The sure thing

bus1

Foreclosure buses are common in many US cities

There’s a housing boom underway in Phoenix, characterized by multiple bids, speculators, cash incentives to sellers and the best sales numbers in four years. Why would Ground Zero of the American foreclosure crisis be a swill of action?

Because after nearly 60 consecutive months of price declines, buyers figure this is the bottom. Houses at half the price they were in 2005, combined with cheapo mortgages, have vultures driving around town in buses. A torrent of money is washing into that market, as it is in southern California and Dade County on the other coast.

But here’s an interesting thing: Almost all of the buzz is confined to inexpensive, entry-level homes – the stuff that can now be picked up in any of these markets for about a hundred, and turned into rentals. Left untouched, unloved and unsold are homes listed at three or five times the amount – even though these were selling a few years ago for five hundred to a million.

And have you noticed a similar trend here?

That big housing boom making editors and broadcasters frisky is being fuelled mostly by first-time buyers, also competing for low-end listings. Drunk on the nectar of 3% money, they’re throwing around offers with gay abandon, paying more than list and still thinking they’re terminally clever for buying at such a special moment in history.

Also moribund, though, are McMansions, Boomer pleasure palaces, anything with a pool and a hot tub or an adrress where you have to take a meal on the commute.

The big separation between the two countries, however, is simple: In the States, houses are a bargain. In Canada, not so much. In fact, while US home prices have fallen 10-20% per year for the last three (depending on the market) – for an average reduction of 30%, and up to 70% in some places, in this country real estate has so far dropped a little less than 10% from early 2008 levels.

If you were wearing a baseball cap backwards seven years ago, you might think this is a great deal.  You certainly do not see what’s coming.

Ah, life without the benefit of experience is just so much simpler.

***

Speaking of narcissistic delusions, I see the bullion bunnies are snapping at my incredibly taut and masculine bottom again. Apparently I said a bad: “Gold is not money.”

And it’s not. It may be a fine thing to own in moderation to hedge against future Obamaflation, or to ride the inevitable surge in commodity prices, but it is not going to replace paper money. At last in this lifetime. On this planet.

In fact, gold lovers must despair at the chart below, showing the price of their affection over the last year – in which we had global financial crisis, corporate bankruptcies, massive job losses, nationalization, flu pandemic, a few wars, runs on banks, the worst economy since the 1930s, despair, disillusionment and everything short of locusts. Okay, maybe them too.

And yet what did gold – the currency of last resort, the eternal storehouse of value, the defender of wealth in tough times – yield during that period in terms of capital gain? (And that’s all this relic can muster since it pays no interest of dividends.)

Two per cent. Wow. Stick in a fork. Yer done.

gold_1_year_o_usd

127 comments ↓

#1 dbg on 05.19.09 at 11:07 pm

Garth….. can’t you see that gold is the answer to all our problems.
Can’t the goldfingers on this site convert you. Because once you have that pile of gold you will feel so much smarter than the rest of us that roll around in our fiat.

I love the graph.
Bang on!

2% return….. less your storage costs and the lack of portability. Trying selling that mineral and the gold traders will take their cut………a deep cut.

Gold has seen it’s best days.

1980’s – I remember when I was a young lad. A guy down the block had his bunker built and the rest of the gear(guns,rations and of course GOLD).
Well lets just say. He threw the rations away as they went bad. Well if you look at the history of gold’s price he lost his shirt and I can only hope that this didn’t push him over the edge and use that gun…….on himself.

Sad isn’t. Waiting around for the world to collapse so you can feel safe.

Cheerio!

#2 Real Estate Deal or No Deal on 05.19.09 at 11:17 pm

Hey Garth,

Have you read Jeff Rubin’s new book … Why your world is about to get a whole lot smaller?

What do you think of his predictions … I thought he was wrong most of the time … can’t verify … its late.

#3 squidly77 on 05.19.09 at 11:19 pm

the problem with making predictions is that the naysayers expect it to happen..now
when it doesnt happen right now they are all over you

when eventually it does happen they scurry like rats

calgary sfh price at peak july 2007
$505,000 @ 7% = $3,537/mo

price april 2008 1 year ago
$474,564 @ 7% = $3,324/mo

price april 2009
$426,311 @ 3.5% = $2,128/mo

based on full mortgage amount over 25 years

thats 40% cheaper than july 2007
and 33% cheaper than april 2008
who says that the markets not crashing
Scotia Capital warns of darker days ahead for Canadian economy

#4 905er & Spouse on 05.19.09 at 11:23 pm

So true about the young newbie buyer.

