Journey down

Update 06.11.08:

World stocks tumble on grim economic news

Britain shocks with deep 1.5% interest rate cut

US retailers report steep drop in October sales

Collapse of automakers would crush economy

The Navistar plant in Chatham, Ontario, which sits between London and Windsor, gave layoff notices to 470 workers Wednesday, cutting the employee roster by more than half. Just two months ago the Sterling truck plant down the road announced it’s shutting down completely. The GM pickup truck plant in Oshawa is shuttering next year, idling 2,600 more.

The economy’s sinking. There are too many trucks already.

Meanwhile GM and Chrysler inch forward on their merger talks, which will end up closing giant assembly plants in southern Ontario. That deal will also wipe out at least one major car dealership in every sizeable town in the country, and scores of them in cities. But if it does not take place, both companies could be in bankruptcy status within months.

After all, car sales last month were the worst since the end of the War. The situation, reporters were told, is more than dire.

This is devastating news, of course, as will be the announcement on Friday of more cuts at the once-mighty General Motors. Meanwhile word has just arrived that the Toronto real estate market – sadly, as I predicted – has started to unravel. Prices were down on an annualized basis by 13% in October, and the average house now costs less than it did two years ago.

Housing sales are off 35% in Toronto, 55% in Vancouver and 26% in Calgary. This makes every homeowner a little less wealthy, which is tough news since most of us have most of everything in real estate. The worst situation is for anyone who bought in the last year or two, with little or no money down. If they are not in negative equity now, they soon will be.

This, as you know, is what helped destroy the American economy and lead, in part, to the election of Barack Obama this week. Americans need change in order to stave off what could be an economic depression, and the expectations of the new prez are wholly unrealistic.

In Canada you should expect a replay of what has happened to the south. Our housing market is devolving in a similar fashion, and prices will continue to drop until the average family can afford the average home with a 15% downpayment and carrying costs of about a third of gross income. Since the average family now earns $75,000, that would put the readjusted average house value at $270,000.

That price is $100,000 less than the average home in the GTA or Calgary right now, and $430,000 less than the average Vancouver resale. That should give you an indication of what the next two years might deliver.

Clearly the economy is growing weaker, job prospects dimmer, homeowners poorer and investors more panicked. With the election of Obama, over the coming months markets and consumers will be waiting for some kind of miracle. Likely, it won’t come. There is no magic bullet. No solution to the packaging and selling globally of $4.2 trillion in toxic subprime debt; for millions of people with mortgages they can’t pay and millions; for millions more who owe more than they own.

As mentioned, I am writing a new book on what happens after this initial crash, for publication in January. The more I read, research, interview and dig into the root causes, the trends and the inevitable consequences, the more I am convinced we’re in the early stages.

Obama’s election this week was a certainty. He embodies hope.

Were that all it will take.

(Also posted at garth.ca)

Scary chart of the Day:

107 comments ↓

#1 Brandon on 11.06.08 at 12:46 am

Any predictions/data available on the London housing situation?

#2 squidly77 on 11.06.08 at 1:32 am

Endgame

#3 squidly77 on 11.06.08 at 1:41 am

there are people who are devoted to GM
there are people devoted to Chrysler/Dodge
mongrel both of them together and you will piss them all off and they will turn to Toyota or Honda
hate to say it it but Ontarios auto industry has been knee capped..your not alone as Albertas about to be pummeled as well..projects have been cancelled left right and centre
this is not about harper or bush..its much bigger than that

this is a generational crash that no one is capable of stopping as there is not enough money in the world

not even close..

#4 JoJo on 11.06.08 at 2:17 am

Ha,Ha
Garth What you mean?
Americans need change in order to stave off what could be an economic depression?
Depression can’t ever exist with 1% interest rate from FED, and printing money like crazy ( 2-trillions $).
It’s Hiper Inflation,Garth. But $ US is stronger more than 30%? Why? Because US economy is in good shape or high interest rate? No,because of morons that invested in US and now lost over 40% assets.

Second about Canada…
Since the average family now earns $75,000, that would put the readjusted average house value at $270,000. Well,I agree with you and you should tell this story to new builders in your Halton or GTA.
How much is new detach house in Oakville?
I think over $ 650K. Or Georgetown,and Burlington over
550K. So when one single family can afford house in Halton? About Toronto is different story.
Toronto has everything : Universities,Transit,and it’s Capital of Ontario.
What have Georgetown,Acton,Caledon….
Nothing, no transit and just one high school.
In US and European standards thouse houses are worth
less than 100K.

Obama will try to protect American interests and can get folded into an energy-security and a protectionist sentiment.
The U. S. Congress, regardless of its political stripe, has a history of putting up trade barriers in tough economic times.
Canada and Ontario may end up being a bystander victim.
In 2009 will see collapse of $ US, and Gold and Silver will going 100% up.

#5 David on 11.06.08 at 2:54 am

There are not that many people who actually believe a merger between GM and Chrysler is a workable business model and that extends from the ranks of financial analysts all the way down to the shop floor workers. Mergers work fine financially in the beer and food industry where demand is known and relatively static and the production and distribution can be rationalised in fairly short order.
It is difficult to imagine any 1 + 1 = 3 synergy resulting from merging two struggling auto makers badly in need of recapitalisation that will most likely have to come from the government at this time, if there is any desire to save the industry.
The hope and change message certainly resonated well south of the border. I have to agree that expectations are far out of line with what a debt addled government can possibly deliver.

#6 The Tallyman on 11.06.08 at 4:06 am

And then there are all the spin off companies that supply the auto makers.
Massive job losses & foreclosures.
This is really looking bad.
Maintaining a house is fast becoming the least of our worries, just being able to put food on the table is going to become the main focus.

Time to get debt free.

#7 charliegosurf on 11.06.08 at 5:59 am

sweet truckin pic,

me think it’s more the globalization of the economy that his the result of this crisis, ask osama bin, he knows a thing or two…is attack on the world trade is now in full effect. laden is NOT just a terror group….it’s more like a gang…

wonder when in 2009 the rioting will start, yes we can, they will scand destroying cities…the preacher king as them under his silky belt now,they are fools in many
ways! real estate wont mather much then.

troubled future did you say garth, i say, be ready, the gallic people would always be affraid of the sky, coming crashing down on them, can it???

#8 brazer on 11.06.08 at 7:31 am

Toronto home sales plunge 35 per cent
http://www.yourhome.ca/homes/article/531478

At the Toronto Real Estate Board annual general meeting last week, leading realtors warned there will likely be a large contraction in the number of agents in a down market.

Realtors also blamed slow sales and lack of consumer confidence on the media.

“People are misled by the media,” said Living Realty’s Stephen Wong, one of the largest brokerages in the GTA.

“We don’t have a problem, it’s being self inflicted.”

====

blaming the media, blaming the land transfer tax won’t help the fact that RE is collapsing. it’s quotes like that last one that make me lose any sympathy for these agents…”we don’t have a problem?” – gimme a break.

#9 brazer on 11.06.08 at 7:37 am

Goldman Sachs laid off thousands this week
http://www.reportonbusiness.com/servlet/story/RTGAM.20081105.wgoldman1105/BNStory/Business/home

NEW YORK — — Goldman Sachs Group Inc. [GS-N] notified roughly 3,200 employees this week that they have been laid off, part of previously reported plans to slash 10 per cent of the firm’s global work force amid slumping markets, people familiar with the situation said Wednesday.

#10 brazer on 11.06.08 at 9:09 am

Britain slashes interest rates, Europe follows
http://www.reportonbusiness.com/servlet/story/RTGAM.20081106.wfinancialwrap1106/BNStory/Business/

LONDON — The European Central Bank cut its main lending rate by 50 basis points on Thursday as the euro zone economy slows.

The move takes the ECB’s benchmark rate to 3.25 per cent and is the second cut in just under a month following an emergency 50 basis points reduction made on Oct. 8 in tandem with a host of other central banks.

The Bank of England earlier cut rates by 150 basis points and the Swiss National Bank by 50 basis points.

Matthew Sharratt, UK economist at Bank of America, echoed widespread sentiment in calling the cut “astonishing.” Jonathan Loynes of Capital Economics called it a spectacular move.

