Squirrel 2

Update:

Consumers nervous about buying condos

BMO puts mortgages on sale – 2% off

Home resales take biggest tumble since 1994

US retail sales collapse as holiday shopping approaches

Sun Micro to cut 6,000 jobs

From Montreal, Tammy sends me this email:

“I am a 40-year-old woman with a young toddler and I just read your blog dated November 9th, and I was wondering, do I have to sell my property and move to the country? Particularly, since I listened to your past advice and we recently purchased a modest slick urban Montreal condo a stone’s throw from 2 Metro stations and close to all services, for $199,000. I put 25% down and have $139,000 left to pay (our only debt). I’m a good saver, and it’s all going into cash. We don’t own a car and know we are better off than most, with a combined income of $125,000. I was hoping to leverage my condo to buy an investment property to diversify our investments, but now am wondering if I should pay off the condo ASAP and find a small farm instead that I can get to by commuter train. I’m worried about the future for my son and greatly appreciate your straight talk.”

Yikes. More evidence I should never write things that may be, instead of things that are.

In fact, this squirrel talk reaction has been extremely interesting. Over the last two days a few hundred people have left comments here, some questioning my sanity (entirely reasonable), some saying they totally understand the scenario I described, and the majority recoiling in piqued denial. Strikes me that anyone under the age of 40 or so has one hell of a tough time imagining a week, let alone a month or a year, with social breakdown or economic collapse. And yet we live in a world in which we went from being okay four months ago to one in which banks failed, Wall Street icons toppled, stock markets capitulated, governments committed trillions to bailouts, the auto industry crashed, retail sales evaporated, hundreds of thousands of people lost their jobs and economists are talking about China bringing on global deflation.

So, face it. The trip from here to some form of depression (when economic activity falls by 10%) ain’t that far. And if history is any guide, we know a depression brings one sure thing: falling asset values, falling incomes and yet debt levels which do not fall. That’s why depressions suck, for the indebted and the unprepared.

In my post of a few days ago I did not predict this deflation-tinged recession will evolve into a depression, Great or otherwise. I merely suggested how you might need to respond if you found yourself in one. Made sense to me. After all, most people in our society (and on this blog, apparently) are in some form of denial, not to mention devoid of the self-reliance that helped get the last generation through the 1930s. In those times nobody had credit card debt. Mortgages were fairly rare and reasonably small. There were no derivatives, CDOs, mortgage-backed securities, credit default swaps or Porsches. The government was not writhing in debt. There were no godless blogs like this one to scare the crap out of mothers in Montreal.

Which brings us back to Tammy. You’re okay. Chill. Don’t borrow against the condo to buy rental real estate because that’s a trap, not a diversification. Pay your mortgage off, but keep a cash reserve. Keep reading. Stay aware. Don’t run away to the country.

But, hey, do you get many squirrels on that balcony?

86 comments ↓

#1 The Tallyman on 11.13.08 at 7:52 pm

That squirrel can mean different things for many people.
Could be food to some or squirreling away cash for others.

The great thing about this blog is that it certainly keeps me on my toes.

Thanks Garth and all.

#2 Derrin on 11.13.08 at 8:04 pm

Wow. I feel like I have been cheated. No depression.
This is the same flip flop that Paulson did the other day. You have to love the internet. Where you can scare the french knickers off a Montreal girl from miles away.

#3 de Gaulle's bullet ridden Citroen on 11.13.08 at 8:55 pm

Tammy
Thank God these rodent hunters are lousy shots!

#4 charliegosurf on 11.13.08 at 9:01 pm

lol, it;s gettin funny, id so much rather eat the dog on the survival list, than the squirrel, lol one less thing to feed too.

so many cats around too! miow miam, that would be sort like eating the american way,lol.

het got a good one garth., one hell of a freak, cant belive this, maybe is gonna say to people to sell their house too soon, the world is gone mad. keep on surfin…….

http://www.canada.com/vancouversun/news/story.html?id=b72c6aa4-24ae-41a6-b611-9e6512eb7cd9

and oh yeah, the intel guy took laden out of the dustbowl to keep people entertain, imfo, lololololololol.

#5 so and so on 11.13.08 at 9:15 pm

It appears the woman in the photo is on a cell phone!

Kerosene-powered. — Garth

#6 Bottoms_Up on 11.13.08 at 9:18 pm

Apartment condo owners get pigeons–allow them to nest, steal their eggs, and they’ll keep laying them! Free form of protein. And when they’re finished layin’….

#7 charliegosurf on 11.13.08 at 9:20 pm

theres a nice set goin,

serious wave,one more proof of THE GANG of politician that contol us, makes you wonder how many ex-mayor canada has….

wonder under what cover name some in function will use the penthouses! they make it fun a least. like call one the Stphen Harper suite, with gold letter and a horse shoe knocker.

the basement should be call in honor of the premier of B.C, with a special poker room, makes me wonder on what land exactlly those canadian fine piece of real-estate are really buildt on. in whistler it’s on the old dump!

http://www.cbc.ca/canada/british-columbia/story/2008/11/12/bc-former-mayors-olympic-village-bailout.html

#8 Ilargi on 11.13.08 at 9:53 pm

Tammy.

You will face a situation within the next few years in which your income(s) will fall, be it through lay-offs or pay-cuts. The chance of that happening is 95%.

A $139.000 debt is not a good idea, not when it will take you years to pay off. It will become a millstone around your neck. More and more people, even in mainstream media, are starting to recognize what I have said for a long time: we are entering (make that already have) a period of deflation. And in deflation, debt is the worst thing you can have.

Canada largely still thinks it’s immune to all the ailments, for some reason. Time Magazine ran this article on Monday, about how great Canada’s banks are. If you wish to believe that, be my guest.

Fact is, though, that nothing separates our banks from others. Europe for the longest time said those same things, and look now: Germany is in deep trouble, and they didn’t even have a housing boom. Garth has made the point often and well enough that Canada does indeed have subprime loans, just like the US. And the connections that banks like CIBC have to the US mortgage lending system are downright scary.

Feel free to follow whoever makes you most comfortable in your world. Still, I tell you, your house will lose at least 50% of its ‘value’ in the next two years.

I know that sounds radically absurd, even to Garth, but I have been writing about this for years, and I haven’t been wrong yet. I keep challenging people on my site to point out where I’ve gone astray in the past, but so far have not received one answer.

Bloomberg today reiterated its estimate that $29 trillion has been lost in the world’s stock markets alone in one year. On top of that, US residential real estate is down over 20%, or some $5 trillion, over the past 12 months.

What that means to you and me is that credit is vanishing, that you won’t be able to borrow money anymore to buy homes or cars, that businesses are losing their lines of credit, which will (and already does) lead to huge job losses. And without credit, there are no loans, and no-one will be able to buy your home if you choose to sell.

Moreover, your home is the collateral for the mortgage loan, and if it loses half its value, the bank will come calling. That is known as a margin call. A $139.000 debt on a property that is valued at less than $100.000? Bad idea. US foreclosure notices will top 3 million in 2008, and the trend is very decidedly upwards. Canada will see the same, just with a time lag.

I moved out of Montréal, my beloved city, one year ago, to join friends who have a farm, with solar panels, land to grow food, and many other back-up systems. I miss my city every day, and my friends most of all, but when the supply lines dry up, and they will, how will a city feed itself?

You can read me here: The Automatic Earth

Be with your deity.

#9 Derrin on 11.13.08 at 10:04 pm

Garth just some info for you and your blogging fans located on the Wet Coast-Vancouver. If you remember the 1990’s there was “The Leaky Condo Crisis”. The main reason was faulty design. They have corrected this problem. But they haven’t corrected use unskilled labor that built these wood frame condos. Building booms always employ anybody. Not only will you see a downward pressure on prices but this ugly beast may rear its head again. For two reasons: One because unskilled labor is a problem ….and Two because all the unemployed engineers and construction companies have to find something to do with their good employees during the downturn. Get ready for Leaky Condo part two.

#10 charliegosurf on 11.13.08 at 10:23 pm

well shitty wave to end the set, the habs got wooped by a bear, christi, in the last depression, the cup was good to using it on then, ask aurele joliat and howie morenz if youn can.

that perfect storm $————-bring it on

#11 Lance on 11.13.08 at 10:29 pm

No need to go to extremes, but a certain degree of fiscal restraint is prudent in any market. A good income, low mortgage, that’s a good place to be Tammy, keep it that way for a while and you will weather almost any economic storm.

I recently sold my Edmonton home for a healthy profit and have returned to the world of renters for the next year or two until I see how the real estate landscape shapes up and bottom-pick a nice home for my family. My friends shake their head in disbelief that we are “just renting” when we pull in a healthy 6 figure income. We’ll see who shakes their head in a year or two.

#12 islander on 11.13.08 at 10:51 pm

Where does anybody get the idea that buying a rental property on top of a mortgaged principal residence represents “diversification”?