Talking to a 20 something guy who works at the deli counter at a local food store and as an apprentice trades person. Lives at home.

Just bought a house with his girl friend and wants to rent it. Paid just shy of $300K. Guess he didn’t see the 150+ rentals on viewit.ca before he bought…actually had never even heard of viewit.ca until after he bought. Didn’t have any idea of how he was going to find renters ’til after he bought.

Really proud…the house was on the market for one year and he put in an offer at 92% of asking. Took the deal for 94% of asking.

While he was in the process of the offer he asked me what I thought. First I pointed him to this blog…then I told him to run away from the deal as soon as possible.

Guess we have a new group of speculators in the market.

I told him I just sold my house and am renting.

I told him prices will be almost 20% lower in the next 12 to 24 months and he should wait.

Thinks he got a great deal.

After he purchased I didn’t have the heart to tell him that this is Brampton and in case he didn’t notice they laid off workers at the car plant and then idled the plant as the US parent is in Chapter 11.

In another note…saw 7 house for sale up my street in 2 blocks. Two of them sold already within weeks (maybe even days) of listing.

We are in a mini boom for sure…this falls just going to hurt that much more, and we have a new group of speculators in the market. Young people with low income.

Maybe we can have a country’s who’s main industry is property flipping…sort of sounds like a ponzi scheme to me.

Thing is…when the RE market does it’s cliff diver impression everyone is going to say NO ONE saw it coming. Maybe I’ll just make cards to hand out something like….

People say no one saw this coming….

“Garth Turner did.

Check out Greaterfool.ca

Don’t cry to me…I TRIED to warn you.

Good luck with the house :)”

#5 Eduardo on 05.19.09 at 11:27 pm

Nobody said it was going to REPLACE other currencies, they were saying that it could be used to buy currency and as such IS a currency.

How did the rest of the markets do over the past year? Last I checked the Dow was down from 13000 to 8500, TSX from 15000 to 10000, Hang Seng from 25000 to 17500

… gold doesnt look so bad, especially because we are supposedly in a hugely deflationary environment according to people like you.

We are just planting the seeds for inflation now… watch the USD and the long bond collapse by the summer time then we’ll see who likes gold.

Talk to people in Iceland Garth.

#6 Real Estate Deal or No Deal on 05.19.09 at 11:30 pm

Hey Garth,

Have to move in a snap move as the mould in the bathroom is not a healthy environment to bring a new baby home to …

Was out looking at a new townhouse subdivision in the east end of the GTA where owners are renting out their brand new townhouses for $1,350 to $1,500 /month plus utilities.

I remember your comment … why buy something you can lease for the same amount or cheaper …

Thrilled with the layout, I walked over to the sales office … no one there … the sales guy is lonely.

We started talking and I asked him what the price was for the same unit next door … which was up for sale … he said $330,000 … I said “Your kidding me …” He said well you tell me what do you think it is worth … I said “$280,000” (only to later find out what it was 15% cheaper …

He said that it was “$50,000 off what the builder was asking” … and I smiled and said … yeah, but I could ink the deal right now with a conventional mortgage …

He smiled and said ” I will be outrageous and ask him tomorrow” …

Now, what if I have a corporation … self-employed … and this sucker has a walk out basement with pre-approved commercial rent ability … which I could rent to my own corporation … for say $1,000 a month. It would a cheap to get money out of the corporation … non?

Also, with the cheap 3% money … with 20% on a 5 year … I could actually own with taxes/heat/hydro for about $250 a month less than I would spend for rent.

With 15% shaved off … renting to my own corporation … or to someone else … which could bring in maybe $800 / month … thus reducing my expenses to $600 / month … all in …

What do you think?

In this case … my only concern is inflation down the road, and increased interest rates sucking out my down deposit which is pulled from the RSP.

#7 Mark on 05.19.09 at 11:35 pm

Well at least gold was one of the few investments which MADE money in the last year :-)

#8 Bubble 'n Fizz(le on 05.19.09 at 11:48 pm

Well, the recovery has to start somewhere. Only someone with a vested interest in the misery continuing wold see this otherwise!

#9 smw on 05.19.09 at 11:50 pm

This is how it starts, nobody can any longer afford the “higher-end” homes and all that can be afforded is in the lower end.

That’s because we’re on round two of that game we’ve been playing in Canada, “milk the teet of affordability”. And I think we’ve played it one too many times.

You know when Leon’s and CMHC come up with a mortgage strategy, its bad news.

The only benefit of the interest rates I see being is low as they are is it might add a little relief to boomers that got it handed to them last fall.