#11 brazer on 11.06.08 at 9:13 am

GMP, Canaccord hit hard by market slowdown
http://www.theglobeandmail.com/servlet/story/RTGAM.20081106.wbrokersstaff1106/BNStory/Business

Canada’s two biggest independent brokerage firms reported quarterly results that were hammered by the disruptions in capital markets, with Canaccord Capital Inc. [CCI-T] suspending its dividend because of a loss and GMP Capital Trust [GMP.UN-T]saying profit declined 82 per cent.

Both firms have been reducing expenses, including cutting staff, to cope. However, both companies warned shareholders who have already endured big drops in their stocks that the end of the troubles may not yet be at hand.

=====

translation = this will go from bad to worse.

#12 doom and gloom on 11.06.08 at 10:28 am

#4 JoJo
Since the average family now earns $75,000, that would put the readjusted average house value at $270,000. Well,I agree with you and you should tell this story to new builders in your Halton or GTA.
How much is new detach house in Oakville?
I think over $ 650K. Or Georgetown,and Burlington over
550K. So when one single family can afford house in Halton? About Toronto is different story.
_____________________________________________
The average household income in Oakville is approx. $140,000, Burlington is approx. $100,000. That would explain the higher home prices. While they are overpriced, a 20% pullback from peak would put prices back in line with the historical average.

The average household income in Oakville and Burlington is $108,000, and is falling with the rapid addition of tens of thousands of first-time homebuyers. This is the highest family income in the GTA. — Garth

#13 613 Happy where I am on 11.06.08 at 10:51 am

The real estate markets are falling not because of what happened in the USA but what has happened right here in Canada. Homeowners in the big metropolitan centres of Toronto, Calgary and Vancouver just got plain greedy, although some people were just caught up in it all…

In the current market ( prices are falling – get it….) I really don’t empathize with people who buy and sell real estate with the primary purpose of making a buck (ie. all those speculators, investors and flippers), but I do understand the sheer panic of some couple who bought their first home 6 months ago with little/no down payment and watching their one big investment go down in value.

I also think we need to rethink our expectations as far as housing goes. I have been to Hong Kong and Europe where most people live in apartments smaller than the average suburban “master with ensuite bath and walk in closet.”

People, you don’t need that much house… Think of all the heat and other expenses it takes so people can be lulled into the perception that they have “luxury”…

I remember when I grew up in the 60’s a four bedroom house was considered a mansion… now with all this open concept/eat-in kitchen with island and granite countertops/ huge master bedrooms with ensuite baths and walk-in closets/finished basements….. I can’t imagine why anyone would want a great big place like that- never have….

Maybe someone here could explain it…

#14 Calgary Rip off on 11.06.08 at 11:00 am

Garth:

Nice posts as usual. Still, housing costs in Calgary are still DOUBLE what they were 10 years ago(at least).

So, Mario T. and others at the Herald have said that housing is down around $40K since 2007. So what? Unless you bought in 2006, what’s the big deal? So it goes down a little?

The cost in Calgary is still disproportionate to both earnings and what you can get cheaper for rentals. So why would anyone buy?

For those sellers who have several properties, they arent forced to sell. If the market gets bad enough, they can just rent their property and hold out. So what’s the big deal?

It’s still all disgusting and ridiculous.

Enjoy.

#15 doom and gloom on 11.06.08 at 11:29 am

The average household income in Oakville and Burlington is $108,000, and is falling with the rapid addition of tens of thousands of first-time homebuyers. This is the highest family income in the GTA. — Garth
_____________________________________________
Source? here’s mine

Oakville: $134,373
Burlington: $ 98,391

http://list.canadianbusiness.com/rankings/bestplacestolive/2008/prosperity/Default.aspx?sub=n1&df=bestcities&sc1=2&d1=d&sp2=1&eh=ch

Region of Halton. And me. I was the MP. — Garth

#16 mountainbiker on 11.06.08 at 11:31 am

Calgary Ripoff #14,
Just you wait dude, Calgary is on it’s downhill course, just not yet at GS speed!!!
Remember, we’re about two years behind the U.S. — and when the downhill race here in Canada starts to pick up speed, Calgary just might win the race!

#17 squidly77 on 11.06.08 at 11:32 am

calgary ripoff..quit drinking the kool-aid
people carrying empty homes are bleeding cash
just because some journalist tells you otherwise is no reason to believe anything different

calgary houses down only $40,000..really
do you watch the areas that you might be buying in and the type of house that you want
i would say your not
prices are off easily 20% in calgary..places that were listed for $390,000 last year can easily be had for $300,000 now
listed prices do not equate to sold prices

when you read the stats in the newspaper you must consider who it is that is providing theses numbers and think what they would gain by skewing them

if your expecting commissioned realtors to save you money..you’ve already swallowed to much kool-aid
this is a money issue and you must dig and find out whats going on out there for yourself
dont kid yourself into thinking people are out to save you money as they most certainly arnt

its all about the money..

#18 Kash is King on 11.06.08 at 11:32 am

#13 Happy: “….. I can’t imagine why anyone would want a great big place like that- never have….

Maybe someone here could explain it…”

>>> Making up for having a 1 inch long #!%#

#19 lgre on 11.06.08 at 11:34 am

“The real estate markets are falling not because of what happened in the USA but what has happened right here in Canada. Homeowners in the big metropolitan centres of Toronto, Calgary and Vancouver just got plain greedy, although some people were just caught up in it all…”

well said!

everytime I read the newspaper, somebody is blaming the RE problem on the U.S, stock market, the Mayor and everything else. I have yet to hear someone actually tell the truth and say “PRICES ARE TOO HIGH FOR PEOPLE TO AFFORD” There was mention in an article I read today how people are waiting for prices to drop..nice to see people actually waking up.

#20 doom and gloom on 11.06.08 at 11:43 am

The average household income in Oakville and Burlington is $108,000, and is falling with the rapid addition of tens of thousands of first-time homebuyers. This is the highest family income in the GTA. — Garth
_____________________________________________
Source? here’s mine

Oakville: $134,373
Burlington: $ 98,391

http://list.canadianbusiness.com/rankings/bestplacestolive/2008/prosperity/Default.aspx?sub=n1&df=bestcities&sc1=2&d1=d&sp2=1&eh=ch

Region of Halton. And me. I was the MP. — Garth
_____________________________________________
It’s ok if you are wrong

#21 squidly77 on 11.06.08 at 11:56 am

The median household income was $ 83,982 with an average house value of $306,209.
http://www.answers.com/topic/oakville-ontario

i can make the web tell me anything i want to hear

#22 Just another Joe on 11.06.08 at 12:34 pm

To 13. Forget about Hong Kong and Europe. They are overpopulated. Canada has much more land per capita. The problem is not the price but the size.

#23 doom and gloom on 11.06.08 at 12:36 pm

The median household income was $ 83,982 with an average house value of $306,209.
http://www.answers.com/topic/oakville-ontario

i can make the web tell me anything i want to hear
_____________________________________________
Median and average are not the same thing

#24 Just another Joe on 11.06.08 at 12:37 pm

sorry, mistake. Has to be read: the problem is not the size but the price.

#25 Bottoms_Up on 11.06.08 at 12:38 pm

RE: #13
“I have been to Hong Kong and Europe where most people live in apartments smaller than the average suburban “master with ensuite bath and walk in closet.”
——————————————–
Well, my brother has been to China and he saw people living in CAVES. Yes that’s right, caves. So, when it comes down to it, we’re just another species looking for shelter and food.

RE: #8
“People are misled by the media,” said Living Realty’s Stephen Wong, one of the largest brokerages in the GTA.
——————————————————
You never hear them saying that when prices are rising. If people are misled on the way down, then they obviously are misled on the way up!

