estate and his article is 3 years late on the Vegas prices. Good Times

I provided a link to the listing. Take your index finger and place it on the hard, round moveable thing beside your keyboard. Then click. Stand back. — Garth

#178 jimmy d on 08.05.14 at 5:54 pm

Yes , I now see the link to 2012 sale
Just what I figured , fcking irrelevant unless u have a time machine Garth.

#179 SWL1976 on 08.07.14 at 2:02 pm

Thanks again Garth