It’s all REAL ESTATE. And I’m a realtor.

Just like if all your money is in equities, you are not diversified just because you own stocks in different sectors. That’s your financial sales,,,,er,,, advisor talking. And right now he’s leading you, Pied Piper-like, to the abyss.

Nor is holding a sock full of USD and Euros to go along with the paycheque you get in Canuck bucks “diversification.” The Austrian School would tell you that it’s all funny money.

You need to be spread out across asset classes.

That’s what’s scary about this particular, um, Grand Melancholy: Half the people are in denial and the other half don’t know what to do even if they seek answers.

I’m even starting to hear from government-worker friends (on contract) who are seeing the writing on the wall as soon as the fiscal year ends. When even the public sector is afraid, the rest of us need to be VERY afraid.

#13 Jon B on 11.13.08 at 11:00 pm

I think a lot of people would benefit from a bit of cage rattling these days. Certainly the prospect of eating Squirrel in a dire depression gets the mental juices flowing. For myself, I figured years ago that easy credit and consumers endless appetite for stuff couldn’t ever end well. My preparation started years ago. Staying out of debt, careful spending and maintaining cash at the ready throughout. I just wonder if it will be enough when this gets real ugly.

#14 observer on 11.13.08 at 11:28 pm

Garth,
I was biting my tongue reading several of the responses posted by readers who recoiled quite dramatically after reading your post November 9th. Anyone who has been following this blog must have read the many requests for advice on what to do in a worst case scenario. I thought you were rather soft in your suggestions. Not because I thought that you were predicting that exact predicament, but because I understood where you going.

Folks, chill out. Is that scenario surely to happen, hope not. Am I foolish enough to believe it couldn’t? No way. We (under 50) have had the luxury of living in a time where we’ve had no financial hardships. Oh sure, we’ve had to watch our spending during some slow downs, but I don’t remember a time where I didn’t know if I would be having dinner on Tuesday. Anyone who believes this scenario that Garth describes could not possibly occur is “The Greatest Fool”.

#15 nonplused on 11.14.08 at 12:06 am

Looks like Charlie has been in his stockpiles again.

Maybe if Quebec finally separates they won’t have a depression.

The question still remains, deflationary aka 1930 USA or hyperinflationary aka Germany? Or is there even a difference? One you have no money so you can’t buy anything. The other you have lots of money but there is nothing to buy.

http://www.infowars.net/articles/november2008/131108goldoil.htm

#16 anonymous on 11.14.08 at 1:53 am

Just got back from Washington DC. The Americans are living in reality. People with great jobs aren’t shopping anymore. The party is over, and they know it. We went to Nordstroms… dead. Macy’s… dead. Retail is suffering.

Too bad nobody told the Albertans. They continue to spend like hopped-up rednecks on coke. My call that Alberta is going into a full-on depression still stands. It’s going to be worse than the 1980’s.

#17 JoJo on 11.14.08 at 2:06 am

NEW WORLD ORDER IN 2009!
The IMF would be at the center of the new monetary system.

The G-20’s Secret Debt Solution

If you think this weekend’s G-20 meetings in Washington are only about designing short-term fixes to the financial system and regulatory reforms for banks, hedge funds, brokers, mortgage companies and investment banks … think again.
Behind the scenes, a far more fundamental fix is being discussed — the possible revaluation of gold and the birth of an entirely new monetary system.
Furthermore, I believe the end result will make my $2,270 price target for gold look conservative, to say the least. You’ll see why in a minute.

First, the G-20’s motive for a new monetary system: It’s driven by and based upon this very simple proposition …
“If we can’t print money fast enough to fend off another deflationary Great Depression, then let’s change the value of the money.”

“The G-20’s Secret Debt Solution”

It would be a strategy designed to ease the burden of ALL debts — by simultaneously devaluing ALL currencies … and re-inflating ALL asset prices.
That’s what central banks and governments around the world are going to start talking about this weekend — a new financial order that includes new monetary units that helps to wipe clean the world’s debt ledgers.
It won’t be an easy deal to broker, since the U.S. is the world’s largest debtor. But remember: Debts are now going bad all over the world. So everyone would benefit.
So they’ll start hashing out the details to get the new financial architecture deployed as quickly as possible.

To end the Great Depression in 1933 Franklin Roosevelt devalued the dollar via Executive Order #6102, confiscating gold and raising its price 69.3%, effectively kick starting asset reflation.

Only this time, it won’t be just the U.S. that devalues its currency. The world is too interconnected. Instead, the world’s leading countries will propose a simultaneous and universal currency devaluation.

This time, they will NOT confiscate gold.
But they don’t have to confiscate gold. Here’s one scenario …

They cease all gold sales and instead, raise the current official central bank price of gold from its booked value of $42.22 an ounce — to a price that monetizes a large enough portion of the world’s outstanding debts.

That way, just like in 1933, the debts become a fraction of re-inflated asset prices (led higher by the gold price).

And this time, instead of staying with the dollar as a reserve currency, the G-20 issues three new monetary units of exchange, each with equal reserve status.

The three currencies will essentially be a new dollar, new euro, and a new pan-Asian currency. (The Chinese yuan may survive as a fourth currency, but it will be linked to a basket of the three new currencies.)

The new fiat monetary units would be worth less than the old ones. For instance, it could take 10 new units of money to buy 1 old dollar or euro.

New names would be given to the new currencies to help rid the world of the ghost of a system that failed. Additional regulations and programs would be designed and implemented to ease the transition to a new monetary system.

The International Monetary Fund (IMF) would implement the new financial system in conjunction with central banks and governments around the world.

A. A new fixed-rate currency regime. Immediately upon upping the price of gold and introducing the new currencies, a new fixed exchange rate system would be re-introduced. The floating exchange rate system would be tossed into the dust bin along with the old currencies.
This would kill any speculation about further devaluations in the currency markets, and drastically reduce market volatility.

B. To sell the program to savers and protect them from the currency devaluation, compensatory measures would be enacted. For instance, a one-time windfall tax-free deposit could be issued by governments directly to citizens’ accounts, or, to employer-sponsored pensions, to IRAs, or Social Security accounts.
Income taxes may subsequently be raised to pay for the give-away, or a nominal global type of sales tax could be enacted to help pay for the new system and the compensatory measures.

C. Additional programs would be designed to protect lenders and creditors. Lenders stand a much higher chance of getting paid off under the new monetary system — but with a currency whose purchasing power would now be a fraction of what it was when the loans were originated.
So programs would have to be designed to help lenders offset the inflationary costs of their devalued loans, probably via the tax code.
Naturally, all this is a bit more complicated than I’ve spelled out above. But that gives you a big-picture outline of what the plan could look like. And I think major changes like these are going to be set in motion at this weekend’s G-20 meetings in Washington.

Would they work?

Yes. They would help avoid a repeat of the deflationary Great Depression. But don’t expect even a new monetary system to put the U.S. or the global economy back on track toward the high rates of real growth that we’ve seen over the last several years. That’s simply not going to happen. Not for a while.

Instead, I’m talking about a massive asset price reflation, negative real economic growth in the U.S. and Europe — but continued real GDP gains in Asia.

The Big Question: What gold price would be legislated to reflate the U.S. and global economy?
I can’t tell you what gold price the G-20 would ultimately agree to. But here’s what they will be looking at …

To monetize 100% of the outstanding public and private sector debt in the U.S., the official government price of gold would have to be raised to about $59,000 per ounce.
To monetize 50%, the price of gold would have to be raised to around $28,500 an ounce.
To monetize 20% would require a gold price a hair over $11,800 an ounce.
To monetize just 10%, gold would have to be priced just over $5,900 an ounce.

Those figures are just based on the U.S. debt structure and do not factor in global debts gone bad. But since the U.S. is the world’s largest debtor and the epicenter of the crisis, the G-20 will likely base their final decision mostly on the U.S. debt structure.

So how much debt do I think would be monetized via an executive order that raises the official price of gold? What kind of currency devaluation would I expect as a result?

I would not be surprised to see the G-20 monetize at least 20% of the U.S. debt markets. THAT MEANS …

Gold would be priced at over $10,000 an ounce.
Currencies would be devalued by a factor of at least 12 to 1, meaning it would take 12 new dollars or euros to equal 1 old dollar or euro.

The return of the Gold Standard?
First, you don’t need a gold standard to accomplish a devaluation of currencies and revaluation of the monetary system.
By offering to pay over $10,000 an ounce for gold, central banks can effectively accomplish the same end goal — monetizing and reducing the burden of debts, via inflating asset prices in fiat money terms.
Naturally, hoards of gold investors will cash in their gold. The central banks will pile it up. At the same time, other hoards of investors will not sell their gold, even at $10,000 an ounce. But the actual movement of the gold will not matter. It is the psychological impact and the devaluation of paper currencies that matters.