#26 Condo Critic on 11.06.08 at 12:48 pm

Sorry about degresion.
I cannot understand why people accept the condominium concept in North American way.
First of all, it is difficult to find a building which does not have a swimming pool, gym, tennis court ,…
From the beginning you a pay large monthly fee, which goes up fast.
You face a property management which has their own contractors and the services they provide are usually more expensive than one would be able to arrange by himself. I believe the whole concept is full of conflict of interests and condominium owner is ripped off.
The rights of condo owner are protected by condominium act on paper. One needs to bring a property manager to court to enforce it. Unless it is really big and important issue it simply does not pay off, and the only practical solution is to sell.
Ridiculous

There are more rational concepts of apartment living in the world. You can get an apartment in a solid brick and concrete building with normal windows that actually can be fully opened and you don’t need to change them every few years, where maintenance fee is basic for painting, cleaning,… and you do not pay for army of property managers and their business buddies (contractors), and who knows what else

#27 The Tallyman on 11.06.08 at 1:36 pm

“At the Toronto Real Estate Board annual general meeting last week, leading realtors warned there will likely be a large contraction in the number of agents in a down market.”

Oh my god!!!
Hurry better buy now before there isn’t a realtor left to sell us a house… ha ha

#28 squidly77 on 11.06.08 at 1:56 pm

Population (2006) 165,613
Population change (2001 to 2006) 14%
Population density (per square km) 1,195
Number of households (2006) 58,828
Average earnings (full-time) $70,742
Unemployment rate 4.5%
Median age of the population 37.1
Median family income $90,920
http://www.oakville.ca/economicdevelopment/media/Oakville_Community_Profile_2007.pdf

Oakville must have a massive day care system to look after every families kids while mon and dad go to work
is day care Oakvilles largest industry ?

or did you all recieve massive raise last year

check the website address out

#29 financial math on 11.06.08 at 1:57 pm

I think it is easy to blame people’s greed and speculative pressure and global financial problems and miss the real culprit in this crisis. It all comes down to mathematical illiteracy. To understand why I say that you need to know how banks used to calculate a mortgage.

We used a base of 28% of the income of the people sitting in front of us. Could 28% of that income pay the mortgage they were proposing? Then we would look at the real current value of the home based on our own appraisors’ work. usually we would lend 80 to 85% of the value of the house as long as a) the person could carry the mortgage payments on a 25 year mortgage at whatever interest rate was in effect on that day…in some markets we would go as high as 35 years but it was rare and b) they could afford to have another ten percent of their income go to property tax, insurance and maintenance. It was not a science by any manner of means and we were compensated based on how well our total portfolio performed. Losses came out of that total. It made us really cautious. We had the authority to play with terms but usually didn’t since we liked fix rates people could afford, it was an inflationary time and that approach took inflation out of the equation. We also didn’t give a damn whether people were upside down in their mortgages just whether they could afford the payments. It was a simpler time.

It is important to note that many of our customers were argue with us and often even succeed in changing our minds. The math was so simple and meant to be considered a rule of thumb. We were taught that people’s commitment, our gut instinct and local economic conditions were all more important than the math. Our customers could also follow the mathematical arguments and spot mistakes.

Then we bankers started using computer models of risk assessment which used median incomes and built in some analysis of which direction those incomes were moving over 5, 10, and 20 years to calculate “approved” mortgage levels. These models also made some truly wild assumptions about inflation (ie. there is no such thing). The goal of the math underlying these models was to give as many people as possible mortgages. To get that effect you underestimate the risk. We knew we were underestimating the risk but the idea was the local banker was being given more lee way to make mortgages that their gut instinct told them were sound but that failed the prudent lending standard (as I said we always made some of these loans but research showed we were choking our profits by starting with too conservative a number of mortgage value). Customers couldn’t understand how these new “pre-approved” mortages were calculated (and frankly neither could the bankers). They had to take the mdoels word for it that this was what they could afford.

These new risk models made us nervous. Being prudent bankers we spread the risk, selling it on, and insuring it.

The thing is that individual mortgages are not very portable or saleable because there is a large cost to the buyer of the paper in assessing that individual risk versus the profit in the face value of the mortgage. So we started selling groups of mortgages. Some buyers, most buyers, got that this pooled risk in unpredictable ways so they wanted more closely grouped tranches where the risks were consistent throughout the group.

This lead to another set of models. These ones predicted tranche defaults. They were heavily endorsed by rating agencies. Banks swore by them as did hedge funds. The critical thing to remember is that nobody spent years testing these models, and it would have taken decades. What we did was take randomly selected slices of the past and use them to test what would happen in the future to these tranches. The furthest back the modelling went was 1968. Mostly we used data from the last 25 years.

Roughly the model said the higher your FICO score, the higher your income, the less likely you were to default. Seems sane and reasonable doesn’t it? What we didn’t build in was the effect of the price of the house on the likliehood of default. Price was irrelevant to the model since the price for the tranche was all based on similarly valued houses (people tend to buy houses in neighbourhoods where people with similar incomes live). We also didn’t build in a variable for the effect of specualtive pressure caused by rising property value or Helocs or the snowball effect of falling equity ie. the negative value effect was never calculated. We now know people of all incomes are much more likely to default on a mortgage that is a) making them house poor and b) a house that is losing value but we didn’t allow for either of these things.

Another thing the models didn’t build in that every banker used to factor in to every loan was the effect of total debt. In my twenties and thirties I never heard the concept of net worth applied to individuals just corporations. With individuals we talked about debt servicing capacities. Simply, more than 50% of pre-tax income going to debt made us all very nervous.

Finally, everybody in the business, don’t let them tell you otherwise knew that there was phenomenal pressure on individual bankers and mortgage brokers (not to mention large cash incentives) to write paper. However, the models we used for tranche risk assessment assumed accurate date on borrowers. The models were never adjusted when we learned of NINJA loans, and saw accurate figures on mortgage fraud.

Perhaps worst of all the models made no allowance for speculation. We all assumed that a purchasors purpose for buying the home had no effect on relative risks.

In other words, the current crisis is down to a) an over reliance on financial math and financial engineering and b) spectacularly bad financial math and financial engineering. The msot frightening part of this crisis for me is listening to some of the best and brightest minds in the business of finance admitting they can’t understand the models and the trades. Because they can’t understand the fundamentals anymore they can not make reasonable speculations and they are blindly guessing with billions of dollars of your money.

Garth, by the way, you are wrong. If we went back to the good old standard of prudent lending we would write mortages at 28% of income (and base our models on median not averages). Canada wide Stats Canada says the median family income as of 2006 was about $67,000. Based on current levels of consumer debt the median family can afford between a $170,000 and a $225,000 house on a thirty year mortgage. We would then write 80 to 85% of that.

Housing prices have a very long way to fall if we are once again going to make prudent lending the standard.

One of the things you learn as a community banker is that the higher the average income in a neighbourhood the greater the risk of income falling over time and you build that in when you are lending money. In other words prudent lending requires that you increase the risk premium in higher income neighbourhoods and reduce it in lower income neighbourhoods. In catastrophic financial times income gaps narrow. So while in your riding we would certainly have mortgage values in excess of the $225,000 it would not be likely as high as $270,000. We would also need to know how indebted your particular region is in terms of average consumer debt. Some rich neighbourhoods have all the toys of high income and actually higher debt levels and thus less mortgage borrowing power per dollar of pre-tax income than certain lower income neighbourhoods were pennies are still squeezed.

In any case, greater mathematical literacy would have led to us all being aware of just how ridiculous the mortgage lending business had become. It would also have prevented such faulty models being created or deployed.

#30 smwhite on 11.06.08 at 2:09 pm

#8 brazer

Ironic now that the RE industry is bitching about the negative media coverage on the way down. It wasn’t a problem when the RE industry was giving millions to the media for advertising and the media gladly told the rosy story of unsustainable gains as prices shot to the moon.

Now, when the writing is physically on the wall and the direction of RE is undeniable, the media starts to alert the herd about the RE wolf. I guess the change in tune is to maybe save a little face, and the RE industry is not liking it.

I just read #25 Bottoms_Up, which I echo their second point…

#31 smwhite on 11.06.08 at 2:22 pm

#27 The Tallyman,

Its to be expected, just like in the previous and recent .com bubble everyone and their dog started getting into tech jobs, developers, administrators, analysts…

It was the industry to be in, write a few tests and become “certified”…

Just like us silly humans to quickly hop around to the next big thing, the major flaw in all this reactive human behavior is by the time you recognize its the next big thing, its too late…

And like the ghosts of past manias, the strong survive and the weak die off, and move to the next “big thing”, which is probably going to be unemployment councilors.

