Where risk lies

Well, that was amusing.

Yesterday’s post about my portfolio manager and my comments to that poor boy from Toronto (he sent me an email in defence of his parents) elicited a chorus of comment, most of it negative. Seems there are people who find it inconsistent I’d give my money to somebody to invest instead of worrying about it myself.  The way I look it is quite profound: Would I rather be sweating over equity issues or out riding my bike?

Besides, even though I know a lot about money and investing, why would I know more than a guy who has decades of experience and manages millions a day? What kind of fool would I be not to demand the best? As for trust, how about some doctor dude I never met who might plunge a scalpel into my chest?

More concerning is the rampant distrust on this board of financial markets. Maybe a lot of posters are too young to have lived through the 1987 crash, when all of the losses in the worst month of this year happened in a single day. (It turned out to be a mother of a buying opportunity.) Or maybe most people today are just so creamed over real estate they have trouble understanding the idea of diversification. I thought only realtors believed a balanced portfolio meant a house plus an apartment building and a condo.

Others seem to question how I can be so convinced the economy is going over a cliff, and yet contemplate holding stocks, bonds, government debt and other financial assets. Well, let me put it this way: The economy is in serious trouble and things are going to get a whole lot worse in 90 days than they are now. All of 2009 will be a disaster, and 2010 will not be much better. Millions of people will lose their jobs and thousands of companies will disappear. Big Box stores will be empty and rush hour will take about ten minutes.

During that, the asset class which will suffer the biggest hit and then take the longest to recover will not be stocks, but real estate. Valuations will not only fall by another third, on average, but prices will not regain 2007 highs for at least five years and perhaps a decade. In some cities, even longer. The people who bought in 2006, 2007 and the first half of 2008 will lose all or most of their equity if they have financing.

Meanwhile, stock markets will anticipate recovery at least six months before it arrives, and regain the bulk of the ground lost. This will be the result of zero interest rates, a sea of liquidity, trillions in government bailout money, lower corporate and personal taxes and far stronger company balance sheets coming out of this storm.

As I said to a poster an hour ago: Stock markets are leading indicators. Real estate is a lagging indicator. Remember what Gretzky said – go where the puck’s gonna be.

By the way, here’s a summary of what may be to come:

Expect these things to happen

* Falling house values until at least 2010

* A large and growing federal budget deficit in Ottawa, starting in 2009

* Unemployment rising almost continuously for at least two years

* The banking and financial system  rocked with bad assets and a few failures

* Stunning stock losses before a market-led recovery starts

* Banks suspend dividend payments to stockholders

* Reduced exports and corporate failures as the US tries to protect jobs

* Fewer services as governments at all level struggle with a funding crisis

Don’t be surprised if these things happen

* Neighbourhood food shortages as just-in-time delivery systems are disrupted

* Electricity brownouts starting as early as the summer of 2009

* A pension crisis as retirees find out about unfunded liabilities

* Real estate prices in Calgary, Edmonton, Fort Mac at 50% of 2006 levels

* A wave of mortgage defaults. Yes, in Canada.

* Scaling back of 2010 Olympics in Vancouver

* Bankruptcy of major Ontario homebuilders

* Martial law in some US and European cities to quell protests of unemployed

* Seasoned firewood climbing to $300 a face cord

Hope these things don’t happen

* Failure of a major Canadian bank, leading to emergency merger

* Canadian dollar falls with oil into 60-cent US range

* Banks ordered temporarily shut and restrictions on cash withdrawals

* Auto industry collapses, despite bailout. Ontario grows rust belt

* Ottawa suspends social benefits. Pensions, child benefits etc. only for needy

* Most credit cards cancelled, balances become demand loans

* Widespread shortages of food, gasoline, home heating fuels

* Mass migration from urban, suburban areas, especially in GTA, as people flee crime and seek self-sufficiency

* Economic activity falls by 10%, unemployment hits 20%

88 comments ↓

#1 Torquemada on 12.17.08 at 10:47 pm

Garth,

How do you see the CAD possibly falling to 60 cents? In order for this to happen, our central bank will need to flood the system with dollars to a greater extent than the US central bank.

Also, the destruction of the USD will lead to the hiking in price of dollar denominated assets–i.e. commodities. Rising commodity prices will lead to a strengthening, not weakening of the CAD (at least vis a vis the USD).

#2 dd on 12.17.08 at 10:54 pm

* Electricity brownouts starting as early as the summer of 2009

Why would this happen?

#3 Bottoms_Up on 12.17.08 at 11:02 pm

I like the bike comment…it sucks being addicted to checking the stock market every hour.

Also, I’ve been to school with guys that are now MD’s in Canada, and in undergrad we use to joke about how if they ever became doctors we wouldn’t let them touch us with a 10 foot pole.

Regarding finanical planners, these guys love what they do, and most do it well. Sure they can be burned, and lose your money, but they can also be fired! I have a brother and a best bud that do this type of work and I would trust them with my money–if I had any–in a heart beat (the trust not based on the relationship but their knowledge and abilities).

As for all the doom and gloom possibilities, I truly believe a lot of it is media-driven. For instance, remember the whole ‘citigroup is laying off 50,000 people’? Turns out all they were doing was selling off portions of their company. Not many jobs were actually lost, but I guess that fact doesn’t sell newspapers and tv stations.

#4 jeremy on 12.17.08 at 11:07 pm

I’m in the military and I hope that none of that stuff you say that might happen, doesn’t. I’d hate to be holding a rifle guarding a food depot from a bunch of hungry Canadians. I might end up saying screw the military and grabbing my family and head for the hills.

#5 Kanata has lots of Squirrels on 12.17.08 at 11:18 pm

Garth,

Should we not consider how the derivatives market crash will affect the stock market in the coming years …

http://www.relfe.com/derivatives.html

#6 Gonzo on 12.17.08 at 11:47 pm

Stocks are only good in the currency they are valued in. If your stock goes up 30%, but the currency it’s valued in loses double that the gain is worthless.
The U.S. Dollar is going to get hammered in the short-mid term. If you are going to buy stocks buy them in a currency which will hold up- CAD might do OK, Asian probably better. The point is, it’s not whether to buy stocks or not, it’s which currency to hold your purchases in. Stocks are probably better than cash, but make sure to avoid U.S. Companies… Or screw it all and buy gold.

#7 EJ on 12.17.08 at 11:53 pm

I think most people are bearish on stocks and anything financial because there is still WAY too much lying going on. Banks still haven’t been forced to admit what their investments are worth. There’s still hundreds of billions (if not trillions) in writedowns to be taken. Thousands of US banks will go belly-up, and people will lose even more. All of this causes volatility in the markets and triggers massive drops in the DOW and TSX.

Until this happens, there is no recovery, and there isn’t much reason to shovel money into the pit.

Of course, if you have some uncanny knowledge as to which particular stocks are going to defy the trend, it’s another story. But the average person (including the average “advisor”) will just get crushed.

#8 Jake on 12.17.08 at 11:53 pm

Hey Garth, or anyone for that matter,
Where exactly do I find the squirrel list? I have been doing research on how to best stock up on the basics, but I would appreciate any insight into the endeavor. Thanks. I am a mormon and our church leaders have been telling us to put a little away for emergencies and become self reliant. They have also been telling us to avoid debt like the plague for generations, and more specifically since 1998. Certainly not bad advice for everyone right now.

#9 john on 12.17.08 at 11:53 pm

Thats reality! when our goverment runs out of money from the big corporation bailouts–the crap is going to hit the fan!

