In praise of smart guys

Toronto December sales down 55%, prices fall 15%

One of the smartest guys I know is the one I hire to look after my money.

I gave it to him in 1999, and he’s been at it since. My investment portfolio is called ‘discretionary’ which means I basically have no idea what the hell he’s doing with it. But he does send me a nice monthly statement, and pie charts every quarter, and a boffo little pocket diary thingy each December.

The advantage of the relationship is that I have not worried about this part of my life for almost ten years. This has allowed me to develop into the hedonistic, charismatic, sweeping individual that the country so loves. It also gave me the stones required in politics to stand up for principles, instead of my job. And look how well that turned out!

In any case, I asked him today in a rare conversation for his forecast. “There will be,” he said, “two recessions, back-to-back. And it will last four years.”

Not unreasonably, this is the thinking: Right now, we have a deflationary mess in which assets – houses, commodities, financial assets – are all plunging, taking jobs, consumer prices and wages along with them. If we’re lucky, this stays a recession. If we’re not, we get the Big D.

But what comes after that? Well, look at the Fed today, cutting interest rates to 0%, pledging to buy up government securities, while the incoming US president is committed to spending a few trillion on top of the trillions burned through since Labour Day. Governments in Beijing, Bonn, London, Ottawa and everywhere else are doing the same thing – raking up deficits, running up historic debts and blowing their wads to forestall depression.

Why? Because after depression comes anarchy. Don’t go there.

So, first we have a deflationary recession, lasting maybe two years. Then, as the recovery takes hold, as those trillions need to be repaid and as the world is awash in liquidity, we get inflation, probably severe. That will immediately start reflating real estate and oil and Vespas, and cause central banks to ratchet up interest rates in order to choke off too-rapidly rising prices.

That will take us to 2012. Ask me then what comes next.

$ $ $ $

Another weepy story from The Big Smoke:

Says Tony, “First, I would like to say thanks for a website that’s  extremely insightful; it has exceptional buzz-appeal here at my office.  My question is similar to the one you answered today.  I offer it up to you in all earnest, for consideration.

I bought a semi in 2002, in east york T.O., so I could walk to the subway everyday for work…I paid 240K for  it, and I have about half left to pay (130K). Here’s the dilemma: How far down will T.O. go!! Four agents estimated it’s current worth at $355K, if I paint everywhere and do some handywork (~5-6K).

But I have 90K extra cash, and just enough RRSP in cash to cover the final mortgage balance.  The wrench in the works is this:  Is there a definite depression afoot? If I’m laid off, then finding work will be impossible (I work in the now rarified field of semi-conductor  design).

In a depression, it’s best to sell now, retrain ($60K), and invest heavily in indexes once there’s a clear sign of a turnaround.  At least I’m liquid to that point. However, if I sell now, and real estate doesn’t turn  severely south in Toronto, then I’ve sold near bottom  and the cost of selling and buying again (say $40K), is wasted since I’ll want to buy in again.

I’m hoping for your concise kick-in-the-pants wisdom on this.. I’m about to pull the trigger on this thing.   My parents think I’m underestimating the value of a paid off house.  I just turned 32, and my house just turned toxic!

The first thing to do is avoid discussing real estate with your parents when you’re 32. Sheesh. Second, stop obsessing about what the market or the economy might do, and concentrate on the situation you’re currently in. The question to ask: how can I improve my financial security so I don’t need to ask my parents what to do?

The answer is simple: (a) Take your available cash and pay off your mortgage, giving you $350,000 (or so) in equity. (b) Now go and arrange a home equity-secured variable rate line of credit for $200,000 and hire a smart guy like I have to  build an investment portfolio of growth assets of the highest quality (at your age, there is virtually no risk in doing so). (c) Now you have created a tax-deductible mortgage on your home, which means you get to write off 100% of the interest payments from your taxable income, giving you a big cash flow break. (d) You have also achieved portfolio diversification, having about 60% of your wealth in growth financial assets, 40% in real estate, while reducing your tax profile.

Of course, you’ve also removed equity from a potentially declining asset through a non-callable borrowing, which eliminates the need to sell if the economy goes farther south. And at the same time, you’ll have built a financial asset portfolio at a time when good companies are selling for 50 cents on the dollar and the market has gone temporarily insane.

Only thing toxic here is your attitude, boy. Suck it up.

115 comments ↓

#1 Patrice on 12.16.08 at 9:58 pm

Now go and arrange a home equity-secured variable rate line of credit for $200,000 and hire a smart guy like I have to build an investment portfolio of growth assets of the highest quality (at your age, there is virtually no risk in doing so).
——————————————
what are you talking about “no risk”???
There is no telling where the stock market (even bonds) are going. If anything, everything seem to indicate that they are going down.

A cash position is far less risky, righ now, than your “virtually risk free” strategy.

Obviously this man will seriously consider your advice so to suggest to take a loan and invest the money in growth assets, even after considering the money save on the income tax, is bordeline foolish.

————————–
at a time when good companies are selling for 50 cents on teh dollar
————————–
Please remember that the Banks that needed the bail out money to survive, were considered better than good. They were considered stellar, extremely well ran.

The guy’s 32. He’s the ideal investor for a conservative/aggressive growth portfolio. Stop being a wuss and think long-term. By the way, he has a loan now. It’s called a mortgage, payable in after-tax dollars. — Garth

#2 Chris L on 12.16.08 at 10:26 pm

Paying down debt as fast as possible. I was planning a long fast anyway and 5 years was my timeline. I should be in good shape. One mortgage down, one to go. Saving wont be so painful now that it’s going to be in style! Not that I cared anyway.

The D is scary though.

#3 Bottoms_Up on 12.16.08 at 10:47 pm

For all those Altertan separatists:
http://www.ottawacitizen.com/Plummeting+energy+prices+could+drag+Alberta+into+deficit/1083580/story.html
—————————————–
Regarding the Blog’s post, I think he is underestimating his parent’s advice. not having mortgage payments means he could flip burgers for a living and still be OK.

#4 Smart Guys on 12.16.08 at 10:53 pm

And where do you find these smart guys, Garth?

How does the average person know if they’re actually smart or just blowing smoke/selling the mutual fund that gives them the biggest commission?

#5 Ydgrunite on 12.16.08 at 10:57 pm

What do you mean by “financial asses” in the fifth paragraph. Would those be the CEOs of finance companies that brought on this debacle or the finance ministers who failed to rein them in?

#6 AAa on 12.16.08 at 11:31 pm

“Now go and arrange a home equity-secured variable rate line of credit for $200,000 and hire a smart guy like I have to build an investment portfolio of growth assets of the highest quality (at your age, there is virtually no risk in doing so)”

Is this a good idea? Where can you find a smart guy these days? Second, how do you know your investments wont tank with current market conditions. If it does tank then it’s double whammy – you’ve got a declining a portfolio and interest to pay for the line of credit. Sure you can deduct your interest but you don’t get all of it back.

I’d pay off the mortgage and stay out of debt…save..save…save while you still have a job and get ready to get invested just before the next recovery.

#7 nonplused on 12.16.08 at 11:37 pm

well, i think a more conservative approach would be to pay off the mortgage now, and wait and see how his job works out.

tax deductions are only good if you have taxes to pay. on the other hand you live pretty cheap with no mortgage.

the rigth time to execute the rest of the strategy will come but it’s probably 2 years out. that wil give him some time to find the right advisor and be more comfortable about his job.

this market has not shown any signs of putting in a bottom just yet. P/E ratios are still at bubble highs despite the fall in prices (answer: earnings are falling just as fast, and in many cases impairing debt service.)

This way he’ll be 34 when he shifts to a leverage-equity strategy and will know better what his job looks like. Or 33 or maybe do 1/3 a year and dollar cost average for those of you who still buy that strategy.

#8 AAa on 12.16.08 at 11:48 pm

Garth, what the hell are you thinking. You’re definitely a kick in the pants fellow. I like that. But somethimes I think you’re smoking dope.

#9 lgre on 12.16.08 at 11:51 pm

Garth -you wanna pass over your the smart guys contact info?

#10 Brent on 12.16.08 at 11:54 pm

Garth wrote: “One of the smartest guys I know is the one I hire to look after my money …. I gave it to him in 1999, and he’s been at it since. My investment portfolio is called ‘discretionary’ which means I basically have no idea what the hell he’s doing with it.”

… Bernard Madoff .

The level of suspicision and denial on this blog today is stunning. Maybe we should go back to squirrel recipes. — Garth

#11 Seeking Knowledge on 12.16.08 at 11:55 pm

Thought this might interest some people! Here’s the link I came up with when I typed in “I want my deposit back”…

http://www.scrippsnews.com/node/34862

The interesting part is not the article itself but the COMMENTS made in the BOTTOM of the ARTICLE where many people had put down 120K and up for those condos and are now in dire situation to get the money back. You can even see many listed their phone #s and e-mail addresses to help each other out.