#32 Rob on 11.06.08 at 2:51 pm

#29 financial math

great post – thanks for that break out banker view of the insanity in lending during the run up.

#33 doom and gloom on 11.06.08 at 2:51 pm

#28

Population (2006) 165,613
Population change (2001 to 2006) 14%
Population density (per square km) 1,195
Number of households (2006) 58,828
Average earnings (full-time) $70,742
Unemployment rate 4.5%
Median age of the population 37.1
Median family income $90,920
http://www.oakville.ca/economicdevelopment/media/Oakville_Community_Profile_2007.pdf

Oakville must have a massive day care system to look after every families kids while mon and dad go to work
is day care Oakvilles largest industry ?

or did you all recieve massive raise last year

check the website address out
____________________________________________

The average earnings # is for 1 wage, median family income is a household income (2 wages). Included is the link to the AVERAGE FAMILY INCOME. Think you can wrap your head around this???

http://list.canadianbusiness.com/rankings/bestplacestolive/2008/prosperity/Default.aspx?sub=n1&df=bestcities&sc1=2&d1=d&sp2=1&eh=ch

You need to get out more, dude. — Garth

#34 supersocco on 11.06.08 at 3:11 pm

Garth, or fellow posters here, do you have any related Books that you recommend?

#35 spaceman on 11.06.08 at 3:16 pm

It is interesting that I called my bank to inquire how much of a mortgage I could get, and they tried to convince me that a 35 year amortization was the best way to go. They are still pushing to get people into the market, knowing full well, these are crappy products. Put simply, they just don’t care. Or don’t believe, or something. This was the Royal Bank.

#36 Mr. Roper on 11.06.08 at 3:19 pm

Folks, before I say what I want to say…I want to be clear. Yes, I believe we’re in for a correction that’s long overdue…and most data points to that happening. But all I’m seeing on this blog is a biased view of pending doom. Why no where do I see Wal-Mart’s greater than expected earnings? Why no where did I see a headline here, or link there, to how the stock market shot up for a couple days? There surely are silver linings that never get any mention here. Warren Buffet says “WHEN PEOPLE ARE GREEDY I’M SCARED, WHEN PEOPLE ARE SCARED I’M GREEDY.” All I’m saying is let’s try to keep more of an open, unbiased, not-self serving, perspective on things. That’s all.

#37 The Tallyman on 11.06.08 at 3:33 pm

#29 financial math,

The total retarded absurdity of the RE crash is that by the time prices hit the real world mark that they should have been at all along, the genius banks will have invented a whole ” new math literacy”

One that increases the scrutiny and down payment to the point where even people with a huge down payment who waited out the banker invoked housing collapse are excluded.
As usual banks close the barn door after the horses are running loose.

Can’t win in this rigged crap game.
If they don’t screw you on the way up they get
you on the way down.

#38 The Tallyman on 11.06.08 at 3:36 pm

New World Order Banking Motto

“If you are not in debt you do not exist”

Go forth and multiply sheeple.

#39 if you don't like it on 11.06.08 at 3:42 pm

Will interest rates go down lower for canada or will is rise?

How can someone be best prepared for this groom time ahead. We do own a home, we live within our means, we have little debt, is there anything else the average canadian can do to prepare?

#40 The Tallyman on 11.06.08 at 3:43 pm

#29
Thank you for the colorful pay by play of the crime scene.
Might as well say:
I only put 5 bullets in the chamber of the gun,
If I had only known the chamber could hold six I wouldn’t have shot anyone.

Banker Math for dummies.

#41 squidly77 on 11.06.08 at 4:16 pm

http://www.youtube.com/watch?v=bNmcf4Y3lGM

#42 catchy on 11.06.08 at 4:42 pm

financial math #29
thanks for your take on this situation.

#43 Ess on 11.06.08 at 4:53 pm

How come this didn’t make the news? Seems kind of significant to me!

From: http://canadianpress.google.com/article/ALeqM5hekApbc9hA49eYAW6o4bD-ajUIrw

Personal bankruptcies up in September; business failures drop from 2007

OTTAWA — There were 8,836 bankruptcies in Canada in September, almost 1,400 more than in August and almost 2,000 more than in September 2007.

The superintendent of bankruptcy reports that’s an 18.7 per cent rise from August and 28.4 per cent increase from a year ago. The number of bankruptcies over 12 months through September was 91,434, up 6.4 per cent from 85,969 in the 12-month period through September 2007.

There were 8,347 consumer bankruptcies in September, up from 6,977, or 19.6 per cent from August, and nearly 2,000 more than in September 2007.

There were 85,243 consumer bankruptcies over 12 months through September, up 7.2 per cent from 79,546 in the 12-month period through September 2007.

There were 489 business bankruptcies in September, up 4.3 per cent from 469 in August and 40 more than in September 2007.

There were 6,191 business bankruptcies over 12 months through September, down 3.6 per cent from 6,423 in the 12-month period through September 2007.

#44 Dawn in Calgary on 11.06.08 at 5:10 pm

Interesting site that measures total US bailouts paid to date, listed by bank.

http://www.propublica.org/feature/bailout-bucks-to-banks-1028

#45 Calgary_rip_off on 11.06.08 at 6:01 pm

Squiggly:

You make valid points. It is unfortunate that I expect ethical behavior from people not imprisoned for heinous crimes. Unfortunately realtors and people selling things, anyone for that matter, are no different than gang thugs and mafia. They just want money.

And yes, I track what is happening in Cochrane and Hidden Valley. Squiggly do you mean to tell me that $40,000 off a rip off price is a reasonable cost? Not when the house brand new was probably $150,000!!!! What, I repeat, what is the motivation for anyone in Calgary or Cochrane to want to benefit the owners of these homes during these booming times? It is far easier to rent a house that is much bigger and better than buy a joke in a bad area.

There was a home on Pope street for $300,000. I would be happy quite happy with this, except no basement. No basement is a problem. I require a basement to play my neoclassical heavy metal and shred, not to mention the dungeon full of heavy weights for bodybuilding.

So yes, I have followed extensively the crappy market that is Calgary. A nice city, yes, but still ridiculous out of these world prices.

I dont drink Kool Aid, or beer for that matter. What you refer to probably is my belief in God and ethical human behavior. Ethical human behavior has become more about persuasion, bs, white lies, and deceit. EVIL is the name of the game. I divorce myself from that crap. Case in point: I dont even attend the Christmas party at my work. Most of those people I work with are 20 years my senior(not that age is bad) and so I have nothing to talk with them about, all the lies all day long, not to mention that their wealth is acquired, and mine is not.

#46 Jen on 11.06.08 at 6:17 pm

Can someone please answer “What will happen with property taxes during the decline?” Do they retreat as well? I hope so. Thank you in advance. Jen

#47 squidly77 on 11.06.08 at 6:20 pm

when it comes to money..trust no one

it must be very frustrating waiting for prices to fall
that house that cost $150,000 to build is basically still worth the same
make no mistake at all prices will drop hard and fast soon

rent a house from a drowning spec buyer and let him subsidize your rent
http://www.canadian-housing-price-charts.235.ca/

#48 The Tallyman on 11.06.08 at 7:02 pm

Rip,

Not missing much at those XMAS parties.
Just a bunch of people standing around bragging about the McMansion’s square footage.

Could be different this year with all the bubble trouble…
Might be playing hide the elephant instead and hoping no one notices the dire straits some might be in.

#49 Ultraman on 11.06.08 at 7:48 pm

What will happen with property taxes during the decline?”

Property taxes decline when municipal budget declines, which they don’t do often. So regardles of your property dropping in value your tax bill will be the same which means that you will be paying more per thousand dollars of value for a net benefit of zéro.

#50 brazer on 11.06.08 at 8:05 pm

Canada edging toward recession territory, job losses in offing
http://ca.news.yahoo.com/s/capress/081106/business/economy_jobs

In a revised update, the International Monetary Fund has sharply downgraded the economic outlook for Canada and the rest of the world from its previous projection a month ago.

