Four dogs

Friday November 14th might mark the day the tide turned in this country. Not sure. But it might be worth sticking some gum on, so we can find it later and check.

“This suggests a major downturn in consumer psychology,” the economist said, unnecessarily. The news was a 14% monthly drop in real estate sales, the worst decline in 14 years, plus a 10% plop in national prices. This happened on a day when the stock market crapped out again, the Canadian dollar plunged to the 80-cent level and the price of crude slipped below what it costs to find the stuff in northern Alberta.

At the same time our prime minister was off to Washington to tell those guys down there they had just screwed up the world with their shoddy financial oversight and lax lending. Meanwhile the above-noted economist, Gregory Klump of the Canadian Real Estate Association, was blaming Ottawa in part for the housing disaster, seeing it had ended the 0/40 mortgage era on October 15th. I hope it was not lost on either of those geniuses that our robust real estate market turned into a bubble, which is now exploding, thanks in no small measure to new rules which let people without money buy $450,000 houses.

Anyway, as I said, mark the day. Retail sales in the US crashed along with Circuit City. Sun Micro is laying off thousands and GM inches closer to oblivion. Would you buy a new Chevy today? Me neither. And on November 14th, BMO economist Doug Porter (he’s okay) said “the bust has begun” when it comes to the Canadian housing market. An equivalent bust in the States, let’s not forget, is what led to the gutting of the middle class, empty department stores, deserted Hummer showrooms and Barack Obama (not all those elements are weighted equally).

The G20 meeting this week is a huge gamble. If it yields nothing concrete, markets will be punishing. The consequences on the streets of Toronto, Calgary and Vancouver will be more holes where condo developments are supposed to be and much better rush hours, thanks to all the unemployed people.

In total, we’ve screwed up on so many fronts it’s hard to know where to start counting. Homeowners wanted bidding wars. Governments wanted easy popularity. Bankers wanted fast profits. Big oil wanted unsustainable prices. GM wanted SUVs. Consumers wanted it now. Greed, lust, power and envy.

So sitting in front of the fire tonight I told my wife about our little squirrel chats here. And she surprised me. She’s backing Ilargi.

Holy crap.

Meanwhile in Calgary…

This is what the future looked like. Remember it well.


#1 Charles on 11.15.08 at 12:11 am

The following is today’s blog post from my second most favorite financial web site. My most favorite site is theautomaticearth (which Garth’s web site has a link to). Garth, your site is number three on my list.

The world continues to slide into a depresssion. Since this whole mess began deep inside the banking systems as the flood of super-cheap loans from the Japanese carry trade overwhelmed the world’s ability to park debt on top of assets and future earnings, we are now in a 0% system where money is not created but continues to vanish. Why is that?

Money is vanishing because jobs are vanishing. This, in turn, cuts down on not only simple consumption but also the very vital aspect of future earnings. Bankruptcies are now soaring, commodity prices dropping and industrial output is crashing. These are all signs of depression. The US and the G20 nations hope to get money creation re-started but it isn’t all that simple. As we know from previous depressions.

First off, credit creation has not disappeared.
This is easy to understand. Someone is creating more credit like crazy. This someone is the governments of the G7 nations. In particular, the biggest debtor nation on earth, the one who owes the most money to the most people, the US, is creating credit out of thin air at an insane rate.

Washington’s $5 Trillion Tab –

According to CreditSights, a research firm in New York and London, the U.S. government has put itself on the hook for some $5 trillion, so far, in an attempt to arrest a collapse of the financial system….The estimate includes many of the various solutions cooked up by Paulson and his counterparts Ben Bernanke at the Federal Reserve and Sheila Bair at the Federal Deposit Insurance Corp., as the credit crisis continues to plague banks and the broader markets.

The Fed has taken on much of that total, including lending a cumulative $1 trillion in overnight or short-term loans since March to primary dealers through its emergency discount window and making a cumulative $1.8 trillion available through its term auction facility, a series of short-term transactions it began making available twice a month in January. It should be noted that a portion of the funds lent in these programs has been repaid and that the totals represent what has been made available.

Basically, the entire US banking system has gone bankrupt. The fiction of banking continues so that the economy doesn’t totally shut down. But it is supported by creating credit for the US and then basically selling it to the US government which is the thing that is deep in debt. These debts are being held against the US taxpayer’s future earnings. And with layoffs skyrocketing, this is not going to hold.

When Paulson and Bernake went to Congress with a one page proposal to let these twin troublemakers create $700 billion in US taxpayer credits, it was, as I surmised back then, merely the camel’s nose under the tent. I never owned any camels. But I have owned cows, sheep, goats, horses and other critters.

The idea is, when these large mammals get their noses under a fence or door or something movable, they will shove forwards if there is grass on the other side. With my oxen and my Haflinger horse, mere fences didn’t keep them in. They would merrily go right through. Only barbed wire worked.

The banking gnomes needed to break down the fence and feed in the Federal fields after they utterly ate up everything in their own pastures. So the $700 billion was cooked up as a scheme to gain permission to do what they are now doing: creating credit with no reserves to back any of this. Only more IOUS. Once they got permission to do this slightly, they did it merrily and continuously. With no debates, no laws. Totally via fiat.

Readers of monetary history can clearly see that these things happen all the time. Namely, huge, huge, gigantic monetary changes are always done via fiat and usually, only three or four people at the very apex are involved. Usually, a President. In this case, our present occupant of the White House being a lunatic, he was cut out of the deal and the unelected Treasury Secretary unilaterally did this with the privately owned Federal Reserve banks assisting.

October budget deficit hits record of $237.2B

The Treasury Department said Thursday that the deficit for the first month in the new budget year was the highest monthly imbalance on record. It was far bigger than analysts expected, over four times larger than the October 2007 deficit of $56.8 billion, and more than half the total for all of last year.

The big surge reflected the government spending $115 billion to buy stock in the nation’s largest banks. Those were the first payments made from the $700 billion government rescue program passed by Congress to deal with the most severe financial crisis to hit the country since the 1930s.

The October deficit began a period in which economists are forecasting the red ink for the entire year could well hit $1 trillion, reflecting what many expect to be a severe recession, which will depress tax revenue, and the heavy costs of the financial system bailout.

Yikes. This is pure insanity. Another camel’s nose under the tent: when the world, meaning OPEC and Asian exporters to the US, began to buy up our government debts while accepting sub-inflation level interest rates in return, we were absolutely delighted. The American people and Congress and the Presidents all became accustomed to endless credit. All we had to do was overspend and our dire trade rivals would happily suck it all up for us! What a fatal delight.

They are not buying so much now. So the Federal Government and Federal Reserve pass these debts between each other. This is not good. They are getting away with it for the moment because wealth denominated in electronic dollars is vanishing fast enough for this to not cause a tsunami of inflation. The minute the money destruction ends, inflation will fly out like a bat out of hell.

Here Comes a Bankruptcy Boom (

So far in 2008, there have been a few name-brand bankruptcies—like the recent Circuit City filing, Linens-n-Things, Frontier Airlines, and Mrs. Fields Cookies—plus the colossal liquidation of Lehman Brothers. But believe it or not, it has been a fairly calm year for bankruptcy judges, by one important measure: the corporate default rate. The share of corporate bonds in default over the past 12 months, which goes hand in hand with bankruptcies, has been about 3 percent, according to data compiled by Prof. Edward Altman of New York University’s Stern School of Business. That’s near the historical average. So, the vast majority of corporations have been paying their debts during the early part of this recession.

But like many good things of the past few years, that’s about to end. The latest data from Altman suggest that by this time next year, the corporate default rate will be somewhere between 8.5 percent and 11.1 percent. That means there could be three to four times the number of corporate bankruptcies we’ve seen over the past year. And each one of those will probably involve layoffs.

This is what is so grinding about recessions. People too deep in debt will go under. They will drag under people only a little in debt. People with no debts will struggle to hang on and pay their taxes. People with rainy day savings will now have to raid their 401k accounts in order to survive unemployment. Once all the savings are literally eaten, we will resume growing. This destruction of wealth is why we set up control systems in the past.

For the side effect of all this is dangerous. As people see their futures destroyed, they get angry. At least, normally. Not everywhere, of course. And as we see the baby boomers trying to retire, we will see some very unpleasant things. Heh. Hard for me to mount a barricade while limping from arthritis.

Now on to China: China should buy gold for reserves

“China should have at least several thousand tons of gold in its reserves, five to six times the officially announced 600 tons,” Hou Huimin, vice chairman of the China Gold Association said by phone from Beijing. The group represents producers, traders and retailers.

The U.S. budget deficit climbed to a record in October, and some investors are betting the dollar may weaken as the Treasury would need to sell more debt to finance its $700 billion financial-rescue package. Gold has tumbled 29 percent from its March record.