Second, I do NOT advocate a fully convertible gold standard. Never have. There isn’t enough gold in the world to make currencies convertible into gold. It would end up backfiring, restricting the supply of money and credit.

What should you do to prepare for these possibilities?
It’s obvious: Make sure you own some core gold, as much as 25% of your investable funds.
Next year,You will want to own key natural resource stocks,gold stocks, and even select blue-chip stocks that will participate in the reflation scheme.

#18 David on 11.14.08 at 2:15 am

The housing market collapse is the principal cause of the precipitous population crash in the local squirrel populations across Canada. All those unopened West Bend Crock Pots have been pressed into service making slow cooked victuals out of scuiris vulgaris avec home grown garden vegetables.
No one would have believed back in 2000 that Nortel or GM shares would be worthless in 2008. That is exactly where those shares are heading this week. Laughing off the bad news is fatal folly.
The same bad news will continually hit the real estate industry over the next seven years and many unlucky dupes will not be laughing at their fate.

#19 Believer? on 11.14.08 at 2:28 am

Well, to many it might not be possible to happen and what if it indeed happens?

We are all used to the flat panel tv with satellites, luxury cars and stainless steel appliances and what not and all we have to do is walk in to any store swipe our card and its done and you can be going home with pretty much money can buy……………………………However, what if that convenient is no longer available?

That perfectly ripe fruits is not on the shelve anymore and those used to be your friends / neighbors were all out of jobs dying to beg for help or may be is you that is out of job and your family is in bad need of some food?

Its never stupid or being insane to get prepare for the worst and only time will tell who really is the Greatest Fool………………..!

#20 Kanata Gold on 11.14.08 at 2:47 am

I have plenty of squirrels in the forest in the back of my house. In case of anarchy, I can always chop that wood for firewood and build a fortress and hunt that dear that feeds of our hedge or the ducks that gets my dog barking.

The worst that will happen is people will have to work past 55 … ok maybe 65 … ok 70 … big deal! My mom is 70, retired for 6 months, bored stiff and back being an contracting accounting cause it’s fun to contribute to the economy in a positive way versus those union folks complaining all the time, want more cash and their employers go out of business.. Boo, hoo … you should have studied hard and gotten an education when schools were relatively free and stay employed and manage your debt (or pay it off).

Personally, I started my family later in life, had lots of fun during the hey day and now expect to work until I die because I love to work and solve complex business issues.

I also listened to Obiwan-Garth and sold out of Vancouver and managed my career towards a recession proof industry ….

The water won’t run out, the government won’t fail, anarchy will not rule … According to Keynesian economics the state can stimulate economic growth and improve stability in the private sector – through, for example, interest rates, taxation and public projects. Ok … canada elected the Reform Party again so they will screw this one up … we need the Liberals in power …

I was in Montreal recently and there sure is a lot of public projects in the streets… how about in your city? Nothing wrong with lots of public work programs to build new roads, fix our bridges and new school. Keep bringing in educate foreigners to contribute to the economy and pay taxes and in a few years get back to a growth phase.

Granted, we will have to take a hit for the team now but chill out, keep working hard, paying off debt and have fun in life and work. If what you do is not paying the bills, don’t complain, jump to the next thing, get more education and learn that life requires sacrifices and big leaps into the unknown. In the end, you will succeed if you believe in yourself.

#21 JoJo on 11.14.08 at 2:48 am

From my previous post, if big G-20 can’t find deal,than
again in 2009 we can see that $ US will collapse.
And we should expect the WORST RECESSION in the NORTH AMERICA.Hyper-inflatory Great Depression.
Than might be Oil $ 400, Gold $ 5000/oz,One coffee
$ 10,and Avg.House prices in Toronto $ 500k. But than avg. household income will be over 150 K (If they can still keep the job possition),and we’ll see tens of millions job losses.
Yes,currently is defflation? FAKE DEFFLATION.
Oil hit $ 54, and Gold $ 680.
But what about food prices,services,property taxes,
goverment salaries. Are thouse lower?

#22 thriller on 11.14.08 at 3:15 am

Whoever is panicing is a Greater Fool. It was a RE buying panic – it’s a buble. All buyers were Greater Fools. Now it will be a RE selling panic – that is another buble. Do not panic! Do not be a Fool! Whoever will follow Garth’s suggestions – is a Greater Fool. Stay calm, keep up what you live with and you will survive. If everybody would prudent and understand that, we would never see what we see… PIGS…

#23 Octagonian on 11.14.08 at 5:16 am

Ilargi,

You don’t understand economics. You are scaring people with this misunderstanding.
Yes, we will continue to experience ASSET deflation as in real estate and stocks, for the duration of this recession/depression. That is simply the correction in prices taking place following an insane boom, brought about by the digital printing press.
But INFLATION — bordering on hyperinflation — is our future. The money supply has been increased exponentially in the US by the FED — and the B of C keeps pace, and has, consistently, in order to subsidize Ontario manufacturers, and all Canadian exporters, due to our high taxes.
The money supply charts are there for all to see at both the FED and B o C websites.
So, you can go on preaching deflation, as deflationists have done for decades in the face of continued inflation by central banks (our dollar has lost 95% of its value in the last 75 years), but you will still be just as wrong.
Hopefully you don’t persuade too many people — not that preaching debt reduction is a bad thing, cuz in fact it is a very good thing.
But I invite people to do their own research – do not take my or Ilargi’s assertions at face value.

#24 timbo on 11.14.08 at 5:24 am

read this

http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom#page1

if this is true the system itself is at fault.

#25 Rick on 11.14.08 at 7:21 am

Garth–

This was a pretty wimpy backtrack. Unless you think there is no chance of a depression, why tell Tammy to hold tight where she is? As you said, things are happening fast (per your description of the last 4 months). Once we are in a deflationary spiral and heading toward depression, it is unlikely that Tammy will be able to make the move she is asking about and which would comply with your recommendations. Or do you really think everyone can simply wait until we are in a depression then be able to sell their houses, pay off their debts, move to the country, put the infrastructure in place to survive, acquire the tools and equipment and learn the skills to produce their own food? If she can sell her condo now, get a piece of property that can help her become somewhat self-sufficient, and still commute to her present job while she has it, she and her son will be better off, even if we don’t ultimately end up in a depression.

#26 Dr Phil, you can call me Uncle on 11.14.08 at 8:10 am

Greater fools come out come out wherever you are………..

According to the globe and mail and their paying advertisers (realtors) Obama is causing the dismal Toronto housing market to heat up and if all the potential home buyers all hold off till spring there may be bidding wars.

This has got to be one of the most preposterous positive spin articles I have read to date. This one takes top prise…. for now….

http://www.theglobeandmail.com/servlet/story/RTGAM.20081114.reRealEstateMarket1114/BNStory/RealEstate/home?cid=al_gam_mostemail

#27 Bruce on 11.14.08 at 9:26 am

You know Garth,
I hate to be a pessimist, but I tend to agree with your assessments. I too think we’ve had it too good for too long. The past half-a-century has been one hell of a ride. Homes have gotten bigger and bigger, the cost of living and inflation has gone through the roof, everyone’s in debt up to their eyeballs trying to keep up with Joneses buying stuff they can’t afford(and don’t need). It’s been a great party, but I think the time has come for a big reality check, and the hangover is going to be VERY painful. I was mentioning to another friend of mine just last week that you CANNOT build economies based on fiat currency. Every society that tried that approach has failed miserably. People seem to have forgotten that money has no inherent value. It’s only worth something because the government says it is. It’s nothing but paper backed up with NOTHING. Look at society today. It takes two people to keep a household going. We work 60-70 hours a week just to keep up payments on a house we’re never in. Families are strangers in their own homes. People today just go, go, go like chickens with their heads cut off. We are surrounded by angry, frustrated people everywhere you go. I’m not kidding when I say that I’ve seen people’s entire personalities change over the past two decades. All everyone has on the brain today is money and material things. Watch out for #1! Everyone is so caught up in the rat race that we’ve forgotten the simple things in life. Kids today are out-of-control little brats, and political correctness has gone way too far. We’ve become a cesspool of greed, deceit, crime, and corruption as a result of our materialistic lifestyles, fueled by a culture of planned obsolescence where we need to have the newest, latest, “coolest” Made-in-Chine junk. I guess the point I’m trying to make here is that we CANNOT go on like this. Something has gotta give, and soon. We are killing ourselves, literally. As for me, I’ve got roughly 6 months worth of groceries here, a 5000-watt generator, and can be completely self-sufficient if the need arises. The entire planet is facing chaos and perilous times unlike anything we’ve ever known. Thing is, those of who are really aware of what’s going on around us are the ones who’ll be prepared most. Kudos, and good luck!

