How high?

RYAN  By Guest Blogger Ryan Lewenza

In this week’s blog post “How High”, I’m not referring to the Liberal’s July 2018 deadline to legalize marijuana, rather, I’m referring to how high we expect the Bank of Canada to take interest rates in the coming months and years.

Following the financial crisis, central banks around the world cut interest rates to record low levels to help reflate their respective economies. In Canada, our benchmark rate declined to a record low 0.50%. In the US rates fell to 0.00%-0.25%, and in some countries rates even went negative. Well the party’s over with central banks reversing this and beginning the rate normalization process.

Here in Canada, the Bank of Canada (BoC) has hiked rates twice this year beginning in July 2017. While most economists last year were calling for the first rate hike in 2018, I went against the consensus (as I often do), predicting in a June 2016 Bloomberg TV interview that they would begin hiking within a year. How did I get this call right?

I expected the Canadian economy to pick up this year as business investment rebounded from the 2015 oil rout, exports to improve as the US economy strengthened, and consumer spending to remain robust.

This looks to be playing out nicely with our economy growing at an impressive 4.0% in the first half of the year, and consumer spending doing much of the heavy lifting. Driving this strength in consumer spending is our labour market which has been on a tear. Over the last 12 months our economy has added 375,000 jobs with the unemployment rate dropping to a new cycle low of 6.2%.

Canadian monthly labour numbers are notoriously volatile so I prefer to use a 12-month moving average (MA) to smooth it out and better isolate the trend in our labour market. As illustrated below, this 12-month MA has moved steadily from -5,000/month to over 30,000/month. This strength in the labour market has supported higher income growth and in turn consumer spending. The BoC responded to this strong rebound by beginning its tightening cycle with these recent rates hikes. Now the question is how far they will take rates up in this new environment.

Canada’s Labour Market is on Fire

Source: Bloomberg, Turner Investments

First let’s look at history to see what we can glean. I looked back at the past BoC rate tightening cycles dating back to the early 1990s. Below we show the results of this analysis.

Since 1990 there have been five tightening cycles, which we define as the BoC hiking rates by over 1% in a particular cycle. On average, the BoC hikes rates for 19 months with an increase of the benchmark rate of 2.40% percentage points.

Using this simple average and adding it to the starting point of 0.50% (the low in this cycle), that would translate into a potential peak of rates in this cycle of roughly 3%, or another 2% from current levels. If this is realized that would translate into a bank prime rate of over 5%. Just image how negative this would be to the housing market and consumer spending should this play out!

Past BoC Tightening Cycles

Source: Bloomberg, Turner Investments

While history suggests a move up to 3%, I believe this might be overly aggressive in light of the current macro environment and therefore see a lower peak. Why?

1. On a short-term basis, Canada’s breakneck GDP growth is unlikely to be sustained at this high 4% level. With rates on the rise and housing starting to weaken, we fail to see how consumer spending will remain this robust. Therefore we see growth moderating from current levels but still holding in there
2. On a longer-term basis we see lower economic growth for Canada given: 1) productivity gains continue to decline; and 2) our population growth also is in decline as seen in the chart below. Over the long-run economic growth is driven by these two factors which both continue to decline
3. The Canadian dollar has rallied from 72 cents up to 83 cents which should soon begin to weigh on exports and is a real concern for the BoC. The BoC is walking a fine line of trying to put a ceiling on the Canadian dollar (to support exports) and not allow the economy to overheat by raising rates. Further strength in the CAD will be an important factor in how quickly they raise rates going forward
4. Inflation remains benign. Currently inflation in Canada is running at a low 1.2% Y/Y and if this persists it will likely keep the BoC from aggressively hiking rates

Putting it all together, we see more rate hikes over the next few years, but see the BoC being very gradual with its tightening and with the benchmark rate likely peaking in 2.5% to 3.0% range in this cycle. Given this outlook, maybe now is the time to start considering a fixed rate mortgage.

Canada’s Population Average Annual Growth

Source: Statistics Canada
Ryan Lewenza, CFA,CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Vice President, Private Client Group, of Raymond James Ltd.

125 comments ↓

#1 BS on 09.16.17 at 2:10 pm

I have to wonder how long rates can rise with the village idiot steering the ship. A downturn cannot be far away.

Canada’s Hunt For Taxes – Trudeau’s Destruction of the Canadian Economy

The Canadian Prime Minister Justin Trudeau is doing his best to send Canada into the Dark Age. He is clearly a Marxist and has targeted small business which creates 70% of all employment.

https://www.armstrongeconomics.com/world-news/taxes/canadas-hunt-for-taxes-trudeaus-destruction-of-the-canadian-economy/

#2 Last...but not least on 09.16.17 at 2:14 pm

Snooze you lose

#3 For those about to flop... on 09.16.17 at 2:21 pm

CONFIRMED PINK SNOW.

Now it is time to look at the other side of things.

Here is a recent sale that I reached out to the realtors on here for the results and came up blank.

The details…

Paid 1.36 Feb 2016
Sold 1.36 August 2017

I had it marked as an early August sale ,but the ink obviously hadn’t dried.

Anyway after expenses roughly a 70k hit to the hip..

M43BC

9551 Palmer Road, Richmond . paid 1.36 sold on August 2nd

Dec 22:$1,599,000
Jun 13: $1,288,

Change: – 310112.00 -19%

https://www.zolo.ca/richmond-real-estate/9551-palmer-road

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDA1WFBHRw==

#4 Last...but not least on 09.16.17 at 2:33 pm

IMHO….I see these BoC moves as posturing, and effectively stress testing the RE market…and assessing the reactions.

Unlike past RE markets, this one likely beats previous ones and was allowed to get out control…and it then gets too political versus rational.

The market is”correcting”.but if the perception is the BoC and Feds are adding gas to the fire…they will back off and adjust the rates.

#5 Stan Broock on 09.16.17 at 2:33 pm

Nice article that focuses on key measurements for the condition of the economy that are unfortunately flawed.

1. The economy is ‘on fire’ due to headwind inflation and further growth in debt to record levels. We basically spend borrowed money we don’t have.
The ‘wealth’ effect felt from the high house prices has not been worn out yet.

2. Productivity sucks.

3. CAD is significantly overvalued compared to fundamentals and purchasing power.

4. These great job numbers are part time low paid jobs.
Compare the total payroll Ryan if you can get such statistics on YOY bases.

We have hit some air pocket while sinking in the yellow submarine and think the worse is over.

These is no way these debt levels can be served with rates increasing.

The following 3 conditions bellow are not sustainable together in medium to long run.
– increasing rates
– record debt
– strong currency

The temporary intermediate result is that Canadian assets priced in international currencies are at record level and now is actually pretty good time to sell ALL those and buy under-priced valuable assets like Europe.

#6 Blacksheep on 09.16.17 at 2:34 pm

Flop,

I’m the first to admit, you seem like a real nice guy and are popular on the blog, but I have to ask:

You do realize that in you sampling, every “Paid Price,” is still significantly higher, than every every “List Price”, right?

#134

1165 MATHERS AVE WEST VANCOUVER paid 2.93

Mar 9:$3,760,000
Sep 14: $3,280,000
—————————-
#138,

2292 MATHERS AVE WEST VANCOUVER paid 4.7

Jun 28:$5,488,000
Sep 14: $5,188,000
—————————-
#142,

163 ENGLISH BLUFF RD DELTA paid 1.84

May 2:$2,450,000
Sep 14: $2,098,800
—————————-
What is the point?

That these homes MAY be further reduced to the point that the seller, actually loses $’s?

I understand, you don’t have access to the buy / sold pricing, just like most of us, but this just reeks of desperation, assuming these are some of the worst/only samples of a correction you can find.

This is the problem with group think as I will likely get negative response to the tune off, ‘stop harassing flop’

Drinking the cool aid on either the, Bull or Bear stance on RE is going to cost you $. Like I recently said, I’ve become an agnostic about RE.

All we need is, math based proof of RE’s direction based on “Buy Price VS Completed Sale Price”.

God damn it, will some realtor PLEASE hook Flop up so we can all actually figure out what the hell the RE market in doing!!!

Every thing else is pure speculation….

#7 SoggyShorts on 09.16.17 at 2:38 pm

So in June 2016 you said they’d raise rate in a year, but it didn’t happen for 13 months? Get it together man, we expect more. =)

#8 For those about to flop... on 09.16.17 at 2:41 pm

CONFIRMED PINK SNOW.

Here is another one that did some dough in a short amount of time.

The details…

Paid 1.2 Feb 2016
Sold 1.14 July 2017

States that it was a new build that was uncompleted by last assessment but the sales have been logged and so if you go by the numbers,with known expenses 10% loss or roughly 120k…

M43BC

3826 COAST MERIDIAN RD Port Coquitlam paid 1.2 sold or removed by August 2

Mar 1:$1,200,000
Jul 21: $1,149,000
Change: – 51000.00 -4%

https://www.zolo.ca/index.php?sarea=3826%20Coast%20Meridian%20Road,%20Port%20Coquitlam&ptype_condo=1&ptype_house=1&filter=1

https://evaluebc.bcassessment.ca/Property.aspx?_oa=RDAwMDEwMERQMg==

#9 Stan Broock on 09.16.17 at 2:53 pm

The very fact that BOC has workshops at the moment on extending their tool-set and their policy targets beyond inflation (which means one thing only – asset purchases by BOC) is very inconsistent with ‘the booming economy’ and increasing rates assertions.