I am still fighting to get my 30K back here in Fort Mac.
I guess it is the punishment for buying something you cannot see!!!
———

Garth,
I saw you on CBC interviewed by Suhana Meharchand today. I was always scared of men with moustaches as a child and I have never seen you other than the picture you provided on this blog. However, after hearing your voice today I came to realize that you are a soft-spoken man. I am at ease☺

Florence, Fort Mac girl

#12 john on 12.16.08 at 11:59 pm

Mark my words…the birth of the next bubble was started today….it is the stock market

#13 nonplused on 12.16.08 at 11:59 pm

A thought on land transfer taxes and real estate fees:

Alberta doesn’t have a land transfer tax, but BC does (and like property taxes if you are from Alberta and the property in question is a vacation home your tax is about 10 times what the locals pay.)

But here is my idea: Statistically, people move about every 5 years. Thus, real estate fees and transfer taxes can quite quickly eat all your equity if prices aren’t rising strongly.

So why not rent? If you need to move, why not keep the old house and rent it out? If we become a nation where all houses are owned by investors who rent them out and all houses are occuppied by renters, we’ve beat the fees and taxes! It’s a lot cheaper to get a new tenant (or a new rental) than to sell a house.

Some countries in Europe had this down prior to the boom. It jsut doesn’t make sense to make a 25 year committment to a house that on average you only need for 5 years.

#14 Realtor on 12.17.08 at 12:13 am

The economic future at present seems out of control, bankrupt financial institutions trying to hold on, limitations by the banks on credit and financing drastically limiting the ability of the economy to rise out of the ashes again, debt totally embraces our lives, soon cash infusions wont work for banks anymore, banks hold too much toxic garbage (sub prime residential & sub prime commercial, which very few are even talking about yet)to even know if they are solvent We’re now months into a credit crisis that continues to expose the corruption and incompetence of governments, banking, Wall Street, Bay Street, and transnational corporations. Despite what we may like to believe the situation has not stabilized and it won’t anytime soon. All we hear about in the news and see from govenments are sweetheart deals for elitist corporations for which taxpayers will pay for years to come. The economic future looks to be going over a cliff at warp speed. For the last eight years our economy has been running on the principle of getting something for nothing, wine taste on a beer budget, lies and deceit. The result will be hyperinflation and then the Second Great Depression.

You had better be prepared. Garth, your financial planners prediction of 4 years of hard times may be a modest estimate. This baby will be big and will hang on longer that any of us would care to think about.

In regards to todays rate cut by the feds: Look at Japan since 1991. If zero interest rates and a permissive money and credit policy worked, Japan would have been out of the woods years ago. It hasn’t worked, yet the major government’s of the world are repeating the same mistakes. Bottom line is that it won’t work.

#15 Toronto Market Watcher on 12.17.08 at 12:22 am

Hey Garth, since you brought it up, I’m curious as to how your investment portfolio has performed since 1999?? Any idea what your average annualized rate of return has been since you hired this wise fellow from day one and if you care to share, how has your portfolio held up over the past 12 months? Just curious and I’m sure many bloggers here would like to compare notes… Thanks!

About 9%. In October when the market fell 24%, it was down 4.5%. — Garth

#16 ThumbsUp on 12.17.08 at 12:45 am

Hi Garth,

I’m not sure, if your guy has a crystal ball, he won’t be managing your money to make a living.

I agree your strategy is pretty inflation prove and tax efficient for someone in 30s, however, the bank stuff kind of leads people to borrow money from bank and then invest back in bank stock. I think the fundemental is flawed. I wonder as a country Canada has any future if we’ll do that.

Anyway, I like the tax part.

#17 Derrin on 12.17.08 at 1:31 am

I hate to be a “dink” but didn’t a few smart people just get burned by another smart guy( Madoff ).
In times like this you are now actively encouraging people to invest in a market that doesn’t know which way is up. Or who is trying to save their skin in this game.
I could see dipping my toe in the deep end with companies that aren’t diluting their stock.
I mean your financial mood swings are baffling.
When Harper way saying things are OKay…..you are proposing a depression like scenario where we should be in cash and paying the mortgage down.
This week Harper has said we may need to start thinking about the D word. …….and you are advising this young person to invest in the market with cash that he could use against his mortgage.
Baffling……truly baffling.

Do you wear a mood ring from Sixties or consult psychics(like Reagan).

Cheers,

#18 quack on 12.17.08 at 1:31 am

patrice…

I agree …. taking advice from someone who hires someone else to look after his money is more than borderline foolish. Stick to politics and books Garth.

Sure, hire a rank amateaur to look after your money – yourself. — Garth

#19 Sylvia in Vancouver on 12.17.08 at 1:34 am

“Right now, we have a deflationary mess in which assets – houses, commodities, financial asses”

gotta love a good Freudian slip!

#20 The Tallyman on 12.17.08 at 1:34 am

Now go and arrange a home equity-secured variable rate line of credit for $200,000 and hire a smart guy like I have to build an investment portfolio of growth assets of the highest quality (at your age, there is virtually no risk in doing so)
—————

Man, when I read that, my hands starting shaking and I dropped the squirrel I was canning.
And as I watched it bounce on the cold concrete floor of the bunker… I got it

The key word in Garth’s advice is ‘discretionary’

An ol’ wuss like me will never have ‘discretionary’ $$$

But for the young with a pile of extra that is not crucial for their day to day existence. Why not.
Life will go on and fortunes can still be made even during the chaos.

And having a “Smart guy” like Garth’s can only help.

#21 jolm on 12.17.08 at 1:41 am

What is the use of super low interest rates if banks tighten credit .
If banks slow mortgage approvals then the money printing will
slow down a drag the economy with it . Then the economic domino effect will take place from
less loans from banks and will start to effect every aspect on the economy.
Get it ,like domino 1 hitting domino 2 then 3 etc etc .
This is happening in the usa and people are defaulting intentionally because there mortgage
is more than the market price of there home . Banks are not going to refinance your
mortgage if your mortgage debt is $300,000 and you property is worth $200,000 even if you
have a great job .Plus China is taking most new jobs, because they lower there currency value
every time the us dollar goes down. Therefore making other countries unable to compete in
labor intensive manufacturing . Deflation may be here for a long long time my friends .

#22 Seadoo-bear on 12.17.08 at 2:19 am

My understanding with a line of credit loan is that it is a demand note. So a lending institution can demand repayment at any time, especially if the value of the asset (house) you have used for collateral drops below the value of your loan. Then you have to sell your stocks at a loss to cover the loan. Usually everything goes down together in a deep recession.
A mortgage cannot be demanded till the end of the mortgage term.
I agree with the first comment, sell while you can, put the cash in a term deposit and rent, till the house market hits the bottom. You will be way ahead of any portfolio if you don’t spend what you save by renting.
Garth this is the advice you gave in your book Greater Fool. Now is the time to rent if you can . Wait for the house market to bottom.

A secured line is registsred as is a mortgage. Non-callable. Sheesh, guys, get the facts. — Garth

#23 islander on 12.17.08 at 4:49 am

That was The Plan, as I recall. And it’s horrible advice.
Don’t do it, kid. There’s no such thing as “no risk” and Garth won’t be bailing out you out when equities fall even further.
Banks can call in lines of credit at the drop of a hat. If you’re down in the market when the loan is called, you could be underwater on your loan and next thing you know Mr. Potter owns your house.
Horrible, irresponsible, toxic advice.

A secured line is non-callable. Learn the facts. — Garth

#24 Vasco Gododdin on 12.17.08 at 7:30 am

Garth,

With all due respect to your “smart guy” investment counsellor, he is a li’l off on one part of his forecast:

While the first recession is likely over next fall (having lasted about two years), and things begin to pick up, inflation does indeed kick in. But it does not reflate housing which will have only just touched bottom. People will still be in debt, employment will still be lagging, incomes stagnant, and the psychological abhorrence of real estate as an investment will be in full effect. As inflation kicks in, interest rates get jacked. This kills demand for real estate before it even gets up off the mat. I never thought I would need to suggest to YOU that real estate is DONE for a generation or more. It will be 25 – 30 YEARS (not months) before we see another peak like that of ’06 – 07. Not least because once mass inflation kicks in, high interest rates will linger or a looooooooooooooong time.

Just sayin’.

#25 Rick on 12.17.08 at 7:30 am

You mean ‘think long term’ like they did in Japan where the Nikkei has gone from almost 40,000 down to 8,000 over a 20 year period and never gotten anywhere near 40K again? You’re right, that would only leave him an 80% loss by the time he is 52. What a wuss not to jump at that chance.