“ There’s no doubt that gold would be attractive, as U.S. debt is likely to swell,” said Kenichiro Ikezawa, who oversees about $3 billion as a fund manager at Daiwa SB Investments Ltd. in Tokyo. “In the long term, both the dollar and Treasuries will probably weaken. It’s possible that China will buy more gold, though the country is likely to do so gradually.”

As I predicted based on cultural history, the Chinese are moving relentlessly towards a gold reserve system but not for local consumption which constricts lending too much. But for world trade. This is very important. There is actual discussion going on now for a separate ‘currency’ based on gold to be used to resolve global trade. This will kill the whole FX business where people trade money as if it is meaningful.

Before Saving the US by Xiang Songzuo

To relieve the crisis, the US must repay its debts, and to do that it needs to live a more frugal life instead of asking others to continue lending it the money to maintain its over-consumption.

The first thing the government needs to do is reduce spending and the deficit. Correspondingly, the US needs to cut military disbursement, stop its global expansion and the robbing of oil resources from other countries. Companies should also become thrifty and avoid highly leveraged operation. Families and individuals should stop anticipating their income to buy houses and travel globally. Instead, they should warmly welcome foreigners to travel to and spend money in the US…. 6 Principals:

The US should cancel the limits on high-tech exports to China, and allow China to acquire advanced technology and high-tech companies from the US;
The US needs to open its financial system to Chinese financial institutions, allowing all Chinese financial firms to open branches and develop business in the US;
The US should not prevent Europe from canceling the ban against selling weapons to China;
The US should stop selling military weapons to Taiwan;
The US should loosen its limits on numbers of Chinese tourists and allow them to travel freely to the US;
The US should never restrain China’s exports to the US and force RMB appreciation in the name of domestic protectionism and employment pressure.
This list is an old list, by the way. I know this list all too well. It goes back to 1984 when the Chinese lived with me. It is a declaration of intent which goes along with the business of ‘I be bank.’ The US must take this list very seriously. It is future demands. And if we insist on living beyond our means, this list will be our ‘to do’ list in the future. Native group forging China link

When it comes to foreign investment, Canada’s aboriginal leaders like to think of themselves as the hidden wolf behind the crouching Chinese tiger.

On Thursday, they emerged from a historic two-week trade mission in China convinced that the great Chinese tiger was about to be unleashed on the resource-rich native Canadian land mass to generate new wealth for aboriginal communities across the country.

Some of China’s most powerful corporate and political leaders were on hand at Beijing’s prestigious Government State House Thursday to sign several memorandums of understanding that, according to the head of the Canadian aboriginal business delegation, could open the door to concrete business partnerships.

World trade may be in trouble but the Hu/Wen push for international power continues. They are very dynamic and will succeed. Note that the bad blood with the natives in the US and Canada are an open sore. Hundreds of years of bloody history can’t be cancelled. And the US and Canada support nativist revolts like the one in Tibet. The natives in North America watched that with amazement. So now, the propaganda tool is being turned against the very governments supporting and assisting similar revolutions in China will come home to bite.

The collapse of OPEC pricing powers is destroying the Arab kingdoms’ economies
Panicked investors force Kuwaiti market to close – The National Newspaper

The halt to trading is the first to be announced in the Gulf even though stock markets across the region have fallen steeply. “The traders are on holiday in the coffee shop enjoying their coffee,” said M R Raghu, the head of research at the investment firm Markaz, which has offices across from the stock exchange. “Personally, I think it’s the right thing to do. When all you can find is sellers and not a single buyer irrespective of the company involved, you have to find some solution before you start to allow the market to function again. It’s a really crazy step, and it may not be the best thing to do, but under the circumstances it’s the only thing to do.”

They don’t know how to deal with all this. They want up and up. How familiar!

And now, off to Japan: Elderly crimes rise in Japan due to dropping social supports

More senior citizens are picking pockets and shoplifting in Japan to cope with cuts in government welfare spending and rising health-care costs in a fast-ageing society.

Criminal offences by people 65 or older doubled to 48,605 in the five years to 2008, the most since police began compiling national statistics in 1978, a Ministry of Justice report said.

Theft is the most common crime of senior citizens, many of whom face declining health, low incomes and a sense of isolation, the report said. Elderly crime may increase in parallel with poverty rates as Japan enters another recession and the budget deficit makes it harder for the government to provide a safety net for people on the fringes of society.

“The elderly are turning to shoplifting as an increasing number of them lack assets and children to depend on,” Masahiro Yamada, a sociology professor at Chuo University in Tokyo and an author of books on income disparity in Japan, said in an interview yesterday. “We won’t see the decline of elderly crimes as long as the income gap continues to rise.”

The concept of ‘Japan’ is under fire. And they are the #2 world economy. As well as taking all the modern systems to the ‘nth’ degree. Many European nations are far below replacement birth rates. But Japan leads the pack in dearth of births. This is our own future. We must study Japan to see how free trade really works or not works. We must understand how dangerous it is to let technocrats with no future plans for a living, breathing world, operate.

Japan is literally dying right before our eyes. When I die of old age, myself, Japan will be a geriatric ward. These places are depressing. Most people are befuddled, confused or complaining or can’t move well. We need the power of youth, of love, of babies being born. Is industrialization killing us? This is a pressing philosophical and economic question tied to the concept of too much debt leading to crazy schemes that are not good for us in the long run.

The following is the link to this web site:

#2 East 905 on 11.15.08 at 12:27 am

Good on you Garth for consulting with your wife.
There are three types of security I need to sleep well at night: 1) physical security; 2) financial security, and 3) relationship security.
I have a friend. Both she and her husband are gainfully employed. They have two teenage daughters. Both are in their 40s. They have no mortgage, and own a cottage. Know how they did it? As my friend says, they are CHEAP. They live well beneath their means.
I am not as financially secure as my friend, but after graduating from university in the middle of a recession, I learned to suck it up, get work where I could get it, and pass on crap if I couldn’t afford to buy it with cash. As a family we still live below our means. We bought a house we knew we could carry with one income, should something happen to one of us. We enjoy a lifestyle that includes regular trips to the local conservation area, not Cancun. We shop Canadian (MEC, not Holt Renfrew). We are rapidly paying down the mortgage. Financially, I feel secure. I’m sorry if many people don’t enjoy that same feeling, but they may be driving nicer cars than I am, or enjoying a lifestyle they can’t afford. Just because a bank says they will lend you a gazillion dollars doesn’t mean you should take it. I think that most people should know better, and I think almost everyone on this forum does.
But all this business of squirrels and doomsday rationing has got me thinking about physical security. Maybe we need a few extra cans of beans and veggies. And propane. Seriously.

#3 charliegosurf on 11.15.08 at 12:44 am

People have this remarkable talent to fool themselves, to see only what they wish to see, and it can be a gift from heaven. But that’s not always a given.

At times it helps to look beyond your dreams. There are entire industries out there who use that talent of yours to see only what you wish, in order to sell you detergent, cars, houses, politicians and a whole lot of other things

that you’d be better off without. Your dreams have a way of betraying you when you use them to escape. It’s high time, and High Noon. Ask yourself why you dream what you dream.

quoting ILARGI, does it stands for imlarge like the american way….lol, if the tough gets goin than the goin is gonna get squirelly!

sweet dreams, i can feel the heat from that fireplace from here garth, keep on stockin it…women do have a special sense When it comes to the truth, the real TRUTH.

#4 dd on 11.15.08 at 1:05 am

Yes Canada, the US, and the world is in a mess.

Dark days ahead. However, we will survive.

#5 Kilt on 11.15.08 at 1:07 am

Does it really stop there. I looked over my portfolio and my prospects quite thoroughly recently and I noticed a very common pattern. The majority of companies have grown through debt rather than building cash. Prior to the commodities boom they were all hedged to the eyeballs, but when gold hit $1000, copper hit $4 and oil was nearing $150, they weren’t hedging future production, they were buying back their hedges.
It seems when times are tough, companies are conservative and make fairly decent decisions. But when times are good, they tend to spend wildly and make poor decisions.
From my point of view, assets are becoming cheap again, and now is the time to take that hard earned cash that you have saved up during those boom years and put it to work. But now all these companies can no longer borrow, they don’t have cash in the bank, and their stock prices are so weak that an all-share takeover just isn’t an option.
If I compare that to my situation and people I know. Most friends have purchased homes in the last 2 years. A quick search of listing in their areas will tell me I can get a much nicer property for the same price or less than what they paid (and that is the listed price). They are now burdened with debt, which makes borrowing for other investments difficult. Currently a patient investor can borrow at 4% and put that money to work in volatile markets and get monthly returns of better than 10%.
These friends have also used most of their savings as a down-payment. Which is now an investment of capital that is paying negative returns. And with the number of sales rapidly declining, a very illiquid asset.
Should I pity them? Seems like they ran their financial lives poorly, just as so many companies have been run poorly. I told them to do the math, they were better off renting and stuffing the remainder in an RRSP. They’d gloat that their house is worth 10% more a month after buying and that the market only goes up. Get in now while you can still afford it.
Well, even with prices down 10%, I still CANT afford it, but neither could they. Sure those monthly payments aren’t too bad at 5% interest, but what happens in 5 years if rates go up a few percent.
In my neighborhood, the cheapest 2 bedroom condo is still 10% over what I could comfortably afford. That is THE cheapest, which gets you a 40 year old unit in the armpit of town. Prices need to come down another 30% before buyers are truly getting value.