#10 wealthy renter2 on 12.17.08 at 11:56 pm

Based on your comments here, why would you then advise someone to invest now, and diversify…etc, simply cause he is young???
I mean if you were pretty sure something was going to get a whole lot cheaper in the next two years, why wouldn’t you wait and buy it later? The silly fear of missing the boat is so over-rated. Let me tell you real fear. Real fear is trying to buy a stock when markets tank to 5000 points. By that time, 90% of the population will not touch the markets. Capitulation is when the last investor out there declares that he will never buy another stock again. That is when one should be buying in bulk! Right now all I see are a bunch of delusional traders running around telling every one that stocks are dirt cheap and to buy now! Sure stock markets are historically forward looking. This year however, if the TSX is any indication, the stock market has been behind every step of the bad economic news. Stay in cash, pay off your house, rent, whatever you do, stop listening to the retarded advise to buy NOW. You will want to miss this sinking boat!! This me-first-instant gratification generation will soon learn that patience is virtue. Being young is not a risk free ticket to investing, just like dollar cost averaging is a money losing idea. Keep buying up those money losing stocks/funds….most of them will keep failing, and a few might eventually lessen your pain, and save you some face for not having the foresight to get out of the market in time. RULE number 1 – don’t lose money. RULE no. 2 – remember Rule 1.

#11 john on 12.17.08 at 11:59 pm

Anyone wondering about the future take a drive thru downtown Detroit!

#12 Here comes the New World Order on 12.18.08 at 12:00 am

Oh don’t worry Garth, Obama will save us!

#13 Keith in Calgary on 12.18.08 at 12:18 am

I believe EVERYTHING from the “don’t be surprised if these things happens” category will occur within 18-36 months……..we’re well on our way there already, with half the list completed, or darn near close to it.

Here are the things I believe will happen from your “I hope these things don’t happen” category……

1-Failure of a major Canadian bank, leading to emergency merger.

2-Banks ordered temporarily shut and restrictions on cash withdrawals.

3-Auto industry collapses, despite bailout. Ontario grows rust belt.

4-Economic activity falls by 10%, unemployment hits 20%.

#14 rusty on 12.18.08 at 12:19 am

Real eastate prices at 50% of 2006 levels in Ft. Mac, Calgary and Edmonton? Ouch. I was thinking 50% of today’s value would be a disaster and a good buying op for myself.

#15 Dave in Calgary on 12.18.08 at 12:30 am

Garth, you should have told all those people who hyped gold to invest in firewood instead.

#16 Anon on 12.18.08 at 1:08 am

“Hope these things don’t happen” category would suggest more than 20% unemployment, wouldn’t it?

#17 Mark Wells on 12.18.08 at 1:27 am

Merry Christmas!

#18 Steve Hickton on 12.18.08 at 1:35 am

Garth, I think you are right on the money predicting this recession and possibly depression.
However, the changes we are seeing go deeper than just a recession or slow down. A fundamental change in the level of wealth in the West is occuring that is not necessarily a bad thing.
The signs were there long ago and easy to spot. The level of affluence, more so in the US, was astounding and not sustainable. It was a culture of greed and acquisition that never can last. My step father who is a smart man always said that this current generation has it too easy. There is truth to that.
Some examples: High school and college students from all over the US partying it up in Fort Lauderdale or Hawaii on Spring Break. How can they afford to do that?
Likely rich parents as most students I know don’t have any money.
In the US restaurant portions are staggering..mountains of fries, and buckets of sugary soda pop. And all half eaten and gets dumped in the garbage. Sad.
Cars….sub compact? Forget it. Everyone is driving Expeditions or Suburbans.
In real estate, no one wants the starter home we all started with. It has to be a 2500 sq foot house right off the bat, with all the bells and whistles.
300 thread count sheets. What the hell is that? When I grew up sheets were sheets. They came from Sears and that was about it.
All this self pampering and drive for luxury has its inevitable end. Both the world economy and the environment cannot sustain this standard of living.
This recession/depression is the first of many shocks to come that will be forcing people to live a simpler and less materialistic life.
Don’t get me wrong, poverty sucks but some good things came out of the Depression. That mentality of not wasting anything is a hallmark of any who lived through it. We need a little more of that now.
If we pull together and have the right values we wil come out of this ok.

#19 confused and a little crazed on 12.18.08 at 2:03 am

Hi garth,

I prefer to ask questions, than bash the poster. I like to read what people say…then research it and try to verify it for myself.

Albeit i was in grade 9 when black monday 1987 happened. So I didn’t really process what was happening back then.

But I find it it still to soon to get back into stocks. .

By listening to the news the biggest players still haven’t changed much. Banks have low rates but thet still don’t want to lend in a declining market and a bad econ. They might not get their money back? The Big 3 still make unreliable cars…their business model hasn’t change. Their business plan is to decide when should we ask for another bailout.

so wouldn’t it be more prudent to wait as a smart investor when those idiots actually make a plan with some vision. like for instance Ford decides to model their cars after hondas / toyotas and the union CAW’ all take a 20 % pay cut to make themselves more competitive , and ceo just forgoing their bonuses for running the company into a defecit. HeY I can do that and I won’t take that much money.

I hear we are in this together but don’t take my share. I wonder who will be next to ask for a bailout…maybe the airline industry, their operating costs are so high…. what’s your prediction
:)

Could you elaborate on “Scaling back of 2010 Olympics in Vancouver”
Do you mean limit the construction?…I don’t think so. The govt will spend as much as the taxpayers money as possible…It about having ” FACE” an asian pride/ ego thing. Like plowing up a huge park in front of a stadium and planting a whole new species of grass because it wasn’t the right shade of green and it will only cost the taxpayer 600 K…just a guess.

The chinese painted their grass… we have to one up them. we can actually grow our grass

again thanks for this blog

#20 islander on 12.18.08 at 2:43 am

I could see all of that happening. So investing in the stock market right now is, as they say, trying to catch a falling knife.

Being a student of the markets, Garth, you know as well as I do that the major meltdowns come with a generation of suckers/gamblers/investors who fear/loathe the market.

One could argue from historical data that it will be 2030 before another wave of buyers lifts this market.

In fact, one could argue that once housing finds its bottom (and we’ve got a long ways to go there, too) it will make a lot more sense to buy a house and live in it for 40 years like our parents did, than it will ever be to gamble in the Wall Street/Bay Street Casino.

At least a house is shelter. Stocks are just paper versions of poker chips.

#21 David on 12.18.08 at 2:52 am

On the subject of risk and pricing risks.

http://business.theglobeandmail.com/servlet/story/RTGAM.20081218.wrmortgage18/BNStory/Business/home

#22 Kash is King on 12.18.08 at 5:47 am

Garth:====> “As I said to a poster an hour ago: Stock markets are leading indicators.”

Yes, I’ve been led to believe this too ; but if the US was in recession starting Dec 2007, how come the market didn’t crater starting April 2007 ( 8 months ahead)?

Why does it appear the market doesn’t crater until 8 months ahead of when the recession is “officially” called? *ahem* Not that a gov’t would ever manipulate figures to make that theory fit…

#23 robotninja on 12.18.08 at 7:21 am

Garth, don’t feel too bad. It seems that ignoring warnings has been in vogue for at least a few years:

http://business.theglobeandmail.com/servlet/story/RTGAM.20081218.wrmortgage18/BNStory/Business/

#24 pbrasseur on 12.18.08 at 7:53 am

“Besides, even though I know a lot about money and investing, why would I know more than a guy who has decades of experience and manages millions a day? What kind of fool would I be not to demand the best? As for trust, how about some doctor dude I never met who might plunge a scalpel into my chest?”