If you think we are facing continuing downside on housing prices, why shouldn’t he get out now, get into a rental, keep his cash on the sideline and safe, protect himself if he loses his job, buy back in when the housing market is substantially lower, and buy stocks when it looks like your economy is actually turned around? Oh, I forgot. Those tar sands will save the day; Canada is an energy superpower.

#26 cj on 12.17.08 at 7:31 am

The problem is, the equities markets could easily have 30% or more downside, and picking a company that is going to be around long term takes a crystal ball. Having said that, nobody really knows how this is going to turn out and at some point you have to stick your toe in the water and as Garth says “think long-term”.
Its certainly not a comfortable situation when on one hand Garth talks about the possibility of a depression and on the other advises investing in the markets….tuff times indeed!!

#27 anonymous on 12.17.08 at 7:43 am

Garth knows that when the facts change, it’s time to re-evaluate. Until yesterday nobody knew how far the US government was going to go to prevent a great depression pt 2. Now we know.

We’ve got the green light. They will print as much money as is needed. They will greenlight make-work projects. Rebate checks are not off the table.

Many of you are children with a 3rd grade financial education. He (and his advisor) make great points. You should listen, instead of spittin’ out financial cliches like the rubes that you are.

Cash was so November, 2008. Try to keep up, folks!

It’s all about early-cycle stocks and gold.

#28 john on 12.17.08 at 8:15 am

WATCH THE MARKETS TAKE OFF TODAY!!!

STOCK MARKET = NEXT BUBBLE

#29 FP on 12.17.08 at 8:49 am

I actually agree with Garth’s advice.

My husband and I sold our house in July this year, have no debt and have split our assets into 50% cash and 50% equities. He is 29 and I am 37, and we decided that we could afford to take a few calculated risks (did lots of research and homework) since we are currently renting and not looking to buy another house for another 2-3 years plus we are socking away 15% of his gross income (I am a stay-at-home mom) every month. In our non-registered accounts, we are invested in US and Cdn dividend-paying stocks as well as dividend-paying ETFs. In our registered accounts, we are invested in low-cost index funds. Even with the markets down 40-50% this year, our conservative/aggressive portfolio has given us a return of POSITIVE 7-8% with our dividends automatically reinvested in DRPs and dollar-cost averaging (this is a fairly simplistic calculation).

Remember that the stock market is forward-looking, not a lagging indicator. It will recover long before the real economy and definitely before the real estate market. We think there will be more downside but we buy on dips of 3 days or more and stay on the sidelines or sell on rallies of 3 days or longer (btw, shipping stocks have rallied on average by over 20% in just the past week and a bit). Know yourself and where you want to go, have a plan to get there and execute as well as you are able to even when the odds seem to be stacked against you. Most of all, stay nimble and flexible so you can re-assess and adapt quickly to changing life situations.

I think Garth is a very pragmatic person — he definitely scared us when he was talking about squirrels and depressions but I think he also recognizes that there can be optimism and upside in any environment if you choose to make the most of your opportunities (while weighing carefully what your can afford/cannot afford to lose at a particular stage in your life). Whatever he posts is always thought-provoking whether to the upside or to the downside….and isn’t that why we always come back for more?

Thanks for all the great posts, Garth and keep ’em coming!

#30 pbrasseur on 12.17.08 at 8:51 am

“…My investment portfolio is called ‘discretionary’ which means I basically have no idea what the hell he’s doing with it….”

I would never EVER permit anything like that. BTW that’s exactly how people lost everything with Madoff, Lacroix and the likes: they trusted someone without knowing where their money was, in the end they had none.

Now your guy may be perfectly honest and a very good investor, good for you, but if it was just the opposit you would never know before it’s too late.

(to everyone: Read The Intelligent Investor by Benjamin Graham, there is no better book on investment)

As for you investor predictions who knows? But it makes sense to think that all these capital injections and rock bottom interest rates will later generate new bubbles. The difficulty is to predict where exactly, could be real estate again but could be something else also, for the moment that is impossible to say.

Do you fix your own catalytic converter? Or your hard drive? Or your thyroid? So how did you get to be an expert on equities, bond yields, tax policy and macroeconomics? Do you get your investment advice at Tim’s? — Garth

#31 Bottoms_Up on 12.17.08 at 8:59 am

Man, when I read that, my hands starting shaking and I dropped the squirrel I was canning.
And as I watched it bounce on the cold concrete floor of the bunker… I got it
———————————————-
lmfao….porridge through the nose, porridge through the nose…

#32 Million Dollar Journey on 12.17.08 at 9:13 am

Garth, the only issue with your advice is that you recommend a leveraged investing to someone who may not have that kind of risk tolerance. Even though the tax deduction is great, it’s not the solution for everyone.

disclaimer: I personally use a leveraged investment strategy.

That’s why my first recommendations is professional help for someone who clearly needs it. — Garth

#33 buy gold on 12.17.08 at 9:21 am

Garth, if i need an investment advisor who would you recommend? and what would be the best advise to find a good advisor?

#34 wealthy renter2 on 12.17.08 at 9:29 am

WOW, good comments. Can’t believe i agree with almost everyone of them. with interest rates at zero, sometime or other the worlds lenders will realise that the US is printing money from thin air, and then lending out the money for free, and when worthless money is lent out for free, these lenders will turn off the tap. Hello deflation, Welcome stagflation,….the big D is knocking on the door.
I can only hope Canada will not fall as hard.

#35 Chris L on 12.17.08 at 9:33 am

Selling a paid for house and renting is the wrong move right now. That’s just a bet plain and simple. You are betting that you can come up with money to pay for a place to rent. If you lose your job, but have a house that’s paid for, all you need to survive is enough to pay your property taxes. Why would you give up security for money? The argument is that if real estate is dropping, you’ll lose more than it costs to rent something similar. What we all forget is that there is still no place secure to park your cash, you’re betting you’ll carry a job to pay rent, and that prices will decrease to a level less than rent.

Keep your paid for house, it puts you way ahead of the game. Houses are for living, they aren’t cash machines or investments. If you have two properties paid for, all the better. Rent one out and weather the storm.

A paid for rental is a bet that there will be at least someone who has a job….and that’s a better bet then no one having a job, or just one person having a job (you). And heck, if no one has a job, keep it and let family stay there for free. It’s foolish to dump stuff that is vital to survival with so much uncertainty. It’s time to change our thinking and get back to the basics. If it’s not vital to survival, then it’s of no value.

If you are underwater or nearly so, then of course dump it. But it’s very unwise to dump a house that’s paid for since it might decrease in value!

I just sold a ton of things I haven’t used in years on Kijiji. It’s time to lighten up. You’d be surprised what people will pay money for!

#36 Alex on 12.17.08 at 9:43 am

Take a 200,000 loan and invest in gold and silver bars – this is the only type of investment you can trust.
There are extremely tough revolutionary times ahead and depression may last up to 7 years.

#37 FP on 12.17.08 at 9:49 am

Canadian cities in rapid decline: CIBC
http://business.theglobeandmail.com/servlet/story/RTGAM.20081217.wcities1217/BNStory/Business/home

#38 FP on 12.17.08 at 9:51 am

Shoppers keeping credit cards in their wallets
http://business.theglobeandmail.com/servlet/story/RTGAM.20081217.wthrift17/BNStory/Business/home

#39 quack on 12.17.08 at 10:12 am

garth where did I say to handle your money yourself? ??? If you cant understand a comment …HOw can you write a book???

Is this criticism from a guy named ‘quack’? — Garth

#40 dd on 12.17.08 at 10:14 am

Interesting Article,

Moving money into quality stocks over the next year is the best advice. When this reflation happens a person could easily 2x or 3x your capital when we come out of this mess.

When this reflation happens do you see real estate prices going up again?

#41 dd on 12.17.08 at 10:20 am

From one caller …

“I just sold a ton of things I haven’t used in years on Kijiji. It’s time to lighten up. You’d be surprised what people will pay money for!”

What do you mean it is time to lighten up? When the market was near the top, that was the time to lighten up.

It is funny. People cut back when the economy is well under recession watch and not a moment before.

Actually this is the time to think about getting deep into high quality stocks. The day will come when cash is moved into appreciating assets … soon … soon.

#42 Calgary Rip off on 12.17.08 at 10:20 am

Garth, investments are nonsense if you dont have enough to eat. In a depression, eating and living are what matters, not investments. Most people in their 60’s will be dead soon anyway, in the line of thinking that anarchy will prevail, because the stronger and faster wins. It doesnt take much sense to figure out where to get guns and learn how to shoot them. So all this crap about investments and such nonsense wont matter if after depression periods come anarchy. Many people will end up eating whatever they can get their hands on. Watch Mel Gibson in Mad Max or Road Warrior to get the idea.