I would not be surprised if there is an attempt to purchase assets by BOC while actually increasing the rates which has never been done before.

Normally central banks purchase assets at the very bottom of the rates cycle.

In my humble opinion all this strength in CAD is unusual, transient, very temporary and everyone investing in our economy at the moment is penny picker in fronts of a steamroller going downhill with no breaks.

#10 For those about to flop... on 09.16.17 at 2:58 pm

CONFIRMED PINK SNOW.

Here is one of the two condos that Old Bird was good enough to help me report in real time.

5001 and 5003 were sold at the same time and all the evidence pointed towards the same seller taking a double whammy but only this one has been updated in the database and so up she goes and I will post the other one when it becomes official.

The details…

Paid 593k October 2014
Sold 578k July 2017

This sale took place in the complex that I was referring to last night that the sales are starting fall off b.c assessment because the three years has expired and all I can do is reach out to realtors on here to help keep the information updated.

This is the low end of the ladder but some heavy hitters are in the 3 million dollar range having to same problem.One recorded loss on that front but no official confirmation.

Anyway,this particular case with known expenses I will go with a 7.5% loss or roughly 45k.

More to come in the same building…

M43BC

5001-5511 Hollybridge Way, Richmond Sold

Dec 18:$689,000
Jul 10: $578,000
Change: – 111000.00 -16%

https://evaluebc.bcassessment.ca/property.aspx?_oa=RDAwMDBOQjRVOQ==

#11 @careeraftschool on 09.16.17 at 3:05 pm

Shocking how many people I know that have multiple properties with variable rates. They were losing money on a monthly basis before rates went up. These are young couples with kids that can’t afford to take a financial hit. They were told by their parents to keep buying as much real estate as you can. They have no idea what TFSA’s and RESP’s are. This is going to end badly for many people. Mental and physical health are going to take major hits. Many I know are already suffering from pre-mature aging.

#12 For those about to flop... on 09.16.17 at 3:13 pm

CONFIRMED PINK SNOW.

These guys managed to sell their house for more than they bought it for but it wasn’t enough to cover expenses.

The details…

Paid 1.39 March 2016
Sold 1.43 August 2017

So the managed to limit the damage but after known expenses a 2.5% loss or roughly 40k…

M43BC

5833 Cove Link Road, Delta paid 1.39 sold on July 27

Oct 15:$1,588,800
Apr 25: $1,499,000
Change: – 89800.00 -6%

https://www.zolo.ca/delta-real-estate/5833-cove-link-road

https://evaluebc.bcassessment.ca/Property.aspx?_oa=RDAwMDAwQ1g3RQ==

#13 Sick of it on 09.16.17 at 3:17 pm

So basically since people over spent and continue to due so to drive the economy which is based heavily on housing and such we will cater rates so they won’t be hurting to much. I think I will now start to get huge loans and also live way beyond my means as it seems there really is no down side to it.

#14 Stone on 09.16.17 at 3:30 pm

Here’s my prediction. 2 more hikes for 2017 and minumum 3 in 2018. Here’s hoping. And praying. And hoping some more.

#15 For those about to flop... on 09.16.17 at 3:31 pm

CONFIRMED PINK SNOW.

Here is one that Broadway was good enough to help me report in real time and now the confirmation has come through up she goes.

Like the last guys,they managed to get more for the property than they purchased it for but with known expenses it is likely they still took a small hit and most likely in this price range just happy to get the deal done.

The details…

Paid 4.6 June 2016
Sold 4.8 July 2017

And so the numbers roughly translate to a 1% loss but because of the numbers involved equals roughly a 50k hit.

Could be more,could be less but all we can do is go with what information we have…

M43BC

Sold for 4.8m Broadway.

1470 Camelot rd, West Vancouver paid 4.6 sold by June 2

Jan 25:$5,188,000
Mar 22: $4,998,000
Change: – 190,000 -4%

https://www.zolo.ca/west-vancouver-real-estate/1470-camelot-road

https://evaluebc.bcassessment.ca/property.aspx?_oa=QTAwMDAyOUNHWA==

#16 westcdn on 09.16.17 at 3:33 pm

I do not believe burning down the barn to kill a rat is a good idea. I get angry and frustrated with taxes. All I know is that is I am paying more taxes on less income. I can whine with the best of them.

I just got through a meeting with my dentist – good faith was a topic. She was honest about running a business and would not sprinkle anything my way. I have no interest in punishing her. As luck would have it, Ralph Klein was a client – we are cut from the same cloth.

I am old enough to remember in the early 80’s when the Feds decided to restrict corporate entertainment expenses and came up with taxable benefits. Too many people were using corporate assets such an automobile for personal use and expensing lavish business dinners, golf memberships and club expenses. I believe it was another Trudeau that brought the rules into play.

I barely recovered from the income trust reversal. That is where most of my dead soldiers are buried. Life goes on and I learn how to protect them. I believe in Karma but I am not doing myself any favours these days. I don’t know what evil things I did in a previous lifetime but luck sure runs against me. I will stand and find a way.

I listen to what people have to say.

#17 FOUR FINGERS WATSON on 09.16.17 at 3:39 pm

Federal govt. spending the borrowed billions, consumers spending record borrowed billions, Fort Mac starting up again after the fire, and dummies fuelling the inflated housing market fire. There’s your robust Canadian economic growth.

#18 Tony on 09.16.17 at 3:43 pm

I’d say the rate tightening cycle in Canada is over. There’s a slim chance the Bank of Canada rate could reach 1.25 percent but I’d bet against it. The bottom will fall out of GDP and the Canadian dollar either near the start of October or November this year.

#19 Ian on 09.16.17 at 3:46 pm

It’s going to be intersting.

Trump discussed Yellen this week, Feb 2018 she either has to be renewed or it’s a Republican appointee. Since I think Yellen is trying to raise aggressively and burst a bubble on Trump’s watch (couldn’t even wait until Inauguration Day lol), I am thinking someone will talk some sense into him (yes, yes I know) and make him realise she is not his good buddy.

Soooo. BoC does October and December for sure this year. So four rises this year.

But then things get ULTRA murky. If a dovish / Trumpy person comes in at the US Fed, they might be done raising. Which means BoC might not do anything in 2018.

BoC has another 7c to 90c, then they need to start worrying about exporting.

So watch that US Fed appointment closely. Lael Brainard is pretty dovish. She would be interesting.

Now Mark is going to tell you about deflation…

#20 Mark on 09.16.17 at 3:51 pm

How many rate tightening cycles have been into 0% month over month inflation (or deflation), and 1.2% YoY inflation? With the Canadian dollar strength and the crashing RE market not even reflected in the numbers quite yet?

I’m not aware of this ever happening.

The Bank of Canada has a single official mandate, and that is, to hold inflation at or around 2%. They’re already missing their 2% target by a large margin, with the Bank of Canada Deputy Governor Wilkins basically coming out and suggesting that maybe the target needs to be changed in what might be assumed simply to be a tacit admission that the Bank of Canada cannot meet its 2% inflation target without going beneath the logical zero bound of interest rates:

http://www.bankofcanada.ca/2017/09/monetary-policy-framework-issues-toward-2021-inflation-target-renewal/

Simply put, the idea that rates are going to rise, the increasingly trending towards deflation CPI and PPI numbers, and the Bank of Canada jawboning for changes to its mandate are quite contradictory. With the concept of higher rates, unfortunately for those wishful thinkers, being highly contrary to most economic working theory we have concerning deflation.

#21 J on 09.16.17 at 3:52 pm

We read about robust consumer spending. How much of that was done on credit based on increase in perceived value. I would that would be a false economy. The real economy might the interest generated by such large debt. I might cite the loss of (or pretty near certain loss of) sears and withdrawl of Target. I don’t think we have good spending across the board. We see things attached to housing selling but not evenly across the board. I think almost all spending will vaporize this autumn. Wait until the defaults start happening as the false economy jobs start to go with it. Uh Oh…..

#22 Happy Housing Crash Everyone! on 09.16.17 at 3:54 pm

Empty open houses EVERYWHERE in Brampton. For sale signs everywhere and nothing is selling. Seen same for sale signs from two months ago. SHYSTERS are useless and can’t sell anything thus not even worth 1%.

#23 Last...but not least on 09.16.17 at 3:58 pm

Re Trudeau #1 and Trudeau #2 and the downfall of Canada

Pierre Trudeau agenda in hindsight was to seed division and effectively balkanize Canada. He relished in the East Versus West/English versus French. However still enough morons who worship Trudeau who are certfiable “Stockholm Syndrome” victims.

This ultimately set the table for Justin Trudeau to pul the trigger. Parties may have hard of Agenda 21, a global program to effectively demonize human existence and effectively corral us in urban centers like free range prisons. (There are enough YOUTUBE videos to show that the entire earths’ population can be adequately located in an area the size of Ontario with 4 people per SFH..Also re:global warming…CO2 levels lag, do not lead climate change ).