There is nothing wrong with letting a specialist manage your money, in fact for most it’s recommended. But you (and everyone else) should at least make sure you know where and how your money is invested, if the investment scheme is opaque or too difficult for you to understand chances are it’s a bad one. That’s not hard to do, especially for someone with your knowledge. People who lost fortunes in frauds has no idea where their money was, they just trusted someone blindly and paid for it dearly.

I mean is it not was this is all about? Isn’t it was caused this crisis? Isn’t it what you are denouncing (rightly so) since the beginning: People (even big time professional investors) investing too much into something they don’t fully understand or at least without adequate knowledge of the risk involved?

What the hell is opaque about getting a monthly statement listing the securities held? — Garth

#25 Kash is King on 12.18.08 at 8:06 am

1930’s style Depression? Nah, no way. It wasn’t the same animal as what we are in now.

For something similar, check out some well thought-out comparisons to the Depression of 1873, caused in part by a collapsed RE credit bubble.

http://chronicle.com/temp/reprint.php?id=477k3d8mh2wmtpc4b6h07p4hy9z83x18

#26 Bottoms_Up on 12.18.08 at 8:16 am

Garth’s advice was for the 32 year old to put his money to work for him. It’s all about finding the best place to put your money. 10 years ago it was the stock market, 7 years ago it was real estate.

The value of cash is reduced by inflation (picture the value of $100,000 under a matress in 1908 vs. 2008). Real estate is in the beginnings of a nose dive. So, where to put your money? (and currently there is a lot of money on the sidelines)

Stocks have come WAY down, and despite all the doom and gloom in the media, there are still great companies to be had that are paying a hefty dividend (go back and re-read some of the DRIP posts). Given the time horizon of the 32 year old, it makes sense that his money is put to work in the market!! And, he would be well on his way to creating diversification (unlike the majority of canadians that hold all their wealth in real estate).

#27 Future Expatriate on 12.18.08 at 9:22 am

#15: Most people who have gold have TONS of firewood.

I know I do.

#28 smwhite on 12.18.08 at 9:44 am

#25 Kash is King

Thanks for the post, quite the history lesson, the “Long Despression”. Kind of eerie considering the length of time it took to get credit flowing and deal with the addition of a new “Superpower”.

Does anyone know if Rich Uncle Pennybags has written any books in and around that time?

http://en.wikipedia.org/wiki/Long_Depression

As for this in the list of hope this doesn’t, if anything is a lock this is:

* Failure of a major Canadian bank, leading to emergency merger

Is this credit fiasco a precursor to a couple of the Canadian banks now having an excuse to merge; to be competitive on the world stage, in their eyes? Haven’t they been fighting to become a superbank? Now they have an excuse… Maybe not a failure, but the way they are tightening lending to cover their own balance sheets, sort of like the consumer holding out for a cheaper price…

Hey Garth, as for catching “it” for taking advice from an advisor, seems pretty silly considering most are here to hear what you have to say about the pitfalls of RE in Canada, the more information from differing sides the better to help a fellow form an educated opinion.

Just let us know if your taking ANY advice from our friends at CIBC.

PS Thanks for the derivatives post #5…

#29 Calgary Rip Off on 12.18.08 at 9:47 am

Garth, the last thing to go will be health care. If hospitals are down then this is an indication of total anarchy.

A word to all the oil people: Perhaps you should retrain to become a doctor, nurse or tech in some hospital. That type of employment is resistant to all the crap happening, unless armageddon hits. If a state of emergency prevails and there is no medicines such as in some African countries, then you can worry about your employment.

Kiss all the upper level management jobs goodbye in downtown Calgary where they dont do anything. Mostly these dudes have a trophy wife at home who does everything(and yet these same dudes bow to this woman) and then do their secretary on their lunch hour. Be prepared for jobs like this to be the first to go.

It will be fun and excitement next January when Harpers all conservative staff have been sworn in.

#30 Peter @ Canadian Banks on 12.18.08 at 9:51 am

The housing market will decline a lot from here, that’s for sure, however I don’t think the Canadian dollar will fall against USD. Both USD and CAD are equally useless, and the asset that will mostly benefit from the demise of paper money is gold.

— Garth, I wonder with the gloom-and-doom scenarios published on this blog daily, how come you never talk about gold and precious metals as an asset class worth considering? Tell us where do you thing gold is going?

Thanks,

Peter

I address this fully in my coming book. — Garth

#31 Chincy on 12.18.08 at 10:13 am

#1 I know you will not agree, but I believe the USD will be substantially higher in the next 1-5 years. Put it this way, we are in global deflation and like it or not the USD is the defacto currency and the US is leading the charge down and will be the first out of this mess…which other would replace it? JMHO

#32 dd on 12.18.08 at 10:26 am

To the caller a couple posts back that said: “The oil sands will keep producting … they cannot shutin the upgraders because of low oil prices … ”

Well today Connacner oil and gas is turning down production in the oil sands from 9,000 to 5,000 BOE.

#33 Andrew toronto on 12.18.08 at 10:42 am

* Real estate prices in Calgary, Edmonton, Fort Mac at 50% of 2006 levels

Garth are you still with the thought that toronto will see another 15percent decline from here .. I’ve seen monster homes being built where small bungalow used to be and there asking close to 1million some more .. some not even finished some have dropped to 900,000 , ..none are selling , Even if they would sell that would be crazy having a house that big ,, Are you expecting a good buying oportunity in the Gta would be late 2009 still ?

#34 Kash is King on 12.18.08 at 10:42 am

#28 smwhite:====> “Does anyone know if Rich Uncle Pennybags has written any books in and around that time”

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

LOL. Looks like ol’ Bernanke boned himself up on the WRONG depression!

Wonder if applying “cures” for the 1930’s depression will simply worsen this 1873-style depression?

#35 Roy on 12.18.08 at 11:00 am

#18 ….. Great comments Steve….I do believe that everything Garth says will happen sooner not later. It is the mentality of the rich that got us into this mess. And the stupidity of the middle class trying to live like the rich that will keep this fire burning. Do you think the rich are going to get us out of this mess? I think not. Does anyone remember what a savings account is ?

#36 Gonzo on 12.18.08 at 11:03 am

#31 Chincy
I think you are very mistaken. Yes we are now worried about deflation, but this won’t last long.

The U.S. government will continue to print more and more money to try to stimulate the economy and to pay for their enormous debt. This will lead to a serious devaluation in the USD. This is fact. The U.S. cannot possibly grow their way out of the massive financial hole they are in — they can only pay for their debt through inflation. This could happen soon, as their is growing sentiment that USD are not a safe investment.
Other countries have already started moving out of USD. There is now enough EURO in currency to become the benchmark currency. I’m not saying it will happen, but when the USD crashes there are other options.

This does not mean, however, that the USD will change much relative to, say, the CAD. We have similar (but much less) problems with our fiscal policies which could hammer our dollar. But the strength of the USD in relation to true pruchasing power will be weak. (Personally, I think the CAD will be strong relative to the USD, as commodity markets will rebound when people move away from their toxic USD.)

You need to ditch your USD, and move into foreign currencies/stocks/bullion. Assets which have the potential to hold onto future purchasing power.

#37 GrandePrairiegirl on 12.18.08 at 11:05 am

#8 Jake

http://www.thepowerhour.com/news/items_disappearfirst.htm

#38 patriotz on 12.18.08 at 11:15 am

Canadian dollar falls with oil into 60-cent US range

This would actually be positive for all of Canada except for Alberta and perhaps Saskatchewan, because of the cheap oil lowering production costs and the cheap dollar aiding exports.

#39 Calgary Rip off on 12.18.08 at 11:17 am

Real estate prices in Calgary, Edmonton, Fort Mac at 50% of 2006 levels

Nah. To have that happen in Alberta would be a total collapse. Oil would have to hit $5 a barrel.