#6 Trevor on 11.15.08 at 1:15 am


Another good post. Yours is turning out to be one of my favorite blogs on the internet, due to its Canadian focus, the “in-touchness” (even from a politician, which I *honestly* thought was literally impossible, outside of Ron Paul), and the so far civilized comments.

Here’s a topic I would like you to talk about….and if you can’t talk about it, I would appreciate if you would post my question and say you can’t, and you can’t give your reasons why, that’s good enough. The topic is, why do politicians, on economic matters, refuse to listen to to people that identify problems in our economy, why they are problems, and what the eventual ramifications of these problems will be. They do it in very simple terms, and they are being proven right day after day. Yet, they continue to be ignored. The US has more or less passed the point of no return in some sense…although a voluntary return to prudent fiscal management now, rather than having it forced upon them 2 years down the road, would be very beneficial in the long run.

Here in Canada, we are about 2 years behind the US in terms of our bubble…what is happening there will soon be happening here. I think the $75 Billion “not a bailout” of our banks (roughly equivalent on a per capita basis to the $750 Billion bailout in the US) is a sure sign of what is approaching us. Anyone with a functional brain knows that the hangover from the real
estate and credit orgy we had in Canada is going to be bad, even if not as bad as that in the US.

So my question is this: Why are all (?) politicians in Canada acting like all is well here. I don’t expect the NDP to be on top of this, but surely someone in the Liberal or PC ranks should be aware of the reality? I can understand Bush not having a clue about this, as he is totally detached from reality (by virtue of his past, and being the president), but honestly, our politicians are much closer to the ground. Does Harper honestly not know what is coming? Does no other politician, including those in the opposition? At least one person must know something, yet no one, outside of you, says anything? What’s the deal?

I think Canadian politics, and world politics, needs a dose of reality. I think the public would eat it up, we are aching for someone to tell the truth, good or bad. So now that you’re a free-lancer, do you have the balls to shed a little light on the situation?

#7 Larry on 11.15.08 at 1:31 am

Thanks for all the information Garth, It certainly is interesting times that lay ahead of us. I live in Calgary and am happily renting until this RE mess gets sorted.

#8 pitte sue on 11.15.08 at 1:51 am


Garth’s gone squirrelly.

Only kidding.

I’ve been following SHTF blogs for a number of years now, mostly for entertainment value. Sadly, I am becoming less and less entertained.

A financial neutron bomb is exploding right now in slow mo, vaporizing only wealth, leaving people and buildings intact. Like the characters in “Dr. Strangelove”, our world leaders seem to be too incompetent to stop the oncoming armageddon.

The aftermath may just be the world the writer’s of “Mad Max” would have envisioned.

Eating squirrels in the near future is becoming a distinct possibility.

#9 David on 11.15.08 at 2:41 am

The only probable outcome from the G20 meeting will be an excess of hot air from brass lunged windbags.
The only disappointment people like Klump face is that the phony real estate bubble did not last longer. Millions of Canadians will outlive their retirement funds of diminishing value and Klump is mad at Ottawa for calling an end to an unsustainable Ponzi Scheme on October 15th.
The financial “experts” from Manulife and the too big to fail Canadian banks are revealing themselves as the truly greedy, corrupt and incompetent idiots that they really are in fact. Ditto the real estate industry.
Enjoy your squab and squirrel real estate magnates!

#10 Don Bool on 11.15.08 at 3:38 am

Vancouver Island Real Estate( COMOX VALLEY)

My mother in law just passed away and we,re in the process of listing her condo which is in a prime area in down town Comox. Everyone here still feels that being in one of the choices markets in Canada we,ll not be affected to any great extent. Not much concern in this area about housing prices and their possible decline.
FWIW this unit was selling for $300,000.00 + range into the summer. A pensioner paid $300,000.00 in march in the same condo unit for a similar but smaller condo. She passed away shortly after purchasing and it,s been on the market for 6 months now and no takers. Realtor suggests starting price of $260,000.00 for the mother in laws condo.
The realtor(friend of the family) said sales are dead and listings are increasing drastically. He,s a top realtor here and his sales have been near zero for some time now(last 2 to 3 months)
Listings way up and sales way down mean one thing, and that,s lower prices. This is just the beginning. Once the shock hits the general population the panic will begin. We hope against hope that we,ll be spared the pain of what,s happened elsewhere but you can,t ignore this scenario. And remember that this is hatching in a place everyone wants to retire to. Keeping our fingers crossed in God,s country.

#11 octagonian on 11.15.08 at 3:53 am


You have got to lighten up.

There will be no deflation beyond temporary PRICE deflation.

The correction in real estate prices and in the economy at large is a GOOD THING.

I understand this is of greater urgency to Boomers and others near or at retirement.

And a bunch of speculative over reaching morons have just been disciplined by Mr. Market. But this too will pass.

Conference Board of Canada even says Saskatchewan will GROW 5% in 2009.

A bunch of Boomers and real estate junkies got what they deserved.

The economy is correcting.

Hopefully Harpo and his Harperite half wit Tories won’t do too much to “help” the situation and turn it into a Japanese style depression through needless and destructive intervention.

US housing will bottom late next, or early the year after. Their economy will recover 2010 or 11 at the latest.

Yes, things are bad. But not across the board. And there are islands of optimism to be found.

Surely even you acknowledge that you are scaring people. People like Tammy.

How bout a Garth-Goes-Positive Day — just once a week, find SOMETHING pointing in the right direction.

No, I am not a Pollyanna. I was calling for a real estate crash before you started this blog. I got out in the nick of time (06). I believe the Tories are a dangerous social democratic racket.

But I also do not believe we are at the Blood in the Streets stage of North American civilization or decivilization. Not yet. Maybe in my lifetime.

#12 timbo on 11.15.08 at 4:58 am

now is the time to make a killing, you know what is coming as history is to the south. short our banks and double your money. Our banks are solvent for now but when our mortgages start defaulting the truth will be told.

seems the list is growing in a natural order now


all of us have the magic mirror to what is going to happen. keep the greater fools buying into the illusion and short canadian investment vehicles.

long but interesting hearing

again thanks for the book.

#13 fesnaris on 11.15.08 at 6:04 am

I just woke up from a horrible dream, drenched in sweat. I work daily with Realtors and I just dreamt that I purchased a condo from one of them. It was horrible, I can’t close my eyes, I keep seeing my dollars vanish. Need some warm milk…

#14 Peter on 11.15.08 at 7:23 am

Hi Garth,
I stumbled across your blog in my quest for info in regards to buying a small farm in BC. I sensed in late ’06 that a lot of shit was coming down the tube and decided to hang tight. There was something that simply didn’t seem right…if it looks like a duck..etc…
I am able to pay cash for a decent place and have a question if I may. It appears we are in the beginnings of a deflationary cycle right now that will most likely extend into ’09 a ways. I am anticipating inflation will catch up to us at some point with a high risk of hyperinflation. Do you think I’m on the right track? and any comments on a timeline? btw, I believe you are one of the very few that is calling the spade a spade…keep up the good work !!

#15 brazer on 11.15.08 at 8:27 am

Falling home prices put some buyers ‘under water’

The day Adele moved into her $192,000 townhouse in Brampton in May, she was “under water.”

That’s because she had a 100 per cent mortgage – not a penny for a down payment – and a 40-year amortization that had to be insured. In the end, she owed $199,000 for the three-bedroom house.

Under water.

Negative equity.

These terms strike fear in the hearts of homeowners who have been merrily calculating their net worth based on rising housing prices in Toronto and the GTA.

Housing prices have plunged in Vancouver, Calgary and Saskatoon in the wake of huge increases of 30 and 40 per cent. As the bubble bursts, tales abound of houses not being worth their mortgages.