May suggest that people look up Agenda 2030, and compare what T2 is shoving down our throats…wich is to destroy whatever nationalism and autonomy T1 didn’t take down earlier. Scary stuff.

#24 Vote for a Toronto $! on 09.16.17 at 3:58 pm

I vote for a Toronto dollar currency to offset the burden on Canada.

The Toronto dollar will be backed by SJW, nude women at those yearly annual nudist-feminist rallies and Justin Turdeau’s bare chest on magazines.

The Toronto dollar will be valued at 60 cents to the US dollar to show the wage gap in Toronto.

#25 Mark on 09.16.17 at 4:01 pm

“Now Mark is going to tell you about deflation…”

Lol. Yes, right on cue.

But its quite a different story in the USA, where the most recent inflation print was 0.4% month over month, not even annualized. If you annualize that, the US Fed is severely behind the curve, and the US is experiencing inflation that is quite significant and probably accelerating.

Based on such, I’d expect interest rates to rise in the US, and the US dollar to continue falling. Interest rates probably will fall in Canada, and the Canadian dollar will continue to rise. US inflation self-reinforcing itself, while Canadian deflation will self-reinforce itself.

Why is there such a discrepancy between Canada and the US? Canada spent the past 30 years hunkered down, with a lower level of personal consumption, and a higher level of investment in productive and exportable output. Canada ran trade surpluses for much of the past 30 years, and kept government debt relatively under control. Federal government debt in Canada, adjusted on a per capita basis, is roughly 1/3rd that of the USA.

So great to be a Canadian these days.

#26 Last...but not least on 09.16.17 at 4:28 pm

SFH versus Multi family (ie townhomes and condos etc.)

I think its fair to say judgement day(…aka correction) has arrived re SFH.

I think the far bigger concerns is the multi family sector. Appears to be a fair bit of irrational exhuberance still in existence. IMHO this is the turd in the punchbowl for the entire RE market. Lots of inventory still coming down the pipeline.

All we are seeing is enough fiscal weapons still available to prop up this market..one almost wonders if the SFH tanked so as to direct the herd to other RE OPTIONS.

This current and increasing volume overwhelms any SFH contribution. Ultimately this will crash…..lots of spekkers and moisters etc. taken down. This is the iceberg the RE Titanic will hit next big time.

#27 Millenials on 09.16.17 at 4:28 pm

#25…..Mark….

Your analysis of the situation is lacking. The US is projected to have an annualized GDP growth rate of sub 2%….which means that they are experiencing stagflation. Thus….the Fed isn’t behind the curve….they are in the pickle jar. Compound that with a Federal debt level over $20 T and a debt level that is bigger than their GDP and you can see that raising rates further may cripple the economy and trigger a recession. If anybody looks back on history whenever a nation has a bigger debt level than their annual GDP it is a matter of time before it collapses.

#28 Fluke on 09.16.17 at 4:40 pm

I went against the consensus , I expected, using this simple average,…. Wow!

Garth, don’t leave us on Saturdays!

#29 Debtslavecreator on 09.16.17 at 4:59 pm

It’s the credit stupid !
The rate of change in the growth rate of credit plays the biggest part in spending , GDP, and asset prices
Look at these numbers
Then look at Investment, labour force growth, R&D spending and net exports and it is easy to see the most likely path is maybe one more increase and he’s done
By this time next year it remains much more likely we are much lower and poloz will be talking QE
Probably one more low in rates 2018-2020 in Canada
Before they spike higher rapidly once the sovereign debt crisis comes to our shores
The only way rates rise in the next 2-3 years after this year is if the rates surge in Europe and more importantly the US
The CBs are trapped

#30 FOUR FINGERS WATSON on 09.16.17 at 5:02 pm

#25 Mark on 09.16.17 at 4:01 pm
“Now Mark is going to tell you about deflation…”

Lol. Yes, right on cue.

But its quite a different story in the USA, where the most recent inflation print was 0.4% month over month, not even annualized. If you annualize that, the US Fed is severely behind the curve, and the US is experiencing inflation that is quite significant and probably accelerating.

Based on such, I’d expect interest rates to rise in the US, and the US dollar to continue falling. Interest rates probably will fall in Canada, and the Canadian dollar will continue to rise. US inflation self-reinforcing itself, while Canadian deflation will self-reinforce itself.

Why is there such a discrepancy between Canada and the US? Canada spent the past 30 years hunkered down, with a lower level of personal consumption, and a higher level of investment in productive and exportable output. Canada ran trade surpluses for much of the past 30 years, and kept government debt relatively under control. Federal government debt in Canada, adjusted on a per capita basis, is roughly 1/3rd that of the USA.

So great to be a Canadian these days.
………………………………..

I see you took my advice on the BC Skunk Bud #3. Nice stuff eh ? Did u see the little space ships ?

#31 Stan Broock on 09.16.17 at 5:02 pm

#25 Mark on 09.16.17 at 4:01 pm

Stop trolling.

In addition to federal debt:
1. There is provincial debt – for all provinces totaling at least the amount of federal debt
2. There is personal debt – 170 % of income compared to 100 % in US
3. Our Canadian total debt grows with equal or higher pace than the US
4. CAD is not the reserve currency of the world
5. We have much fatter public sector to worry about –
provincial + federal + municipal, with much better benefits than in US.
6. from thee list of top 100 North American startups there is 1(one) Canadian Company.
7. Go to someplace warm to unfreeze your brain.

#32 Stone on 09.16.17 at 5:04 pm

#14 Stone on 09.16.17 at 3:30 pm
Here’s my prediction. 2 more hikes for 2017 and minumum 3 in 2018. Here’s hoping. And praying. And hoping some more.

——-

Let me adjust this a bit. Minimum 5 rate hikes in 2018 insteadcof 3. I’m feeling peckish. Anyone want to bet against me on this?

#33 FOUR FINGERS WATSON on 09.16.17 at 5:27 pm

#31 Stan Broock on 09.16.17 at 5:02 pm
#25 Mark on 09.16.17 at 4:01 pm

Stop trolling.

In addition to federal debt:
1. There is provincial debt – for all provinces totaling at least the amount of federal debt
2. There is personal debt – 170 % of income compared to 100 % in US
3. Our Canadian total debt grows with equal or higher pace than the US
4. CAD is not the reserve currency of the world
5. We have much fatter public sector to worry about –
provincial + federal + municipal, with much better benefits than in US.
6. from thee list of top 100 North American startups there is 1(one) Canadian Company.
7. Go to someplace warm to unfreeze your brain.
…………………………….

Stan, you are being spoofed. His posts are drivel and he has a good laugh when anyone believes or reacts to his crap.

#34 NoName on 09.16.17 at 5:42 pm

Hey, old stock Canadians, did you see that chart, soon most of us here will be spiking and writing with accent, like me. Spelling checking will be booming business.

Now I wonder why Canadians don’t reproduce, it’s not like it’s not fun…

#35 jess on 09.16.17 at 5:43 pm

… decline of maintenance covenants

The evolution of covenant-lite loans can generally be traced to the historical buyout power of private equity groups performing highly leveraged buyouts. The power of these buyout groups led to the relaxation of loan restrictions, and arguably providing increased flexibility for repayment.
http://www.investopedia.com/terms/c/covenant-lite-loans.asp#ixzz4ssF2yQQ6

Announcement: Moody’s: Weak structures of cov-lite loans, now the majority of US leveraged loan market, suggest lower-than-average recoveries in the next downturn
Global Credit Research – 23 May 2017

https://www.moodys.com/research/Moodys-Weak-structures-of-cov-lite-loans-now-the-majority–PR_367132

http://www.leveragedloan.com/covenant-lite-share-us-leveraged-loan-market-hits-another-record-high/
http://www.businessinsider.com/covenant-lite-bond-issuance-2017-6
https://www.ft.com/content/9faf952c-825d-11e5-a01c-8650859a4767

#36 Doghouse Dweller on 09.16.17 at 5:54 pm

The party’s not over in Europe with almost all countries now in negative rates.

– France -0,52 %
– Belgium – 0,57 %
– Italy – 0,17 %
– Germany – 0,72 %
– Switzerland – 0,92 %
– Sweden -0,70 %
– Holland -0,70 %
– Spain -0,36 %
– Finland -0,67 %
– Portugal -0,08 %
– Austria -0,64 %
– Czechoslovakia -0,80 %
– Ireland – 0,58 %
– Slovenia -0,31 %
– Cyprus -0,08 %
– Bulgaria -0,33 %
– Lithuania -0,08 %

A printing press masticated cancer according to Pierre Jovanovic
The most censured financial journalist on the continent.

And the “printing press on overdrive” Bank of Japan at -0.10% ,
‘economic kamikaze’: according to Lindsey Group chief market analyst Peter Boockvar

But you think we special Canadian snowflakes can “Normalize” with S. Poloz ?

#37 Blacksheep on 09.16.17 at 5:56 pm

“Paid price” is significantly lower than “List price”.

Some days, I think I’m starting to lose my shit.

#38 Wallflower on 09.16.17 at 6:01 pm

still stewing on yesterday’s trademarks… I make motion we all start using realturd or REALTURDS® – we know what it means and it means what it says – realtor is a made up word by crea which has no meaning except that which CREA denotes and we all know how they treat data… spins and mysteries – what the heck does REALTOR® really mean, anyway?