Look at the mls.ca site for Calgary. That statement has no basis in reality. Sure it would be nice if a person could buy a house for what its worth, say $180,000. Those payments would actually be reasonable. Lets just say the sellers and realtors here are completely against this and its largely unlikely.

Why?
1)Oil is needed. This isnt likely to change.
2)The general population for the most part supports the ridiculous cost of living.
3)Wrong minority government in power: Lack of social programs, lack of rent controls in Alberta.

#40 jan on 12.18.08 at 11:19 am

Hi Garth,

Any tips on how to find a financial adviser you can trust? I hear from friends this Madoff guy is supposed to be amazing…

That’s a useless comment. — Garth

#41 pbrasseur on 12.18.08 at 11:26 am

I think the US stock market may have reached a bottom and it’s a great time to invest there. Dont let the exchange rate stop you, over the long run it doesn’t matter much. Right now is the greatest time to buy in a generation!!!!

In Canada the TSX situation could be different, for two reasons:

1) Price of oil is still crashing.

2) Canadian RE market is just beginning to crash and will crash more.

I’m not convinced these facts have been fully anticipated by the markets yet, too many commentators still wear pink glasses when it comes to Canada…

#42 ACS on 12.18.08 at 11:43 am

Despair in Once-Proud Argentina
After Economic Collapse, Deep Poverty Makes Dignity a Casualty

http://www.financialarmageddon.com/

By Anthony Faiola
Washington Post Foreign Service
Tuesday, August 6, 2002; Page A01

ROSARIO, Argentina — Word spread fast through the vast urban slums ringing Rosario. There was food on the freeway — and it was still alive.

A cattle truck had overturned near this rusting industrial city, spilling 22 head of prime Angus beef across the wind-swept highway. Some were dead. Most were injured. A few were fine.

A mob moved out from Las Flores, a shantytown of trash heaps and metal shacks boiling over with refugees from the financial collapse of what was once Latin America’s wealthiest nation. Within minutes, 600 hungry residents arrived on the scene, wielding machetes and carving knives. Suddenly, according to accounts from some of those present on that March day, a cry went up.

“Kill the cows!” someone yelled. “Take what you can!”

Cattle company workers attempting a salvage operation backed off. And the slaughter began. The scent of blood, death and fresh meat filled the highway. Cows bellowed as they were sloppily diced by groups of men, women and children. Fights broke out for pieces of flesh in bloody tugs of war.

“I looked around at people dragging off cow legs, heads and organs, and I couldn’t believe my eyes,” said Alberto Banrel, 43, who worked on construction jobs until last January, when the bottom fell out of the economy after Argentina suffered the world’s largest debt default ever and a massive currency devaluation.

“And yet there I was, with my own bloody knife and piece of meat,” Banrel said. “I felt like we had become a pack of wild animals . . . like piranhas on the Discovery Channel. Our situation has turned us into this.”

The desolation of that day, neighbor vs. neighbor over hunks of meat, suggested how profoundly the collapse has altered Argentina. Traditionally proud, Argentines have begun to despair. Talk today is of vanished dignity, of a nation diminished in ways not previously imaginable.

Argentines have a legacy of chaos and division. In search of their “workers’ paradise,” Juan and Eva Peron declared war on the rich. During the “dirty war” of the 1970s, military rulers arrested tens of thousands of people, 15,000 of whom never resurfaced. And when then-President Carlos Menem touted New Capitalism in the 1990s, the rich got richer — many illegally — while the poor got poorer.

Yet some things here never really changed. Until last year, Argentines were part of the richest, best-educated and most cultured nation in Latin America. Luciano Pavarotti still performed at the Teatro Colon. Buenos Aires cafe society thrived, with intellectuals debating passages from Jorge Luis Borges over croissants and espresso. The poor here lived with more dignity than their equals anywhere else in the region. Argentina was, as the Argentines liked to say, very civilized.

Not anymore.

Argentines have watched, horrified, as the meltdown dissolved more than their pocketbooks. Even the rich have been affected in their own way. The tragedy has struck hardest, however, among the middle class, the urban poor and the dirt farmers. Their parts of this once-proud society appear to have collapsed — a cave-in so complete as to leave Argentines inhabiting a barely recognizable landscape.

With government statistics showing 11,200 people a day falling into poverty — earning less than $3 daily — Buenos Aires, a city once compared to Paris, has become the dominion of scavengers and thieves at night. Newly impoverished homeless people emerge from abandoned buildings and rail cars, rummaging through trash in declining middle- and upper-class neighborhoods. People from the disappearing middle class, such as Vicente Pitasi, 60 and jobless, have turned to pawn shops to sell their wedding rings.

“I have seen a lot happen in Argentina in my day, but I never lost hope until now,” Pitasi said. “There is nothing left here, not even our pride.”

Wages Fall, Prices Rise

Late last month, on the eve of the 50th anniversary of Eva Peron’s death, thieves swiped the head of a new statue of her. Nothing, really, is sacred here anymore. Ads by concerned citizens appear on television, asking Argentines to look inward at a culture of tax evasion, incivility and corruption. But nobody seems to be listening.

Food manufacturers and grocery stores are raising prices even as earning power has taken a historic tumble. A large factor in both the price rises and the slump in real wages is a 70 percent devaluation of the peso over the last six months. But the price of flour has soared 166 percent, canned tomatoes 118 percent — even though both are local products that have had little real increases in production costs.

Severe hunger and malnutrition have emerged in the rural interior — something almost never seen in a country famous for great slabs of beef and undulating fields of wheat. In search of someone to blame, Argentines have attacked the homes of local politicians and foreign banks. Many of the banks have installed steel walls and armed guards around branch offices, and replaced glass windows decorated with ads portraying happy clients from another era.

Economists and politicians differ on the causes of the brutal crisis. Some experts blame globalization and faulty policies imposed by the International Monetary Fund. But just as many blame the Argentine government for runaway spending and systematic corruption. The one thing everyone agrees on, however, is that there is no easy fix.

Statistically, it is easy to see why. Before 1999, when this country of 36 million inhabitants slipped into recession, Argentina’s per capita income was $8,909 — double Mexico’s and three times that of Poland. Today, per capita income has sunk to $2,500, roughly on a par with Jamaica and Belarus.

The economy is projected to shrink by 15 percent this year, putting the decline at 21 percent since 1999. In the Great Depression years of 1930-33, the Argentine economy shrank by 14 percent.

What had been a snowball of poverty and unemployment has turned into an avalanche since January’s default and devaluation. A record number of Argentines, more than half, live below the official poverty line. More than one in five no longer have jobs.

“We’ve had our highs and lows, but in statistical and human terms, this nation has never faced anything like this,” said Artemio Lopez, an economist with Equis Research. “Our economic problems of the past pale to what we’re going through now. It’s like the nation is dissolving.”

The Suffering Middle Class

Every Argentine, no matter the social class, has a crisis story. Amalia Lacroze de Fortabat, 80, one of the country’s richest women, was forced to offer up paintings by Gauguin, Degas, Miro and Matisse at a Sotheby’s auction in May. For many of Argentina’s well-to-do, the sale was the ultimate humbler, a symbol of decline in international stature.

Those suffering most, however, are the ones who had less to begin with.

On the morning of her 59th birthday, Norma Gonzalez woke up in her middle-class Buenos Aires home, kissed her husband on the cheek and caught a bus to the bank. There, before a stunned teller, the portly redhead, known by her family and friends mostly for her fiery temper and homemade meat pies, doused herself with rubbing alcohol, lit a match and set herself ablaze.