It’s much better to focus on getting a career that will pay you something over the long term and getting a place to live as a place to live. All this investment crap in houses, portfolio’s wont matter a damn if at any moment your dwelling could get invaded at any moment by people who want your goods if anarchy were to prevail in a depression.

It’s unlikely to get to that point though. There are way too many variables in the way. Think about it: Federal, provincial, city governments, law enforcement, etc. Then on top of those levels of government you have citizens, immigrants, different people with different choices. You also have many different food types, local, distant, out of country. Different goods locally and distant. Just way too many variables.

Also, lumber and oil will always be needed. There are many workers who will continue to work in those industries as those things are needed. Unless a reliable chemist formulates an exotic oil that doesnt need to come at all from the ground, petroleum will continue to be extracted. Same with wood. So all this nonsense about those industries “dying” is nonsense. The stress people get is that those two things are more difficult to get when dumbass speculators screw with the market and screw up the law of supply and demand. If investors would stay the hell out of oil and lumber perhaps the workers in those industries could continue to work get paid reasonable and everyone would be happy.

Someone evil somewhere is profiting off of all this damn mess. Government needs to step in without illegal proceedings and put a stop to the mess. Let Parliament do what needs to be done to reestablish balance in Canada before it gets to the point of “Road Warrior”.

#43 Chris L on 12.17.08 at 10:39 am

dd on 12.17.08 at 10:20 am

From one caller …

“I just sold a ton of things I haven’t used in years on Kijiji. It’s time to lighten up. You’d be surprised what people will pay money for!”

What do you mean it is time to lighten up? When the market was near the top, that was the time to lighten up.

It is funny. People cut back when the economy is well under recession watch and not a moment before.

Actually this is the time to think about getting deep into high quality stocks. The day will come when cash is moved into appreciating assets … soon … soon.
__________________

No worries, been light for years now! I just got real light before no one would want my crap anymore. Trust me when I say this stuff was crap. They were gifts from 3 Christmas’s that I hadn’t opened yet. You know the kind, a mug, candles, scented whatever! I also parted with books I don’t read anymore…who reads a book twice anyway…are they trophies?

Trust me, I know when is the time to save, the GOOD times! But you do raise a good point, a lot of people are still in the dark as to what is going on (which still makes it a good time to dump stuff/crap). But whatever you do, don’t bother enlightening them, they’ll blame YOU for it! haha

#44 Bermygoon on 12.17.08 at 10:48 am

>and just enough RRSP in cash to cover the final mortgage balance.

>The answer is simple: (a) Take your available cash and pay off your mortgage, giving you $350,000 (or so) in equity.

Taking money out of his RRSP is never a good idea especially when he is employed and will pay probably the highest marginal tax rate on it!!

I think you need to make it clear he shouldn’t do this, the rest of your idea is your opinion but you can’t seriously think an RRSP withdrawal is a good idea.

I think you need to ‘tweak’ your suggestion to him.

Furthermore you do know there is always risk in investing, saying there isn’t opens yourself up to lawsuits in the future.

He does not need to withdraw, but can set up an RRSP mortgage. As for ‘risk’ in investing, let’s talk about real estate…. — Garth

#45 Future Expatriate on 12.17.08 at 10:56 am

Hi, I’m a Mac

And I’m a PC

And guess what? We’re BOTH going bankrupt…

#46 Future Expatriate on 12.17.08 at 10:57 am

I GET it… Mac on the left (our right) is Canada, and PC on the right (our left) is the US…

#47 pbrasseur on 12.17.08 at 10:58 am

“Do you fix your own catalytic converter? Or your hard drive? Or your thyroid? So how did you get to be an expert on equities, bond yields, tax policy and macroeconomics? Do you get your investment advice at Tim’s? — Garth”

No I don’t do everything myself, I do use some help when it comes to investments. But my money is not in some opaque fund, I may not select them but I know what shares or bonds I own. Even mutual fiond I dont’ like much (except for straightforward index funds) because I don’t know what’s in them, for all I know they could be managed by a computer sofware.

#48 canadiancitizen on 12.17.08 at 11:06 am

Bernie Madoff is a gentle reminder that even “smart guys” falter…
Nothing wrong with discretionary money managers but make sure you know what he’s up to…

#49 Jelly on 12.17.08 at 11:08 am

I thought the stock market is due another crash soon?
When you look at the value of the stock market in comparison to years past, it is still quite expensive.
(no matter how much cheaper it is from the peak)
I agree with Garth, as long as you get in close to the bottom of course…

#50 $fromA$ia on 12.17.08 at 11:32 am

Garth,

The old Chinese way of dealing with economic crisis is to cut taxes largley. They have don this recently!!!

As Peter Schiff said it recently,”there are too many seats in politics.”

There is too much overhead in parlament.

Unfortunatley polititions are opposed to whats best for the people and are focusing are infrastructure instead saving their own skin.

#51 y3maxx on 12.17.08 at 11:33 am

Between now and 2012…all world currencies deflate themselves by at least 30%

…Voila, end of deflation.

#52 Jeannie on 12.17.08 at 11:35 am

Garth, It’s good that you have a financial advisor looking after your investments.
The advice you’ve given this young man does not make sense…to me.
Although I enjoy your blog, and appreciate your R.E.
warning, I would have lost thousands if I had heeded your advice to cash in my U.S. dollars when you told me to, instead I waited until the C$ dropped below 80cents, and really cleaned up.
Maybe stick to what you do best?

Now, when did I ever do that? — Garth

#53 George on 12.17.08 at 11:42 am

There’s a couple analogies that are not mine. One is that if you jump out of a hundred story building on the 50th floor its so far so good – no problem here. Same with the 20th floor and the 10th. It’s that impact that complicates things. Same thing with a thanksgiving turkey at a turkey farm – he’s probably really happy, well fed and taken care of. Even admired everything in his world is so far so good. Good luck with the discretionary dude. Hope he doesn’t serve you your ass on a silver platter and maybe learning how to fix a catalytic converter and repair a hard drive is a damn good thing to learn these days. Whose really got the answers when it comes down to it. We’ll all get what’s coming to us. That doesn’t have to be bleak either.

#54 HalifaxFamily on 12.17.08 at 12:02 pm

Leverage, as applied to the stock market Garth, is quite dangerous and shouldn’t be tried by average investors. Deferring/minimizing taxes are one thing, but that type of leverage can be quite dangerous especially if loan rates are variable.

…as quickly as rates go down, they can go up. Iceland is a great example of an overnight increase!

Buying stocks at the retail level with leveraged money is dangerous, as you don’t have access to the most current information or understand everything there is to the market. Case in point – you’ve invested $$ into a company. How do you know it’s not going to get taken over by the government? The bank takeovers and the wipeout of common shareholders. Bondholders are somewhat more protected, but it is still risk. The government dictates the rules and rules can change. You could be wiped out.

Leverage is good going up, but can hurt in the downwards direction. Houses are leveraged assets.

People leverage 95% on residential real estate which costs significant money to own and pays nothing in return. Talk about dangerous. Get a grip. — Garth

#55 Downsized and Delighted on 12.17.08 at 12:02 pm

#29 FP You say you agree with Garth’s advice to keep the house and borrow on it to invest in the stock market (effectively putting 60% in equities, and 40% in real estate).

Then you say you sold your house and took 50% of the proceeds to invest in the market and left the other 50% in cash. (you have no house, no debt that can be deducted from your investment income of dividends or whatever)

So how is it that you “agree” with Garth?

#56 Alex on 12.17.08 at 12:04 pm

Garth,

Thank you very much for running this extremely informative web-site.
I’ve been reading your articles since 2003 and would like to thank you for educating me.

My question is regarding wealth preservation.
US Fed is going to print trillions of dollars for impending bailouts and it will lead to hyper-inflation. Most likely the US and Canadian dollars will loose their purchasing power because since 1971 they are not backed by gold anymore.
Doesn’t it make sense to invest in gold or silver bars?
What is the future of these commodities?

Thank you,
Alex

Commodities are in bust mode. Metals pay no interest, no dividends, no income and can only be purchased in after-tax dollars. That makes them highly speculative. — Garth

#57 Makeorbreak on 12.17.08 at 12:13 pm

Garth, the last person on earth I would ask advice right now is a financial planner. Now is not the time to take a home equity loan for investment purposes. To me, the stock market has still a long way down to go. It took 26 years after the stock market crash to come to the 1929 level. If this is any indication, the guy who is now 32 may very well wait until he is 60 just to recoup is money. Besides, what would he do if the value of his house plummets to $125,000?

I would suggest the guy to pay off his mortgage, keep at his job for as long as he can, save all he can, then, if he loses his job, he can always rent a room or 2 in his house until he finds something.

