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SONS1 modified

HA HA Garth- You and all the peon’s that listen to your financial ‘advise’ are losing it all! Get physical gold and silver you stupid bitch.

Normally I delete one post in a few hundred. Normally I tell you why.

But over the past few days I gave up and just hit the KILL button, and obliterated a mess of comments like the one above. They came from the usual rabble – people who hate America and want it crushed. GIC-lovers and fear-biters who crave a market crash to justify their own wussiness. Anti-1%ers and proud members of the socialist horde who love it when the investment portfolios of others are smouldering. And, of course, the under-employed, basement-dwelling Millennial masses who would like Boomers to retire in the penury they richly deserve for stealing all the houses and hoarding all the jobs.

Well, tough.

In case you didn’t hear the news, equity markets in Toronto and New York soared again Thursday. We’ve just had the best two-day rally since way back in 2009. You can tell how powerful this is by the fact the stock market no longer leads the 6 pm TV news or is plastered across every newspaper’s web site. When things go well, you don’t hear about it. When they suck, it’s a prelude to oblivion.

Not only did stocks recover in a dramatic fashion (adding about a thousand points in two sessions), but there was an unprecedented rise in the value of oil – ahead 10% in a single day. Crude’s now heading back towards the $45 level, just days after it looked destined for thirty bucks. In concert, commodity prices in general romped to better levels, and Canada’s prospects perked a little.

At the heart of all this?

No surprise. It’s the steadily recovering US economy. So I hope this week was a reminder to everyone of this blog’s premier advice (after the relationship counseling, of course): never bet against America. Those who did, shorting US equity markets, were creamed. People who gave up their nerve and sold into the storm on Monday lost a whack of money. There was never any doubt, as this pathetic blog told you, that the positive fundamentals remained in place.

So now we know the American economy shot the lights out in Q2. Annualized economic growth was a ribald 3.7%, blowing past all of the expert estimates. This comes atop growth of 2.3% in the first quarter. That was enough to ignite stocks and restore confidence around the world, since the American economy is the undisputed engine of the global economy.

There was more, too.

Consumer confidence is heading higher. This is no surprise with an average of 211,000 new jobs appearing in the US every month. As I told you, 13 million of them have been created in the last 65 months, the most impressive record in a generation. At the same time cheaper energy has reduced household costs, and American families – unlike ones here – have steadily reduced their debt levels, so the costs of servicing that debt drop. Now consumer and business spending is on the increase.

Corporate profits have been consistently robust. Jobless benefit claims are declining. Sales of resale homes in the US climbed in July for the sixth time in seven months. New home sales are at the highest level in eight years. And now the stock market has enjoyed the strongest back-to-back advance since the current bull market was born six years ago.

Stocks have recovered in Europe and in China, where the index soared 5.3% amid more moves by the interventionist government to stabilize markets and restore investor confidence. And now the next question is when the Fed will begin its program of raising interest rates. Whether it will occur is not even a debate. Only when.

The betting had been for September 17th, prior to the wild swings on equity markets. Now traders figure there’s a 30% of that happening, but about 100% odds of the pop taking place by the end of the year. Maybe October, or an outside chance of December. The exact timing is less important than the event itself – an historic one, after 10 long years of cheap money policy.

So, not much has changed.

America motors ahead. The recovery is intact, and strengthening. The bull market for equities continues after steam was blown off and values corrected. The days of cheap money are still numbered. Expect higher bond yields and more costly mortgages here by Thanksgiving. This is likely the low water mark for interest rates and the high water mark for house prices.

It also reminds us of how many souls there are capable of being led around by the nose, quick to panic, devoid of confidence and willing – if not wanting – to believe the worst.

There’s a reason wealthy people stay that way. And why others get DELETED.

Be a man

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From time to time this blog strives to be a Public Service, and make you feel better about your spouse. Seriously. It could be worse. You could be Raymond the Henpecked Accountant:

“I have been a long time reader of your blog but today I am writing to you in desperation,” he says. Here’s the background: RHA is 40. She’s 37. Two kids destined for uni in a decade, and twenty years until retirement. He makes $110,000 and she pulls in $54,000, both with DB pensions, about $150,000 in liquid assets and a 905 house worth six large.