That was in April. Today, Rodolfo Gonzalez, 61, her husband, keeps a daily vigil at the burn center where his wife is still receiving skin grafts on the 40 percent of her body that sustained third-degree burns. She had no previous record of mental illness, according to her family and doctors, and has spoken only once about that morning.

“She just looked up at me from her hospital bed and said, ‘I felt so helpless, I just couldn’t take it anymore,’ ” Gonzalez said. “I can’t understand what she did. It just wasn’t Norma. But I suppose I can understand what drove her to it. It’s this country. We’re all going crazy.”

Argentina long had the largest middle class, proportionally, in Latin America, and one of the continent’s most equitable distributions of wealth. Much of that changed over the last decade as millions of middle managers, salaried factory workers and state employees lost their jobs during the sell-off of state-run industries and the collapse of local companies flooded by cheap imports.

Initially, Rodolfo Gonzalez was one of the lucky ones. An engineer for the state power company, he survived the early rounds of layoffs in the early 1990s when the company was sold to a Spanish utility giant. His luck changed when the company forced him out in a round of early retirements in 2000.

He was 59 and had worked for the same company for 38 years. Yet he landed a part-time job, and with his severance pay safely in the bank, he and his wife thought they could bridge the gap until Gonzalez became eligible for social security in 2004.

Then came “El Corralito.”

Literally translated, that means “the little corral.” But there is nothing little about it. On Dec. 1, Domingo Cavallo, then the economy minister, froze bank accounts in an attempt to stem a flood of panicked depositors pulling out cash.

Most banks here are subsidiaries of major U.S. and European financial giants that arrived with promises of providing stability and safety to the local banking system. But many Argentines who did not get their money out in time — more than 7 million, mostly middle-class depositors, did not — faced a bitter reality: Their life savings in those institutions, despite names such as Citibank and BankBoston, were practically wiped out.

Virtually all had kept their savings in U.S. dollar-denominated accounts. But when the government devalued the peso, it gave troubled banks the right to convert those dollar deposits into pesos. So the Gonzalez family’s $42,000 nest egg, now converted into pesos, is worth less than $11,600.

As the family had trouble covering basic costs, Norma Gonzalez would go to the bank almost every week to argue with tellers and demand to see a manager, who would never appear. As prices rose and the couple could not draw on their savings, their lifestyle suffered. First went shows in the Buenos Aires theater district and dinners on Saturday night with friends. Then, in March, they cut cable TV.

Around the same time, the Gonzalezes’ daughter, Paula, 30, lost her convenience store. Separated and with two children, she turned to her parents for support.

The Gonzalezes had been planning for 18 months to take Norma’s dream vacation, to Chicago to visit a childhood friend. After the trip was shelved as too expensive, she seemed to break.

“I can’t explain it, and maybe I never will be able to,” Rodolfo Gonzalez said. He added: “But maybe you can start to figure out why. You have to wonder: Is all this really happening? Are our politicians so corrupt? Are we now really so poor? Have the banks really stolen our money? And the answers are yes, yes, yes and yes.”

Scavenging Urban Trash

“There is not enough trash to go around for everyone,” said Banrel, one of the participants in the cattle massacre. Rail-thin, he normally passes his days combing the garbage-strewn roads around the Las Flores slums in Rosario, a city of 1.3 million residents 200 miles northwest of Buenos Aires and long known as “the Chicago of Argentina.”

If Banrel finds enough discarded plastic bottles and aluminum cans — about 300 — he can make about $3 a day. But the pickings are slim because competition is fierce. The misery villages, as shantytowns such as Las Flores are called, are becoming overcrowded with the arrival of people fleeing desperate rural areas where starvation has set in. About 150 new families arrive each month, according to Roman Catholic Church authorities.

With more people in the slums, there are fewer plastic bottles to go around. Banrel said he was getting desperate that day when he joined the mob on the highway.

His family of three — his wife is pregnant with their second child — had been surviving on a bowl of watery soup and a piece of bread each day. He earned at least $40 to $60 a week last year working construction. With that gone, and with food getting more expensive, he said, “You can’t miss an opportunity, not around here.”

“Am I proud of what we did?” he added. “No, of course not. Would I do it again? Yes, of course. You start to live by different rules.”

Reality of Rural Hunger

For some rural families, the crisis has gone further. It has generated something rarely seen in Argentina: hunger. In the province of Tucuman, an agricultural zone of 1.3 million people, health workers say cases of malnutrition have risen 20 percent to 30 percent over the previous year.

“I wish they would cry,” whispered Beatriz Orresta, 20, looking at her two young sons in a depressed Tucuman sugar cane town in the shadow of the Andes. “I would feel much better if they cried.”

Jonatan, 2, resting on the dirt floor behind the family’s wooden shack, and Santiago, the 7-month-old she cradled in her arms, lay listlessly.

“They don’t act it, but they’re hungry. I know they are,” she said.

Orresta can tell. Jonatan is lethargic. His lustrous brown hair has turned a sickly carrot color. Clumps of it sometimes fall out at night as Orresta strokes him to sleep. Santiago hardly seems to mind that Orresta, weak and malnourished herself, stopped lactating months ago. The infant, sucking on a bottle of boiled herbal tea, stares blankly with sunken eyes.

Six months ago, the boys were the loudest complainers when their regular meals stopped. Orresta’s husband, Hector Ariel, 21, had his $100 monthly salary as a sugar cane cutter slashed almost in half when candy companies and other sugar manufacturers in the rural enclave of Rio Chico, 700 miles northwest of Buenos Aires, were stung by dried-up credit and a massive drop in national consumption.

Ariel now earns just over $1.50 a day, not enough for the family to survive. The peso’s plunge has generated inflation of more than 33 percent during the first seven months of the year, more than double the government’s projection for the entire year.

Goods not in high demand, such as new clothing, have not gone up significantly in price, but staples that families need for daily subsistence have doubled or tripled. The last time inflation hit Argentina — in the late 1980s, when it rose to a high of 5,000 percent — the unemployment rate was half the current 21.5 percent and most salaries were indexed to inflation. Today, there are no such safety nets.

“I could buy rice for 30 cents a kilo last year,” Orresta said. “It’s more than one peso 50 now.”

“At least we will eat tonight, that’s the important thing,” she said, stirring an improvised soup.

The concoction, water mixed with the dried bones of a long-dead cow her husband found in an abandoned field, had been simmering for two days. The couple had not eaten in that time. It had been 24 hours since the children ate.

Orresta, like most mothers in her village, started trimming costs by returning to cloth diapers for her two young boys when the price of disposable ones doubled with inflation. But then she could no longer afford the soap to wash them, and resorted to reusing the same detergent four or five times. The children began to get leg rashes.

By late January, the family could no longer afford daily meals. A month later, Jonatan’s hair began turning reddish and, later, falling out. Although he has just turned 2, Jonatan still cannot walk and has trouble focusing his eyes.

Orresta stopped lactating in April. But the price of powdered milk had almost tripled by then, from three pesos for an 800-gram box to more than eight pesos. At those prices, the family can afford 11 days of milk a month. The rest of the time, Santiago drinks boiled maté, a tea that also serves as an appetite suppressant.

“You know, we’re not used to this, not having enough food,” said Orresta, with a hint of embarrassment in her voice.

She paused, and began to weep.

“You can’t know what it’s like to see your children hungry and feel helpless to stop it,” she said. “The food is there, in the grocery store, but you just can’t afford to buy it anymore. My husband keeps working, but he keeps bringing home less and less. We never had much, but we always had food, no matter how bad things got. But these are not normal times.”