Most Toronto residents facing this possibility are those who bought during the past two years of peak prices and with very little money down, or what’s called “very little skin in the game.”

#16 brazer on 11.15.08 at 8:31 am

Market deterioration surprises analysts, implies `bust has begun’

It doesn’t bode well for consumer confidence this Christmas when the value of an existing Canadian home is worth $30,000 less than a year ago, as the accelerated pace of the housing slowdown continues to surprise analysts.

“Canadian home sales look to be one of the biggest casualties from the intense market turmoil,” BMO Nesbitt Burns economist Doug Porter wrote in a note.

“We declared early this year that the housing boom was over, and these figures on the surface would suggest the bust has begun.

The average price of a home in October was $281,133, compared with $312,024 in October of 2007, according to figures released yesterday by the Canadian Real Estate Association.

In Ontario, the average price was down 10 per cent to $281,661 in October, compared with $312,937 in October of 2007.

Sales were also down by 14 per cent in October over September, the largest month-over-month decline in seasonally adjusted sales in more than 14 years.

“The dramatic fall-off in existing home sales and prices is clearly more profound than economic fundamentals would suggest,” says Millan Mulraine, economics strategist at TD Securities. “The exaggerated pace of deterioration suggested by this report is quite surprising, if not a little concerning.”


not good.

#17 brazer on 11.15.08 at 8:41 am

Is this Canada’s ‘last hurrah?’

A TD Economics research note echoed those concerns yesterday, calling recent upbeat indicators “Canada’s last hurrah.”

“Given the data that has come out of the U.S. in the last few weeks, this strength is not likely to hold up through the last quarter of the year,” economist James Marple wrote.

In a troubling sign that Canada’s housing market is softening, the Canadian Real Estate Association reported yesterday that the number of homes sold through the Multiple Listing Service plunged 14 per cent in October to the weakest level since July 2002. The drop suggests “a major downshift in consumer psychology,” CREA chief economist Gregory Klump said.

#18 Mini-Garth on 11.15.08 at 8:43 am

#10 Octagarion wrote: “US housing will bottom late next, or early the year after. Their economy will recover 2010 or 11 at the latest.”

Your post could have been much stronger if you substituted the word ‘will’ for ‘perhaps’.

No one can say with any certainty what is going to happen, good or bad.

#19 brazer on 11.15.08 at 9:14 am

Housing slump deepens as prices drop most in 26 years

TORONTO, VANCOUVER — In the six weeks since Vicky and Mike Plover put their house in Kelowna, B.C., on the market, a so-called healthy housing correction has been turned by a crumbling economy into the worst decline in a generation.

House prices in the B.C. Interior region tumbled by 11.2 per cent last month from the previous October, the sharpest decline in the province and even worse than the national drop, which was the worst year-over-year monthly tumble in 26 years.

#20 unbalanced on 11.15.08 at 9:32 am

# 5 –Kilt ! Where do you get 10 % returns ? Please explain, as I am trying to learn this financial mess. Thanks in advance.

#21 John on 11.15.08 at 9:46 am

Local Milton Independent Business reports a lost of
$ 100,000 in 25 days.
“People are just not buying”
They are cutting back on everything.
We just can’t keep canned beans on our shelves.
Garth your comments on here make sense.
People don’t know what to do.
What’s next?

Thanks John

Best advice. Keep reading. — Garth

#22 Stu on 11.15.08 at 10:11 am

If we look at all this long-term, it’s a good thing. The current crop of 20- and 30-somethings in Canada have had it too easy for too long (and I count myself as one of them). Their sense of entitlement is incredible. They want instant gratification in the form of instant promotions at work and to be able to buy what they want immediately instead of saving up and working towards a goal. Now they’ll have to learn to be frugal and live within their means – something a large majority of them seem unable to do. It’s a lesson they need.

#23 brazer on 11.15.08 at 10:42 am

Winter Games Project Hits Snag in Vancouver

Looming over the debate are the fortunes of the Fortress Investment Group, the hedge fund and private equity firm that controls the main Olympic skiing site, Whistler Blackcomb, and is the primary source of financing for a $1 billion athletes’ village now under construction downtown. On Thursday, Fortress reported a third-quarter loss of $20 million, in contrast to earnings of $111 million in the period a year earlier.

Last month, the Vancouver City Council voted at a closed meeting to advance up to 100 million Canadian dollars to cover cost overruns on the village, according to reports based on leaked information. That was in addition to 193 million Canadian dollars in loan guarantees to Fortress previously provided by the city.

Then, according to news reports, Estelle Lo, the city’s director of finance, quit to protest the action. And this week, Mayor Sam Sullivan asked police to investigate the source of the leaks.


doesn’t sound to good….

#24 Krazy Kacuk on 11.15.08 at 10:46 am


To get(maybe) 10%, buy short ETF.

GOOGLE ‘short ETF’ read, read, read….

Good luck.

#25 buy gold on 11.15.08 at 10:49 am

Garth what do you mean she backing Ilargi?

#26 Chris L on 11.15.08 at 10:50 am

Read Ilargi. At least get your eyes open. That’s all I can say.

#27 buy gold on 11.15.08 at 10:52 am

Garth, i think the canada should start a civil war againist the usa for putting us into this mess
these guys have to stop and think that there’s more then one country in this world [email protected]#$%!!!

#28 Krazy Kacuk on 11.15.08 at 10:58 am

BTW, keep it up Garth, tks for all your info.

Other interesting sites are:

From Danielle Park, (Canadian content)

Mike Shedlock (USA)

Hoofy & Boo (USA; many great analyst)
I love Hoofy & Boo, there just great!!!!

(USA; Again, many great analyst)

Good luck to all.

#29 Stu on 11.15.08 at 11:20 am

buy gold – first it wouldn’t be a civil war between the US and Canada (we’re different countries). Second, no-one forced Canadians to be more like capitalist Americans than, say, socialist Swedes.

#30 Zaza on 11.15.08 at 11:40 am

#31 unbalanced on 11.15.08 at 11:53 am

to KRAZY KACUK —- Thanks for the info. By the way, in today’s mess what would be considered a decent return. I know it depends on many things ( time horizon, greed, etc. ).

#32 Mike B on 11.15.08 at 12:13 pm

Octagonian… please… we know things are not ALL bad but that is how all recessions start. Like a disease that starts in one part of the body it spreads until it infects the whole body. That is where we are now/ Some things like unemployment numbers are misleading because they are lagging. We trade with the US… so even if our banks are “sound” , totally BS, we still have to trade with them . The only really good thing is the canadian dollar being lower. The US will buy our stuff at a discount.. Problem is they have no cash… other than the stuff they are printing. Things are bad and getting much much worse. Even for those who are essentially debt free.

DAVID…. another excellent and fascinating post.
CHARLES 1… killer post

#33 y3maxx on 11.15.08 at 12:38 pm

this blog contains so much misinformation.

…The lady who bought the 100% financed $199K condo in Brampton is on the hook for that mtge…..unlike similar buyers in the US who simply give back the keys, walk away leaving the bank with owning the $$$ loss.

…Vancouver city may well end up owning the Olympic athelete bldgs….but it will be for a fraction of the bldg cost if they do….Fortress Investment Group, is a U.S. owned hedge fund and equity firm….Hello.

…imo…in just a short while….all our concerns about Recession or Depression will switch to more important concerns…like Wars, Wars and more Wars… springing up in……

Cuba, Venezuela, Siberia, Pakistan, North Korea, Iran, Israel, Syria and Georgia just to name a few.


Object of this game is to pick out the instigator vs the defender.

#34 Ed S on 11.15.08 at 1:05 pm

Here in Calgary the For Sale signs are springing up all over our neighbourhood, and not going down. Noted several travel trailers parked in yards For Sale , too. One major construction project in downtown Calgary is now just a big ugly hole in the ground, and several much-vaunted luxury (overpriced) condo projects have ground to a halt. I took the TrailBlazer (27 mpg, not bad…) into one of two side-by-side GM dealerships (which will survive?) this week for an oil change and noted all the 2008 models had been marked down. There was also a 2009 Yukon hybrid with every option known to Man, going for around $73,000, roughly triple what we paid for our first house 30 years ago. I wonder how long it will gather dust. As Garth notes, property sales have slowed, but McMansions in Calgary are still obscenely overpriced. We are currently renting, watching and waiting and not planning to invest in real estate for at least another year, maybe longer. Fortunately, we have no money invested in property, are mobile, liquid and well-armed, just in case.

#35 My_view on 11.15.08 at 1:13 pm

Garth, nice post.