Dead, divorced and transferred folk always have to sell. I don’t see things burning up in my neighborhood, I see a bunch of “Greater Fools” playing hot potatoes, 500K homes.

Of course that is 500K homes by today’s standards. A couple years of -10% is looking pretty likely.

As for gold, to rich for my wallet, that’s why I’ve been saving the pennies, I hear there is actually 2 cents worth of copper in them.

Silver is a better buy than gold is anyways.

#10 Big Picture Guy on 05.19.09 at 11:52 pm

Garth you are hilarious regarding the Gold Buggers/Lovers!

#11 Dave on 05.20.09 at 12:55 am

i’m not a gold bug, but how about gold vs. anything else? how much is the dow down for the year? In times where every asset class lost, gold performed well.

Also, during deflations it’s the mining companies that rise more so than bullion. All the issues you’ve mentioned aren’t going to trigger a bullion buying panic

#12 . . . fried eggs and spam . . . on 05.20.09 at 1:23 am

“. . . A torrent of money . . .”.

Now where is all that money coming from? Banks? A lotta them are broke, or will be soon. Mommy and Daddy? Didn’t they put away for themselves, so one day they would be able to enjoy their golden years?

Are we now obligated to look after our children, as they can’t look after themselves? It certainly seems we have been led down a tortuous garden path, where we are now EXPECTED to look after our children, and so preventing them from growing up and learning their own life lessons.

BS! It may well be that there’s loadsa new cash coming in — the Fed.’s presses are going hell-for-leather now — but who gets to pay it all back? Who will rent homes if they’re unemployed, and can’t afford to pay?

Something doesn’t smell right about this. The new wave of Sheeple have woken up to be hit straight between the eyes in a few years’ time.

However, that is their right to their own freedom of choice; then come the consequences of their choices.
——
Anyone heard of The Carlyle Group? It’s mentioned here briefly. — http://www.conspiracyplanet.com/
——
First, it was coffee and sugar soaring higher. Now, tea. How the Brits (and I) will hate this! — http://tinyurl.com/qbpvzp
——
What I find interesting about this link — http://tinyurl.com/op3var — is not so much the type, but the charts.

Scroll down and arrive at one particular chart which states the world’s population is increasing by 211,000 per day. If the trend stays as is, in 40 years the current population will have close to doubled!

The reason for WW3 becomes a lot clearer, as we can barely afford to feed ourselves now!

#13 average joe on 05.20.09 at 2:06 am

Garth you state:
“in this country real estate has so far dropped a little less than 10% from early 2008 levels.”

A friend of mine just put her house up for sale 4 weeks ago in Mississauga. The RE agent told her she could have gotten $500,000 last year, but they could reasonably get 439,000 this year. It sold quickly close to the asking price. I do not know where the the less than 10% decrease statistic is coming from. It seems like the decline in pricing is more than that…or was the RE agent desperate for a sale and priced the house lower to get a commission?
I would like to know how we can get realistic stats. from those who do not have an invested interest (besides you of course).

#14 Mike (authentic) on 05.20.09 at 2:13 am

The US foreclosure market is also setup to be much more attractive than the Canadian foreclosure market from what I understand. US Banks are allowed to auction off, fire sale or list a property under market value to just dump it; a “blue light special” sale frenzy is created. In Canada I believe banks try to sell them as high as possible, which means they sit.

I’ll agree with you Garth, Gold is not money. Who REALLY would take gold as payment for a car, a house, a postage stamp unless it was stupidly in your favour? Paying in gold would raise a few suspecions I’m sure. You can’t eat gold and if worse came to worse then I sure wouldn’t trade food or gas for gold.

Entry level homes selling. Seems to be the trend in Calgary as well, expensive homes are just sitting there with a true DOM exceeding 365 days, some for years.

Mike

#15 Benjamin Ficker on 05.20.09 at 2:26 am

I’m moving to the Phoenix area precisely because of these prices. I’m from Portland, where you still have to pay 2x your rent price to purchase a first time home. Not so in Phoenix. When the price to buy is less then the price to rent (in some cases by $300-$400 a month) then it just makes sense. Even if that $100,000 home drops another 20%, you have positive cash flow so you can wait it out. It needs to make sense to buy even if it never jumps in value. Appreciation is just the icing on the cake.

#16 canuck99 on 05.20.09 at 2:31 am

“Apparently I said a bad: ‘Gold is not money.’… And it’s not. ”

On Planet Garth perhaps, but for most of the world gold has function as a perfectly valid payment of goods or services for many millenia.