#43 PTDBD on 12.18.08 at 11:52 am

Predictions, predictions…what are you, a bearded fortune teller? You remind me of that ChickenLittleYounger’sBrother always aflutter and chickenlips aflapping.

Just a doggone minute now, let me check your previous predictions of 1999 from your book “2020 New Rules for the New Age”. Hmmmm, hmmm….
correct
correct
correct
Holy Sheize! You’re a lot shmarter than you appear! But, nevertheless, your predictions were early by a few years.
Your ‘Canada will disappear and Canadian dollar will be united with U.S.$ before boomers retire’ will never come true though because boomers can never retire.

BTW. Have a Great Holiday Garth. Take that hog into warmer sunshine and enjoy. Thanks again for the free thought forums. That’s been very precious, especially in these times.

#44 Mike on 12.18.08 at 11:53 am

You really, really need to expand on how you think the CDN$ is going to arrive at 60 cents USD.

What triggers this?

if it does happen, what is the USD vs Yen, vs #, vs Euro, vs Aus, etc.

Unless you think that the rest of the world (led by China) are going to start a “race to the bottom” and all devalue their currency simultaneously, I don’t see how we get to 60 vs the USD.

#45 PTDBD on 12.18.08 at 12:02 pm

“What the hell is opaque about getting a monthly statement listing the securities held?” says the Garth

Well, hell, I could generate you one of those too every month, along with lots of good % numbers.

It’s a matter of collecting. A matter of trust. Confidence. Honesty. blah, blah,blah. Remember Nortel and all those fine numbers? Isn’t that at the crux of today’s problems?

Lipsticked pigs in apoke
sold with a nod and a toke.
Good as gold as nobody smiles or winks.
sold many times over by overpaid finks.

It is illegal to distribute a false document. You clearly know little about the regulatory environment in Canada. — Garth

#46 PTDBD on 12.18.08 at 12:10 pm

“It is illegal to distribute a false document. You clearly know little about the regulatory environment in Canada.” says the Garth

All I know about the regulatory environment in Canada I learned from the markets…. :-) enforcement is what matters, going forward :-)

And the regulatory environment in the U.S.A. is worse and more fragmented and less enforced?

#47 Keith in Calgary on 12.18.08 at 12:26 pm

ACS….

Next time just the link is fine….no need to post the whole article.

Speaking of risk……let’s talk about CMHC…..

In the Globe and Mail CMHC was quoted as saying that they currently insure $334 BILLION of high ratio mortgages……..

Now the liars that inhabit CMHC wouldn’t put a figure on the number of zero down or 40 year amortizations that they have in that portfolio, because it is undoubtably huge, and a veritable political football no one wants to play the game with.

But from my experience during the last bubble as a banker, people who use CMHC to qualify usually have 10% or much, much, less down……if you have 18-19%…you can get the remaining 2-3% from someone to avoid paying their fees.

So $334 BILLION of risk, less a rough 15% across the board decline in housing prices in Canada…..less the 3-5% required discount to sell the property….less a blended 5% RE commission….that puts them underwater some $70-88 BILLION dollars, if everything was to go sideways at once obviously…..and it only is an “assumption” because not all of those mortgages were granted at the same time, they were loaned out over the last few years of rising house prices…..as well as last two of falling ones.

Good thing they don’t issue stock eh……it would be a great short.

#48 pbrasseur on 12.18.08 at 12:37 pm

“What the hell is opaque about getting a monthly statement listing the securities held? — Garth”

Nothing as long as you know what those securities are because they are identified in the statements. I was referring to “mysterious” funds such as Madoff, Norbourg and many hedge fund.

#49 Chincy on 12.18.08 at 12:46 pm

#36 point taken, simplistically i believe the global threat of deflation is a tidal wave of destruction that all gov’t wont be abe to keep up with, no matter how much printing they do.
it sounds like you are a peter schiff supporter…me too, i just think he may be off on the end result.
bt thats what makes markets, difference of opinions. heck i have friends here in vancouver that believe real estate is now undervaued…unbeleivable

#50 Jon B on 12.18.08 at 12:47 pm

From Today’s news headlines: Finance Minister Jim Flaherty said Thursday he will meet with “eminent” Canadians — to seek advice on the federal budget and the economy.
Garth – Did you get the call? Surely you are “eminent” enough.

#51 pbrasseur on 12.18.08 at 12:54 pm

One more thing about investing and knowing why invest in.

I think it’s wise to follow Warren Buffet lead when he says something like “If you don’t understand an asset don’t buy it”. He goes as far as nor buying a company’s share if he doesn’t understand what the company does.

Even when you use a financial adviser, he should be able to explain the composition of all the investments he makes for you. If he can’t then change the advisor (and sell that investment)!

If more people (including institutional investors) had followed that rule a lot of the current “derived (sophisticated) products” would have never found buyers and this credit crisis would not be so bad.

I think further market reforms should aim at more transparency and products should not be allowed to receive AAA rating unless they are clearly well understood.

But nothing will completely shield you if you don’t pay attention.

#52 Bottoms_Up on 12.18.08 at 1:20 pm

No longer a ‘brief’ deficit:

http://www.thestar.com/news/canada/article/555872

#53 y3maxx on 12.18.08 at 1:23 pm

Dec 18th Factoids….

1/

U.S. ARMs Reset Problem Vanishes Into Thin Air

http://globaleconomicanalysis.blogspot.com/

2/

* Scaling back of 2010 Olympics in Vancouver

I called that weeks ago Garth…save $$ on security, instead spend that $$$ on more infrastructure…makes Vancouver an even better bet as the new financial/trade capital city for the whole of North America.

3/

* Mass migration from urban, suburban areas, especially in GTA, as people flee crime and seek self-sufficiency

I called that one weeks ago too Garth, Ontario is in a huge negative trend as an overpopulated/manufacturing Province.

4/

You are correct about Canada’s dooom and gloom but Compared to the rest of the world, Canada is the best positioned to survive economically.

5/

China’s population is in big big doodoo…

http://investorshub.advfn.com/boards/read_msg.aspx?message_id=34277421

#54 Just a Girl on 12.18.08 at 1:27 pm

#25 Kash is King wrote: “1930’s style Depression? Nah, no way. It wasn’t the same animal as what we are in now.”

I agree. The impact of technology has changed our ability to access the same information at the same time. A lot more of us are connected globally, and in ‘real time’. This impacts decision-making in a different way … both the accuracy and distortion of information. I’ve been thinking (perhaps naively, but even so) that technology is largely to blame for the wild volatility of the financial markets … too many financial models, systems, databases, all interlinked and reacting in a big convoluted mess! Can someone shed any light on this?

#55 Makeorbreak on 12.18.08 at 1:32 pm

How long until it happens here?

http://www.lasvegassun.com/news/2008/dec/16/vast-hunger-work–n-out-cattle-call/

http://www.tampabay.com/news/humaninterest/article941163.ece

#56 rantenki on 12.18.08 at 1:39 pm

short. f#@king. everything. srsly!

When the fed cut rates recently, SRS dropped into the toilet (SRS is a REIT shorting exchange traded fund). It did the same thing when the fed did the big cut earlier this year, then proceeded to climb from 79 to 295. I expect to see a repeat performance. I just hope the U$D holds out long enough to make the gain real, instead of nominal ;)

*this post does not constitute investment advice.

#57 dd on 12.18.08 at 1:47 pm

#42 ACS,

U say something.

Most people are going to skip over the longgggggg read.

#58 y3maxx on 12.18.08 at 1:53 pm

“”I address this (gold) fully in my coming book.”” — Garth

..Now Garth, dont beholding back and lettin people think they need to hoard gold…it will drop in half or more before all is said and done.