#51 islander on 11.06.08 at 8:13 pm

#29, “financial math,” excellent contribution. Thank you for taking the time.

#40, Tallywacker, instead of pointing fingers all your miserable life, why not learn something from “financial math”. Even your mom must be getting tired of you living in her basement.

#36 Mr. Doper, the reason you don’t read about Wal-Mart’s greater than expected earnings is because there’s nothing to celebrate about a discounter’s excellent results when automakers and builders can’t unload their high-priced inventory.

The stock market is not the economy; therefore, it’s daily gyrations are, if anything, a distraction from the larger picture. You accuse posters on this board of being closed-minded when you are the myopian, an unabashed optimist, a Pollyanna.

Buffett is a self-serving predator who placed huge bets on bankers getting bailed out; check out the chart on Fairfax Financial Holdings. UP, in the wake of the bailout. Buffett is profiting from the theft of taxpayer money. There’s your hero for you.

#52 brazer on 11.06.08 at 8:14 pm

#36 Mr. Roper

All I’m saying is let’s try to keep more of an open, unbiased, not-self serving, perspective on things. That’s all.

http://investdb.theglobeandmail.com/invest/investSQL/gx.show_chart?pl_comp_id=&pl_errmsg=&iaction=Chart&pl_primary_listing=TSX-I&iaction=Chart&pl_additional_listing=0&pl_period=6D&pl_chart_type=+&pl_sh_movement=50&pl_long_movement=200

here’s my “perspective” on the market…what do you think?

#53 Just a Girl on 11.06.08 at 8:24 pm

Financial Math,

Excellent post. In my work, we are trying to enhance public “energy literacy” …. another topic they must understand better, if they are to make informed decisions about the complex energy issues at hand.

We could all use more fundamental understanding, in a number of basic areas that require more informed, reasoned, responsible decisions :)

#54 Touchez pas au Grisbi on 11.06.08 at 8:35 pm

Obama’s been listening to Warren ‘Budget,’ today he’s toning down the election promises. Regardless, he won cause he was the better choice – simple as that.

Harper likes to lose his neck tie to look less Tory. Obama looks good in anything and knows it – wilt away prime minister and don’t you see it.

The economy is in painful medicine mode. We need real healing not faith healers. Gulag for you RE wretches.

#55 Expat in NC on 11.06.08 at 8:56 pm

Hey…is someone in a major newspaper calling out the realtors BS?

http://www.theglobeandmail.com/servlet/story/LAC.20081106.BARBER06/TPStory/?query=slump

Very interesting.

#56 brazer on 11.06.08 at 9:30 pm

AGF Trust cuts staff by 10%
http://www.reportonbusiness.com/servlet/story/RTGAM.20081106.wagf1106/BNStory/Business/home

AGF Trust, which provides investment loans and mortgage financing, handed pink slips to about 50 out of 400 employees, the Toronto-based mutual fund company confirmed Thursday.

The recent market collapse, however, is expected to make Canadians more gun shy about investing in mutual funds, as many have lost 30 per cent or more so far this year.

———–

not good.

#57 GenXer on 11.06.08 at 9:45 pm

Markets are stabilizing, the US has a positive outlook to the future, LIBOR rates are normalizing and … Canada starts to feel the real estate crunch?!?

Garth – I’m guessing the next book is about the boomers and their impact on real estate. Something along the lines of – what happens when 40% of Canadian households, who are 55+, lose 40% of their retirement savings to a market collapse and must sell their real estate into a declining market?

I’m not a demographer – but c’mon people, you had to see this one coming…

Anyone want to speculate on the 6-12 month effect of the bailout packages? Will deflation filp to inflation and interest rate increases?

Down market + Boomer Retirements + Interest Rate Hike – 40 year mortages – 0% downs = ??

Looks like the price / earnings ration on housing is still way out of line. Thank goodness I have 30 years to save for my own retirement. I’m going to go buy a big mattress now…

FYI Garth – I’m not hostile to the boomers, I just wonder where their morality went after Woodstock. Maybe things like family dinners, hard work, environmentalism, respect for elders and religious devotion were ideals worth preserving. Word.

You think Woodstock had something to do with morality? Hate to break this you to… — Garth

#58 GenXer on 11.06.08 at 10:21 pm

Thanks Garth, I almost forgot – I’m sure Woodstock was full of people conspiring on the creation of subprime mortgages and credit default swaps. Of course, that many people high on drugs might explain how these financial vehicles were created in the first place.

By the way – I got a notice in the mail today that low and mid-income retirees now get a tax grant to apply against their property taxes. Hooray!

I was so excited that I could pay 100% of my property taxes to help fund a retiree’s inability to pay. This is such a better investment for society than for me to put education dollars away for my children. Thanks again Stephen for those fantastic family-friendly policies…

Garth – As sarcastic a bastard as I am, I do look forward to your upcoming leaflet. Keep up the good work!

You are a guest here, kid. Play nice. — Garth

#59 Mr. Roper on 11.06.08 at 10:39 pm

52 brazer on 11.06.08 at 8:14 pm

That’s your perspective? A graph? Ok. My perspective is that it’s a good time to invest in blue chip stock if you have the money.

#60 Kitchener1 on 11.06.08 at 11:12 pm

Regarding Boomers, Garth you are one so no one can blame you for defending their ranks. The truth is that Boomers had it a lot easier then the Gen X or Gen Y’s.
Their education was paid for- No student debt, jobs were plentiful when they graduated(for the most part) and the work enviroment was not the same, work was not as production based as it is now and there were’nt the same financial constraints facing corportations.

Most of the boomers I know have only changed companies a handful of times, and more often then not it was in the last 10-15years.

That, plus economic circumstance was to their favor, houses cost 1.5 times annual incomes and their $ had more purchasing power.

Me, I am a Gen X’er, I do not begrudge the success the boomers have had. What really gets me is the boomers singing the merits of success and hard work when it was economic circumstance and dumb luck and aquired (inheritated wealth)that led most of them to success they enjoy today.

When the R/E market reverts back to mean and their dollars get hyperinflated in a few years, those that did not prepare will suffer financial hardship.

It is my sincere beleif that the history books will look back at the boomers dempgraphic and sadly confirm that never before in history has a demographic that had it so good and in the end been one of the worst financially in their golden years

And what has our sorry record taught you? — Garth

#61 charliegosurf on 11.06.08 at 11:24 pm

@ genxer, go get some buds, make yurself a tea, the elders deserve respect,yu sarcasm yurself no matter what…get yur mail a tea too…enjoi yur little matress more,

the xer are xxxing arund, and Mr Roper yur the man, yu know the ropes….

Wal-Mart profits come at a huge price for humanity, they symbolise WHAT is wrong, still forced to go to there church sunday, for winter wheels, the other church are such a ripoff, gotta feed the srfin clan.

#62 charliegosurf on 11.06.08 at 11:32 pm

http://www.theglobeandmail.com/servlet/story/LAC.20081106.BCMASON06/TPStory/?query=gary+mason

the masters at work 100m here and there, those olympics are gonna be a fiasco, billons of debt to the tax payer! who cares really.

#63 jazzguy on 11.06.08 at 11:34 pm

gee, taxpayers get stuck with the bill on a subsidized condo development, sorry i mean “olympic village”, despite the clause that cost overruns are supposed to be shouldered by the developer.

you think the city will get every dollar back in this financial climate?

http://canadianpress.google.com/article/ALeqM5jJ8azO3OPuR1O5V_dWaqn0r5PYpw

Questions about $100-million loan for Olympic village met with silence

4 hours ago

VANCOUVER, B.C. — Reports that Vancouver city officials secretly approved a $100-million loan to complete the 2010 Olympic athletes’ village were met with silence Thursday from just about everyone involved.

With a municipal election just over a week away, city officials clammed up when asked about the bailout loan for the Millennium Development Corp. project.

A national newspaper reported that councillors voted during an in-camera meeting on Oct. 14 to approve the loan.