In short, they’re doing okay. Better than you, probably. Only $67,000 left on the mortgage, financial plan in place, budgets intact, flow chart taped to the fridge – the usual stuff that arouses accountants. But all is not happy.

“Now here is my biggest challenge – I am surrounded by friends and relatives who have all bought and upgraded their houses to more expensive ones. I am just very glad to have no debt, no mortgage starting next year. I have no desire whatsoever to upgrade and acquire a new mortgage. My wife is not too happy that every other house on the street seems to be more expensive than ours and that our house hasn’t appreciated much in value (paid $354K in 2005). My wife believes that house is the best investment and will always go up in value.

“We argue a lot about our house these days. She wants to sell and upgrade and I don’t. She thinks I am not very smart (financially) and loathes that every tom, dick and harry has a bigger and better house. They must all be very rich and we are so poor.

“I have budgeted that we can save at least $40K annually (and possibly more) and invest in a balanced diversified portfolio (TFSA, RESP, and non-Registered) without compromising our current life style once we are done with mortgage.  How can I talk some sense into my wife and talk her out of buying a more expensive house? How can I convince her now that we are doing so well financially, we shouldn’t make stupid mistakes?

“We have worked very hard to pay down our mortgage and I don’t want a stupid financial decision to ruin our future plans and savings. Please help!!!!!!”

Well, weeks like this probably don’t do much to help poor Ray make the case for a balanced, diversified portfolio versus the unmatched glam and sex appeal of suburban real estate, but this is really a battle of assets vs. debt. Already this couple have too much of their net worth invested in a single asset – about 80%. Ideally (according to my Rule of 90), that should be more like 50%, and then diminish steadily over the years until it hits 25% by retirement age.

Saving forty grand a year, as he plans, would get them there. But upgrading to something costing a million bucks would add at least four hundred thousand to the wrong side of the balance sheet, increase monthly costs and set them up for a kick in the groin going forward when 905 real estate meets its maker. And it will.

Given the sustained and accelerating weakness in the Canadian economy, how can anyone feel horny about upgrading from a fully paid-for house (on which a nice tax-free capital gain has been earned)? Oil is sub-40 and likely to stay that way for a while. We’ve had negative growth every month so far this year. Things are so flaccid the Bank of Canada had to cut interest rates twice this year – and it’s only August. Weakness and poor judgement in China have dropped commodity prices back to 1999 levels, creaming a country like ours which is so dependent on raw exports. And the contrast with the US is growing extreme, as their economy continues to motor ahead. The Fed, in fact, will be raising rates by the end of the year, while we ponder yet another hack. And did I mention there are socialists at the gate?

Ray’s house-lusty wife should ask herself how great real estate ownership is when in our most active market – Vancouver – over four in ten homeowners now have to rent out their basements, garages and spare bedrooms in order to make the mortgage. This week an insurance company survey revealed an astonishing 43% of houses have rented ‘suites’ – triple the national average, and twice that of Toronto.

So, if constantly upgrading your house, taking on more debt to climb the property ladder and reaping fat gains really works, why has it failed in YVR? Why would anyone spend so much money on a nice house, and then have to share it with grotty strangers? What’s the point? Why not just be a tenant yourself and enjoy the same great digs for a fraction of the cost?

Oh, right. Because your friends and relatives judge you by your address. Because all the other indebted people on the street look richer. This is the definition of fatuous, Ray. You poor, wretched sod.

When the reset comes, and it will, pity the folks with seven-figure homes in the burbs. Kinda like where Calgary’s going these days. While average prices have only started to decline, the top end of the market’s been hit much harder. Houses over a million have been unloved, discounted and often become structures of remorse for their owners. If anyone believes 905 or the outliers of 604 or 613 are any different, they’re dreaming.

So, RHA, print out all the hot MLS listings for your area, then slip a copy of this blog post into the pile. No matter how much she screams, make her read it. Then find new friends and tell your families to get lost. Put blockers on Cruise around at night and quietly torch all the For Sale signs. Get a cable package which doesn’t carry HGTV or the dreaded ‘W’ network. Buy a giant dog to destroy your home and make it unsalable.

Or, you could say no. That should be fun.