India, China and all them Arab countries who have been hording Gold, will soon be selling it for food.

the only commoditiy worth hording might be Silver.

….In closing, we may see a major currency devaluations vis a vis china’s yuan.

China has been the number one reason the world is where its at today…they’ve been paying labour at 10 cents on the dollar for decades, exascerbating the problem by refusing to raise their currency.

The US is taking care of China as we speak.

eg…by devaluing North American currencies…say 30% in one fell swoop at the appropriate moment, then poof…..no more deflation.

..Garth describes this all in his new book.

#59 The First Rick on 12.18.08 at 2:53 pm

#50 Jon B on 12.18.08 at 12:47 pm From Today’s news headlines: Finance Minister Jim Flaherty said Thursday he will meet with “eminent” Canadians — to seek advice on the federal budget and the economy.
Garth – Did you get the call? Surely you are “eminent” enough.
=========
Jim called ME last night, he wants me to come on down next week. LOL

#60 TorontoBull on 12.18.08 at 2:56 pm

@garth
I doubt that the banks/financial advisors have their clients best interests at heart. Even though the amatuer investor knows less about finance than the so called professionals, often these two don’t have a common objective…
http://www.nytimes.com/2008/12/18/business/18pay.html?_r=1&hp=&pagewanted=all

#61 The Tallyman on 12.18.08 at 2:59 pm

#2 dd
“Electricity brownouts starting as early as the summer of 2009. Why would this happen?”
————
By summer time the document shredding machines will have been in warp drive for 8 months.
Motors overheat (lol)

#62 Mario on 12.18.08 at 3:11 pm

this country is lagging other developed countries.
No wonder… quasi-socialism, corruption, incompetent politicians,high taxes, huge government…
thanks God we have some oil and raw materials

#63 APCM on 12.18.08 at 3:12 pm

#47 Keith in Calgary

When I applied for a mortgage end of 2006 (Didn’t buy),
it was recommened I get a 3-year variable rate mortgage. The banker also told me that the majority of people get this type of mortgage.

So that would mean they’re coming due soon. I wonder if those people will get financed again.

#64 The Tallyman on 12.18.08 at 3:25 pm

The glitch with the TSX yesterday raises an area of concern that should be on the watch list for 09.

What if cyber terrorists break the system globally?

What if Govts just get sick & tired of a losing battle and deliberately shut er down themselves?
The final bailout ticket.

#65 Keith in Calgary on 12.18.08 at 3:46 pm

#63 APCM….

We applied for a 10 year fixed rate. The mortgage broker was adamant this was a mistake. He probably got paid less commission on this option.

#66 Jelly on 12.18.08 at 4:18 pm

ACS

Excellent post, I have read it before on here, but I found myself reading it again. You can’t help but
try and imagine yourself and your own family trapped in such a nightmare. Not being able to do anything to help your starving infant is so alien to us and our mentality. We too are getting screwed by those in power and it makes you think about how hard it could get for us. How pissed do we have to be to storm the richies houses?
It also makes a person feel like an idiot to compare our North American ‘problems’ to those in Argentina.
Weight problems, arguments with relatives and co-workers, such typical issues that stress us out, hard
for Argentines to fathom when they have lost everything.
It sure looks like we as a nation are going to get more appreciative and humbler as the years go by…

#67 chris on 12.18.08 at 4:21 pm

Bottoms_Up: makes very good points, but I think that cash is a good place to be when there are no indications of inflation.

I think you should clarify why you see a weaker CDN $. I see lower exports in commodities and in oil as some of the reasons. In fact, Canada will probably be even worse off than some of the other nations simply because the US is its biggest trading partner. The storm has only begun in Canada. It will be specific to BC (forestry/homes), Alberta (oil) and ontario (automobile/manufacturing).

#68 George on 12.18.08 at 4:57 pm

I hope that this simplifies things so that it is helpful. With Fed Funds rate at zero, the big players are essentially being offered stocks at 8500 or so for free. They can buy in at that price for free essentially and they’re saying – “no thanks” so the market is tanking. When the market hits a point where “free” is a turn on and makes sense, we’ll see them jump back in. If free doesn’t excite these easy money dudes at all at what level does free begin to turn them on? I personally wouldn’t buy crap for free it would stink up my files, smell unpleasant and cause the other papers to stick together in a rather messy way. This is what Mr Market thinks of the leading global markets.

#69 Inverted 5 pointed star on 12.18.08 at 5:37 pm

Just a girl: “A lot more of us are connected globally, and in ‘real time’. This impacts decision-making in a different way … both the accuracy and distortion of information. I’ve been thinking (perhaps naively, but even so)…”

The connection is an ILLUSION. Its the same as it has always been, there is just more information from which to choose. As a consequence decision making is not more accurate, just different.

Actually there are many people you will read from and interact with, but none of it is real…as if you were in a dream. Or a nightmare.

#70 hal on 12.18.08 at 5:52 pm

I don’t think housing will come back till between 2015 and 2020 but it doesn’t matter to me, my home is paid for. I was counting on my rrsp to retire on but it has been reduced by 50% thanks to the market meltdown and the income trust swindle but I have no clue as to when the markets will bounce back, if ever. I’d like to hear any opinions on when and if the markets will bounce back.

#71 JanCzar on 12.18.08 at 6:39 pm

Tell me Garth–Did you get sucked in by Y2K. Or any other
“End of the world as we know it ” scenario?
Why do I have ‘deja vu’ all over again? True this could be it but maybe not. All this referral to survivalist sites makes me suspicious. (firewood better than gold?).
Don’t you see the the irony (or inconsistency?) in you trusting all your money to a ‘professional’ and your basic premise? I agree things don’t look too good (an understatement) but Y2k was a great embarrassment and maybe we just ignore our capacity to muddle through and get on.

Y2K was for idiots. — Garth

#72 JanCzar on 12.18.08 at 6:51 pm

Yes It was ‘for idiots’ (easy to say now) and I guess running a blog like this forces you to flippant easy answers

Read what I said then. You are embarrassing yourself. — Garth

#73 y3maxx on 12.18.08 at 7:15 pm

Garth, what is your opinion of George’s #68 post?

Paraphrasing….

“”With Fed Funds rate at near zero, the big players essentially are offered stocks at “Dow Jones” 8600 for free.

They can buy in at that price for free, but today they’re saying – “no thanks” so the market tanked.

When the market hits that point where “free” is a turn on and makes sense, we’ll see them jump back in.

…So at what level does free begin to turn them on?

tia

#74 Bottoms_Up on 12.18.08 at 7:56 pm

A stream of consciousness rant:

Garth how ’bout a ‘wall of shame’ category where you post ‘unwashed’ comments made throughout these blogs. That would be fun. Also keep great comments and turn them into a book. Call it ‘The Bloggers Book of Gold Nuggets’.

Anyway, I’m 8th on the list at the local library for your Greater Fool book, and I’ll be buying your new book because now I can afford to do so, having received a job offer from the feds.

Vancouver, you’re welcome for Sundin. You will love him, watch how he dominates on the puck, it’s like watching a man play against boys. I wonder if he’ll buy any condos?

And for all the doomsayers, just spoke with someone who’s been in business for 17 years selling healthcare products, he’s had the best December sales ever. So, not all is currently bad in this world…

#75 ACS on 12.18.08 at 8:00 pm

Keith in Calgary said

ACS….

Next time just the link is fine….no need to post the whole artile

Thanks Keith

Will do likn next time…ACS

#76 Shifty on 12.18.08 at 8:05 pm

#70 hal
Lots of us in the same predicament, hal. Garth has given some indication on previous comments. This financial mess is something I have never seen before and the fix, if there is one, is going take some time. If most of the problems have been identified, which I seriously doubt, we are several years out to a rebound. On the bright side securities should move first however housing will lag, in my very modest/overly optomistic opinion.