#64 squidly77 on 11.07.08 at 12:34 am

Regarding Boomers, Garth you are one so no one can blame you for defending their ranks. The truth is that Boomers had it a lot easier then the Gen X or Gen Y’s.
Their education was paid for- No student debt, jobs were plentiful when they graduated(for the most part) and the work enviroment was not the same, work was not as production based as it is now and there were’nt the same financial constraints facing corportations.
Me, I am a Gen X’er, I do not begrudge the success the boomers have had. What really gets me is the boomers singing the merits of success and hard work when it was economic circumstance and dumb luck and aquired (inheritated wealth)that led most of them to success they enjoy today.

oh really..we brought our kids up in a 2 bedroom apartment until they were 5 and 7
we never ate out and never went to a movie or any entertainment and we certainly didnt have a road worthy car
we ate kd and the kids had wheat puffs and porridge for breakfast..and get this..the kids walked almost a mile to school and they walked home for lunch
we scraped and saved until we had 25% to put down on a house

so you say we had it easy ?

i say your soft coddled and spoiled
and you are simply not prepared to do what it takes to succeed at life

#65 Peter on 11.07.08 at 12:37 am

In addition to AGF who are laying off people. Fidelity, AIG (Run by Michael Lee-Chin), Franklin, IA Clarington, Sentry Select and more …has been laying off back office personnel and some sales reps amid this plunge…Garth is perfectly right, this crisis “FAN HAS STARTED TO HIT BAY STREET ” and soon “MAIN STREET”. If you asked me why I said that above is that the media keeps SPINNING the bad news by putting those at the end or try not reporting it in order to PAINT a NICER PICTURE while one of the LARGEST RRSP & INVESTMENT Loans Provider has decided to end RRSP and Interest only Investment Loan business by TOMORROW and they will NOT lend any money to anyone until further notice. This is the first time i heard of this and it shown you the reason behind it is 1) Not lending and protect themselves against massive default later on (yup, even on RRSP loans which most of them would pay it off within 2 years), 2) Credit is excessively TIGHT while the news are keep reporting LIBOR are keep falling to paint a nicer picture, 3) The company is losing their shirts on those non-performing loans or loans with massive losses on mutual fund investments. They also pointed out they are taking 2 (1 large one and 1 small one) mutual funds companies OUT of their list..Reason is : re-arrange product lineups…The truth is …These funds are performing excessive ROC and with this environment, this ROC is basically eating in the loans money and client will hit with massive paper losses .

#66 squidly77 on 11.07.08 at 12:45 am

gen xers..go play with your x box while your sitting there in your $400,000 condo thats full of designer furniture and ss appliances
smoke a big fat dooby and tell us how good we had it
and how bad you got it..typical

#67 squidly77 on 11.07.08 at 12:52 am

my kids were born in 1979 and 1982
they are both b pressure welders
they drink lots of beer and have lots of girls
and get this
they are both renting
and they are both saving big time
and they laugh at the softies living in the plastic condos

there is no such thing as a play station to them

#68 StillWaiting! on 11.07.08 at 1:05 am

Looks like the RE agents are starting to panic! I guess the RE industry is starting to show it’s cracks…

http://www.remonline.com/detail.aspx?menu=29&dt=1262559&app=163&cat1=501&tp=19&lk=no

By the way how easy is it to buy a house with out an agent in the GTA? I figured while I’m waiting I would look up some websites that tell what’s involved in setting up a deal and going through with the purchase without an agent. All I’ve been able to find is mostly propaganda through google.

#69 brazer on 11.07.08 at 1:08 am

#59 Mr. Roper

My perspective is that it’s a good time to invest in blue chip stock if you have the money.

most folks are broke….and are heavily in debt and seeing their savings evaporate along with the value of their homes.

not exactly the circumstances that would allow them to swoop in and bottom fish for what is an incredibly unpredictable bear market.

heck, for those that do have cash on hand, there are certainly some good blue chips to jump on for the LONG TERM….it all depends on time horizons and risk tolerances.

#70 brazer on 11.07.08 at 1:18 am

Sprott’s latest….good read:

http://www.sprott.com/pdf/marketsataglance/10_2008.pdf

#71 Jen on 11.07.08 at 1:19 am

Thank you, Ultraman.

#72 Bailing in B.C. on 11.07.08 at 1:46 am

#52 Brazer

You know what I think of your chart?

If they are going to add Dec, Jan, Feb, then they better add 8000, 7000, 6000.

#73 Kitchener1 on 11.07.08 at 2:05 am

And what has our sorry record taught you? — Garth

Financial prudence–to live withing ones means. Not to take good times for granted.

Charliegosurf, elders deserve respect, if your a boomer then that has to be the best sarcastic comment ever.

I can not even count how many babyboomer co-workers,friends,neighbours I know that are pushing their eldery parents into retirement homes. Great example to be setting for your kids.

Anyway this a real estate blog don;t want to venture to far off course. In the end it was inflating real state values that created the paper wealth for the boomers and it will be declining RE values that will dimish their wealth as well.

#74 Blacksheep on 11.07.08 at 3:24 am

Mr.Roper # 59,

The markets are off approx. 40% @ 8000 points.

We will see it drop to 4000-5000 points before this is done.

This no longer just about a house price correction.

I do business in Van.

Some of the vendors i deal with, are telling horror storys about lay offs and shut downs.

I sold my home last spring, so thats all good,
but i wont fare much better than most if my business
cant survive.

B.S.

#75 Jimster on 11.07.08 at 4:06 am

NO MORE MORTGAGE PAYMENTS SOON – Get Ready to Default!

http://mrmortgage.ml-implode.com/2008/11/04/no-more-mortgage-payments-soon-get-ready-to-default/

#76 “Road To Hell” on 11.07.08 at 4:35 am

“And all the roads jam up with credit
and there’s nothing you can do
It’s all just bits of paper flying away from you.

Look out world, take a good look what goes down here.
You must learn this lesson fast and learn it well.

This ain’t no upwardly mobile freeway

Oh no
this is the road
this is the road
this is the road to hell”
_______________________

Originally released in 1989.

Good old Chris Rea, a bit prophetic eh?

http://www.youtube.com/watch?v=L-1q1Dp5Y30

#77 brazer on 11.07.08 at 8:31 am

Unemployment climbs to 6.2 per cent
http://www.reportonbusiness.com/servlet/story/RTGAM.20081107.wjobs1107/BNStory/Business/

Canada’s unemployment rate climbed to 6.2 per cent in October, from 6.1 per cent in September, reflecting an increase in the number of people looking for work, Statistics Canada reported Friday.

#78 pjwlk on 11.07.08 at 9:40 am

My wife was speaking to a friend of ours last night who is a manager for a RE office in Hamilton, ON. “Now’s the time to buy” she announced to my wife (Our friend doens’t like talking to me about these things anymore because I confuse the issue with facts…) “The market is at the the bottom now” she claimed… My wife calmly stated that it was just the beginning right now and that in her opinion the market was nowhere near the bottom. Our friend would hear none of it…”I now because I’m in the industry” she said. I can’t believe the bullshit the RE spin doctors lay on these people. They are supposed to be working on behalf of their clients and acting in their best interest not their own. WTF?

#79 Bottoms_Up on 11.07.08 at 11:21 am

From one of the articles:

“Torontonians will quickly recover their appetite for residential real-estate once they realize how healthy the local market actually is, according to Ms. O’Neill.”
——————————————–
My friend works in Toronto…oh wait, no he doesn’t. He just got laid off. I guess layoffs and high unemployment make for a strong, robust market eh? ps. he has an M.Sc. and MBA and a 1 year old child.

Regarding the Boomer talk, I am a child of boomer parents, and I agree they had it rough. They raised 3 boys in an apartment in Mississauga, and there were nights when all we had to eat was a can of chick peas. The competition for jobs was astronomical and they did what they could to provide for us. One year they even drew a christmas tree on the wall because they couldn’t afford one.

I spent the majority of my teenage years living in a 3 bedroom bungalow sharing 1 bathroom between the 5 of us. All this sacrifice for them has finally paid off, their boys all have university educations, and they now live in a big house with lots of land (but there is no longer anyone at home to share it with them).