Hey, he could sell pencils at King & Bay, too. That would be cool, and right in line with your thinking. — Garth

#58 smwhite on 12.17.08 at 12:15 pm

I originally thought that the last commodities bull was the similar spike to that of the late 70’s; Its now apparent that this was just the result of all the inflation from trying to dodge the .com bust and the Bush camps run at a second presidential term.

So as people try to cover their asses and bad bets from over gambling, we are witnessing disinflation, soon to explode back into inflation thanks to way to low of interest rates, again.

Opec and Russian oil production has been reduced as of today, oil sands projects on hold, gold and silver mining are producing less and less, making it more scarce, its crystal clear where the price of necessities of life are going to go.

I agree with #41 dd, time to buy some solid companies, with money in the bank and no debt, with commercial real estate holdings, and products that people require to live such as energy, agriculture and utilities.

I was listening to Benjamin Graham’s Security Analysis book from the early thirties on my ipod, funny listening to him described what pushed America into depression starting with the mass injection of cash because of WWI. He called 1929 a phenomenon that only happens once in a life time…

I’ve said it before and I’ll say it again, if your biting at the bit to read Garth’s new book, take one of these two out for a whirl if you haven’t already.

http://www.amazon.com/Security-Analysis-Classic-Benjamin-Graham/dp/0070244960

http://www.amazon.com/Intelligent-Investor-Book-Practical-Counsel/dp/0060155477/ref=sr_1_3?ie=UTF8&s=books&qid=1229534032&sr=1-3

Happy holidays, thanks for the post Garth, I can stand by the water cooler again without being heckled…

#59 confused and a little crazed on 12.17.08 at 12:29 pm

Hi Garth,

Getting is fine and logical; however where does one find one. I tried Primamerica and they don’t seem to know whTs going on. The problem is trust…I mert one guy and Royal he seems to be pragmatic and knowledgable But moved on to bigger and better things.

As 2 year deflation…Isn’t that a little conservative. Based on the last 3 housing crashes here…none were as big ( globally finance/ econ crash) as this one and as long. As you might have notice when times are bad …out comes the crooks( madoff guy). There are others like him and they be poppong out of their holes when the people start checking on them. It’s like everyone sort of turns the other way when times are GOOD. then scrutiny and finger pointing when times are bad.

Would it be more exact for 2 years delation and 2 years of flatline , a L shape econ scenario as opposed to a V.

thanks for this blog and your inciteful viewpoint

#60 charliegosurf on 12.17.08 at 1:06 pm

portfolios estate

i hate hearin about peoples money, it;s like talking about your dirty laudry, or the you new clean load, if its whiter than most…dont need an adviser to know that tide rules,lol

money sucks, it shpuld have nothiing to do with a home, a place to live, sleep, eat, raise kids and enjoy life at he most without having to worry about the goong show on earth…

hey, i scored on a nifty 5$ smoker, for the squirrels jerky..that little chief should do the work. shoppin for a nice bow rigth now, i dont thrust firearm…but squirrels are pretty easy to trap anyhow….

http://blog.etherea.org/archives/squirrels%20playing%20poker.jpg

they are not too affraid yet, fear is more a human thing…keep on gambling portfolio players,lol

#61 Alan on 12.17.08 at 1:06 pm

Garth – can you make any comment as to how your investment portfolio has fared being managed in
a discretionary manner. Was it the right way to go?

Absolutely. I would not do otherwise. — Garth

#62 Charles on 12.17.08 at 1:40 pm

If Garth took the time to read the comments correctly:

A. he wouldn’t have time to write books, and;

B. we wouldn’t get as many laughs from some of his crazy old man replies

I read this one. Bite me. — Garth

#63 PTDBD on 12.17.08 at 1:41 pm

I’d also like to get a financial advisor. How do you manage to investigate that what’s actually on the statement is available to come back to you once you need it.

This reported Madoff case went on for years, even after he was reported to the SEC in 1999.

#64 George Walford on 12.17.08 at 1:45 pm

The time to buy equities is now. With approximately a 50% decline in many equities, and strong companies providing high yields the stock market is a buyers delight.

Some other people here have made mention that “you can’t know what the stock market will do”. And this is true. No one can know in the short term. However, in the long term, strong companies such as MCD, KO, BRK.A will be much higher in the long term (I am not listing the actual stocks I hold on a blog, sorry I am buying more and more while the prices are still down :) )

In the long term, these companies will recover. Remember, the great depression was bad. REALLY bad, much worse than what we have going on now. Stocks fared poorly in the short term around 1929 – 1933 with a large amount of volatility. However, looking back, it would have been in your best interests to buy after the crash.

The question now becomes, to buy now or wait until the bottom? Well, I answer it like this. I don’t know if the bottom has already passed, or if it is still yet to come. I can’t predict that. No one can, indeed not even Warren Buffett can, nor does he try.

What you can do is buy stocks on sale, buy low, sell high (or as Buffett and Phil Fisher say, almost never sell).

So, buy stocks now, and get your portfolio set for DRIPS so that the effects of dollar cost averaging work for you and you start realizing massive returns. Don’t wait for the stock market to “recover” because by that time it will have already gone up, and you will no longer be buying equities on sale. SO, buy strong companies that will be around for the long term, and hold them. Re-invest the dividends.

Everyone in the stock market is panicking. Do the opposite, and profit by it.

#65 George Walford » Stocks to Buy on 12.17.08 at 1:50 pm

[…] is just what is going on here. I wrote on Garth Turner’s Greater Fool Blog: here, I said pretty much the same thing. I am not going to list the equities I currently hold on my […]

#66 PTDBD on 12.17.08 at 1:58 pm

Lumpendenken – “The market is forward looking. It anticipates moves in the economy before they actually happen.”

Hmmmm. is that why the markets hit record highs just at the start of this downturn?

#67 eddy on 12.17.08 at 2:19 pm

Tony, think about selling now and renting, you bought in 02 and i’m thinking that we may end up with 2000 prices, or worse, wait with your cash till we hit bottom

#68 dd on 12.17.08 at 2:42 pm

#42 Calgary Rip off

Are you for real?

To quote you:
“Garth, investments are nonsense” “people in their 60’s will be dead soon anyway” “So all this crap about investments and such nonsense wont matter if after depression periods come anarchy.

“All this investment crap in houses,…”

PS … we are not in a depression yet. Yes be prepaid.

There will be a time when the world gets out of this recession or depresssion and the ones that have choosen to invest wisely will do well.

What is wrong with investing anyway? Put your money to work for you GOD DAMN and stop your crying.

#69 vtj on 12.17.08 at 2:57 pm

Very entertaining posts today!

I’d consider Garth’s suggestions if I could find a financial planner that I could trust and who at least came off as having my best interests at heart.

Garth, it sounds like your guy is a fee-based planner (not one who relies on commissions generated from the products he sells). Care to let us know if this is in fact the case? Any opinions on either approach would be appreciated.

Thanks,
vtj

I pay a fee based on the portfolio’s value. — Garth

#70 Mario on 12.17.08 at 3:42 pm

Calgary Rip off (#42) are you perhaps a reincarnation of Vladimir Lenin. True, history repeats itself. Your time is coming

#71 The Tallyman on 12.17.08 at 3:43 pm

If you want to be a King Vulture you have to swoop.

#72 Crystal Radio on 12.17.08 at 4:30 pm

Garth said: My investment portfolio is called ‘discretionary’ which means I basically have no idea what the hell he’s doing with it. But he does send me a nice monthly statement, and pie charts every quarter, and a boffo little pocket diary thingy each December.

What Ho Garth, be careful there, I not only got the little pocket diary thingy but the tutsey fruitsey ice cream cone Chico Marks style, using that broker’s discretionary ‘service’. Look up the word ‘churn’ in your investment lexicon!

My advice is to keep a pair of dental pliers and a dark alley in sight when giving over your portfolio to the discretion of a broker! (or else have good connections to the mafia or some other political organization)

When was the last time a professional money manager cheated you? Oh, you’ve never had one? — Garth

#73 Crystal Radio on 12.17.08 at 4:34 pm

oops meant ‘a brokers discretionary service’ not necessarily your investment broker, who may be the ne plus ultra of brokers for all I know.

#74 JO on 12.17.08 at 4:59 pm

Hello yeh faithful RE skeptics…was out for most of the day…A few good comments about the Fed and deflation. Their playbook for this amounts to doing everything possible to try to bring down rates based on the assumption demand for loans will go up – blatantly stupid at this juncture. Extreme credit creation and excessive debt is what got us here, and most individuals and companies are becoming more frugal which reduces the willingess to increase debt. So once they figure out the public at large still does not want loans and mortgages at dirt cheap and that most banks are still cutting back on credit (as they should since unemployment and defaults will go much higher in the next 2-3 years) the playbook will get even more extreme and it all amounts to trying to devalue the currency as their warped minds think this is some way to “stimulate” the economy. So what, if GDP goes up 20 % after a devaluation, the purchasing power of that dropped by 20, and no one is really richer. The devaluation is simply going to punish the prudent and vulnerable in order to try and save the reckless and speculators who tend to carry huge debt loads. I have no doubt we will one day, before 2013 hear calls to have the Fed governors put in jail. These are pathetic actions.