#77 The First Rick on 12.18.08 at 9:18 pm

#72 JanCzar on 12.18.08 at 6:51 pm Yes It was ‘for idiots’ (easy to say now) and I guess running a blog like this forces you to flippant easy answers

Read what I said then. You are embarrassing yourself. — Garth
=======
Jan, in defense of Garth, Y2K is no comparison. That night I sat in a control room with a group of highly skilled and educated individuals “waiting.” We were all a bit freaked out, to say the least. What “could” have happened would have cost the organization millions. The clock struck twelve and you know what happened? Absolutely nothing!! Y2K was strickly hype, our governments didn’t throw billions of dollars at “the problem” nobodys assets and investments were devalued, the real estate industry didn’t suffer a beating, etc. etc. Instead, people like me just got paid double time plus a day off in lieu!

Try to get on the same page, OK?

Garth is right, Y2K was for idiots and this idiot made about $750 bucks for 4hrs work. Y2K put money in peoples pockets without an overwhelming or even a measurable impact on others. Not even a close comparison.

#78 Third Chimp on 12.18.08 at 9:21 pm

Hey #66 Jelly: you can “storm the richies houses” when that time comes, but you can’t eat a big screen TV. As much as their greed is to blame, they have blown it all on so much lifeless granite and plastic and trips, not what you’ll need the most – quality calories. Buy seed, learn about soil.

#79 The First Rick on 12.18.08 at 9:22 pm

#74 Bottoms_Up on 12.18.08

Anyway, I’m 8th on the list at the local library for your Greater Fool book, ……………
============
Jeezuss man, you never admit to an author you are too cheap to buy his/her book. When you get the cover signed, remember to rip the Vancouver Library tag off the cover. I’ve been doing it for years, it works well. LOL!!!

#80 Plastic happenings on 12.18.08 at 9:34 pm

Has anybody else experienced this?

I suddenly had the credit limit halved on my CC without notice. I only realized when I checked recently en ligne. Doesn’t really bother me cause I don’t use it much. President’s Choice – CIBC?

Also I’d like to comment on keeping cash on hand.
Last Saturday night I smartly forgot my debit card in the ATM. I figured I’d be short cash a few days until I could get to the bank and sort it out. I would have been a year ago but now branches are open on Sunday.
-Easily resolved-.

#81 JO on 12.18.08 at 9:36 pm

Garth, I just want to say that I think having this forum to share opinions and hear what you have to say is what counts. I may not agree with everything your site states but I agree with most of it..it is important to seek out opinions different from ones own so I would not be here if everything posted agreed with my view.

I do expect a lot of what you said in this post to happen at some stage over the next 3-4 years. The CAD dollar probably has a little rally room left but if deflation remains pervasive (most likely over at least next 18-24 months or so with chance of mild inflation into spring summer 09 due to crazy fiscal stimulus and record low rates and jaw boning of new Pres and Treasury sec to get banks lending again) the CAD dollar is easily capable of hitting the 60s vs USD. USD still has plenty of rally room to go and I expect a nice rally from mid Jan through end of Feb up to at least 90 on USDX.

Yes, these silly measures the Fed are implementing (most of them experiemental) will eventually, in the 9th inning of the crisis – who know when that is ? – methinks 2012 at the latest, create a sudden reversal into hyperinflation and the USD will probably end up in the gutter. For now, there’s way too much debt denominated in USD and lack of lending by US banks and frugal consumers who are debt averse (add tightening credit standards – banks are right to minimize lending since unemployment is rising sharply and collateral dropping) add up to relatively strong USD vs Euro and most other currencies except Yen and Gold. If the USDX breaks 95 cleanly, the USD rally has good potential to go up some more and last through to 2010. The hyperinflationists forget that most of the debt the US owes is USD based despite the fact it was bought by foreigners. Comparisons bewteen Argentina and US or other basket cases and US to predict immediate hyper inflation tend to forget this (most countries who bust fast owe huge in foreign currencies). Japan also funded a lot of its debt internally as average citizen has high savings. So US is different in some aspects which affects only timing of final phase of hyperinflation.

I cannot stress the risk and likelehood of a treasury market collapse at some point within a couple of years. The world’s new financial bubble is its deadliest. Imaging what would happen to your house and stocks if rates were to double or triple from where they are now ? Even though it appears to be a risk that should occur only 2-3 years from now, this bubble has to be monitored closely. We should get a correction (rise in rates) for a few months at least in spring/summer 2009 which will be a mini-test for what is ahead.

JO

#82 midas on 12.18.08 at 10:47 pm

#54 Just a Girl

Wait till a couple of nukes go off, the EMP will take care of technology and back to the stone age in a heartbeat.

“I know not what weapons WWIII will be fought with; but I am sure that WWIV will be fought with sticks and stones.” – Albert Einstein

#83 timbo on 12.18.08 at 11:22 pm

#5 Kanata has lots of Squirrels

You hit the nail on the head with that site, bravo…
Read the story

http://www.relfe.com/plus_5_.html

the lesson is that banks, by taking fee’s out of a fiat dollar system, automatically set’s up bubbles and recessions that cannot be avoided and the more you try to prolong a recession the worse the fall.

Eliminate private banking will make interest rates a government deposit to be placed back in the economy.I know this is politically impossible but running an ever growing debt to pay an ever growing interest will lead to only an ever growing decrease in real money in the economy as more and more money is payed in interest leaving taxpayers with even less buying power.

I’m speculating but this must be why if you go back in time it took only 1 income to support a family. I remember very few credit cards as there was lay-away. What’s going to happen in 2020? Put the kids to work to
keep the standard of living because of the coming inflation?

Again thanks Garth for the blog, trying to figure this out slowly and sorry for being off-topic now and then.

#84 Charles on 12.18.08 at 11:55 pm

Twofer One

http://barfblog.foodsafety.ksu.edu/grey.squirrel.eat.jpg

#85 Bottoms_Up on 12.19.08 at 12:16 am

Regarding the derivatives link that has been posted twice:

1) aren’t there ‘puts’ and ‘calls’, therefore effectively reducing the ‘size’ of the bubble, because these should in essence cancel themselves out?

2) aren’t there variable time lines in which derivatives are due (i.e. you can have a ‘call’ for next month, or next year, or in two years time). Thus the bubble size again is effectively reduced?

3) derivatives can be used as a hedge. i.e. you can buy 100 shares in apple, and buy a put against apple to minimize potential losses (but attenuate gains)

That site did not provide evidence that the ‘derivatives bubble’ is a problem…

#86 crashing yuppy on 12.19.08 at 6:25 am

Great Post Garth.

It is very very simple why stocks will do better than real estate. It is because the people making the decisions on the economy own stocks and usually have their houses paid off.

They have a vested interest in the market and care less about leveraged Joe in Calgary underwater on his $400,000 mortgage.

Come on people, all the stimulus is for the markets, not for the idiots who bought into the sky high real estate market.

#87 Makeorbreak on 12.19.08 at 1:07 pm

Polaroid bankrupt:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aQdphguZPJ8I&refer=home

#88 jerry on 12.26.08 at 10:20 pm

Garth,
I am wondering, judging from the current ongoing real estate devaluations wether it wouldn’t be wise to hold on to, or buy land considered reasonably self sufficient in cottage country, say on water, or simply off the water with a good well and with at least a few years of wood available?
In past downturns these were the first to fall but they held there own in 2008 despite the fact that many properties had doubled in the last four years.

Maybe this time being so unprecedented, the old theory that the toys are the first to go may go itself!