#28 Al on 11.14.08 at 9:44 am

#23 Octagonian,

There’s something you’re missing in the inflation / deflation debate. Leverage. The CBs create money as you are aware. But financial institutions multiply it when they leverage themselves. In the US some financial institutions and hedge funds were leveraging above 30 to 1 (does anyone have stats for our banks?). As they deleverage they destroy money that never really existed, but was still helping to push up asset prices. As fast as the CBs create more money it vanishes into the deleveraging process. We will have deflation for awhile.

I’m less clear what follows next. Inflation (hopefully), hyper inflation (CBs overshoot when creating money, likely), currency collapse (CBs way overshoot and unmanageable government debt, possible, see squirrel part 1) or other.

#29 Bruce on 11.14.08 at 9:46 am

G-20 Shaping a NEW WORLD ORDER!

http://tinyurl.com/69vgab

#30 OntarioHouse on 11.14.08 at 9:47 am

I think that Canadian news is far more censored than in the US . Those in high positions are trying to hide as much as they can.
I think that Garths opinions are valid and everyone should take steps to prepare for the worst case scenario, in case it should happen. There’s no harm in being prepared. Hope for the best, expect the worst.

#31 Apocalypse rider on 11.14.08 at 10:22 am

Sir, your opinion is only one of hundreds published these days about the crisis. Probably it one of the most extreme and pesimistic. While there is a ertain probability that you will be right, there is no reason that we accept your arguments without a reserve.
Also, one cannot help questioning your motives. It is in your interest to make a profit on the book, and the more “attractive” and “sensational” it is, more it will sell, and more money it will bring for the good or bad time that follows. Nobody can predict it for sure how bad it will be.

So ignore me. Adios. — Garth

#32 y3maxx on 11.14.08 at 10:45 am

…..Is this the beginning of a U.S. takeover of Canada?

If there is going to be a US auto industry bailout…..it sounds like second stage Protectionism…(no matter what G W Bush said yesterday in his speech.)

…Firstly, we’ve seen effective Nationalizing of major U.S. Banks…(Canadian banks are being $$$ supported by the Canadian govt.)

…Secondly, effectively Nationalizing/Bailing the Auto industry….surely, GM, Ford Chrysler plants in Canada will be closed unless the Canadian govt matches(in a concerted effort) with their own $$$ bailout.

OT:….Russian President is visiting Cuba….I would have guessed, in one of their first Nationalistic moves, the U.S. will go in and Nationalize Cuba….(Freeport Mcmoran won’t complain.)

#33 pbrasseur on 11.14.08 at 11:07 am

Good advice to the lady, I can’t really think of doing anything worse than to borrow to invest into something at the peak of its value (the Québec RE market has still not declined) just before a recession.

Concerning the depression call. Does this backtracking means you hope to retain some credibility just in case we don’t fall into a deflationary depression? If the economy picks-up somewhere in 2009 you wouldn’t want to look like a fool now would you?

Depression? Can’t say it won’t happen but we are still very very far from that.

Don`t forget that recessions are about correcting unbalances and that these corrections pave the way for recovery. Example, the fall in the price of oil is equivalent to a massive tax break across the globe. Also the slowdown in consumption means people are saving more and paying their debt. Bad businesses fail (and that makes for ugly headlines) but they or their market shares are picked-up by better ones. Etc…

Just like people the world is dynamic, resourceful and adaptable, don’t over-simplify it by just looking at bad numbers or by trying too hard to find historical parallels.

Where did I possibly ‘backtrack’? It was posters here who have trouble with their reading comprehension who jumped to the wrong conclusion that I was forecasting a depresson. While I know serious deflation is coming, and I know the consequences, I am not ready to make that judgment about a 10% decline in economic output. Anyone who does is just guessing. — Garth

#34 smwhite on 11.14.08 at 11:32 am

A search tool for this blog would be great Garth, lots of good bits in pieces in previous threads…

#35 smwhite on 11.14.08 at 11:33 am

Some gold/Depression points, in 1929 before the crash the gold/DOW ratio was at 18, then fell to 2 at the bottom in 1932 (gold fixed at $20.67/oz. During the recession seventies, the ratio hit 3.5.

The height of the .com fiasco the ratio was 36(11500/$320oz), at the bottom of that crash it was 21(7500/$350). In September 2008 before the crash the Gold/DOW ratio was at 13 (11500/$900). Currently we sit at (8750/$750) around 12.

Considering the 30s and 70s are the two worst periods of economic chaos in history and considering the potential for hyperinflation because of the lack of currency integrity from the USA, could we see a ratio of DOW to gold in the 3 – 4 range? First you would need to figure out(properly guess) how low the DOW could go or how high gold could go but I think that 4 is a very conservative estimate and a good place to start. We will either have a run up in gold(up $40 today as I type) or find another floor in the market despite what the talking heads are saying. Maybe the meet in the middle for a (5000/1500). That gives you a ratio around 4 and not a crazy scenario.

http://goldnews.bullionvault.com/dow_gold_ratio_102220085

Point #3 is very interesting indeed…

#36 smwhite on 11.14.08 at 11:33 am

Your kooky site won’t let me post my kooky gold ramblings…

#37 smwhite on 11.14.08 at 11:34 am

Some gold/Depression points, in 1929 before the crash the gold/DOW ratio was at 18, then fell to 2 at the bottom in 1932 (gold fixed at $20.67/oz. During the recession seventies, the ratio hit 3.5. The height of the .com fiasco the ratio was 36(11500/$320oz), at the bottom of that crash it was 21(7500/$350). In September 2008 before the crash the Gold/DOW ratio was at 13 (11500/$900).

Currently we sit at (8750/$750) around 12. Considering the 30s and 70s are the two worst periods of economic chaos in history and considering the potential for hyperinflation because of the lack of currency integrity from the USA, could we see a ratio of DOW to gold in the 3 – 4 range? First you would need to figure out(properly guess) how low the DOW could go or how high gold could go but I think that 4 is a very conservative estimate and a good place to start.

We will either have a run up in gold(up $40 today as I type) or find another floor in the market despite what the talking heads are saying. Maybe the meet in the middle for a (5000/1500). That gives you a ratio around 4 and not a crazy scenario.

#38 $fromA$ia on 11.14.08 at 11:39 am

Garth we are already seeing deflation, low oil $, Gold lower, comodities, REal estate etc etc.

#39 leaside girl on 11.14.08 at 11:42 am

Well I am reading this blog now for a couple of month and let me tell you…
prises are not falling in Eglinton, Davisville and Leaside area in Toronto. I am checking everyday. More castles are build in the same areas. Huge new homes with the new owners. It’s a shame since I can’t afford a house (combine income 140K ) in these areas.
I have a feeling this is like a birds flu a lot talk about nothing…

Sales fall first, prices later. The situation will be quite different in four or five months. — Garth

#40 Chincy on 11.14.08 at 11:45 am

#17 JOJO

Interesting take…do you have anywhere I can go to read more about this or is this something you have come up with?

Cheers, Chincy

#41 pjwlk on 11.14.08 at 11:51 am

#16 anonymous:

“They continue to spend like hopped-up rednecks on coke.”

There are Rednecks in Alberta? Tell me it’s not so…lol

#42 Downsized and Delighted on 11.14.08 at 12:15 pm

” helped get the last generation through the 1930s. In those times nobody had credit card debt. Mortgages were fairly rare and reasonably small.”

Geez Garth – buying on credit (installments) was a major cause of the depression. This is why your parents (and mine) were so opposed to buying on credit. (My father Never had a credit card)

News to me. Consumer debt in 1930 was insignificant. Links? — Garth

#43 M9A on 11.14.08 at 12:16 pm

If a depression happens, does anybody know for sure if a bank can recall a mortgage, or a car loan?

#44 pjwlk on 11.14.08 at 12:21 pm

#8 Ilargi:
“Moreover, your home is the collateral for the mortgage loan, and if it loses half its value, the bank will come calling.”

First question: Why would the bank come calling unless the mortgagee has defaulted on the mortgage? For a couple of years during the 90’s my home was worth less than what I paid for it and the bank didn’t call me.

Second: Why would a bank foreclose on a property when they know it’s only worth 50% of the original value and the mortgagee can’t pay for the difference? Wouldn’t it make more sense for the bank to first see how well the payments are being covered by the mortgagee before deciding to lower the boom?

#45 MadMax on 11.14.08 at 12:32 pm

I like how you say it was the readers who said you where forcasting a depression when through imagery, and then stating things like the following, you clearly wanted the reader to be in fear that a depression is coming:

“Most mainstream economists seem to agree this recession will be brutish and deep, and may last two to three years. But it will not evolve into a deflationary spiral leading to a depression. Let’s hope they’re right”

“As I write my new book I have been asked for some pointers on surviving a depression”

“Get out of your mortgage. A true depression will sink residential real estate values…”

“Growing food in a depression is a no-brainer”

Sure Garth, you don’t outright say “I forcast a depression”, but you sure as hell do everything but. It’s interesting that you blame the reader for not understanding your message when you clearly want the reader to be lead down that path to draw conclusions in support of your driving point, or perhaps to lead readers by fear into wanting your next book?