Each and every one of us only have ourselves to prepare for this huge mother of all F*** ups. But where are the solutions? You don’t hear much of that except the usual; stupid government bailouts for company’s that should fail. Pump/print more $$$$ and the disciplined get punished. Government needs to cut taxes and company’s have to increase wages. Instead it will be the opposite; more taxes (for all the printing going on) and people’s wages will freeze or even reverse.

Besides you Garth, there are not many politicians standing up for their constituents. Is this why you lost? Your riding and others don’t want the truth. They prefer lies and a hot cup of bull s***.

#36 Stoneleigh on 11.15.08 at 1:13 pm

I read your squirrel post the other day and agree with the advice you gave. Getting out of debt and building self-sufficiency, communally where possible, are the best things people can do right now as we face a depression at least as bad as the 1930s (and probably worse as the excess that preceded it were far worse this time). Ilargi and I live communally and are working on developing as much self-sufficiency as possible. We have already done pretty much everything on your list and are experimenting with Indian companion planting techniques. Amish-style food preservation is the next step.

We are still far nearer the beginning of the credit crunch than the end. Deflation and depression are self-reinforcing, so the deleveraging dynamic is likely to be persistent. Canada has so far to fall. We may be a couple of years behind, but we’ll be playing catch-up soon enough. By next year we’ll be seeing the financial crisis spread its contagion into the real economy on a large scale. That’s when the bottom will fall out of the real estate market, job losses will begin in earnest, along with the cuts in benefits and entitlements, and property taxes will increase as municipalities try in vain to balance budgets. The safety net will disappear just when it’s needed most. I call it the year when Wall Street will eat Main Street for breakfast.

Getting out of debt is critical as real interest rates will be very high during deflation, even if the nominal rate is low. If the nominal rate increases next year, as it likely will as the international debt financing model comes under greater and greater stress, then real interest rates (ie the nominal rate minus negative inflation) will be going through the roof. There is no safe level of debt at a time when real interest rates will be high and the capacity to earn income will be decreasing rapidly.

Having savings set aside is also extremely important as incomes fall and we’re left increasingly alone in a pay-as-you-go world. Self-sufficiency is also a big part of reduced dependency on the money that will be very scarce as credit destruction proceeds. For most people, getting out of debt and having liquidity set aside would only be possible if they sell a home and rent. It is still possible to cash out equity, but it may not be for much longer. Those who do will have eliminated debt and quite possibly raised enough liquidity to see them through a long period of hard times. When the time comes to move back into hard assets (once deleveraging is coming to an end), they will have their choice of assets at pennies on the dollar. They key would be not to trust savings to a banking system that will eventually go the way of our neighbours in Iceland.

For those who stick with debt and have no savings, almost everything will be unaffordable, as the Icelandic population is discovering. Even as prices fall, purchasing power will fall faster for the vast majority, and affordability will fall with it. Whereas the prepared will do very well by having preserved their purchasing power, the unprepared will have very few, if any, choices. Being priced out of the market even for essentials will come as a huge shock to those used to living well on the back of a cheap credit bonanza.

For those who may be interested, you can read Ilargi and me at The Automatic Earth.

#37 My_view on 11.15.08 at 1:19 pm

Forgot to mention, besides cutting taxes. REDUCE GOVERNMENT!

#38 JO on 11.15.08 at 2:32 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 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 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. Government should also extend EI to allow longer collection and widen the scope of people covered with a focus on re-training the unemployed for work in high growth industries (green energy – retrofitting buldings and houses for energy efficiency, production of hybrids, work for re-building of power transmission infrastructure, etc)

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.

I noted that a post from Stephen from Toronto made a claime that a source from BNS said CIBC was trefused twice by BoC for a bailout. What position does this person have a BNS ? Are you really sure they said this ? How trustowrthy is your unnamed source? I would be extremely cautious in making any claim about something like this. I personally would never make such a claim in public or anywhere period.


#39 VanIslander on 11.15.08 at 2:33 pm


the head of the Victoria Real Estate Board just took out a full page ad in the TC paper today to tell us several things we never knew:

1. that all the doom and gloom is unwarranted.

2. Most buyers and sellers don’t pay the slightest attention to market conditions or statistics.

3 The recent declines is just a slight releasing of air from the balloon, not the balloon bursting. Imagine that, the head of the VREB admitting there is infact a “balloon”, I thought that word was banned in their industry ?

4. We also had cherry picked stats not mentioning the recent six month median price decline,just the year over year increase of 4% (which was 10% just 6 months ago).

5. Charts that show the Shiller like hockey stick rise that is supposed to instill confidence all is just hunky dorey and we will keep on this insane trajectory cause so many people are moving here. Yes there has been a massive increase of new homeless moving here so I guess thats who he means.

They are trying to pull a rabbit out of their posterior in ole Victoria trying to single handedly save the market.

I look forward to your visit in January so you can compare notes with these people I am sure will show up to debate you.

#40 dboy on 11.15.08 at 2:43 pm

Surprise, surprise another Vancouver development in the crapper:

#41 Gord In Vancouver on 11.15.08 at 3:10 pm

#31 y3maxx

this blog contains so much misinformation.

…The lady who bought the 100% financed $199K condo in Brampton is on the hook for that mtge…..unlike similar buyers in the US who simply give back the keys, walk away leaving the bank with owning the $$$ loss.

Canadian home owners are foreclosing as we speak.
Click here for Vancouver foreclosures video

…Vancouver city may well end up owning the Olympic athelete bldgs….but it will be for a fraction of the bldg cost if they do….Fortress Investment Group, is a U.S. owned hedge fund and equity firm….Hello.

I hope they’ll get it for pennies as the remaining unsold units (40% of complex) have to be peddled while the Vancouver housing market is in a slump.
Click here for proof of unsold units total

…imo…in just a short while….all our concerns about Recession or Depression will switch to more important concerns…like Wars, Wars and more Wars… springing up in……

Cuba, Venezuela, Siberia, Pakistan, North Korea, Iran, Israel, Syria and Georgia just to name a few.


Object of this game is to pick out the instigator vs the defender.

Your “wars” comment just killed your remaining credibility and revealed your sense of desperation.

What about the prospect of a worldwide recession – that, to me, should be the main priority.

#42 Trekie2 on 11.15.08 at 3:28 pm

Stephen From Toronto wrote –

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.

This is truly scary, but based on what sources? Anyone could say these things but on what credentials? OK so lets say CIBC becomes insolvent, will it merge with another bank…can it? Why would the BOC refuse to help CIBC? So if we will be left with 3 banks who will the other victim be? What about all the small banks like PC Financial (is it a bank?), National….etc…will they escape unharmed. We always seem to talk about the big 5 but there are allot of smaller banks in Canada as well….why no talk about them or there futures? Will or are they not exposed to the same mess? I would think that a smaller bank will fail before one of the big 5 will, or am I nuts.

Sorry everyone about all the questions just looking for some solid answers and every time I read something I end up with more questions. So from everyone’s thoughts who is the safest bank in Canada?

#43 wealthy renter on 11.15.08 at 3:43 pm

It looks like that big media conglomerate selling Canada’s national newspaper does not like to be questioned. They pulled off all of the comments for the “Obama will be the saviour of Toronto real estate” article.

The piece is wonderful fiction. It does sharpen all of the tradtional real estate cliches to precision, but the Obama factor was truly creative and unique.

#44 Ilargi on 11.15.08 at 4:14 pm

That’s funny, Garth, do relate more specifics of how and why she’s backing me.

A commenter today at The Automatic Earth said that you mentioning me means I’ve gone mainstream. I don’t think I agree with that entirely, but I do find it striking how much and how rapidly the mood in the Canadian media is changing.

The same Harpers and Flaherties who a few weeks ago, pre-election, were blabbering away about the great state of the state, have done a total U-turn, and the media follow suit.

So what has changed since the election? Nothing at all. Goes to show how manipulated the process is, even here. It’s like Paulson saying the ‘facts’ changed after his $700 billion went through Congress, even though in the same breath he admitted that he knew the facts all along. And nobody doth protest. One Dollar One Vote

#45 nonplused on 11.15.08 at 4:19 pm

#22 Stu

Which 20 and 30 somethings are you referring to? I’ve had numerous people in that age group work for me and none of them seem to have had it easy if you ask me. They’ve worked hard, got an education, and then proceeded straight into underemployment because the borrow and spend economy of the boomers cannot sustain real economic growth. If they have a main flaw, it is that they try and mimic the spending patterns of their boomer parents when they go to the mall.

No, it’s the boomers who had it easy, indebted the country, lived high on the hog buying things they did not need with money they did not have, and now want the government to somehow bail them all out. Sure, many of them bought houses they couldn’t afford but who cares? They didn’t have any money before they bought the house and they won’t have any once the bank takes it back so they are no further ahead or behind. And it was the only way to get by in the boomer inspired borrow and spend economy.