#39 waiting on the westcoast on 09.16.17 at 6:23 pm

#31 Stan Broock on 09.16.17 at 5:02 pm says… “#25 Mark on 09.16.17 at 4:01 pm

Stop trolling.”

LOL – so true. I used to think Mark was just a misguided T2 loving unemployed person who just didn’t get it. But he is probably a paid T2 troll out to confuse the masses… ;-)

US growth is strong. We are having a hard time to staff up and people are asking for more money all the time. I have given two 10% raises over the past two years and still hear the complaints. Our employees can earn up to $17-19 per hour for a low skill job. Base is $12-13 per hour which is above the recently increased 11.25/hour (up from $9.25/hour 18 months ago).

All while not increasing prices because I am trying to continue to increase market share.

#40 OttawaMike on 09.16.17 at 6:58 pm

Ryan,
Are we not still basically a petro-economy?

We continue losing manufacturing and oil is having its last hurrah as the world’s producers try to fight the climate change initiatives that will end our transport reliance on black gold.

Where does this leave the TSX and our economy as a whole over the coming decade?

#41 When Will They Raise Rates? on 09.16.17 at 7:11 pm

#19 Ian on 09.16.17 at 3:46 pm

It’s going to be intersting.

Trump discussed Yellen this week, Feb 2018 she either has to be renewed or it’s a Republican appointee. Since I think Yellen is trying to raise aggressively and burst a bubble on Trump’s watch (couldn’t even wait until Inauguration Day lol)

——————————–

It certainly feels that way, but in reality the “great unwinding” is a BIS directive and it applies to all cartel central banks:

LONDON (Reuters) – Major central banks should press ahead with interest rate increases, the Bank for International Settlements said on Sunday, while recognizing that some turbulence in financial markets will have to be negotiated along the way. – 25th June

https://www.reuters.com/article/us-cenbank-bis-report/push-on-with-the-great-unwinding-bis-tells-central-banks-idUSKBN19G0EX

^ Boom and bust cycles brought about by credit expansion and contraction, it’s what they do. This time is no different. Hedge accordingly.

#42 Phil on 09.16.17 at 7:23 pm

In your labor adds (first chart), the 12 average is higher than all the data points? Seems nonsensical – what am I missing here? More economists’ seasonal adjustments???

#43 bigtowne on 09.16.17 at 8:50 pm

Loblaw’s is not my first choice for foodstuffs but due to proximity I go there. Loblaw’s never had much of a “friendly vibe or customer service ethic” that showed at any time in the past decade so seeing half the cash registered now “check out by customer” it looks like they have reached their apex. The weird added customer frustration about these “do it yourself check-outs” is they do not accept “cash” and are credit and debit only? The new minimum wage or maybe Amazon has scared Loblaws into almost removing any obvious “customer service.” When I shop in Florida or Arizona I always go to the “Publix” and they spoil me to death. The manager follows you around and so friendly and at the check-out they bag your food and take it (I mean literally carry it out to your car). Every department has a friendly face to make sure you spend money. Funny how Soviet style no customer service rules in our politburo retail space.

#44 mark on 09.16.17 at 8:52 pm

Wash your mouth out Ryan, that idiot Doug Saunders is pushing for 100 million people in the G&M today! You might have to revise your forecasts if these sneaky century initiative people get their way. I wonder how much they paid Doug to write his book to try and push everyone into a sky kennel?

#45 CANADA,what a shitty culture less country on 09.16.17 at 8:54 pm

http://globalnews.ca/news/3744028/north-korea-missile-threat-canada-us-defence/?utm_source=Other&utm_medium=EditorsPick&utm_campaign=2015

#46 X on 09.16.17 at 8:58 pm

Would a potential increase in inflation occur if the Republicans reduce business taxes? A little inflation may result in the higher end of your predicted range.

#47 Ryan Lewenza on 09.16.17 at 9:02 pm

Phil “In your labor adds (first chart), the 12 average is higher than all the data points?”

It’s just different scaling. Notice on left side it goes up to 80 or 80,000 jobs. On the right side it peaks at 35 or 35,000. If the high job growth continues the 12-month MA will continue to increase with the right hand scale adjusting upwards. – Ryan L

#48 Mark on 09.16.17 at 9:15 pm

Good post today Ryan, thanks!

Can’t imagine taking on a 7 figure mortgage to buy a place in Toronto with a 5yr fixed rate approaching 5% !!

#49 Mark on 09.16.17 at 9:24 pm

“US growth is strong. We are having a hard time to staff up and people are asking for more money all the time. “

You’re paying beneath the cost of living, yet you use this to conclude that ‘growth is strong’ systemically? Sounds like a giant failure in logic to me, with your unwarranted personal attack being further evidence of such.

Anyways, whatever’s going on in the USA, its generating a lot of inflation, at 0.4% month over month. While the Fed doesn’t have a hard 2% mandate like the Bank of Canada (https://www.federalreserve.gov/faqs/money_12848.htm ) , in practice, it is their belief that 2% is a rate of inflation that leads to the greater probability of meeting their goals. Hence, interest rate increases are highly probable for the US Fed going forward.

“Where does this leave the TSX and our economy as a whole over the coming decade?”

Oil’s not going anywhere (we’re using more of it than ever, and shale production is not economic). The Canadian economy over the next decade or two will be characterized by strong returns to owners of businesses, particularly business of the likes that’s listed on the TSX, and rather poor returns to homeowners and smaller business exposed to the consumption of homeowners. A 1990s-like tripling of the TSX index would not surprise me, with the currently deeply out of favour, but heavily overweighted precious metals mining sector being the star of the show (instead of the tech sector as seen in the 1990s!).

#50 Hotdogs from Heaven on 09.16.17 at 9:28 pm

#42 Phil on 09.16.17 at 7:23 pm

In your labor adds (first chart), the 12 average is higher than all the data points? Seems nonsensical – what am I missing here? More economists’ seasonal adjustments???
————————————————-
The monthly average is on the right hand side.
The monthly NON average numbers are on the left side.

#51 Man of the Cloth on 09.16.17 at 9:32 pm

I dream of a better world where Realtors can cross the road without having their motives questioned.

#52 Ace Goodheart on 09.16.17 at 9:44 pm

I made 64% betting on McDonald’s stock. Big Mac Mc DLT a quarter pounder with cheese filet o fish mcnuggett…(sing the McDonald’s menu song I know it by hearrt).

They said Chipottle will eclipse McDonald’s.

I said call the bull in. Call it. Time.

Peeps. If I gave you $1000.00 could you tell me where the closest Chipottle is located without looking at Google maps or the like?

No one could.

Buy the means of production of the products consumed by the masses.

It is that easy. What do they want? What do they buy? Buy the means by which that is produced.

#53 Yuus bin Haad on 09.16.17 at 9:47 pm

Poloz re inflation targets: “Never mind.”

#54 Ryan Lewenza on 09.16.17 at 9:51 pm

OttawaMike “Ryan, are we not still basically a petri-economy?”

We’re definitely a heavy resource based country with 20% of our GDP coming from natural resources. While oil is the most dominant commodity we still have lots of natural gas, base metals, forest products, gold etc. As China, India and other emerging economies grow along with their insatiable appetite for resources this will only play to our strengths. I do not agree that the Canadian economy is doomed a message often advanced by many doom and gloomers. Is Canada perfect? No, but we have a lot going for us which is often overlooked by the cynics. – Ryan L

#55 acdel on 09.16.17 at 9:56 pm

#4 Last…but not least

Good post; I agree!
Personally who in their right mind believes the 4% growth?? I do not have a link to provide you with the lie but each of us out there in the working field know better..

#56 acdel on 09.16.17 at 10:01 pm

Hey Ryan and all, why worry about all this??

According to the nutcases we are all going to die next week, lol!

http://www.dailymail.co.uk/news/article-4887222/Biblical-prophecy-predicts-Rapture-September-23.html

#57 Smoking Man on 09.16.17 at 10:03 pm

How Hi is the water moma.

https://www.youtube.com/watch?v=jI7M2ELPtro.

Great perspective tonight Ryan. Doug writes better than you, but if I’m investing loot going with you. The balance I guess. Not going to be much left after the savage road trip. Wish I had a financial adviser to tell me the loot in passive corps was grandfathered in.

What the two of you don’t get including Garth, but he’s a celebrity of sorts so he needs to keep his mouth shut. He get ‘s it totally.

Globalism is going to make it imposable for a father of a farm to give the grass to his kids without a 50% tax confiscation, T2 want’s to give all the farms away to his corporate fascist buddies and make the farmers sons and daughters slaves like all the voiceless on Bay street serving the machine. You know who you are.

Amazon is going to 100% open up there new head office in Toronto.

They need to support fellow idiots who swallowed the James Town cool aid.

The individual if they don’t find their voice with the same loudness of BLM. Just give the communists your pin number to your bank account.

#58 Doghouse Dweller on 09.16.17 at 10:05 pm

#41 When Will They Raise Rates?
It certainly feels that way, but in reality the “great unwinding” is a BIS directive and it applies to all cartel central banks:
“““““““““““““““““““““““““““““““““
Talk is cheap and central bankers do a lot of talking, 10 years worth so far , green shoots , escape velocity, the recovery, the continuing recovery , the unwind, the great unwinding the taper , etc…. and on it goes …………
Investment Savings TDB8150 now yielding .95%, still a negative real rate even using their phony inflation numbers.
They are trapped and we are screwed so , Hedge accordingly.