I guess if you swap the words “depression” and “deflationary” (all 9 times you drove the drepression point) in your whole Nov 9th write up, it doesn’t sound as bad. I guess this is what the reader was supposed to do and know before reading it through the use of ESP.

Deflation does not equal depression, but the reverse is always true. — Garth

#46 POL-CAN on 11.14.08 at 1:13 pm

# 27 Bruce

Very good post. My thoughts excactly.

Things will change and change fast. Yes there will be pain due to high unemployment and lack of some items in stores. Will we adapt? Of course we will.

On a side note… I read about the massive slowdowns in consumption in the USA on a daily basis. Here in Toronto I could not find a parking space at the Yorkdale mall on Sunday…. People here still have not got the message. I figure by the holidays they will as the bad news just keeps on coming…

#47 Kestral on 11.14.08 at 1:16 pm

imo, whether it’s deflation or inflation, there are certain things one can do that will always help.

The big one imo is to live below your means, stay out of debt and have cash. Cash is king no matter what.

In an inflationary environment, you have cash to buy assets that go up massively in value or generate high rates of return.

In an deflationary environment, your cash can buy more.

This is why the “rich” get “richer”, because when you have cash, you have the means to take advantage of whatever environment presents itself.

So instead of worrying, focus on living below your means, saving as much as you can and avoid the debt monster. This will help you sleep at night, and feel more in control of your life.

As for other things, I have been learning to eat better, eating more whole foods such as beans and vegetables, less meat and cut out dairy completely. This brings down the food bill a lot and I feel a lot better healthwise (call it preventative maintanence).

Which reminds me of a story…

The philosopher Diogenes was eating bread and lentils for supper. He was seen by the philosopher Aristippus, who lived comfortably by flattering the king. Said Aristippus, “If you would learn to be subservient to the king, you would not have to live on lentils.”

Said Diogenes, “Learn to live on lentils and you will not have to be subservient to the king.”

#48 My_View on 11.14.08 at 1:21 pm

I love it, licking my chops.

http://www.financialpost.com/story.html?id=936664

#49 POL-CAN on 11.14.08 at 1:32 pm

#23 Octagonian

If I may… Please read some of Ilargi’s posts at TAE:

http://theautomaticearth.blogspot.com/

Go back several months if you have the time and start reading. You will find that his grasp of current events world wide is amazing and accurate. If you have the time take a look at all the articles and links he provides in each post as those are the sources for his own writting.

Once you have done that then maybe you will have enough background understanding to either support or dispute both Ilargi and Garth’s forcasts/predictions.

IMO the current money creation by the central banks around the world are dwarfed by the losses we are currently seeing. Hence deflation for the near future. After the deflation is complete and only then we might see hyper-inflation. That scenario will depend on how the central banks and govs around the world choose to deal with the massive amount of debt they are currently taking on. It will either be default or print.

Those are the only two choices they will have unless the whole thing is scrapped in favour of new currency backed by gold. The days of fiat are numbered.

#50 Marcus Aurelius on 11.14.08 at 1:52 pm

And Getting Back to Real Estate……did anyone catch this hilarious piece, inspired by J. Goebbels, in today’s Globe and Mail?

http://www.theglobeandmail.com/servlet/story/LAC.20081114.MARKET14//TPStory/RealEstate

Now we even have an “Obama Effect” to save the world for greedy, dishonest Toronto agents.

A litany of unethical agents in this piece urge the dumb buyer (“They[buyers] need to get it. They’re very nervous”) to jump in with both feet NOW -while the getting is good, because come Spring, we’ll all be serenely back to multiple offer fraud, ‘no conditions’ games, and price rebounds. Trusty prostitutes from the Bank Economist ghetto are then quoted to advise you-all that the 13% price declines in Toronto for October aren’t really the truth, and they are misleading (laugh here – for us little people who don’t get it, with a million bucks just sitting in our pockets doing nothing and not contributing to the 5% Heaven of Real Estate Sales Fraud).

At what point will the real estate agents in Toronto ‘get it’? They are not going to frighten the market into herd behaviour anymore. That’s over. Winter is going to be long and cold for these flack-happy folks.

Cheri-Dorsey McCann, of Sutton Group-Bayview Realty now wins the ‘Maureen O’Neil Award for Meritorious Stand-up Comedy in a Supporting Role’ for her performance as quoted by the (hopelessly compromised) Globe and Mail.

#51 john on 11.14.08 at 3:01 pm

Here comes the weird stock market rally again on both sides of the border. Both down about 250 at one point and falling but …presto…up they are coming. I am convinced there something funny going on here. Where’s the good news to justify this? You have to live on another planet to think it’s not going to be a long, deep recession. Any thoughts on who is trying to beef up the markets?

#52 The Tallyman on 11.14.08 at 3:23 pm

#20 Kanata Gold said:
“The worst that will happen is people will have to work past 55 … ok maybe 65 … ok 70 … big deal! My mom is 70, retired for 6 months, bored stiff and back being an contracting accounting cause it’s fun to contribute to the economy in a positive way”
————–

Kanata gold,
You’re too close to Ottawa & your head is too far up Big Brother’s arse. Move away… oh scratch that.
Just get back up on your wheel like an obedient rodent and keep spinning till you drop.

Obviously mom never spanked any sense into you.

#53 POL-CAN on 11.14.08 at 3:30 pm

# 50 John

The answer is simple…. The PPT and the market makers via the use of automated trading (computers help!).

They are screwing Joe Public in both directions :)

#54 Jeff Smith on 11.14.08 at 3:35 pm

Hey everybody,

Take a look at how Readers are mocking
CAROLYN IRELAND for her prediction that Obama will now lift the Canadian real estate market. Hihihi LOOOOLLLZZZ

http://www.theglobeandmail.com/servlet/story/RTGAM.20081114.reRealEstateMarket1114/BNStory/RealEstate

While in the very same website, they announced the homes resale tumble:

http://www.reportonbusiness.com/servlet/story/RTGAM.20081114.wmls1114/BNStory/Business/home

#55 tammy on 11.14.08 at 3:38 pm

To Garth and everyone, thank you very much for your all your varied comments to my question.

Please appreciate that I am not panicked, or scared, but with a young son, I have a tendency to worry about the big picture (which I think comes from being a Mom, my perspective has radically changed over the past 2 years).

THIS IS WHAT I HAVE SYNTHESIZED:

I do invest and I am spread over asset classes, I have not sold and have adjusted my investment strategy to include more cash savings. Real estate as an investment, well, I guess I am a little old fashioned and can touch bricks and mortar better than my investment statement I receive each month, but I would not be trading one for the other.

I do know that real estate prices in Montreal have not declined, hence you can still find an 1st floor Outremont condo priced at $399,000 the size of a typical Montreal apartment (and you still have to update the kitchen and bathroom) Way too expensive.

So if I want that farm (or any other property), it will be a choice, and over the next few years it looks like prices have a good chance of falling and I can save for a down payment. For now, I still have disposable income.

However, there is a good chance that my husband (a private chef) may have less business.

I may not be able to sell my place, but since it is centrally located in a popular neighbourhood. I can rent it. I will be paying it off ASAP.

But….. IF……. only IF……. we have a serious period of deflation spiraling everything downward towards a depression, all bets are off. I will be moving in with my farmer grand-parents.

My thanks to you all, and Garth, I will keep reading. Alas, I have no balcony, and hence no squirrels.

#56 Realtor on 11.14.08 at 3:58 pm

Wow, i woke up this morning and thought another election had been called after I went to bed last night. It seems most people are voting remax….based on the signs on everyones lawns.

Location? — Garth

#57 Mike B formerly just Mike on 11.14.08 at 3:58 pm

To Leaside Girl et all Torontonians ( myself included)

LEASIDE LEASIDE LEASIDE… who cares about that white bread holier than thou area. If you asked anyone currently living there if they could afford to live there today having bought some 15 years or so ago and they would answer a resounding NO. A well off young broker I know rents there and has seen marked drops in prices there. Of course he acknowledges the only attraction of the massive white bread Stepford-like community that it is is location. Easy to get downtown and mid town. Other than that. Mediocre houses with horrible basements and tons of semis. This is a working class hood people not ROSEDALE. Anyone dumb enough to buy at these prices is the greatest of fools. How are prices in that hood of any significance to the rest of T.O. as it is such a tiny place with a mediocre selection of modest North Toronto ish homes. Way over rated. I remember looking at a semi some 15 years ago and remarking to the agent that the stairs are so narrow down to the basement that you could not even get a washing machine down there. They had to disassemble a Maytag and reassemble it . WASHER ONLY. Don’t waste your time or money on Leaside as it is for the greatest of fools who need to tell people they reside in Leaside in some shoe box worth a million.