#46 nonplused on 11.15.08 at 4:28 pm

Speaking of stupid boomers, here is another factor destined to just kill the McMansions of yesteryear. The one I am renting is a great example. The previous owners, from the mail still coming here, were a doctor and a financial planner. Sweet. When it was built (1979) it was a relatively decent 2300 sq ft 4 bedroom home. Comfortable but not excessive by today’s standards. But then some nutcase decided to rip the 4th bedroom out and make one of those HUGE master bathrooms with the soaker tub and separate shower and such. What a waste of space!

I don’t know if these boomers spend much time thinking about things at all but one thing is clear, when they design a house they do not consider the needs of all the families that may occupy the house over the lifespan of said house. Just do a comparison between how many 3 or less bedroom vs 4 or more bedroom homes in any area. News for you boomers: the immigrants that make up the largest slice of Canada’s population replacement program don’t want those 3 bedroom or less showoff monsters! They want practical houses for raising families. So guess what? There is nobody besides other boomers to sell those poorly designed pieces of junk to. If they can be retrofitted they may have a future but if not the target market will be a rapidly dwindling population of old people with no kids and probably no money either.

#47 squidly77 on 11.15.08 at 4:37 pm

were these guys trying to tell us something

meanwhile fear is creeping into condo land

a catchy phrase

Just slip out the back, jack
Make a new plan, stan
You dont need to be coy, roy
Just get yourself free
Hop on the bus, gus
You dont need to discuss much
Just drop off the key, lee
And get yourself free
Paul Simon, 50 ways to leave your lover

#48 squidly77 on 11.15.08 at 4:43 pm

put that phrase in your back could be a blog title a year from now LOL

Just slip out the back, jack
Make a new plan, stan
You dont need to be coy, roy
Just get yourself free
Hop on the bus, gus
You dont need to discuss much
Just drop off the key, lee
And get yourself free
Paul Simon, 50 ways to leave your lover

#49 nonplused on 11.15.08 at 5:33 pm

#40 Trekie2

I can’t answer your questions specifically but I share your sense of alarm. Personally, I don’t by this “safest banking system in the world” balderdash. (Besides, that was a customer survey. I don’t think you can replace the audit function with a survey.)

Our banking system is merely an extension of the American banking system as our economy is merely an extension of the American economy. The Canadian and US economies are fully integrated, perhaps more so than any other 2 countries in the world. When they go down, we go down.

I think all that’s happened is the Canadian audit rules have allowed Canadian banks to delay announcing their loses. Also the fact that the real estate collapse came to Canada slower has delayed the whole process. Going by the 18 month lag rule that seems to have applied to the situation so far the Canadian banks will start collapsing in about 12 months.

I spent the major part of my working career in risk management for an O&G firm but then took that so-called experience and tried my hand at a trading company. Coming from a resource company where management was primarily concerned with optimizing their assets and did not believe trading was a value add business (after all, for every winner there is a looser) to a company that attempted to derive most of their revenue from trading was a mind blowing experience. Some take aways (I believe they apply to the banks as well):

– Traders all believe that they have the Midas touch and will be the one that makes all the money. If you tell them that trading is a zero sum game they will angrily tell you that their superior intellect and strategies will ensure that they personally will make a lot of money. All of them. The whole market of them expects to beat everyone else every time. They are psychopaths.
– The traders lie to management. Sweet lies about wonderful strategies mostly but it’s all just balderdash to get a line of capital with which to speculate.
– Making money in trading is about luck. This is how you do it: Lie to management and get a big pile of capital. Make a bet. Any bet. Leverage it if possible. If the market goes in your favour demand 20% of the gain. If not start lying to the management down the block so you have a new book before your current boss discovers you’ve sold the farm. That really is all there is to it.
– Bonuses are generally paid based on the “mark to market” of the book. In short, if the trader can train the computer to show a large profit on some exotic position 5 years in the future, he gets paid real cash now. In general, most of those traders have left the company by the time the exotic position settles.
– The risk systems banks and trading companies use grossly over simplify most of the riskiest products they are trading. I would go into detail but its all math.
– Most of the risk systems are incapable of modeling all of the company’s business. Exotic stuff like “credit default swaps” are not modeled correctly.
– If the company has a department called “Trade Control” or something like that, the risk systems do not work. (If you watch the Enron documentary, they prominently feature a “Trade Control” sign when showing the empty trading floor.) If you see a “Trade Control” sign in your company, trading is out of control, simple as that. You should have a back up plan for what you will do when your company suddenly implodes, because it will one day.
– All of the risk assumptions are based on the traders being able to exit or hedge their positions in 1 trading day. Ask Brian Hunter how that assumption works out in real life.
– Management is terrified of their books. The way trading infects an organization is generally by starting small and then progressively growing until suddenly you have multiple books and a query of the risk database returns hundreds of thousands of interrelated deals, many of which are in incorrectly but “Trade Control” is compensating for. At that point management does not believe they would be able to “close out the book” by themselves and the traders are then in control of the company. They can demand anything, including $10,000 expense charges at strip clubs, and they will get it. They start hiring “junior traders” and opening new books. The junior traders are generally extremely smart mathematicians (so the trader can figure his own book out) or astonishingly beautiful young women. Eventually these junior traders get their own books as the infection spreads.
– Even as bad as all that is, here is the worst part: risk assessment (volatility) is calculated over time periods ranging from 30 to 100 days. So when you hear a liar for some company that just lost a ton of money saying something like “we got hit by a 6 sigma event” or “the odds of this happening were 1 in several lives of the universe” or something stupid like that, it should be interpreted like this: “based on price movements over the last month we did not think we could loose this much money.” They do not have 1987 or 1929 in the database.

So in short, the trading industry is a fraud and Canadian banks are just as infected with “books” and “traders” as any bank could be. Look out below!!!!! They will all implode. They are all still operating with the Enron model.

Speaking of the Enron model, much has been made about how the implosion of Enron straightened out the trading system. It did no such thing. What it taught Wall Street is that even if the company is completely destroyed and the CEO goes to jail, many people will end up astonishingly rich. Ask John Arnold, who got his start squeezing California in 2001 on behalf of Enron and left with enough money to start his own hedge fund.

I’ve even spoken to young would be traders who studied the Enron collapse in University. The take-away they got was not the one that the professor probably hoped. The lesson was if you gamble big with someone else’s money the odds are 50/50 you’ll be a millionaire by 30 or back where you started, no loss to you. That’s what these guys are thinking when they start in the business! They do not necessarily believe that there is a secret strategy to make money in the markets. That delusion is for management.

#50 bcgirl on 11.15.08 at 6:15 pm

Well, when I started reading this blog it was all about me anticipating buying real estate again at reduced prices….honestly, this is not feeling like the party I thought it would be.

I feel like this is a sad and scary time for all of us, and I feel bad for the people who are going to lose big time on their real estate.

Everyday the news is worse in all sectors of the economy. Many friends of mine have lost alot in the stock market within their RRSPs. Yet, they still keep their money in a failing system urged on by their “advisors”. I had moved whatever I had in RRSPs into a cash position with GICs…I’m told by well meaning friends that this was a bad idea…that I’ll miss out, etc.

At this point in time, I believe the stock market has a voracious appetite for the wealth of average people, and many will lose everything. A sad time indeed.

#51 Brittanny on 11.15.08 at 6:34 pm

Now–consumer spending is way down

Next–business bankrutcy

Future–high unemployment

Future–smaller tax base

Future–gov’t prints more money

future–hyper inflation

Future–fiat money becomes worthless

Future–gold goes up

#52 East 905 on 11.15.08 at 6:45 pm

For #40 Trekie2:

I think PC Financial is backed by CIBC.

National is considered #6 among the “Big 6.”

If you are concerned about your deposits, you should check out the Canadian Deposit Insurance Corporation (CDIC) web site.

#53 Future Expatriate on 11.15.08 at 7:02 pm

#27 and #28: No need to start a war with the US… Russia and China will be taking care of that world problem soon enough, the second Obama proves himself to be Brzezinski’s and the war profiteers’ tool by nuking Iran and Pakistan in his “smart” Mideast debacle. Obama didn’t even bother to show up for the G20. That shows you how much the “President” of the US is really merely a sitcom (“Cosby” for the 21st century after the last 8 years of the “Crawford Hillbillies”) and not an actual leadership position.

Canada needs to figure out and plan how to survive without the US government or infrastructure left functioning, and quickly. There may be a lot of squirrels and deer now, but after six months of “Mad Max” below the border, don’t count on it.