#59 Spenditall on 09.16.17 at 10:19 pm

Oh is this a contest?
I’ll guess …..
8.5%
Imagine the sovereign debt funds imploding.
Euro goes to 0.00
That would be fun.

#60 Ian on 09.16.17 at 10:24 pm

Stone
When Will They Raise Rates?

Stone you may well be right.

It does seem internationally coordinated. And the BoC’s 180 degree turn was fast and aggressive.

We need to keep in mind that even with four raises this year we’re still only at 1.5% which is still damn low.

Based on the FXC graph though, BoC will quickly run into a bind with a ‘currency too strong’ issue. If we get to 90c before year end which is defintely a possibility, I don’t see how they can do five raises next year. Canada Q4 and Q1 18 GDP could show a marked slowdown. Housing already in freefall and that won’t take long to show an economic drag.

PS, Blacksheep is quickly becoming the new Mark.

#61 Smoking Man on 09.16.17 at 10:30 pm

Building RC aircraft in my little room back in the early 70s

Soldered the motherboard and servos. This tune made it happen.

https://www.youtube.com/watch?v=hHRNSeuvzlM

#62 Vanrentor on 09.16.17 at 10:36 pm

Hey Flop, I wonder if this guy will get his money back. Looks like pink territory to me….

Paid $15.5M in August 2015 and just listed for $17.8M

A knock down on a small 7100 square foot point grey lot.

https://www.realtor.ca/Residential/Single-Family/18658985/3241-POINT-GREY-ROAD-Vancouver-British-Columbia-V6K1B3

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDAwMDVFUw==

#63 Smoking Man on 09.16.17 at 10:39 pm

My dogs on a savage road trip, two tiny frightened beasts.
After bourbon street.

When they die, they have puppy bragging rights over other mutts.

Did you daddy show you the world.

We love daddy. He’s crazy.

#64 Ian on 09.16.17 at 10:40 pm

#46 X

Tax cuts usually bend to the inflationary side, but how much depends on a lot of factors like how close the country is to full employment, etc. Tax cuts increase aggregate demand which is usually inflationary.

#65 OttawaMike on 09.16.17 at 10:51 pm

Oil’s not going anywhere (we’re using more of it than ever, and shale production is not economic)

I think we will see a much faster shift than anybody could have predicted towards renewables and electric vehicles. Burning stuff on-board to transport yourself around is a fun but antiquated technology.

#66 Smoking Man on 09.16.17 at 10:53 pm

When I met your mother

https://www.youtube.com/watch?v=1l0xpkk0yaQ

#67 Jo on 09.16.17 at 11:12 pm

Hi Ryan,
I follow your posts religiously, thank you so much for your insights, I appreciate it very much.Where do you see the Canadian dollar going in the next several months.
Thank you in advance.

#68 For those about to flop... on 09.16.17 at 11:14 pm

#62 Vanrentor on 09.16.17 at 10:36 pm
Hey Flop, I wonder if this guy will get his money back. Looks like pink territory to me….

Paid $15.5M in August 2015 and just listed for $17.8M

A knock down on a small 7100 square foot point grey lot.

https://www.realtor.ca/Residential/Single-Family/18658985/3241-POINT-GREY-ROAD-Vancouver-British-Columbia-V6K1B3

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDAwMDVFUw==

//////////////////

Hey Vanrentor,thanks for the tip.

I have been watching this one for quite sometime.

Originally wanted 20m or something around there and then down to 18.88

Was removed for a while and now is back on with a lower price.

This is the highest speculation I have on my books with the next ones around the 10 mark.

I am currently working on a house worth 8/9 million in Point Grey and so I will stick my Roman nose about and see what trouble I see on the horizon…

M43BC

M43BC

3241 Point Grey Rd. Paid 15 asking 18.88 removed by August 15

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDAwMDVFUw==

https://www.zolo.ca/vancouver-real-estate/3241-point-grey-road

#69 LS in Arbutus on 09.16.17 at 11:20 pm

Here’s one FLOP. If would have been pink snow, but for the fact they managed to buy almost $600k below assessed last October? Riddle me that? Take away here is sold 12% BELOW assessed.

2762 W 10th
Sold for $2,135, 88% of assessed
Assessed $2,439
Bought $1,850 Oct 2016
PTT and Real estate fees, $100k
Property taxes $5k
Interest at 3% on $2 million for 1 year $60k
Total costs $2,015. Made $120k….

I wonder how many people are going to be wanting to sit on $2-$4 million houses when they aren’t appreciating in value anymore?

For a $2 million house, carry costs @ 3% interest and property tax = $65k. Means you need at least $5,500 a month in rent. Double that for a $4 million house. Rent is high, but most “nicer” SFH on west side rent for $5,000 or less. A $2 million SFH on west side rents for $4,000 or less – as it will be a knock down dump.

Negative carry and no appreciation….just depreciation.

#70 For those about to flop... on 09.16.17 at 11:21 pm

Here is the original ask on the Point Grey property

3241 Point Grey Road, Vancouver, BC, V6K 1B3
$21,800,000
2017-02-05

Now asking 17.8…

M43BC

#71 Much maligned oft deleted stock picker on 09.16.17 at 11:28 pm

The GDP numbers out of Ottawa are all faked. Trudeau spills a hundred billion on the balance sheet in new debt and calls it ‘consumer driven’……drivel. Next the peak 4.5% coincides with peak price in Toronto……that has passed. Given RE has been 60% of the economy in the past five years……I think it’s just the sleazebags in the back room trying to sell Trudeau at a time when his numbers are collapsing. Look at the unemployment figures……tens of thousands kicked off EI…..many thousands more independents who didn’t qualify to collect…….on top of the 42000 public service hires? All fake friends……toilet papering an ugly house. Why is Trudeau so desperate for revenue…..omg…..with an increase in GDP…..you’d think tax revenues would be skyrocketing…..nope….it’s all government money that brings no revenue…..all on the wrong side of the ledger….debt doesn’t pay dividends. The emperor has no clothes folks…….and the following two quarters will be worse because of the recorded multi billions in capital flight and forward statements bleeding red as more mega projects are cancelled. Trudeau and the NDP are saying that companies are abandoning Canada because the economics of these giant investments have gone south……lol…..no kidding. No amount of civil service hires in BC, AB….and Ontario can cover the twin disaster of no private sector jobs and the flood of professionals leaving Canada. Look at Trudeaus cabinet as an example…..there isn’t enough educated people left to run a fruit stand let alone a country. Get out while you can…..this ship is sinking fast. Don’t let your 70% tax bite turn into 100% and outright confiscation of remaining liquid assets.

#72 Fake News Again on 09.17.17 at 12:04 am

“The Labour Force is on fire….”

What a complete bunch of bunk. The only thing that continues to grow is the GOVT. And the Govt is “negative” to the economy as it requires taxes to fund it.

Subtract the “Govt Workers” whom do NOT contribute to the GDP as they are paid with “tax dollars” then tell us how on fire the Canadian Economy is. This includes private section bridge builders, transit companies like Bumbardier and SNC Lavelin. These are “GOVT” companies and are for the most part paid by tax dollars not private dollars.

Statistics: There are lies….DAM lies…..and Govt Statistics.

#73 waiting on the westcoast on 09.17.17 at 12:08 am

Mark – hey man, I used a winky…

As for your theories, the fact that no one responds with arguments anymore should tell you that no one is taking your half baked theories seriously any longer.

The US will likely continue raising rates and we will need to follow to some degree. Even at a 2.5% rate in 18 months, there is going to be some serious pain in RE. But who knows, China saved us in 2008-10 by buying up commodities… Unfortunately, that also perpetuated a continued run up in our RE market as well.

#74 Looney Baloney on 09.17.17 at 1:18 am

Here’s a long time client of mine from the prairies trashing T2’s tax grab on BNN:

http://www.bnn.ca/economics/video/ottawa-s-blanket-approach-to-tax-changes-is-reckless-says-small-business-owner~1200273

#75 Tony on 09.17.17 at 1:54 am

Re: #32 Stone on 09.16.17 at 5:04 pm

I don’t see any rate hikes in 2018.

#76 Investx on 09.17.17 at 2:21 am

So savers will finally start getting rewarded?

#77 Under the radar on 09.17.17 at 7:03 am

I think consumer spending is on a tear because it’s all being driven by borrowed money. People eventually have to repay the principal they run up against their houses. Foolish people using helocs for toys or to renovate their homes only to see the costs rise as banks raise interest rates. I think it’s entirely possible to see a prime rate of 5% in the next couple of years and mortgage rates around six or 7%. Those people at the margins who have bought more house than they can afford end up in real big trouble. I don’t think the real story is being told because excessively low interest rates allowed People to service their debt payments but there’s no way real income is a rising as quickly as house prices rose. All of which suggests a great reckoning.

#78 maxx on 09.17.17 at 7:09 am

#17 FOUR FINGERS WATSON on 09.16.17 at 3:39 pm

“Federal govt. spending the borrowed billions, consumers spending record borrowed billions, Fort Mac starting up again after the fire, and dummies fuelling the inflated housing market fire. There’s your robust Canadian economic growth.”