#58 smwhite on 11.14.08 at 4:28 pm

A piece with Garth in it…

http://www.financialpost.com/story.html?id=938201

#50 john,

A fellow reader here pointed out a couple weeks back that the likely culprit is the “Plunge Protection Team” at least in the USA.

There is also a lot of people day trading and riding the wave down(shorting) in the AM and come the afternoon covering…

#59 Jon B on 11.14.08 at 4:31 pm

Anyone looking for tasty Squirrel recipes:
http://www.bowhunting.net/susieq/squirrel.html

#60 Ilargi on 11.14.08 at 4:32 pm

POL-CAN
Thanks for your confidence. Much appreciated.

pjwlk
“Why would the bank come calling unless the mortgagee has defaulted on the mortgage? For a couple of years during the 90’s my home was worth less than what I paid for it and the bank didn’t call me.”
Banks, unlike in the 90’s, are so deep into debt they will try anything to get any money they can get their hands on. In the same sense, in the upcoming deflationary period individuals will need to sell whatever they can for whatever price they can get, simply because cash is deflation’s king.

As for people who say I don’t understand economics, I have swaths of writing about the topic available at The Automatic Earth, and before that at the Canadian version of The Oil Drum. Eat your heart out.

As for the fact that governments and central banks (and no, they are not the same) pump all this money into the markets, which some claim leads to inflation: as I wrote above, Bloomberg estimates that $29 trillion vanished from equity markets alone in the past year. Capital injections, most of which come on the taxpayers tab to boot, are about $4 trillion. How thae lost $25 trillion spells inflation, I honestly don’t understand. I must have a big black hole in my grasp of economics, but if that were true, why have I been consistently right on the topic for such a long time?

Much as I appreciate Garth, and I do think he’s a very positive force in Canada, I disagree with our host here on one point: there’s no way we can avoid a depression.

I posted an interview just now with an 86-year-old former Goldman Sachs chairman who said yesterday that he sees no way to escape a situation worse than the Great Depression. And I agree.

#61 The First Rick on 11.14.08 at 4:44 pm

#26 Dr Phil, you can call me Uncle on 11.14.08 at 8:10 am Greater fools come out come out wherever you are………..

According to the globe and mail and their paying advertisers (realtors) Obama is causing the dismal Toronto housing market to heat up and if all the potential home buyers all hold off till spring there may be bidding wars.

This has got to be one of the most preposterous positive spin articles I have read to date. This one takes top prise…. for now….

http://www.theglobeandmail.com/servlet/story/RTGAM.20081114.reRealEstateMarket1114/BNStory/RealEstate/home?cid=al_gam_mostemail
=============
Is there a concensus to have the Realturd industry investigated, overhauled and returned to a decent level of respectability? Should we be starting an online petition or lobbying our politicians for change? The industry is a filthy monopoly in dire need of reform.

#62 john on 11.14.08 at 5:01 pm

I still am very suspicious regarding the markets. Quite frankly I have lost trust in politicians, stock brokers, real estate agents, banks, car dealers on and on and on. What began as a recession evolving to another great depression has the potential to truly turn into another World War. Remember people (and nations)are most sensitive to food and money. Stay tuned…

#63 David on 11.14.08 at 5:14 pm

Looks like a tough year for squirrels in Canada. None of us should forget about those urban pidgeons with their fly by defacations on the Kondo Kings high carbon footprint Hummers. There are some great squab recipes that will add variety to the diet.

http://find.myrecipes.com/recipes/recipefinder.dyn?action=displayRecipe&recipe_id=523044

The TSE looks so very much headed toward an extinction vortex in this real estate and debt driven recession. Reading the article about the real estate rebound in the Globe did not offer much in the way of reassurance. Possibly there is no intelligent life on planet earth and the telescopes are pointed in the wrong direction.

#64 Realtor on 11.14.08 at 5:37 pm

Wow, i woke up this morning and thought another election had been called after I went to bed last night. It seems most people are voting remax….based on the signs on everyones lawns.

Location? — Garth

#55: Garth, location is in Muskoka.

#65 Dawn in Calgary on 11.14.08 at 5:48 pm

This will make some sit up and take notice in Calgary;

+++++

A major building project could be in trouble

Encana’s landmark office tower set to dominate Calgary’s skyline may have hit a major snag.

Construction began earlier this year, but now, H and R Reit , the company behind the Bow Building says it does not have financing in place to continue on with the massive project.

H and R Reit is now considering selling an interest in the Bow, but is still trying to secure financing, and is not ready to put the project on hold.

However, it is slowing the awarding of contracts.

#66 M9U on 11.14.08 at 5:53 pm

pjwlk: if banks have to get money, maybe calling mortgages and loans isn’t the answer (on good mortgagees I mean).

They will be stuck with empty properties that will devaluate even further all the while paying taxes and utilities on it.

#67 Jimster on 11.14.08 at 6:11 pm

Kashkari, Paulson have decide then are not going to bailout mortgages afterall. Watch first half hour of this if you have a strong stomach.

Treasury Department Use of Bailout Funds, Panel 1

http://www.c-spanarchives.org/library/index.php?main_page=product_video_info&products_id=282411-1

Event Date: 11/14/2008
Length: 2 hours, 19 minutes
Location: Washington, District of Columbia

#68 john on 11.14.08 at 6:48 pm

Home resales tumble 14%
Article Comments (115) LORI MCLEOD

Globe and Mail Update

November 14, 2008 at 12:15 PM EST

Existing home sales fell 14 per cent in October from the month before, the largest month-over-month decline since June 1994.

It was the lowest level of monthly sales activity since July 2002, according to a report Friday from the Canadian Real Estate Association (CREA).

In the country’s 25 major markets, sales were down 15 per cent in October compared with September.

Activity was down in more than three-quarters of Canada’s housing markets, including the five most active, Toronto, Montreal, Vancouver, Calgary and Edmonton. Fewer sales in Toronto were responsible for nearly one-third of the monthly sales decline.

Related Articles
Recent

In a down market, home prep is critical
Real estate gets the Obama boost
U.S. foreclosure rate rises 25 per cent
The average sale price also declined, by 10 per cent in October from the same month the year before, to $281,133. It was the largest month-over-month decline since August 1982, when the average existing home sale price also fell by 10 per cent.

Using a weighted national average, prices fell by 5 per cent on a year-over-year basis on October.>>>>

actually i have had fried squirrel and its very good :-)

#69 brazer on 11.14.08 at 7:32 pm

#26 dr phil

She recently helped one client buy a house listed for $695,000. The client pays about $2,200 a month in mortgage costs but collects $3,000 a month in rent.

“They have someone else paying off their mortgage.”

let’s take this quote above, and let’s find the “truth”, since most on this blog know not to trust what a real estate agent “shares” with the media:

(tax implications excluded in info below)

1) based on a 6%, 5 year term fixed, 35 year amortization, that client would need to have put down approx $300K on that $695K purchase in order to get a monthly mortgage cost of around $2200.

2) there is no mention of property taxes, utilities, maintenance fees, or home insurance in the client’s ‘cost’ of ownership…this could easily translate into an additional $1K+ per month

3) that $300K, were it not used for down payment, could garner 4% in a safe financial instrument…that could translate into an annual income stream of $12K (or $1K month)

So let’s see:

the lucky client gets to collect $3000 month in rent, and put out $3200 per month in expenses…that’s a loss of $200 per month

OR

the client could have taken that same $300K and put it into a GIC and collected $1000 per month.

you folks can decide for yourself where the “truth” lies on this one…

#70 brazer on 11.14.08 at 7:44 pm

Fidelity to cut 1,700 jobs in 2nd round of layoffs
http://finance.yahoo.com/news/Fidelity-to-cut-1700-jobs-in-apf-13582067.html

BOSTON (AP) — Fidelity Investments will eliminate 1,700 jobs early next year in a second round of cuts at the nation’s largest mutual fund company, which has seen its money management fees decline along with the markets.

Combined with 1,300 cuts that Fidelity announced last week, the second round disclosed Friday will eliminate about 7 percent of the company’s work force of about 44,400, said Anne Crowley, a spokeswoman for Boston-based Fidelity.

#71 brazer on 11.14.08 at 7:47 pm

MLS home sales down 14% in October
http://www.yourhome.ca/homes/article/537061

The number of homes sold through the Canadian multiple listing service plunged 14 per cent last month to the weakest level since July 2002.

It was the steepest month-to-month decline since June 1994, the Canadian Real Estate Association said today.

The association added that the impact was heaviest in big cities – notably Toronto, which accounted for one-third of the national decline. Total major-market sales were down 15.1 per cent from September.

#72 CalgaryRocks on 11.14.08 at 8:12 pm

the bank calling your mortgage is complete bs. My mom’s condo promptly lost 50% after she bought it in the 90s. We never got a call.

The guy saying that is a paranoid nut that is selling fear on his ad infested crap site.