The prudent – all savers (check out the interest distributions from your MM funds) who will at some stage (after the deflationary phase) see the purchasing power of the savings gone and effectively confiscated by the government. Tax rates going to go up thanks to the bailout of the reckless.

The vulnerable – anyone on a pension or other fixed income. Think grandma. And any J6P on disability.

Banks are simply hoarding the bailout money and borrowing large amounts from Fed at .50 % and using it to buy treasuries on the hope Fed buying will allow them to make capital gains. If they want, they can also hold to maturity and have a decent risk free rate of return. Can you blame them? Why lend it out in an ugly economy with rising job lossses and falling collateral values ? If you want an explanation on why TLT is exploding, there it is. The treasury bubble is at the start of its parabolic phase. Like all bubbles, it will crash. But the bust on this one is going to get fugly..real freaky.
JO

#75 Calgary rip off on 12.17.08 at 5:21 pm

DD:

It sounds like the investors are the ones crying. Not me. Trying to make money from doing no work is not advisable. Why worry about it? If the apocalypse and depression sets in all those stocks and bonds will be nonsense. What are you going to do, heat your home with them or eat with them? The stock market is u-n-r-e-l-i-a-b-l-e. Last time I checked you have a bunch of so called adults running around crazily because someone evil somewhere is profiting while the common dude is getting screwed to the wall. How do you avoid getting screwed? Stop looking for money where there isnt any! Fine, go ahead and invest, but expect the same amount of return from stocks as winning the 649 jackpot. Unless your funds are in a GIC or CD or something absolutely guaranteed, you are liable to lose. Why waste time on it?

Bottom line is that too many people see houses as investments. So you had all those people who shouldnt have even bought homes in 2004-2008 in Calgary who screwed it up for everyone else because Harper in his brilliant wisdom decided to offer 0 40 year plans. A zero is a zero. So you had a bunch of losers buying houses like they are corn flakes as “investments” and now Alberta and many other places are f*cked!!!

I dont want to hear about investment crap. Investments dont bring me immortality with freedom from injury. All I want is houses to become affordable so I can get one, make the payments and then own the damn thing eventually. I really dont care if the “equity” or value of the house goes up or down, as long as I will eventually own it and I can make the payments.

Investing is the lazy man’s way of getting money. Might as well play poker or just stay in bed.

#76 Crystal Radio on 12.17.08 at 5:30 pm

When was the last time a professional money manager cheated you? Oh, you’ve never had one? — Garth

Huh?

If afraid under the terms of settlement I can not discuss the amount and best not mention the company by name. If you are really interested in a more complete answer you have my e-mail. Sorry but there are not just a few smiling shysters out there amongst all those shinning Buddhas, fact!

And that is my public service announcement for the day.

#77 Diabolo on 12.17.08 at 5:35 pm

For the first time I disagree with Garth. This is not the right time to put all your money in the stock market. Some of it is Ok. But taking credit and putting all of it in stocks during these tough times is foolish.. Diversify if you still want to do it. But I would stay out of it totally, clear my debt and wait for market to stabilize, afterall I am only in my 30’s :)

I have to say it….. For this advice …Atleast for 1 day, Garth is the Greater Fool.

First, I did not say to put all of anyone’s money in stocks, but a 6o% exposure to growth assets for someone in their 30s is actually tame. I firmly believe financial assets will eclipse real assets over the next five years. It`s just sad to see so many young people on this blog who are pussies. — Garth

#78 a BANKER on 12.17.08 at 5:49 pm

Garth your advise isn’t possible in the situation that you used as an example.
———————————————————
The answer is simple: (a) Take your available cash and pay off your mortgage, giving you $350,000 (or so) in equity. (b) Now go and arrange a home equity-secured variable rate line of credit for $200,000 and hire a smart guy like I have to build an investment portfolio of growth assets of the highest quality (at your age, there is virtually no risk in doing so). (c) Now you have created a tax-deductible mortgage on your home, which means you get to write off 100% of the interest payments from your taxable income, giving you a big cash flow break. (d) You have also achieved portfolio diversification, having about 60% of your wealth in growth financial assets, 40% in real estate, while reducing your tax profile.
————————————————

————————————————
He does not need to withdraw, but can set up an RRSP mortgage. As for ‘risk’ in investing, let’s talk about real estate…. — Garth
————————————————

I like the idea of borrowing to invest to save on taxes is a great idea however.

You can NEVER deduct 100 % of your interest expenses on a loan from your income taxes when investing into an RRSP. Loans are only tax deductable when you are investing inside a non-registered investment account.

The RRSP loan idea is only for a portion of the guy’s cash to prevent withholding tax. The interest costs on the rest is deductible. But there are ways to melt down the RRSP and incur no tax liability. Being a banker, you’d know that. Or you should. — Garh

#79 FP on 12.17.08 at 5:58 pm

Long-term outlook favours equities: Scotia Capital
http://business.theglobeandmail.com/servlet/story/RTGAM.20081217.wSP5001217/BNStory/SpecialEvents2/home

#80 $fromA$ia on 12.17.08 at 5:58 pm

Actually Garth, it’s allot easiers to say when yur earning $150k a year.

Unfortunatley people in their thirties have no opportunity at having their house paid for after getting into this boom.

Give this generation a little slack. If I had it my way I’d like to go back to the eighties when homes were $1ook and hourly pay was in the mid $20’s per hour.

Yah, we just toked up all day and lolled. — Garth

#81 FP on 12.17.08 at 5:58 pm

Buy Canada, Goldman Sachs says
http://business.theglobeandmail.com/servlet/story/RTGAM.20081217.wgoldman1217/BNStory/Business/home

#82 $fromA$ia on 12.17.08 at 6:01 pm

Furthermore, in the last 7 years or so RE has gone through the roof and wages have not moved proportionaly.

#83 FP on 12.17.08 at 6:07 pm

#55 Downsized
Hi Downsized — I can agree with the principles that Garth has put forward even though my circumstances are not entirely identical to the gentleman who asked for his advice.
When Garth was talking about squirrels and depressions, I could also agree with his underlying message that we need to be prepared for the worst case scenario. We do not have a country property (being apartment renters in downtown Toronto) so we could not adopt many of the radical suggestions he proposed but we did stock up on water, non-perishables, toiletries and medical supplies (especially since my husband is Type 1 diabetic).
Sometimes we can’t take all advice literally which is why I said we should be able to adapt suggestions to our own individual circumstances. It does help to use a pinch of common sense as well. Hope that answers your question.
Cheers!

#84 brazer on 12.17.08 at 6:24 pm

Chrysler to close plants for a month
http://www.wheels.ca/reviews/article/488058

Dec 17, 2008

DETROIT – Chrysler says it will close all 30 of its manufacturing plants for a month starting Friday.

The company needs to match production to slowing demand and conserve cash.

Tighter credit markets are keeping would-be buyers away from their showrooms, Chrysler says. Dealers are unable to close sales for buyers due to a lack of financing, and estimate that 20 to 25 per cent of their volume has been lost due to the credit situation.

Chrysler claims it is nearing the minimum level of cash it needs to run the company and will have trouble paying bills after the first of the year.

Operations at the 30 plants will be idled at the end of shift on Friday, Dec. 19, and will not come back online until Jan. 19, 2009, or later.

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

this is the beginning of the end for chrysler…

#85 brazer on 12.17.08 at 6:27 pm

Canadian Pacific lays off 600 workers
http://www.thestar.com/Business/article/555387

CALGARY – About 600 unionized employees at Canadian Pacific Railway Ltd. are being temporarily laid off in response to weaker shipping volumes along its lines.

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

not a good day for cp employees…

#86 brazer on 12.17.08 at 6:43 pm

Canadian cities in rapid decline: CIBC
http://business.theglobeandmail.com/servlet/story/RTGAM.20081217.wcities1217/BNStory/Business/home

Falling home sales, fewer housing starts, rising unemployment and an increase in personal bankruptcies have contributed to the decline, economist Benjamin Tal said in an economic snapshot of Canadian cities.

CIBC’s metropolitan economic activity index measures several economic variables – and most of those are less favourable than a year ago, Mr. Tal said.

#87 dd on 12.17.08 at 7:03 pm

75 Calgary rip off,

To you investments might seem unreliable. To some people they are not. You know your limitation … which is a good thing. However, investing is not lasy work. Not in this market.