Excess borrowing by government, excess borrowing by consumers, hope and a whack of dummies. A perfect storm and what more would an economy possibly need to appear robust? You’ve summed it up perfectly.

Raising rates is absolutely the way to go.

#79 Wrk.dover on 09.17.17 at 7:24 am

DELETED

#80 Ian on 09.17.17 at 7:47 am

#74

Great interview!!

MPs still at summer BBQs, so unavailable.

#81 waiting on the westcoast on 09.17.17 at 8:00 am

#36 Doghouse Dweller on 09.16.17 at 5:54 pm says… “The party’s not over in Europe with almost all countries now in negative rates.”

I think a lot of the individual countries have lowered rates not because their economy is doing poorly but because they don’t want their currencies to rise against other Euro currencies. Once Draghi starts pushing rates up, many of them will normalize as well.

#82 Shawn on 09.17.17 at 8:01 am

Nice post Ryan – a logical prognostication.

How does US productivity and population growth/decline compare to that of Canada? Is he US gaining in both areas while Canada is declining?

Thanks.

Shawn

#83 Victor V on 09.17.17 at 9:05 am

According to John Pasalis, President of Realosphy Realty, sales across GTA were down 32% for the first 2 weeks of Sept with freeholds sales down 35% and condo sales down 25% (year over year).

#84 FLHTK on 09.17.17 at 9:18 am

good blog today Ryan. enjoyed reading this one

#85 crowdedelevatorfartz on 09.17.17 at 9:40 am

@#36 Tim 09/15
“Other than being a realtor, where else can you get about 8 weeks of training and make so much money? ”
+++++++

At the risk of answering your question with another question.

Prostitution?

#86 HaHaHa on 09.17.17 at 9:45 am

Uh Oh Smoking Mans take on family farms is spot on people. And meanwhile as Canadians worry about the Chinese buying up housing in Vancouver(meaningless really) no one seems worried about the buying up of the grain handling business by them. Maybe he isn’t wasted yet today.

#87 I'm stupid on 09.17.17 at 9:47 am

#75 Tony

Stop trying to make guesses about where rates are going. Chances are you’ll be right 50% of the time which means you’ll be wrong 50% of the time. Balance is important because when your wrong it will save your ass.

#88 Balmuto on 09.17.17 at 9:51 am

“I think we will see a much faster shift than anybody could have predicted towards renewables and electric vehicles. Burning stuff on-board to transport yourself around is a fun but antiquated technology.”

Exactly. You’re going to recharge your car the same way you recharge your cellphone in the very near future.

#89 Ryan Lewenza on 09.17.17 at 10:06 am

X “Would a potential increase in inflation occur if the Republicans reduce business taxes?”

Yes lower taxes would be inflationary since it would stimulate economic growth in the US, lead to higher wage growth, and increased demand for commodities all of which inflationary. Given the high linkage to the Canadian economy we could also see higher inflation here as a result of a US corporate tax cut. – Ryan L

#90 For those about to flop... on 09.17.17 at 10:07 am

Hey L.S I liked how you polished the numbers even though it wasn’t Pink Snow.

When I first stated doing this nine months ago a few people on here told me to allow 7% for expenses and such and so I did that for a while then a few people said 5% was closer to the mark and so being a Womble,I started doing 5%.

Anyway take a look at this case and see what you think is a closer number.
If they put 20% down and had that money tied up for 15 months ,opportunity cost and such,I wrote roughly 850k allowing for the 600k difference and the expenses but the final number is probably closer to 950k when all is said and done.

It could be the first million dollar loss ,but I think it falls just short with known expenses but give it a critique,I might have done something wrong.

Also the other cases where opportunity costs could bloat the losses are the 3 million dollar condos out in Richmond that if we say they put 20% down had 600k plus tied up for 3-4 years plus 30k a year in maintenance and taxes…

M43BC

///////////////////////////////////////////////////////////////

CONFIRMED PINK SNOW.

Well,here is confirmation of the biggest loss I have recorded since my study on the Vancouver real estate market started.

I do original reporting and research and don’t go regurgitating someone else’s porridge.

The details…

Paid 5m in April 2016

Sold 4.4 m in July 2017( the deal was done in late May)

Roughly a 17% loss after expenses and approximately 850k mistake with known expenses.

Seems like it is only a matter of time before someone takes a million dollar hit…

M43BC

Sold on May 22
4765 Pilot Rd West Vancouver 5m.paid asking 5.295
https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDAyOTFTRA==

https://www.zolo.ca/west-vancouver-real-estate/4765-pilot-house-road

#91 Ryan Lewenza on 09.17.17 at 10:15 am

Jo “I follow your posts religiously, thank you so much for your insights, I appreciate it very much. Where do you see the Canadian dollar going in the next several months. Thank you in advance.”

First thanks! A previous blog dog commented that Garth needs to come back on Saturdays. You can’t win them all. In the short-term I see the CAD pulling back, maybe into the low 70s. It’s gone too far too fast in my opinion. After that short-term pull back I see the CAD trading range round between roughly 75 and high 80s for the next year or so. With oil prices stuck in this range, and unlikely to see $70-$80, then it’s unlikely we’ll see the CAD above 90 cents. So then it comes down to the difference in Canadian and US bond yields which should remain relatively close to each other as both nations start to normalize interest rates. Given this I see the CAD remaining range bound. So sell some CAD in the mid 80s and buy it back in the mid 70s. – Ryan L

#92 Ryan Lewenza on 09.17.17 at 10:19 am

InvestX “So savers will finally start getting rewarded?”

Yes and good point. The GoC 5 year bond yield has jumped from 0.50% to roughly 1.50%. I see it moving up further possibly to 2.5%-3% over the next few years. If that happens GICs, money market funds, bond yields etc will move up. So it will slowly shift from borrowers to savers being rewarded. Good call. – Ryan L

#93 For those about to flop... on 09.17.17 at 10:23 am

Good Morning Sports Fans…

M43BC

“The United States is Home to the Most Valuable Sports Teams in the World

The value of professional sports teams has skyrocketed over the past 3-decades outpacing the rise in most asset class. For example, the Dallas Cowboys, which is known as “America’s Team” was purchased by owner Jerry Jones in 1989 for 150-million dollars, and has increased 28-fold during the past 3-decades. This compares to a 15-fold rise in the S&P 500 index during the same period. The Steinbrenner’s purchased the New York Yankees in 1973 for $8.7 million dollars and today it’s worth $3.7 billion dollars. Sport team ownership is very attractive for the ultra-rich and recent transactions show that demand for these very expensive assets, continues to accelerate.”

https://howmuch.net/articles/most-valuable-sports-teams-2017

#94 Ryan Lewenza on 09.17.17 at 10:25 am

Shawn “How does US productivity and population growth/decline compare to that of Canada? Is he US gaining in both areas while Canada is declining?”

Both are in decline in the US as in Canada. This is partly why US GDP growth has downshifted from the 3.3% average in previous decades to roughly 2% since the financial crisis. If Trump is successful in his immigration policies then I see US population growth declining further which will be a drag on growth, a point often missed by many supporters. – Ryan L

#95 crowdedelevatorfartz on 09.17.17 at 10:30 am

@ Trumpocalypse2017

Well Trumpy.
Its that time of year again.

Alas, I must inform you that I have purchased the rights to Apocalypse2018, Trumpocalypse2018, Apocalypto2018, Madmax2018, LordoftheFlies2018, and the hundreds of thousands of combinations and permutations of names that can arise from the mind of the ‘ The End of the World is upon us!” doomsaying Soothsayers of aulde.

#96 Russ on 09.17.17 at 10:30 am

Balmuto on 09.17.17 at 9:51 am

“I think we will see a much faster shift than anybody could have predicted towards renewables and electric vehicles. Burning stuff on-board to transport yourself around is a fun but antiquated technology.”

Exactly. You’re going to recharge your car the same way you recharge your cellphone in the very near future.
=======================

This concept is fine for cities and fits well with Agenda 21->30. It is arguable whether there is less CO2 delivered to atmosphere when you compare the whole system, electrical generation to final use (electric cars vs trad).
Unless we go all-in nuke or hydro… then we’re getting somewhere to lower emissions.
So why don’t SJWs support nuke power?
It doesn’t “feel” right.

One of the annoying factors that makes all electric transport impractical at this time is a thing called energy density.

Check the chart.
https://en.wikipedia.org/wiki/Energy_density#/media/File:Energy_density.svg

Gasoline at ~33 megaJoule/litre vs. Lith-ion batt at <2 megaJoule/litre.

You carry the phone in your example, the phone does not carry you.
Meanwhile keep working to find the room temperature superconductor, then things will change.

#97 For those about to flop... on 09.17.17 at 10:50 am

Ryan Lewenza on 09.17.17 at 10:25 am
Shawn “How does US productivity and population growth/decline compare to that of Canada? Is he US gaining in both areas while Canada is declining?”