Anyway, my point is every generation has it tough. The Boomers had it especially tough because of how many of them there are. Suck it up and move on.

#80 smwhite on 11.07.08 at 11:32 am

#51 islander

– Buffett is a self-serving predator who placed huge bets on bankers getting bailed out; check out the chart on Fairfax Financial Holdings. UP, in the wake of the bailout. Buffett is profiting from the theft of taxpayer money. There’s your hero for you. –

I watched Fairfax jump $100 in a single day, from $240 to $340, crazy stuff…

…but you being in real estate, don’t you think your being a bit hypocritical calling Buffet of all people a predator(He has donated billions of his own dollars to the Gates Foundation), as your mantra has been “buyer beware”? Buffet is investing Berkshire’s money, its business… Anyone can invest today if they have the raisins, or the cash!

I concur that every time we have one of these little “not recessions” the likes of the Rockefeller family and other billionaires and large corporations plug small chunks of their fortunes in the the markets, buying up American at pennies on the dollar. Wielding more and more power every couple of decades.

The American dream really is a dream.

#81 smwhite on 11.07.08 at 11:54 am

#78 pjwlk,

This is for you, deja vu? Another robotic American RE agent getting schooled on the “numbers”, January 2008!

http://www.youtube.com/watch?v=A2_Hmt-MKLA

http://www.youtube.com/watch?v=sM7bcDu04os&feature=related

PS Don’t let Garth bore you with numbers! LMAO

#82 Just a Girl on 11.07.08 at 12:18 pm

Bottoms_Up wrote: “Anyway, my point is every generation has it tough. The Boomers had it especially tough because of how many of them there are. Suck it up and move on.”

I do grow weary of the ‘generations’ bantering back and forth with each other. Someone made it popular to be a Boomer or a Gen X or Y’er or Millenial, and we HR people are dealing with a lot of labelling and divisiveness because of it.

We’ll get a lot farther if we try to understand each other better. Afterall, we share the planet, economics, employers, and we might even live next door to each other. There have been mixed generations for as long as there have been people. The only problem is, now there are so much more of us, squeezed on the same patch of land.

#83 Just a Girl on 11.07.08 at 12:19 pm

PS to Bottoms_Up …. I meant to also include, thank you for saying this! I agree with you 100%.

#84 pbrasseur on 11.07.08 at 12:42 pm

to #51 islander
and # 80 swwhite

Buffet may be no saint but he is certainly not a “predator”.

He will buy into companies having problems though because their price is low – such as GE – not to gut the company financially (as do real predators) but to get to participate into a great business for the long haul. As he does that he will do what he can to help the business thrive.

Now it is true that recessions are great business opportunities for great companies like Berkshire, Microsoft and Wells-Fargo. It is up to you to recognize such a fact and take advantage of it.

#85 brazer on 11.07.08 at 1:43 pm

#78 pjwlk

Our friend would hear none of it…”I now because I’m in the industry” she said. I can’t believe the bullshit the RE spin doctors lay on these people. They are supposed to be working on behalf of their clients and acting in their best interest not their own. WTF?

“It is hard to make someone understand something, if his salary depends upon him not understanding it.”
– Al Gore (An inconvenient Truth)

#86 pjwlk on 11.07.08 at 1:48 pm

#29 Financial Math: Nice post but I think the real root cause is illustrated by this sentence in your post.

“as I said we always made some of these loans but research showed we were choking our profits by starting with too conservative a number of mortgage value”

Greed my friend, the root cause is nothing more than greed coupled with an euphoric sense of a great economy. In short, you all got caught with your pants down…

#87 brazer on 11.07.08 at 1:53 pm

GM posts $2.5B loss
http://www.wheels.ca/reviews/article/462723

“Even if GM implements the planned operating actions that are substantially within its control, GM’s estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business,” the company said in a news release.

“Looking into the first two quarters of 2009, even with its planned actions, the company’s estimated liquidity will fall significantly short of that amount unless economic and automotive industry conditions significantly improve” or it receives government funding, the news release said.

===

the fat lady is nearing the preparing to sing…

#88 brazer on 11.07.08 at 1:55 pm

Ford posts loss, warns of job cuts
http://www.wheels.ca/reviews/article/461223

DEARBORN, Mich–Ford Motor Co. said Friday it lost $129 million in the third quarter as the struggling automaker burned through $7.7 billion in cash…

“I think it goes without saying, forecasting the future at the moment is extremely difficult. Trying to find out just exactly what is happening with the consumer is really tough.”

#89 brazer on 11.07.08 at 1:57 pm

Retailers cut credit limits as profits rise
http://www.thestar.com/Business/article/532338

Canadian Tire said so far it has seen only “a slight deterioration” in credit-card repayments but is concerned about increased “volatility” in consumer bankruptcy rates.

Personal bankruptcies jumped 19.6 per cent in September over August, to 8,347, according to a report yesterday by the Superintendent of Bankruptcy. That’s almost 2,000 more than in the same period a year ago, the office said.

====

just the tip of the iceberg…

#90 brazer on 11.07.08 at 1:58 pm

U.S. jobless rate bolts to 14-year high
http://www.thestar.com/Business/article/532529

Employers got rid of 240,000 jobs in October, marking the 10th straight month of payroll reductions.

====

god save america…

#91 brazer on 11.07.08 at 2:02 pm

JPMorgan warns consumer loan losses may rise
http://www.reportonbusiness.com/servlet/story/RTGAM.20081107.wjpmorgan1107/BNStory/Business/home

NEW YORK — JPMorgan Chase & Co. said on Friday it expects consumer loan defaults to increase in the current quarter and sees higher loan loss provisions.

The bank has more than $395-billion (U.S.) in consumer loans, with the largest chunk in home equity. Mortgages, credit cards and auto loans are also in the portfolio, according to a filing with regulators on Friday.

=====

first was subprime…now it’s prime mortgages, heloc’s, credit cards and auto loans…yikes.

#92 pjwlk on 11.07.08 at 2:04 pm

#58 GenXer: Better have a read of Garth’s book “2015 After the Boom”, seems like you’re going to be paying for a lot more than just tax grants for boomer’s property taxes…

#93 Wealthy Renter on 11.07.08 at 2:05 pm

Regarding the Boomer talk, I am a child of boomer parents, and I agree they had it rough. They raised 3 boys in an apartment in Mississauga, and there were nights when all we had to eat was a can of chick peas. The competition for jobs was astronomical and they did what they could to provide for us. One year they even drew a christmas tree on the wall because they couldn’t afford one.

Calgary_rip_off (and all.)

I agree 200% of what you said.

It is really time to stop the inter-generational bickering. I didn’t have it as bad as you growing up. My parent’s who were born circa 1940, and they were both briliant exemplify the best of working class values: hard work, care for family, loyalty, moderate views, willing to adapt and learn.

Unfortunately, they were both forced by circumstances to work in their early teens (my dad got his trade courses done in night school.)

To whiner GEN X/Y life was very difficult for the great mass of working people

#94 David on 11.07.08 at 2:08 pm

Warren Buffett would not know his own reputation if he met it on the sidewalk. Folks tend to get carried away when they start talking about the Oracle of Omaha. He does traditional value based investing and eschews asset stripping when he plunks down his bucks.
The debate about the greatest generation in history versus the dumbest generation in history is a dead end. Other than giving voice to long muted resentments, nothing much can come from debates like that. I have great difficulty believing that driving around in a Lincoln Navigator SUV and living in a 4000 Sq. Ft. McMansion represents the apogee of a Golden Age or the height of civilised life on earth.

http://seekingalpha.com/article/103202-the-shallowest-generation

#95 Wealthy Renter on 11.07.08 at 2:18 pm

Oops sorry, did a weird keyboard combination that submitted my first post by accident.

“Regarding the Boomer talk, I am a child of boomer parents, and I agree they had it rough. They raised 3 boys in an apartment in Mississauga, and there were nights when all we had to eat was a can of chick peas. The competition for jobs was astronomical and they did what they could to provide for us. One year they even drew a christmas tree on the wall because they couldn’t afford one. ”

Calgary_rip_off (and all.)