If you care about what you pay for things then you care about investing. If you care about the price you pay for quality at a reasonable value … then you care about investing.

You do care … that is the point that you are missing. You care so much you rant on this blog daily.

#88 Patrice on 12.17.08 at 7:08 pm

First, I did not say to put all of anyone’s money in stocks, but a 6o% exposure to growth assets for someone in their 30s is actually tame. I firmly believe financial assets will eclipse real assets over the next five years. It`s just sad to see so many young people on this blog who are pussies. — Garth
————————————————-
Sometimes a cash position is the wisest option.
Investing is not always the smartest idea.

You buy stock when you think a stock hit the bottom of a cycle.
You can buy stocks that are going up right now, but being careful and ready to sell it soon as it will hit a wall sooner or later.
You can also buy a more stable stock that seem to be going up, slowly for many years.

You obviously should never even consider buying anything that is going down, currently, with the economy; unless you want to short sell.

#89 Darryl on 12.17.08 at 7:10 pm

Garth
So let me get this straight.Just want to figure you out.(if Possible:) ) You think that housing will fall of the cliff but stocks and bonds are safer. Or will rebound faster than real estate? Why would stocks or bonds be any safer in an Armagedon scenerio? Which is what I have been reading on this blog.At least A home is a shelter.
You can’t keep warm with equities.

The stock market is a leading indicator. Real estate is a lagging indicator. Like Gretzky said, go where the will will be. — Garth

#90 Darryl on 12.17.08 at 7:17 pm

Brazen
I think Chryslers wording was “at least a month”which could mean
“until someone buys us”.Or Oh sht!!!

#91 poorguy on 12.17.08 at 7:26 pm

http://www.torontorealestateboard.com/consumer_info/market_news/news2008/nr121708.htm

“Keeping today’s market statistics in perspective, MLS® statistics confirm that over the last 10 years the price of homes has increased in value. What this means for the consumer is that real estate continues to hold its value and is a solid choice for long-term investments,” said Ms. O’Neill.
—————————————
nice try :) how about 60 years?

#92 Jan Czarnecki on 12.17.08 at 7:37 pm

Garth:
I actually thought your post today was a parody of the Madoff Ponzi scheme! “You gave your money to a guy you trusted since 1999, he sent you pie charts! and a pocket diary! and you don’t have any idea what he is doing with your money!
Garth,are your clay feet cold?
You sound like a man who was lucky he never met a Madoff–or did you? You don’t even know.
Ponzi schemes are great until everybody loses everything.

#93 Manx on 12.17.08 at 7:37 pm

First, I did not say to put all of anyone’s money in stocks, but a 6o% exposure to growth assets for someone in their 30s is actually tame. I firmly believe financial assets will eclipse real assets over the next five years. It`s just sad to see so many young people on this blog who are pussies. — Garth

Garth, North American stocks are done for at least a generation or two. The whole sector is, and will have been, governmentalized, regulated to a degree hitherto unimaginable, with risk outlawed and transaction costs jacked exponentially.
When the global recession — even if a Depression in the US — subsides, ASIA is where to buy equities.

Enjoy your squirrel. — Garth

#94 poorguy on 12.17.08 at 7:43 pm

“The recent C.D. Howe land transfer tax study confirms REALTORS’® concerns that the second LTT imposed on homebuyers in the City of Toronto has indeed contributed to the economic conditions in the GTA,” added Ms. O’Neill.

———————————————————-
I have a brilliant idea to get this economic mess resolved. Force Miller to abandon Land transfer tax,
which will pull whole Canada out of this mess,which in turn will pull whole North America out of recession,and
guess what next ? the whole world will be out of recession within a week.What a great idea :)

#95 Bottoms_Up on 12.17.08 at 7:51 pm

“Keeping today’s market statistics in perspective, MLS® statistics confirm that over the last 10 years the price of homes has increased in value.”
—————————————
Moroneen is no longer comparing prices to 2006 levels, but to 1998 levels…

#96 squidly77 on 12.17.08 at 7:59 pm

to invest or not to invest is an old question
until the birth of the internet investing was more or less a rich mans game..sure you could go out and buy some walt disney or some exxon stocks but it was somewhat limited as reliable information was hard to come by
unreliable information was easily found though

when internet use became available to the masses
it was the launch of the biggest stock market bull run in wall street history
a few years later the massive housing bubble began

was all this due to the internet..

#97 timbo on 12.17.08 at 8:07 pm

fed goes to .5 Chrysler shuts down for a month AIG wants more money.

What happened while I was away today???

History in the making folk’s.. Going to the bank tomorrow . getting my money out and preparing the mattress.

When Detroit manufacturing goes I predict that is when the run on the dollar and banks will truly begin.And to say Detroit can be saved is crazy now. Their reputation is ruined forever. Their demise is a foregone conclusion now. Watch for people blocking streets with pitchforks and torches.

And this is a happy thought. Never in my life would I see that an economy built on debt could snap so fast when everyone calls in their marker.

#98 timbo on 12.17.08 at 8:10 pm

But now I see the truth and it is going to restructure our way of life. I do believe our fiat currency is at an end. Something I hope will replace it that is better but the ones in power who created this are still in power.

#99 Manx on 12.17.08 at 8:38 pm

Enjoy your squirrel. — Garth

Wha??

An assertion that the less regulated, less indebted, more capitalistic Asian markets are the place to buy stocks as opposed to the government strangulated, deathly indebted North American markets is met with this response?

Even if anybody knew what the hell your ‘squirrelly’ retort meant, you are sounding decidedly daffy of late, Garth.

This blog is beginning to go all cult of personality, and the “personality” is looking a little loony with answers like the above.

Lighten up, dude.

Nothing daffy here. If you truly believe the North American equity markets will be terminal ‘for a generation or two,’ then you might as well move to Asia, because living here will subsistence. That is simply an extreme statement rooted in zero fact. Stop being a drama queen. — Garth

#100 Danforth on 12.17.08 at 8:49 pm

Okay Garth….
Exactly _WHERE_ do we go to “hire a smart guy like you have”?

I don’t trust the (typically very junior) ‘advisors’ at retail banks. They only want to sell _their_ products and just don’t impress me or earn my trust.

How do I find a true independent financial advisor?

(I’m 36, own half a house, but have done zero retirement planning)

#101 nonplused on 12.17.08 at 8:52 pm

Well, I manage my own investments and so far I am beating Garth’s money manager.

But I agree with Garth it’s not for the faint of heart! It takes an enormous amount of time to research and come up with a strategy. Plus I spent a lot of time and money on books presumed to educate one about the basic pitfalls and strategies.

I think the manager question comes down to this: Are you prepared to spend the time and money required to learn what you are doing? And are the amounts involved sufficient that you are earning a reasonable hourly fee for your time? If not, a professional is the way to go. Amateurs are not likely to outperform the market over time. Statistically, professionals don’t either but at least you can go out and enjoy the sunshine.

Also, I think from his comments that Garth is no gold bug, but it is worth noting that it is up in value every year for the last 8, and even with all the turmoil it’s only off a tiny amount y/y so far this year. I certainly wouldn’t advise anyone to invest heavily in gold, but statistically it has proven to be a good diversification investment. It has a low correlation to other asset classes, which means it’s more likely to be doing the opposite of what everything else is doing, which is what diversification is about.

Gold pays no interest, true, but neither does my bank account anymore! Plus you don’t need a CDIC insurance or any of that.

For those who can stomach the risk (and there is risk), gold has been a good inflationary hedge when interest rates run amuck (like now). But you probably don’t want to go much beyond 10% of your portfolio, depending on the person.

#102 timbo on 12.17.08 at 9:07 pm

WTF is going on
Am I reading into this too much or what?

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/3815070/Fresh-credit-strains-in-Europe-as-Deutsche-Bank-shocks-markets.html

“Hans-Peter Burghof, a finance professor at Hohenheim University, said there was a risk that the German banking system could break down altogether. “They can’t lend a single euro more. They can’t take a step back either, because they are already on the edge of the abyss,” he said.

The International Monetary Fund said the top 15 banks in the Eurozone, Switzerland, and Britain will need to roll over $700bn in debts by the end of next year. It is far from clear whether they can do so. Even top banks are having to pay crippling interest rates of near 9pc to issue bonds.

“Europe’s banks have been incredibly aggressive in building up their liabilities,” said Hans Redeker, currency chief at BNP Paribas.

“They are going to be hit much harder than people seem to realize by the credit crunch. What is more, a huge chunk of their debt is in dollars.”

I am trying to see a light at the end of the tunnel but is every bank now trying to raise capital to cover losses at a rate it cannot afford in future. A german bank declined a call option which from what I understand it cannot raise any new capital to replace the one it is paying out.