Both are in decline in the US as in Canada. This is partly why US GDP growth has downshifted from the 3.3% average in previous decades to roughly 2% since the financial crisis. If Trump is successful in his immigration policies then I see US population growth declining further which will be a drag on growth, a point often missed by many supporters. – Ryan L

////////////////////////////

The Duke of Earl and Shawn,maybe you want to check this chart out to see where the U.S and Canada stand on the world productivity front…

M43BC

https://howmuch.net/articles/worlds-most-productive-countries

#98 BillyBob on 09.17.17 at 11:21 am

#36 Doghouse Dweller on 09.16.17 at 5:54 pm
The party’s not over in Europe with almost all countries now in negative rates.

– France -0,52 %
– Belgium – 0,57 %
– Italy – 0,17 %
– Germany – 0,72 %
– Switzerland – 0,92 %
– Sweden -0,70 %
– Holland -0,70 %
– Spain -0,36 %
– Finland -0,67 %
– Portugal -0,08 %
– Austria -0,64 %
– Czechoslovakia -0,80 %
– Ireland – 0,58 %
– Slovenia -0,31 %
– Cyprus -0,08 %
– Bulgaria -0,33 %
– Lithuania -0,08 %

A printing press masticated cancer according to Pierre Jovanovic
The most censured financial journalist on the continent.

And the “printing press on overdrive” Bank of Japan at -0.10% ,
‘economic kamikaze’: according to Lindsey Group chief market analyst Peter Boockvar

But you think we special Canadian snowflakes can “Normalize” with S. Poloz ?

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

I have to question the source of your data, given that there is no country called Czechoslovakia and it hasn’t existed since 1993…

#99 Doghouse Dweller on 09.17.17 at 11:22 am

#81 waiting on the westcoast
Once Draghi starts pushing rates up, many of them will normalize as well.
—————————————————————-
PRESS RELEASE
Monetary policy decisions
7 September 2017

At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases.
——————————————————————
He is still printing €60bn-a-month to run until the end of December 2017, or beyond, if necessary
Very sad situation, there isn`t anything normalizing in Europe for the foreseeable future.

#100 LS in Arbutus on 09.17.17 at 11:34 am

FLOP – yes $1 million loss on 4765 Pilot House Road. Happy Sunday!

I get total carry costs of $411k.

Sales price $4.4 million
Paid $5.0 million
Carry costs $411k

Loss = $1.011 million

Yes, you have $1 million loss.

Calcs I have are:

I calculate that PTT and realtor’s fee do approximate 5%. Of course one is on sales price and one is on purchase price.

For opportunity cost you have to take it on the total purchase price. For 20% down, they are losing out investment income (Garth would argue 5%) but I just used 3%. And then for the other 80% let’s assume they had to pay interest on the mortgage of 3%. Thus 3% of the total purchase price.

So I get

PTT
1% of first $200k
2% on next $1.8 mm
3% on remained, or $3 million
Total = 128,000 or $2.5% of purchase price

Realtors fees
7% on first $100,000
2.5% on remaining
Total $120k or 2.7% of sales price

Opportunity cost
3% of purchase price
$150k or 3% of purchase price

Property taxes
0.25% of purchase price
$12.5k or 0.25% of purchase price

Total $128k, + $120k + $150k + $12.5k = $411k. Or approx. 9% of purchase/sales price.

Finally assessed was $4.6 million. So these people over paid to start with. Hard to believe. It’s a nice piece of property, but seriously, look at it, $4.4 million?!

#101 LS in Arbutus on 09.17.17 at 11:39 am

One last thing.

When you look at the costs to TRANSACT. That is 5% (realtor fees and PTT) you can see why the market has locked up for locals.

If you bought a house back in the day for $500k and now it’s worth $2.5 million, you can’t afford to trade up. Not only would trade up price cost $500k plus, but just the property transfer tax and realtor fees would have you out of pocket $100k. That’s 1-2 years of take home pay. It’s a serious amount of money.

And we’re not even talking about increase in interest rates or cone of shame stress test coming. (I love that description GARTH!!!) :-)

#102 NoName on 09.17.17 at 11:43 am

#96 Russ on 09.17.17 at 10:30 am

electricity and this and that.

remember those toxic low life incandescent light bulbs, to be replaced with 100x more toxic lower life CFL, to come back again to long lasting LED lamps using same solder used on incadeset bulbs. where i was going with this dont know… i was planning to “talk” about electric generation and polution of/for electric wehicles, ill leave tax ravenuesaside for now.

Where is energy for electric cars will come from, hopefuly not from

Wind power plants, we stell dont know what wind mill do to preveling wind and how they affect climate, but we know that they wind turbines kill $#!7 load of birds. i guess bugs, frogs and snakes will be reliving their renaissance, no birds food will be plentiful…

nucilar power plants. i was wondering will ever build some space wehicle that is capable of safe delivering delivers our garbage and nuc vaste it to the closest and biggest nucilar reactor we have at our disposal, sun. Every one like sunny days, sunny ways…

But as i was toying with an idea crashing garbage in to sun, fiziks beat a carp ot me. so long story short, acording to discovery channer only 3% of nuc vaste is dispensed fuel rodes, 97% is everything else. and we fear rodes the most…

i know no grown ups shouldn’t watch cartoons but this one is for those electric car crowd.

https://www.youtube.com/watch?v=LHvR1fRTW8g

#103 maxx on 09.17.17 at 12:18 pm

#43 bigtowne on 09.16.17 at 8:50 pm

Completely agree. We just came back from a day trip to the US. I LOVE shopping in the USA. The service is unmatched – as you said, you get spoiled, from high-end retailers to dollar stores.

Apart from a few retailers in Canada, returning defective and/or unsuitable goods is usually a complete royal pain. Final Sale, Credit Only, attitude galore……..why bother? Avoiding a purchase where possible is soooo much easier.

I create a list of things I want over a month or two and then fill it in the US. Far better pricing, much lower taxes, better choice and great service to boot.

#104 Ian on 09.17.17 at 12:36 pm

#98 Bob

BAHAHA I didn’t notice that, that is hilarious!!

Jobanovic is probably ‘the most censored financial journalist on the continent’ because his data sucks LMAO

#105 For those about to flop... on 09.17.17 at 12:38 pm

#100 LS in Arbutus on 09.17.17 at 11:34 am
FLOP – yes $1 million loss on 4765 Pilot House Road. Happy Sunday!

/////////////////////////

Hey LS,thanks for doing that.

You broke it down good ,and so going forward do you think it is o.k to do 8% of the total just to do it rough and ready to get approximate if I want to include opportunity costs and then if we get a heavy hitter like this one we can take the extra step or two?

Thanks for the help and maybe one day you will feel comfortable enough to share your GAP Code…

M43BC

#106 Black on 09.17.17 at 12:52 pm

What about Vancouver?
Lots of talking about Toronto but is Vancouver still booming?

#107 waiting on the westcoast on 09.17.17 at 1:07 pm

#96 Russ on 09.17.17 at 10:30 am says… “Check the chart.
https://en.wikipedia.org/wiki/Energy_density#/media/File:Energy_density.svg

Gasoline at ~33 megaJoule/litre vs. Lith-ion batt at <2 megaJoule/litre."

But gasoline is stuck at its energy density while storage technologies are improving at Moore's Law (tech capability doubling every 12-18 months). Energy storage will be at parity within ~4-6 years.

Also – solar will become the dominant production vehicle. Everyone will have solar on rooftop. It makes sense when combined with storage (not as feasible today but getting there quickly).

https://goo.gl/vawY6x

#108 Mark on 09.17.17 at 1:13 pm

“What about Vancouver?
Lots of talking about Toronto but is Vancouver still booming?”

Like Toronto, prices have come down modestly from the 2013 peak, but remain still dramatically above that required to deliver new supply to market.

In fact, some of the acceleration in the housing construction sector seen recently (and thus contributing to GDP) is due to lower prices and the desire of the construction industry to maintain similar levels of profits with falling margins. Exactly what you’d expect to see as prices fall.

#109 Mark on 09.17.17 at 1:16 pm

“If you bought a house back in the day for $500k and now it’s worth $2.5 million, you can’t afford to trade up. Not only would trade up price cost $500k plus, but just the property transfer tax and realtor fees would have you out of pocket $100k. That’s 1-2 years of take home pay. It’s a serious amount of money.”

Why would that be the case? If someone bought at $500k and didn’t re-mortgage/HELOC the thing to death, they’d be sitting on $2M in equity. Not terribly difficult to get themselves into, for instance, a $4M house in such case.

#110 Victor V on 09.17.17 at 1:18 pm

This is just terrible. Realtor shot dead last night in downtown Toronto, in a targeted attack.

http://www.cbc.ca/beta/news/canada/toronto/michaels-restaurant-shooting-toronto-1.4293881

#111 CJBob on 09.17.17 at 1:21 pm

#108 Mark on 09.17.17 at 1:13 pm
Like Toronto, prices have come down modestly from the 2013 peak…
______________
Mark, a quick note. If you want to be a good troll you have to include stuff that at least some people believe. Your sh*t is so off base no one has the time to do anything but laugh at you.

#112 Windsurfer on 09.17.17 at 1:22 pm

Response to post #16 – westcdn…
………I barely recovered from the income trust reversal. That is where most of my dead soldiers are buried. Life goes on and I learn how to protect them..

For all of us, that was unexpected, after the markets closed for the day, an overnight wipe-out. Billions were wiped off our retirement accounts without recourse.