#54 random guy on 11.15.08 at 7:49 pm

the sky is not falling::

i run a large clothing store in northcentral ontario and our sales this week were up roughly thirty percent over last year. almost eighteen thousand dollars y/o/y. the world keeps spinning people

#55 dd on 11.15.08 at 9:41 pm

Oil and Gas employment:

#56 dd on 11.15.08 at 9:45 pm

Oil and Gas employment:

No layoffs yet in the sector.

#57 Calgary rip off on 11.15.08 at 10:01 pm

Reality check from Calgary:

Houses here are still DOUBLE pre 2004 levels. Unless they are pre-2004 levels, I dont want to hear recession or depression. This isnt happening in Calgary.

I still cant buy a house on $80,000 a year starter income at the hospital. I will break $100,000 a year in several years. Something odd when I cant buy a house. Who the hell is able to in Calgary?

Unless the sky falls in real estate in Calgary is reserved for idiots or elitists with a big bank roll.

#58 dboy on 11.15.08 at 10:15 pm

Anyone know which would be the safest Canadian banks to hold funds with?

#59 Downsized and Delighted on 11.15.08 at 10:48 pm

Read this in the Globe and Mail this week- “How will you know when the market reaches it’s bottom? Answer: When it hits zero!”

#60 T.O. Condo on 11.15.08 at 11:04 pm

Reality Check #2

Just sold our condo in downtown Toronto. Got 100% of list price and two competing offers.

Yes indeed the sky is not falling.

#61 kabloona on 11.15.08 at 11:21 pm

dboy: they are *all* safe up to $100k per institution, meaning any institution that is CDIC insured – and that includes online banks like Don’t let the fear-mongers freak you out. They’re fun to read, but that’s about it….

Check out for more info….

This blog should get back to real estate and leave the conspiracy stuff for other bloggers.

#62 CalgaryRocks on 11.15.08 at 11:35 pm

I still cant buy a house on $80,000 a year starter income at the hospital. I will break $100,000 a year in several years. Something odd when I cant buy a house. Who the hell is able to in Calgary?

You can forget about 100K. If there’s a depression you’ll be lucky to you get paid at all.

When governments fail government workers work for free. Read up on what happened in Argentina or the old communist block.

Doctors there make as much as the teenagers working in the cafeteria, that is, again, when they actually do get a pay check, which is not that often.

#63 squidly77 on 11.16.08 at 12:06 am

calgaryRocks bang on..calgary rip off whines too much
calgary is the cruelest of cities
when it falls it falls hard..everyone loses there job and all at the same time
its an oil city and as oil goes calgary goes
(actually its nat. gas)
calgary wont have a mickey mouse 30% price crash
as fast as prices go up they come down
try a 70% crash and your getting close

problem is the jobs disappear quicker then the prices drop

#64 squidly77 on 11.16.08 at 12:13 am

Developers in Calgary may not be as lucky. Many are having a tough time accessing money due to the global credit crunch.

In Calgary, building permits on five projects are set to expire from inactivity, and the Gateway Midtown condo site in the Beltline is idle.

#65 dan on 11.16.08 at 12:33 am

T.O. Condo said “Reality Check #2

Just sold our condo in downtown Toronto. Got 100% of list price and two competing offers.

Yes indeed the sky is not falling.`

You are a liar and most likely a RE agent spin doctor. I should know since I lost over $30,000 after buying a condo a litlle over one year ago. After realtor fee`s and taxes and all the other costs I am down a little over $30K. I had to sell since I was moving to a new job in a different province. I here stories of others who are losing their shirt in RE and I blame liar RE agents like T.O Condo. Also I couldn`t rent it out since it would be $500 a month cash flow negative and that doesn`t include property taxes . The bubble has popped and many people are going to lose big. RE agents are big time cons. IMO

#66 TO Boy on 11.16.08 at 12:36 am

Yet again Calgary Rip Off with the same post he has posted 124 times. Please give us something new. Please.

Our family income is over 150k in TO and we wouldn’t dare buy anything at current prices. People have said that TO prices have not gone up nearly as much as other places in Canada, which I suppose is true if you look at average sales price.

My suspicion is that the reason for this is that the size of Toronto condos has started to become smaller and smaller and if stats were available it would show that the price per square foot has gone up quite a bit. Does anyone have those stats?? For whatever reason, the calgary real estate market stats are readily available ( etc) but TO offers none of those goodies.

#67 IntoControl on 11.16.08 at 1:52 am

Thanks for the ongoing advice Garth. Ilargi and Stoneleigh are definitely at the top of my blog list too. I have come full circle — from denial to acceptance — in less than a year and continue preparations for our small scale farm with my husband and kids, in part to both this blog and The Automatic Earth. For unbelievable economic insight (although most often beyond my comprehension) and advice to get you through what inevitably seems to be our future, check it out. I am now employed by two realtors on the west coast and the word I hear from their circles “panic”. It shall be an interesting (and scary) ride.

#68 dd on 11.16.08 at 2:07 am

#27 buy gold,


No one forced us Canadian to buy houses at these high prices. No one forced to max out on debt.

If most Canadian were cash rich we wouldn’t have a lot to worry about.

#69 Kilt on 11.16.08 at 2:39 am

#20 Unbalanced.

10% returns are actually fairly easy with this current volatility. I just use Bear and Bull ETF’s. Double exposure ones.

If the market rises ~10% over a few sessions, I buy the Bear ETF. If the market falls over a few sessions I buy the Bull ETF (and sell some or all of the Bear ETF).
In a sense, you are trying to time short term tops and bottoms. But it isn’t difficult especially if you own both bear and bull, and just sell when they are ‘in the money’. Generally I would only do this with 10 or 20% of my portfolio. The rest is either cash or Long stocks.

October I made 30% returns on my ETF trades (5% return for my total portfolio). Unfortunately it only really pays off during volatile times.


#70 Peter on 11.16.08 at 2:45 am

I believe 2 Major Banks will be in trouble here in Canada and they will ask the GOVERNMENT to intervene by asking them to buyout more mortgages or pumping liquidity onto their balance sheets. The most aggressive banks always pays the price and I believe the most aggressive 2 would be the RED bank (where they have aggressively lending out money to anyone when you walk in to their branch, looks like a FREE ATM around your corner. After the ABCP problem, they have been little conservative now but they have LOADS of loans, mortgages, LOC, credit card debt, PPN and toxic stuff floating around…)…The next one would be the BLUE BANK starts with a B…They are too AGGRESSIVELY invested in commodities, commercial lending (capital markets), PPN’s and they may also needed help from the gov..

#71 Octagonian on 11.16.08 at 6:57 am

#36 JO: good post.
#30 Mike B: I agree Canadian banks are far from blameless and invulnerable as our lying Tory pols keep saying. Flaherty is a true idiot. Harpo has sold out his free market beliefs of yesteryear. All that said, it is IMPOSSIBLE for a 1930s style Depression to take place. Deflation can NOT occur given the B o C policies of intense inflation. We are experiencing a temporary recessionary bout of DISinflation, to be followed by borderline HYPERinflation. I know this, as anybody would, by LOOKING at the Bank of Canada’s own number on M1 and M3. It is already in the pipeline, people.

OF COURSE Canadian housing will fall at least 40% from peak to bottom. But that does not mean our whole economy is collapsing. YES some stupid Boomers and Xers and general speculators of whatever demo have hurt themselves, and will now face a spartan retirement. There is no way back for these people. They will vote for inflation driven government cheques for themselves — cuz that is the last thing they have power over: the ballot box.

#72 Mike B on 11.16.08 at 8:59 am

Octagonian 67 Agreed no 30’s style depression. Agreed that Flaherty et al are dopes/liars. Agreed there will be inflation..if not for the mere fact our dollar is down at least 15%. I go to stores and see rice, flour still at 150% up from normal prices. That may get even worse. If our dollar stays at the 80 cent level then come January we will be hit with a whopping increase in prices. Buy your ipods and apple computers now folks because come January they will be up at least 10% or more. Consumables will increase which will take a hit out of companies already tight margins . Eventually leading to layoffs and shorter work weeks.
Very interested in your understanding of M1 and M3.
Please elaborate.

#73 Mike B on 11.16.08 at 9:10 am

T.O. Condo 56 Hey thanks for the scientific study. Sound like the real turds on “Hot (luke warm really) Property” on CITY TV. Who cares if one guy sells at list price . Certainly more than enough morons out there to buy. Just go to any downtown Toronto bank. Filled with 20 somethings who work for 45 K and think they are Rockefellers. Stats don’t lie. Even the latest broadcast of Hot Property yielded some sobering info about Toronto Real Estate. And this is from the butt head commissioned sales weasels.