#73 Downsized and Delighted on 11.14.08 at 8:17 pm

Here is one link on instalment debt in the 1920’s. (Hope it works). If not, by googling buying on instalment great depression you will find a number of articles. The big change was the formation of GMAC for the purchase of automobiles. I find that interesting since now we have the end of GMAC.

#74 Downsized and Delighted on 11.14.08 at 8:32 pm

http://www.gusmorino.com/pag3/greatdepression/index

#75 Downsized and Delighted on 11.14.08 at 8:34 pm

etext.virginia.edu/journals/EH37/murphy

This is a well-researched article on instalment buying in the 1920’s.

#76 Republic of Western Canada on 11.14.08 at 9:24 pm

#62 David – It just looks that bad when you live in hogtown. Here in God’s Country things are not so bad; especially since those cnb’s have slunk back home.

BTW, there’s hella more meat on a deer, elk, or moose than on some stupid squirrel, and it’s great when prepared well. (Sort of like good-looking, athletic young women, but I digress…)

Most of the miserable gun-grabbers out east there in southern Ontario will never know that however, because they’ve stupidly refused to learn to use and appreciate a good rifle. (With all due recognition to the bow-hunters out there).

You’re an idiot. — Garth

#77 JO on 11.14.08 at 9:48 pm

TO home sales down in spectacular fashion as announced today. Post 17 wrote about some grand scheme from the G20 about monetizing debt using an inflated gold price..could you please provide a reference where I can do more research? That article has too many holes in it. I do believe many currencies will decline along with asset values for the next little while…it really is a game of relative declines…we are clearly in deflation for now..eventually, and the only question is when which is a guess, we will enter into elevated inflation. Printing has started in the US but is overcome by the amount of debt being paid down or defaulted on so the net effect is very deflationary..Fed cannot print unlimited amounts just yet..it will wipe out the value of whatever treasuries it owns and lead to a collapse in credibility and unspoken social/security problems. That said, i am guessing the final stage of this (2011-2013?) will see drastic inflation..remember, the US and by extension the world has already gone through near hyper inflation in the late 70/early 80’s. It is clear the global economy is falling off a cliff. The mood of the public is on risk aversion and being frugal, and home/land prices are falling which together with auto sales in collapse are causing velocity to drop..by far the most likely scenario for at least the next 18-24 months remains deflation. But there will be shocking rallies in stocks (causing US $ to drop vs most non-carry trade currencies / gold and oil to rise with stocks) and other assets. I am not planning to enter a trade unless/until SP500 breaks 700 on heavy volume. This would likely be a 1-2 months trade betting on a strong rally. We are in uncharted waters. The US is being pillaged and robbed blindly by the Fed and Treasury. Look for the Fed to be abolished or reformed so that it goes back to its original role of lender of last resort. A quick list of fundamental reform for the world financial and economic system:
1) Force all banks and other lending FI to adopt mark to market accounting rules and give them 6 months to come clean with a list of all assets valued at mark to market. They need to writedown all bad loans.
3) Inject capital into banks that need it but require new management, cutting of any dividends, and no bonuses for three years after injection (give em warrants instead).
4) Create a regulated market for all impaired loans so that private buyers can buy/sell.
5) Abolish the Fed and restore it to lender of last resort. This would include all other central banks in a similar capacity. Fractional reserve banking (magic wand of banking where 9 dollars in credit can be created out of thin air with $ 1 on deposit. Management of currency would be in the hands of a truly independant board who will have a mandate of keeping the CAD in a 10 % range of value relative to gold and managed through levels of base money and not interest rates. Huge gold reserves not needed. Abandon interest rate/inflation targeting.
6)Update the Glass Stegall act to prevent overconcentration of ownership / Too Big Too Fail. Other regulation would be to gradually reduce the max leverage ratios over a period of 5 years down to 6 or 7 to 1 from current 12 to 1. Create a new super-regulator staffed with top quality people and double all regulator salaries. Prevent any incentives to bend in to politicians or industry. Implement an aggressive audit program to audit all FI s down to operational/loan file level to ensure compliance).
7) Implement new lending regulations that apply to ALL Fis. New rules will update and cover mortgages and lower maximum servicing ratios for total debt a person can safely carry. These rules must be more conservative on leverage and apply to all. Raise CMHC premiums significantly for those with less than 20 % down. Update underwriting criteria to the new stricter guidelines above. Re_price CDIC to raise premiums for FI that are rated as poor on management/lending practices and give cheaper rates to those ranked well.
8) Cut small business and corporate income taxes and reduce payroll taxes such as EI and CPP to help encourage job creation.
9) Cut the first bracket of personal income taxes significantly.
10) Within 12 months of doing the last two steps, gradually raise sales tax by 1 % in each of the following 2 years. An aggressive program of cutting government spending on non-essential services would be done.
11) Engage in high priority infrastructure projects such as re-buliding damaged roads and bridges, and public transportation. At the same time, a national green energy conversion plan would be implemented that will be broad and focus on moving the economy over to green energy and re-building the energy infrastructure. Oil and Gas would be taxed more heavily and green energy would be given special tax treatment.

Just throwing this out there for debate. It’s not perfect but I think this would put us on the right path. We would have to run a deficit for possibly 1-3 years but it will eventually be fixed once the economy turns around. Houses will have to come down as natural market forces will allow. Intervention should never be focussed on fixing prices because it fails in the long run. As difficult as it will be, the world will have to avoid protectionist and socialist/populist/left wing policies in order to help a good recovery take place.
JO

#78 Dean on 11.14.08 at 10:04 pm

Hi Garth
I have been reading your site for a few months and really enjoy it. thanks. My wife thinks I’m going crazy reading all this doom and gloom, but it does seem to be getting crazy out there (and here, Alberta.) I bought a chunk of land north of edmonton a few years ago when the land was cheap (and soon will be again!) It is 80 acres, 50 of field, 30 0f woods. I want to sell our house in the city now, while we can, to pay everything off, then rent and start building up there. What do you think? I think its a great idea!!

I think we should start a commune. Sounds like a good idea to me. — Garth

#79 T.O. Girl on 11.14.08 at 11:57 pm

RE Leaside

Somebody’s got tell sellers – speculators in Leaside that were not in 2007 anymore!! the greater fools all ready bought into their area that year~~ THE BOOM IS OVER Crap isn’t worth that kind of money They must really think people are stupid homes are being listed higher than 07 prices mean while their sales are down over 89% I predict is area will have a higher % drop than anywhere else. They would be lucky to get 600 000$ for a 2 storey home. Are people still that stupid and naive listen to the news read the paper all you see is doom and gloom layoffs everywhere budgets being slashed it is very frightening!

#80 nonplused on 11.15.08 at 12:06 am

A commune????? I ain’t sharing my money or my wife until I see a picture of your money and your wife! But I like the idea of depending on everyone else to do all the work.

#81 wealthy renter on 11.15.08 at 12:13 am

“I think we should start a commune. Sounds like a good idea to me. — Garth”

Um, couldn’t we start that commune on some warm, tropical island? Squirrels are a plenty scarce in them thar cold Edmonton winters! :)

#82 wealthy renter on 11.15.08 at 12:23 am

“The association added that the impact was heaviest in big cities – notably Toronto, which accounted for one-third of the national decline. Total major-market sales were down 15.1 per cent from September.”

So Garth’s anecdote about Leaside SFH is probably right on. The MLS listings have quadrupled in the little pocket of west Toronto where we want to live. And the cracks in prices are JUST starting to appear – two new listings tonight are at about 2006 levels.

What a change.

Makes me want to do a little bare, happy dance, or is that…mmm, bear happy dance?

#83 Simon on 11.15.08 at 12:31 am

Hmmm…

Tammy and her partner made a sizeable downpayment, 25%, and have a mortagage only slightly higher than their annual income.

A pretty secure situation it appears.

On the “plunge” in real estate prices the biggest drops appear to be in the cities where prices skyrocketed; what’s happening in the hinterland where prices never did get crazy?

#84 kc on 11.15.08 at 12:51 am

Hey all,

I have to share this, I was listening to the radio (talk show) today and the gal interviewer is talking to the head of the Morgage Brokers and this guy says….

“today we are asking to see full docs to give out loans, we are back to how it was 10 years ago, not like we have run the last 5 years”

OUCH nope no Sub-Prime here… and if you act fast you can listen to the show, they hold all shows for 7 days in the audio vault…

go to 2 pm friday nov 14, you can scroll the time meter to around 35:10 and this is where the interview starts… I couldn’t believe how this guy is still trying to PUMP the greater fools into signing a “new” mortgage.

cheers

http://www.cknw.com/StationShared/AudioVault.aspx

#85 octagonian on 11.15.08 at 3:39 am

POL-CAN,

I do not need to review Iargo or anybody else’s mistaken past posts. I do not need to understand their POVs.