RE: Morneau, I don’t have skin in the game, not being a sprinkler or family trust holder. The Libs will water it down, offending the least # of people.

#113 Russ on 09.17.17 at 1:49 pm

waiting on the westcoast on 09.17.17 at 1:07 pm

But gasoline is stuck at its energy density while storage technologies are improving at Moore’s Law (tech capability doubling every 12-18 months). Energy storage will be at parity within ~4-6 years.

Also – solar will become the dominant production vehicle. Everyone will have solar on rooftop. It makes sense when combined with storage (not as feasible today but getting there quickly).

===========
Hi Waiting and thanks also to NoName for the discussion.

Where the early adopters of Lith options are going to get smoked is the lack of practical resource extraction available, maybe a few dozen millions tons worldwide, with only a pathetic few in Canada & USA. Compared to billions of tons in the oceans.
How do we speculate on R&D and get financial gain from this knowledge?

Maybe in B.C. we can use hydro-electric to extract Lith from the Pacific Ocean @ Pr. Rupert and send it to Vancouver in an electric truck for processing and consumer use?

At a recent seminar I learned of a solar input steam generation pilot plant in Calgary. Their “direct normal radiance” value is estimated to be similar to an existing commercial facility in California, value is 1.7 MWhr/year/acre.

I asked what the nominal direct normal radiance value might be in our west coast rainforest and the answer… “negligible”.

So, Vancouver needs to be moved to the Okanagon.

#114 SoggyShorts on 09.17.17 at 1:53 pm

#102 NoName on 09.17.17 at 11:43 am

Where is energy for electric cars will come from, hopefuly not from

Wind power plants, we stell dont know what wind mill do to preveling wind and how they affect climate, but we know that they wind turbines kill $#!7 load of birds. i guess bugs, frogs and snakes will be reliving their renaissance, no birds food will be plentiful…

********************************************
Wind turbines kill between 214,000 and 368,000 birds annually — a small fraction compared with the estimated 6.8 million fatalities from collisions with cell and radio towers and the 1.4 billion to 3.7 billion deaths from cats, according to the peer-reviewed study by two federal scientists and the environmental
—————————————————
Literally the first thing that comes up when you google “wind turbines kill birds”

#115 Screwed Canadian Millenial on 09.17.17 at 2:08 pm

When you hear politicians and elites bragging about job creation, just remember many, not all, but many of those jobs are absolute sh*t tier slave jobs like these.

http://projects.thestar.com/temp-employment-agencies/index.html

Also remember that Temporary Foreign Workers are counted in the job creation stats which is an absolute joke.

Did you know Statscan classifies “full time” as 30 hours or more? Lol what a joke. I know Canadians working 50,60 hours a week and are struggling with this insanely high cost of living in this country.

Lastly, this country has 1.3 million unemployed Canadians, many more out of the labor force who want work, and takes in at least 320,000 migrants (70% working age) per year. Honestly, let’s be real, 30,000 jobs created per month is nothing to brag about. It’s barely enough to keep up with population growth AND put any kind of dent into the massive number of Canadians out of work.

#116 For those about to flop... on 09.17.17 at 2:32 pm

Pink Lemonade stand in Coquitlam.

I ran a post showing 3 supposedly affordable houses yesterday having trouble getting their money back and I just found a straggler that wants to enter the contest.

Picked up for 1.1 in May 2016 this minor attempt at speculation has turned into a recovery mission.

What I would do if I was these guys is get the guys over from out East looking for the Avro replicas and they could shine their high def cameras on this house and diagnose the problem.

” It appears you paid 1.1 million dollars for a heap of crap in Coquitlam”…

M43BC

593 Kemsley Avenue, Coquitlam

Jul 14:$1,289,000
Sep 15: $1,199,000
Change: – 90000.00 -7%

https://www.zolo.ca/index.php?sarea=593%20Kemsley%20Avenue,%20Coquitlam&ptype_house=1&max_price=1300000&min_price=800000&filter=1

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDAzWERUTg==

#117 Old Dog on 09.17.17 at 2:40 pm

Not ready to buy an electric car just yet. Battery technology just isn’t there. Also I don’t think the taxpayer should be giving buyers of new electric cars cash. Electric car sales have tanked in areas of the world where they have removed the cash incentive.
One also has to think where the electricity comes from to charge that car. Most electric cars don’t go very far. That’s a problem in a large country with great distances to travel in cold weather. Good for city use though. Also takes quite a while to charge unless you have a super charger.
As far as solar and wind power, it can’t be stored. It’s politically correct but most power companies don’t like individuals feeding their power into their grid. It’s too costly for the power company. They still have to have the backup power that comes from fossil fuels or hydro electric.
Hydro electric is the best at the moment, because the water can be stored, but they also have their problems.
I think fossil fuels will be around for a while yet. It takes time to develop new technologies to replace them. Unless you want to go back to living in a cold dark place we need to accept it’s the 21st century and adapt to it the best we can. Technology is progressing rapidly but it’s not done in a week. I can guarantee one thing though, the David Suzuki’s and Al Gores of the world will never live like the peasants they’d like you to live like. They envision quite a future for you, not themselves though.

#118 AGuyInVancouver on 09.17.17 at 2:57 pm

#53 Yuus bin Haad on 09.16.17 at 9:47 pm
Poloz re inflation targets: “Never mind.”
_ _ _
For which we should all be thnakful. No matter what Mark or Tony believes it is clear the BoC is worried about a runaway debt bubble and that is topmost in their planning. They saw that buyers were circumventing measures brought in by the CMHC and turning to uninsured products and alternative lenders (just as they did in the USA circa 2007).

I won’t even go into questionable CPI data that showed inflation to be so low while the Canadian Dollar was collapsing post 2014.

#119 Entrepreneur on 09.17.17 at 3:27 pm

Have to disagree on the “Labour Market is on Fire” RL, maybe on the resource sector and that is singular. And that is good for investors also.

All is good, move on, higher interest rates.

But, a leader should not be looking at a section that prospered and then jump to say we move ahead. Maybe for an investor leadership.

And that kind of leadership talk about labour on fire only makes a person feel looking for work so depressed and useless.

Recently, a Victoria homeless man found a large amount of money, turned it in, no one came forward. The homeless man didn’t want the money but all he wanted was a job. And a lot of people are in his shoes or close to it.

While using the resource sector as the reason for moving ahead only proves that investors should not be in politics or put on the sideline. This is not most of the people that live in a nation.

And leaders should be looking at communites in their own nation, getting their own people back to work.

#120 Ryan on 09.17.17 at 3:59 pm

Good call with interest rates

Very poor call
With increased Canadian exposure . Ouch

#121 Lost..but not leased on 09.17.17 at 4:22 pm

My thanks to those(like LS in Arbutus) who did the number crunching on the costs of RE transactions.

What will get interesting is when the sharp pencil syndrome rises, especially with realtor fees

My understanding is that while fees or negotiable…that in order for the given property to be listed on MLS, one has to go the 7% /2.5% commission route.

Given many people will be underwater trying to unload
RE…interesting how this will play out.

#122 Shawn on 09.18.17 at 11:32 am

USD and US equities to outperform international developed and emerging markets through to ye and into 2018.

#123 Bruce on 09.18.17 at 12:40 pm

#107 waiting on the westcoast

You might want to check your facts. Energy density is not growing anywhere like the rates observed in Moore’s Law. Battery density has been growing very slowly (low single digits per year average). The reason that devices like smartphones have more functionality but still see some small increases in effective battery life is due to improvements in energy efficiency in the CPU/GPU and screens.

There are lots of research projects in the labs that show potential for perhaps an eventual doubling in battery storage, though none of these are yet into scale.

Wishing something to be so doesn’t make it so. There are huge challenges to moving to all electric transportation, and government dictates (no more ICE sold by X date) alone will not make it so.

By the way, looking at Ontario, once subsidies are gone (pretty hard to subsidize everyone’s car purchases), it is hard to see the economics. Electricity rates (including distribution) in Ontario are astronomical (due to government control bungling & green initiatives) and when the current “25%” discount supplied by more government borrowing is done in 2022, rates will be double what they are now.

#124 Bruce on 09.18.17 at 12:47 pm

My opinion is that BoC rate will either not get to the 2% level (or just hit that), but not 3%. While I don’t think the BoC is done after 2 rate increases, I have a hard time seeing them go much higher than 1.5%, unless inflation really comes back strong (growth continues even with the higher rates, min wage causes uptick).

Will the Canadian economy continue to be strong in Q2+ 2018 after the effect of the current (and perhaps another) rate increases, OFSI impact on already slowing GTA housing, impact of Ontario $14/hr on unemployment, etc? It just seems that things might roll over a bit, which takes away the impetus for continuing the rate increases.

#125 spaceman on 09.18.17 at 1:59 pm

Just spoke with Yoda on my galactic communicator, his response “Crystal Ball, cloudy it is ”

All you yerbs that think you can make predictions, are full of youselves, nobody knows what will happen, but we can see what is right in front of our face. Stocks are up, interest rates rising, housing is outa wack… we are at a peak, that may or may not drop, stay the same, or keep going up… none of which matter if you keep a balanced financial portfolio.

cheers