#74 Stoneleigh on 11.16.08 at 9:31 am


A 1930s style depression is not impossible by any means. If governments could avoid a depression merely by printing money, then one would never have happened. Unfortunately, depressions do happen, because ‘money printing’ (monetizing debt) doesn’t cause inflation (ie an increase in the effective money supply) during a hurricane of credit destruction. Traditional money supply measures don’t capture the full picture.

Credit functions as a money equivalent during the expansion phase, but loses the quality of ‘moneyness’ once expansion morphs into contraction. As the vast majority of the effective money supply is currently credit, the collapse of credit will crash the money supply. As is already happening, ‘printing’ merely send money into a giant black hole of credit destruction, thanks to the hoarding mentality that has taken hold amongst banks due to the collapse of trust. Banks know what toxic waste they hold in their own vaults, and certainly aren’t going to trust their colleagues who almost certainly hold the same.

Attempts to stimulate interbank lending are failing miserably, because you can’t ‘print’ trust. Once a deleveraging event has begun, it will proceed to its natural conclusion – the point where the (small amount of) remaining debt is acceptably collateralized to the (few) remaining creditors. All governments can do is to make it worse in the meantime.

We are still in the very early stages of the deleveraging process, where toxic ‘assets’ are being shielded from the harsh light of day, so to speak. Eventually, there will be a mark-to-market event, however hard governments and central bankers try to avoid one, and that will precipitate a firesale of assets at pennies on the dollar.

Such an event cannot be avoided, at least partially due to the creation of perverse incentives in the derivatives market. For instance, allowing a third party to take out a credit default swap against a company they do not own is analogous to allowing me to take out fire insurance on your home, thereby giving me an incentive to burn it down for profit. We have yet to see the ‘burning down for profit’ phase, but it is coming, and when it does, the scale of counterparty risk in the CDS market will also be revealed. A large percentage of companies will not be able to collect on winning bets, and will therefore not be able to pay out on losing ones in turn. This will turn into a cascade event in a $62 trillion market, the effect of which will dwarf the credit destruction we’ve seen so far.

This event is truly global – thanks to the tight coupling in global financial markets, contagion inevitably spreads. The use of derivatives intended to mitigate risk has in fact led to systemic risk. There’s a reason why Warren Buffet refers to derivatives as financial weapons of mass destruction.

If you follow the global media, rather than just the blinkered North American version, you will see how many countries are already teetering on the brink as a result of the credit crunch. Check out Iceland, or Pakistan, the Ukraine, Spain, the UK, Ireland, much of eastern Europe and many more. Many of those countries had far worse housing bubbles than the US and have much further to fall as a result.
To imagine Canada to be immune from such a conflagration is simply fanciful. Our real estate excesses have been less extreme, but our banking system is vulnerable, and our export economy will take an enormous hit.

Have you noticed the extent to which shipping is collapsing worldwide? Check out the Baltic Dry index for a leading indicator of the effect of the credit crunch on the real economy. The letters of credit that used to be routine are no longer available, so goods do not move. We live in a just-in-time economy and the paralysis of shipping will eventually lead to empty shelves.

This crisis is very much larger than merely real estate. Liquidity, the supply of which ultimately depends on trust, is the lubricant in the economic engine. Without a sufficient supply, that engine will seize up, just as it did in the 1930s. With no means to connect buyers and sellers, people can starve amid plenty, as they did then. In the 1930s both resources and real skills were plentiful, expectations were nowhere near so inflated and we had none of the structural dependencies on cheap energy and credit that we have now. Without cheap energy and cheap credit, our highly complex socioeconomic system cannot function. A long and painful readjustment is not just likely, but inevitable.

#75 Trekie2 on 11.16.08 at 9:37 am

Peter wrote –

I believe 2 Major Banks will be in trouble here in Canada and they will ask the GOVERNMENT to intervene by asking them to buyout more mortgages or pumping liquidity onto their balance sheets. The most aggressive banks always pays the price and I believe the most aggressive 2 would be the RED bank (where they have aggressively lending out money to anyone when you walk in to their branch, looks like a FREE ATM around your corner. After the ABCP problem, they have been little conservative now but they have LOADS of loans, mortgages, LOC, credit card debt, PPN and toxic stuff floating around…)…The next one would be the BLUE BANK starts with a B…They are too AGGRESSIVELY invested in commodities, commercial lending (capital markets), PPN’s and they may also needed help from the gov..

I get Scotia and BMO, out or the red and blue referance….am I correct?

#76 Trekie2 on 11.16.08 at 10:49 am

And CIBC as well……

#77 outtacontrol on 11.16.08 at 11:12 am

CIBC has $1 Trillion of off-balance sheet derivatives (most of which are valued at whatever CIBC wants them valued at) and a market cap of $2 Billion. That means that if even .2% of the derivatives are someday forced to mark to market at a total loss, CIBC is done.

Any doubt as to whether Flaherty will soon allow banks to merge?

#78 Kestral on 11.16.08 at 12:04 pm

To #66 TO Boy

Agree with you 100% on the size of condos going down while keeping similar prices. What are called “condos” these days in downtown TO are about 650-750 square feet, they generally go for $400-475/square foot. If you do the math and then go look on MLS you will see these numbers match up with condo pricing in the GTA.

One thing that bothers me is a lot of times, realturds don’t list square feet of houses or condos, I think they do this on purpose so that people can’t do the math and realize that $400-475/square foot is a huge rip off, especially considering just a few short years ago $250-300 square feet was considered a rip off.

The interesting thing is, for some of the larger 2000+ square feet houses, you will find some that are in the $275/square feet, and these are in some decent neighbourhoods (ie. High Park). But of course, you’re looking at paying $600,000 for a house.

But considering that I am in the top 10% of median income earners in Canada and even I can’t afford the monthly payments on a $600K house (assuming 25% down), these “bargains” aren’t affordable by over 90% of people in this country, so even at $275/square feet it’s out of range for most people.

#79 Peter on 11.17.08 at 12:49 am

Scotia should have limited exposure to CDS and those nasty stuff..their most of sxit are those ATM mortgages…(80 % HELOC, 0 % 40 YR mortgage or buy better than rent mortgage)…The big 5 have all those mortgage promo teared down and now their great promo is HIGH INTEREST SAVINGS ACCOUNT or E-SAVINGS ACCT or GIC with higher interest rate….That means they rather WANTS your money instead of LENDING the money..

#80 Sean on 11.17.08 at 6:23 pm

Having grown up in Oshawa most of my family and friends are employed by GM or one of the small proxy companies from within the motors industry. I have noticed that now most of the people I know (80% or so) who purchased a home in southern Ontario are now looking for a way out of their mortgage, they have already sold the new mini van and the family cottage they purchased 5 years ago is now listed with MLS; and not selling! The only thing they have to look forward to is the compiling interest at the end of each month. With GM pulling out of Oshawa, the trickle effect it will have on the many smaller companies whom feed GM with parts and services are on the way out as well! This coupled with the detearating global economy will surly have an effect on the real estate market in Ontario!

Almost everyone I know has multiple loans for things they couldn’t afford to purchase outright (boats, home entertainment systems, second vehicle, cottage) as well as the fact they are all still paying off their VISA from last Xmas! Living well beyond their means is common for Ontario folks whom lived with a false sense of job security for the past 20 years. Now they are faced with the real possibility of “long term” unemployment! I mean, how the hell do you “re tool” an entire province?

So… Real estate professionals and the government of Canada can say what they want about the economy or its direction in Canada, what I am seeing are thousands of hard working people forced to cash in their tokens, go back to school and learn something other than threading the same nut on the same bolt as a means to pay for the “Canadian Dream” a house, cottage, snowmobile, bass boat, stocked beer fridge in the basement ect…

This year there will be no jetski under the tree, instead I plan to pay off the Visa and throw a new set of rubber on the van!

#81 Sean on 11.17.08 at 6:32 pm

About 2 months ago the problem was realized in fact, the Gov. stated it will not invest in something that there is no market for! unfortunately the prob is much more than the demand for mid size and SUV’s! It all starts with the “Lee Iacocca” restructure of the automotive industry in north America, an industry that can not retool easily (would take years!) let alone billions of dollars! its much more than contracting a bunch of CNC operators to build new tooling. the industry is messed up, we cant compete with the Asian market because we cant get anyone to work for $3 an hour with no benefits or union protection! the entire NA auto industry will not enter a “hybrid” market for any reasons other than hybrids are still in development and are incredibly expensive!

no market for GM Ford or Chrysler! at least not in Canada anyway.

Go back to school and learn something other that threading bolts to get the Canadian Dream! Oh Yeah! I allmost forgot! most people can’t afford to do that neither! lmao the whole deal just sux!

#82 Sean on 11.24.08 at 5:26 pm

this thread is dead!