The only thing I need to know are these facts: is the FED/BoC increasing or decreasing the money supply?

The Central Banks have consistently increased the money supply. They almost always increase the money supply. They occasionally pause, and we get a recession/correction. Then they resume inflating.

The FED/BoC increased the money supply quite steadily through late 2006 when they paused. That set off the credit crisis last August, including the serious decline in US, and later, Canadian real estate.

They kept the rate of growth of the money supply low for about a year. Then this fall, they went ballistic. To the tune of about 800%.

Iargo’s opinion or previous posts don’t matter. All that matters is the central banks have resumed inflating the money supply at an accelerated rate, and this will work its way through to you and me in about 6 – 12 months. Then the prices of EVERYTHING — except houses — goes up again. That is inflation.

All we are seeing now is a decrease in prices in a few sectors…stemming from the central banks having put the brakes on the rate of inflation over a year ago. This is the correction/recession in essence. But there is a blizzard of digital bucks in the pipeline now.

Inflation = an INCREASE in the money supply. Deflation = a DECREASE in the money supply. PRICE DEFLATION is simply an unwinding, or correction of prices downward.

It is factually and mathematically IMPOSSIBLE to have deflation right now, or ever, as long as politicians pull the strings on a government owned money supply. There is too much money out there right now. There will be no deflation beyond the temporary price deflation we are seeing in stock prices, commodities including oil and gold, and in real estate which will be a long time in recovering for reasons beyond money supply.

Look for auto, gasoline, and most conumer goods prices to slide downward for another year or two at most. Then when the tsunami of recently created credit hits the street 18 months from now, watch out for price inflation like few reading this have ever seen in their lives.

#86 Stephen from Toronto on 11.15.08 at 3:43 am

This comment is a continuation of Post #15 of Mr Garth Turner’s Squirrel Alert.

Garth is correct in pointing out that he is not forecasting a deflationary Great Depression II, but responding to inquiries by people who are aware of his upcoming second book “After the Crash” on steps to take if such a scenario becomes a reality.

The individual who is known as Ilargi and writes post for the Automatic Earth (a very good website by the way) and comment #8 on this blog feels that Garth Turner is optimistic given his accurate analysis of the economic situation that we are facing at the moment.

I happen to agree with Ilargi because few if anyone has been able to dispute this persons view that we are headed towards a depression. It is also backed up by a book written in 1993 that examines the economic history of depressions from 1670 to the present time

James Dale Davidson and Lord William Rees-Mogg wrote a book called the Great Rekoning which was published by Simon and Schuster in New York. The ISBN number is 0-671-86994-9 and copies are currently avalible from Amazon.com for under $30.

In Chapter 14 of the book(pp438-485), the authors present a chilling even frightening analysis of how the private and public economy could decline in a deflationary depression. Here is a brief synopsis of what could happen between 2009-2012:

There could be an increase in highways being privatized into toll roads for ailing states and cities to raise revenue for road maintenance and repair not to mention collecting badly needed funds for their operating budgets. Approximately 60% of the highway system is in fair or poor condition. In addition 42% of the 575,607 bridges in the USA are classified as obsolete or structurally deficient. The estimated repair bill is $500 billion but the final cost could top $1 Trillion dollars. This may lead to the development of smart roads in suburban areas not affected by a economic collapse and can be protected(p474-75)

In the last 4 depressions in the US there has been evidence of migration in every case. Dr Jack Lessinger author of Regions of Opportunity feels that in the next depression people will move from suburbia to exurbia. That is rural areas of the US that have small cities near farming zones. Remember this is only speculation, because migration patterns in depression are hard to discern. People will leave highly urbanized areas during an economic crash to escape poverty, crime and ruin to areas of safety and opportunity(pp476-77)

The first migration occurred in the depression of the 1870’s due to factors to the overthrow of the Articles of Confederation and the adoption of the US Constitution. There was a move of people from the original 13 colonies to new regions to the north and south such as Vermont, New Hampshire and Georgia.

The second migration occurred during the decades of depression from the 1820’s to the 1840’s. People moved westward and southward through the Ohio and Mississippi Valleys.

The Third migration from 1873-1900 resulted in the settlement of Western US. This situation led to the development of industrial and trading cities of Chicago, Minneapolis, San Francisco, Portland and Seattle.

The fourth migration began in 1929 just before the Great Depression of the 1930’s. It was a move to suburbia from the major cities in the US(pp478-9)

James Dale Davidson and Lord Rees Mogg is of the opinion that suburbia is in decline. They have become run down congested, pollution and may be as crime ridden as centre cities. Property taxes have gone up and the quality of public education has declined.

The automation of the manufacturing base has resulted in smaller plants, more skilled workers and made the educated investor wealthy.

Starting in the year 2000 most jobs require post-secondary education. The authors feel that a high concentration of poorly educated, unskilled workers are entering the job market in metropolitan areas. These areas may be unlikely areas of dynamic growth and may be centres of high costs.

Northeastern cities such as New York, Washington DC, and Philadelphia will suffer fiscally. The Philadelphia Examiner reported on Nov 14, 2008 that the City’s mayor and that of the Cities of Phoenix and Atlanta have petitioned Treasury Secretary Poulson to give US municipalities a $50 billion bailout package from the TARP plan.

US Cities could face infrastructure problems such as sewer and watermain breaks due to decades of funding cuts and power outages leading to brownouts and blackouts. With regard to the electrical power grid, failure could occur due to old age, diminished availability, lack of repair due to falling revenue of sabotage. Growing violence in cities may require the need of private security firms to back up local law enforcement agencies(pp480-481)

The authors state that 4% of the US population live high growth exurbs. This area covers a land area than that which house 1/2 of the nations population, it could quadruple in size during a migration. These semi rural areas have adequate infrastructure to support higher population, cheap land, literate populous and low crime.Lastly they will be known as information cities as they are plugged into the world wide web and could be centres of innovation. Aspen Colorado is an example of such a city. That means that if a fifth depression is underway these areas may grow dramatically between 2009-2013(pp483-484)

The Canadian Situation:

I would like to add some information that coo berates post #8 submitted by Ilargi from the Automatic Earth about Canada’s indebtedness.

Eoin Callan(Financial Post-Wednesday Sept 17, 2008)

AIG Credit default Swaps exposure to Canadian banks

Royal Bank of Canada-$300 billion
Toronto Dominion Bank-$197 billion
Bank of Montreal-$118 billion
Bank of Nova Scotia-$110 billion
CIBC-$86billion of which $25 billion is level 3 assets (toxic paper no one wants to buy)

If you really want to be frightened, CIBC has approached the bank of Canada twice this year for a bailout and was refused. Unnamed source from Bank of Nova Scotia.

Unnamed sources have indicated that CIBC exposure to ABCP and credit default swaps may result in the bank being insolvent. This means that it may have to merge with another bank to survive.

Even more frightening during the collapse of Bear Sterns in mid March 2008 an Asian banker told a CBC TV reporter that there WILL NOT be 5 commercial banks in Canada when the crisis ends. He said that after some mergers there will probably be 3 banks left. The reason bad subprime loans and credit default swaps.

Don’t forget about the $33 billion of Asset Based Commercial Paper (ABCP) that is still under litigation in Ontario since fall 2007. A majority of the investors will be lucky if they see half of their investment. CBC reported last year that a couple living in Alberta had their life savings of $300,000 in the funds and was told by lawyers that they may get 1/2 of it back. They cannot even sue the banks or the investment firms involved. Litigation will take 10 years if they do not settle soon they will lose everything.

I have not made up this information. It was reported publicly on television and newsprint

Statistics Canada 2005

Household Debt-$916 billion
Mortgages-$815 billion
Combined direct debt Federal, Provincial and Municipal from 2000-01 to 2004-05- $800.4 billion down to $791.2 billion.

Corporate Debt-Unknown

fathersforlife.org

Government of Canada liabilities-$1.7 Trillion
Direct public debt-$565 billion
Direct debt and unfunded liabilities-$3.5 trillion

Fraiser Institute-Tuesday May 20 2008

Canadian Government debt-$2.4 Trillion (direct debt plus OAS and Medicare)

OAS, Medicare and Canada Pension Plan-$1.3 Trillion

So if you think that Canada’s commercial banks are safe and that our governments have our unfunded liabilities under control think again.

In Chapter 15 of the book “Rational Living in an age of Crisis” (pp486-524) the authors present 15 steps that anyone can implement right now to be ready for a second Great Depression should it occur:

1) Get Committed
2)Involve your Spouse
3)Act as if the Depression has already begun
4)Gather knowledge
5)Master Compound Interest
6)Stop Shopping
7)Turn off the Television
8)Connect more closely to family and neighbors
9)Do not be a Victim
10) Watch the calendar, not the clock
11) Treasure your health
12) Don’t Boast
13) help others
14) Defend the open society
15)Tell your Children

In the next post I will briefly elaborate on each of these points.