I agree 200% of what you said.

It is really time to stop the inter-generational bickering. I didn’t have it as bad as you growing up. My parent’s who were born circa 1940, and they were both briliant and still exemplify the best of working class values: hard work, care for family, loyalty, moderate views, willing to adapt and learn. They are people you want as your neighbours.

Unfortunately, they were both forced by circumstances to work in their early teens (my dad got his trade courses done in night school.) They both instilled a love of learning in my sister and I, and there was never a doubt in their minds we would get graduate level educations.

To whiner GEN X/Y folks, life was very difficult for the great mass of working people. Though there were lots of jobs, working class wages were low, and there was way more competition in the job market.

You are right, people need to get over it.

Having to overpay for granite contertops or berber carpet is not a particular problem.

#96 dd on 11.07.08 at 2:39 pm

#51 islander

“Buffett is a self-serving predator who placed huge bets on bankers getting bailed out; check out the chart on Fairfax Financial Holdings. UP, in the wake of the bailout. Buffett is profiting from the theft of taxpayer money. There’s your hero for you”.

Fairfax is doing a service by shorting the market. They were sending signals to the market and all investors months ago that something wasn’t quite right.

If you would have done your home work you could have profited too. HBP has funds that you can ride the bear market down at 2x.

Top crying and read up and make some money off this dip.

#97 OntarioHouse on 11.07.08 at 2:51 pm

New numbers from Oakville
Average price in Oct 2007: 544, 246
Average price in Oct 2008: 429, 899
Thats a 21% drop!

#98 smwhite on 11.07.08 at 2:56 pm

#89 David,

– The brutal necessary lesson that should have been learned is that if you loan money to people who can’t pay you back, your bank will go bankrupt. –

LMAO, No shit!

Great read, love the graph on CEO salaries and worker wages and minimum wage… Nothing out of sync there!

If there is resentment it should be directed to those in power(business and government) not the average Joe working the system, created by the “man”. Is the end game slavery for future generations? Must be because that’s where we’re headed.

#99 Nick on 11.07.08 at 3:14 pm

Hating the boomers is futile and counterproductive because they still have a big role over the next 10 years as we work to solve these issues. Their experience and knowledge will be critically important. While the boomer generation may have caused some problems, every generation has made its mistakes. I’m sure us Gen X’ers will screw a few things up too…

#100 Shifty on 11.07.08 at 4:11 pm

#57 GenXer
As a boomer who bought and paid for my house many years ago. I’m not throwing it to the wolves so stop howling.

#101 Winnipeg Is No Different on 11.07.08 at 6:48 pm

Scared and angry editorial from the Winnipeg Real Estate News:

“David Wolf of Merrill Lynch — the investment firm that lost 70 per cent of its stock value in the last two months and was taken over — is now pontificating on the real estate market. The company couldn’t get the securities business right, but now it wants to counsel you on real estate.

The sub-prime crisis, caused by greedy U.S. banks bundling mortgage instruments into caustic investment paper and then selling the bundles, has caused a real problem south of the border (in fact, across the globe) that actually affects American homeowners. Meanwhile, Canadian newspapers look at the legitimate national correction in an eight-year sellers’ market as somehow being a direct reflection of what’s occurring in the States.

However, the WinnipegREALTORS® Association, the Manitoba Home Builders Association and the Canada Mortgage and Housing Corporation all report Winnipeg’s new and resale market is fairly healthy and still clipping along at record numbers!

What gives? Who do we believe?

As we look at what’s being reported, I think we have to agree that the for-profit media sells more newspapers and radio and television networks sell more commercial spots by concentrating on the negative rather than attempting to report the truth. ”

A bit of a head-scratcher on the last statement particularly : “for-profit media sells more… by concentrating on the negative”.

I disagree. The media cheerleads the local economy because that’s great for ad spending, especially from realtors. This is a desperate attack from the Winnipeg REB.

Also, they attack a “biased” media and then expect us to take stats from CMHC, Winnipeg realtors and other self-interested groups at face value?

Full Article:
http://www.winnipegrealtors.ca/Editorials.aspx?id=456

#102 brazer on 11.07.08 at 7:35 pm

Berkshire Hathaway profit falls 77 percent
http://biz.yahoo.com/rb/081107/business_us_berkshire.html

NEW YORK (Reuters) – Warren Buffett’s Berkshire Hathaway Inc (NYSE:BRK-A – News; NYSE:BRK-B – News) said on Friday third-quarter profit fell 77 percent, the fourth straight quarterly decline, hurt by weaker results from insurance underwriting and a big loss on derivatives contracts.

====

even warren is taking his punches this time around…

#103 Leasa on 11.07.08 at 8:10 pm

One question: what have the unions done to help the car industry? What have the employees done to help? Let’s face it, those employees are over-paid for jobs that are not hard, nor do they have to have any special education other than a high school diploma. Have the unions or employees offered to take a reduction in pay in order to stave off some of the lay offs? You know, to help their fellow workmates? Have they offered perhaps to work a bit less so others can save their jobs at least to a part time basis? Or have they just gone screaming and demanding that the government fixes it?

I think we know the answer. L

#104 JO on 11.07.08 at 8:58 pm

“We need big fiscal stimulus now, now, now”. Was the comment made recently by a Nobel prize winning economist. My reply to him: May I ask sir, what did “stimulus” after “stimulus” do in Japan ? And may i add bailout after bailout?Yes, we do have a large infrastructure deficit in North America and can benefit from spending our future generation’s money on bridges, etc, but the amount of excessive debt is extraordinary and will be destroyed via paydown or default until the amount of debt reaches a more sustainable level. The only question is do we take the necessary steps to help speed up the debt destruction and get it out of the way (with ugly short term consequences), or do we come out with repeated bailout/stimulus and delay the inevitable ? Asset prices in nominal terms are still way overvalued and are/will make their way to “fair” value eventually, regardless of what Policiticans want. Keynesian policies usually fail and will continue to..politicians love Keynesians and Monetarists because both provide an excuse to spend borrowed money that is not theirs and to eventually raise taxes to help “pay” for it. It is nonsense. No government can avoid recessions, which are necessary to clear out the system and allow for the next sustainable period of growth. Most economic policies fail simply because they do not account for the changes of the public mood; that is, cycles of pessimism and optimism come and go and are usually overlooked by most economists. The best way to deal with these situations is to cut personal and small business/corporate income tax rates, cut employment deductions paid by employers (job killers), and to engage in high priority infrastructure spending, while planning to cut government spending at a later time once the economy stabilizes to help deal with the short term deficit (1-2 years).

By the way, all TO homeowners, the city just announced water rates are going up 9% / year every year until 2014. Wow, dropping home prices, risking property taxes and water/other utility rates, and rising unemployment and stocks that will probably be down a lot too ! What a wonderful wealth building combo ! Welcome to the debt based, fiat money pozni scheme that has been the world economy for the last 95 years..it will end as these systems always do..deflation then inflation and destitute citizens.
JO

#105 charles on 11.07.08 at 10:58 pm

Good post (as usual) Jo (103)

Garth the main cause of our current and unprecedented financial crisis is there has been too much debt pumped into the world’s economies under our debt based financial system, and an increasing amount of this debt cannot be repaid. Now what is the solution to this crisis; it is pumping even more debt into the system in order to get “the system” going again, thereby pushing off the “day of reckoning” into the future.

This makes as much sense as waking up with a splitting hangover after a “night on the town”, deciding the pain is too much, and heading down to your local watering hole and starting over again. It may be a good short term solution, but the long term consequences are a disaster in the making.

If you want to write an internatinal best seller, in your new book, I think you should write a few chapters on the true cause of our financial crisis.

#106 john on 11.07.08 at 11:43 pm

Garth

I am unable to open your latest entry, “Feeling Safe”

Pls look into this as other are probably experiencing the same thing.

#107 Zebedee on 11.11.08 at 1:20 pm

I just want to say that post #29 by Financial Math is the best post I’ve ever read on this website. I have a fairly good understanding of the whole financial crisis, but this post and its perspective on it were illuminating! Thanks!