Can you do a page on this to explain the principal Garth, and if this is true then when the US dollar calls for investment ,no one will buy at the rate it wants so it will have to pay a higher and higher rate. this will continue until it cannot pay out the last loan at which time the dollar will collapse?

Wow, if I was china I could in effect manipulate markets with all my cash because everyone else is broke.

I hope I understand what is happening and am willing to accept counter-points

#103 Miketheengineer on 12.17.08 at 9:15 pm

Hi Garth:

Thanks for this blog. I am grateful to have found it. Reading the post gives me some optimism that some people will be o.k. during this mess. Those people will pull us out of it. Why, cause they will have some cash to start the small business that will grow into big businesses and those will employ people and will bring us out, sometime in the future.

I am gratefull to have read the squirrel article. I went and prepared my “nuts” list, and I am starting to gather. The 100 things to go first was great. I am stocking up on “personal” stuff like shaving blades and stuff like that. I hope to have my basic list completed by end of Jan. Hope it is not too late. I hope I can get the minimum that I need before the end of Jan.

I am very grateful that I still have my job. They made us take a week without pay off before xmas (early shut down) and now an additional one off after and a 3 week off later in January. We get to use our 2009 vacation for that. After that we are going to go to a 4 day work week. (with or without more layoffs). Better some money than 0. It is going to get very rough, very soon for most people to handle. By June, I believe 15 to 20% unemployment will be in Ontario.

I have also created a fall back plan. I will spring it the plans on my parents over xmas. It involves moving in with them, in case of emergency. I am also, going to get a squriel list for them together, so that they can prep a bit too. Extra toilet paper can’t hurt.

I started reading this too late, but I can try the best to prepare with what I have. Everyone needs to prepare.

Ever Grateful – miketheengineer

#104 brazer on 12.17.08 at 9:24 pm

http://en.wikipedia.org/wiki/Chrysler_Canada#Manufacturing_plants

brampton and windsor will be the hardest hit when chrysler goes down.

#105 y3maxx on 12.17.08 at 9:35 pm

China on the verge of unemployment explosion

By John Chan…15 December 2008

http://investorshub.advfn.com/boards/read_msg.aspx?message_id=34248068

Four years ago, the former World Bank President James Wolfensohn warned Chinese leaders that they had to address the widening social gulf between rich and poor. “That way,” he said, “unlike the French [aristocrats], you will not be taken to the guillotine on July 14.” The idea that the French Revolution could occur in contemporary China may have seemed farfetched at the time when the economy was experiencing an unprecedented boom—expanding at more than 10 percent each year.

Wolfensohn’s warning can no longer be considered an exaggeration. After 30 years as a giant cheap labour platform for the world’s major corporations, China cannot avoid being dragged into the greatest financial crisis since the 1930s. With the economy slowing rapidly, unemployment is set to skyrocket and social discontent will explode.

(imo,Canada has it much better than the rest of the world)

continued….

#106 dd on 12.17.08 at 10:06 pm

#94 Manx …

If it is ASIA, who will feed asia the raw resources for growth?

#107 Manx on 12.17.08 at 11:04 pm

dd:

Obviously, the commodities boom resumes, and Canada benefits from that. But even under those conditions, it will have become far more difficult for indebted Canadian companies to get and pay for credit, and to generally manage their affairs under the burden of an even more overgrown regulatory regime. Canada and the US will also be a less attractive place to re-invest wealth, not least because both currencies will be in the reduced bin.
Even as the commodities boom returns to Canada, don’t count on it being as robust as the recently ended first phase: Australia, South America, Latin America, Eastern Europe, Africa, and even, yes, China are set to enter the market as major commodities producers — directed, in many cases, by Canadian expertise.
We have well and fairly blown our advantage over much of the world, and our increasing debt and regulation will see us fall back even further. Just like capital came to be, Canadian expertise will roam the world and apply itself in environments more conducive to wealth creation and retention. Sadly, that will be in Asia much more than in North America. Most Canadian resource companies today have over seas projects; and have already abandoned Canada, even before the commodities bust. Expect that trend to continue once things pick up again after 2010…

#108 M I K E on 12.17.08 at 11:14 pm

With home prices, stock prices, and the economy all slumping, all feeding on one another, it seems to me that government spending would need to reach unimaginably high levels, as inflation will make massive debt levels far more manageable, however I think it will be no picnic for investors.

I would have to agree with Peter Shciff when he said, it will be an “inflationary holocaust”

Has Gold not shown to be the best hedge during such times throughout history?
______________________________
Bullish Gold till 2011

#109 The First Rick on 12.17.08 at 11:21 pm

#25 Rick on 12.17.08 at 7:30 am You mean ‘think long term’ like they did in Japan where the Nikkei has gone from almost 40,000 down to 8,000 over a 20 year period and never gotten anywhere near 40K again? You’re right, that would only leave him an 80% loss by the time he is 52. What a wuss not to jump at that chance.

If you think we are facing continuing downside on housing prices, why shouldn’t he get out now, get into a rental, keep his cash on the sideline and safe, protect himself if he loses his job, buy back in when the housing market is substantially lower, and buy stocks when it looks like your economy is actually turned around? Oh, I forgot. Those tar sands will save the day; Canada is an energy superpower.
==============
Uh, ummm, anyway, no choice at this point.

#110 The First Rick on 12.17.08 at 11:41 pm

#68 dd on 12.17.08 at 2:42 pm #42 Calgary Rip off
snipage
What is wrong with investing anyway? Put your money to work for you GOD DAMN and stop your crying.
==========
Jeezuzz, dd, give up on the crusade against C_R_O. We all know you don’t like him, but sometimes C_R_O has something useful to add. That was such post. Eventually each of your lines of thinking will merge, either by force or by consent. Personally, my money is on C_R_O’s line of thought.

#111 K-town Cowboy on 12.17.08 at 11:56 pm

I too would like to know where to find a smart guy that isn’t just blowing sunshine up my ass. The first “CFP” I gave money to promptly lost 30% of the book value on what he called “value funds” (he did this when everyone else was making $$$) . Got tired of his “if you give me more money to invest I can do better” line and last Feb. shipped everything to an Investors Group guy here in K-town. He talked me into borrowing an additional $100K to invest, and setting up a RIF to pay out an amount equal to the interest on the loan. I told the guy I could sleep easy if the portfolio didn’t go below 8% loss. I reminded him of this when it approached 8%. I called him when it reached 12%. He was in Bora Bora at the time (on a trip he won for some sales contest). The portfolio has lost 37% of its book value to date. Can I sell everything and use the losses to lower my taxable income ($80K/yr)/; should I suck it up, sit on it and hope the markets regain their lofty heights some time before I die (currently 50 and in good health)? Should I cap the guy and spend the remainder of my life behind bars getting 3 squares a day, earn a degree and get out in 12 for good behavior?

#112 john on 12.18.08 at 12:11 am

“in praise of ther smart guys”–my comment to that is-no one in this generation can predict the misery that is going to happen–in fact there is not a stock on market that i would invest a dime in!–other than the Breweries and the distilleries because when times get tough people drink to escape their miseries!

#113 Future Expatriate on 12.18.08 at 9:32 am

People won’t be able to afford alcohol. Not even to make their own. The only thing that kept alcohol going during the 20th century depression was prohibition.

#114 Patrice on 12.18.08 at 11:43 am

#97 say:
to invest or not to invest is an old question
—————————————
Yes, in a relatively stable and growing economy; not in a falling and shrinking one. Obviously.

Garth; This the kind of person that you can really hurt by giving out advices like this.
For them, things are very confusing. There is just too much information to compute for them in order to make a reasonable assessment of the situation and take reasonable decisions based on the assessment.

Based on your article, some people could easily go to a bank and take a home equity-secured variable rate line of credit and go to whatever TD Canada adviser and buy a whole lot of mutual fund based on the TD adviser opinion.

In a shrinking economy, this could very well be a disaster and you could end up be somewhat indirectly morally responsible for a nice family to loose maybe up to %70 of their life savings.
Tragedy!

It’s not about being a wuss or not; getting in the market right now, without an expert mind is potential suicide. Much more risky than in a normal, slowly growing and relatively stable economy.

I believe that if you emphasized the expert level required in the hiring of the investment manager, it would have been safer; but by using words like “smart guy”, it is enough to confuse many people into trusting this random TD Canada adviser guy.

I don’t want to be annoying, I’m just worry about this potential dramatic turn of event and you not being able to sleep at night because of it.

Where did I say to go to the bank for investment advice? — Garth

#115 Patrice on 12.18.08 at 12:05 pm

Where did I say to go to the bank for investment advice? — Garth
——————————-
nowhere; but it’s a reasonable assumption for many people.

hence the point of my previous post.

Not a reasonable assumption at all. Banks sell bank products. — Garth