Speaking of goods and services, this ‘non-money’ when sold in bullion form is not considered GST-exempt since it is recognized by the Government of Canada as… wait for it… MONEY.

Oh, and the Criminal Code of Canada goes into great detail about counterfeiting methods of this supposed “non-money”.

( http://everything2.com/title/Criminal%2520Code%2520of%2520Canada%2520-%2520Part%2520XII%2520Offences%2520Relating%2520to%2520Currency )

And the Mint has printed gold and silver COINS pretty much since they stamped their first penny (which had about the same purchasing power then as a loonie does today).

We need not go into the fact that most paper currencies start out as gold or silver-backed, and historically usually become worthless within a half-century or so after dropping this vital backing.

Check out the sorry history of fiat currencies on Wikipedia sometime…
http://en.wikipedia.org/wiki/Hyperinflation

Garth, I respectfully challenge you to present one fiat currency that has survived more than 100 years without any gold or silver backing at all.

Oh, and check out the Bank of Canada’s nice chart on the purchasing power of the Canadian Dollar over the last 130 years… it ain’t pretty.
http://www.bankofcanada.ca/en/dollar_book/appendixa.pdf

From the Bank of Canada report entitled “A History of the Canadian Dollar” :
“In terms of gold, the Canadian dollar has
depreciated markedly over the years, much of this
occurring since the early 1970s. One ounce of gold
was worth $20.67 in 1854… In other words, the Canadian dollar has
lost about 96 per cent of its value in terms of gold
since 1933, with much of this occurring since
August 1971, while the U.S. dollar has lost roughly
95 per cent of its value.”

Nuff said. I think I’ll pass on whatever you’re smoking on this issue, Garth…

On RE you’re bang on. Keep it up.

So many words to defend a non-performing asset. — Garth

#17 3725 on 05.20.09 at 2:43 am

I know your comments about gold are made just to stir up the gold hive but in reality gold has done its job.

Look at the 1 year chart of gold vs DJIA/SP500/Nasdaq. It has outperformed all of them by at least 30%!!!

http://finance.yahoo.com/echarts?s=GLD#chart7:symbol=gld;range=1y;compare=^dji+^ixic+^gspc;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on

I’ll take that relic any day!

#18 Vancouver_Renter on 05.20.09 at 4:16 am

Garth, I’m not sure how you can compare one asset class priced in Canadian dollars with another asset class priced in US dollars and draw a conclusion. Let’s compare apples to apples.

Priced in Canadian dollars, gold rose up from around $900/oz to a peak of $1250/oz during Act I of the credit crisis from July 2008 to Feb 2009. That a 40% increase in value. It did exactly what it is supposed to do in a deflationary contraction.

Alternatively, priced in US dollars, while gold “only” managed a 2% return, your Canadian dollar deposits plunged roughly 30% in value. And Canadian real-estate probably managed a 50% decline when priced in US dollars. So gold wins.

When Act II of this crisis begins in the second half of 2009, I expect the US dollar will resume its uptrend against all other currencies and gold will hold its own. That’s because there will be frantic selling of most assets in order to buy US$ so debts can be paid down. Once again gold, priced in Canadian dollars (or any non-American currency), will outperform.

But, of course, I’m more interested in what the gold stocks do in this environment. Watch them become the premier asset class throughout the next 3-5 years.

But maybe I’m completely wrong. If my name on this blog changes from “Vancouver Renter” to “Bora Bora Expatriate”, you’ll know I was correct… ;-)

#19 beer coffee on 05.20.09 at 5:29 am

The fact is that physical Gold is in high demand. Paper Gold on the other hand is dominated by a few large banks. But expecially because of the current struggle for survival of major financial institutions and of the crisis in the international monetary system, it would be very naive to assume that the regulators of the gold market play fair, in so far as this would be, first, to the detriment of the Dollar, the British Pound and most fiat money and, second, to the detriment of the balance sheets of major financial institutions, already seriously weakened. Therefore – I would be highly surprised if the actual gold backing for paper gold could materialise if even half of the people who have open contracts would demand delivery. We shall have to see where that Gold price is in another year! I reckon a fair ways north of the current position.

#20 Bottoms_Up on 05.20.09 at 6:25 am

Cheap money is almost irresistable, and now I can buy the current place I’m renting for less than what I pay in rent (rent = $1315, mortgage + property taxes = $1275).

Spoke with two realtors in Ottawa recently…one said this is the ‘funniest’ market he’s ever seen, and noted that inventories were climbing (the newest CMHC report shows sales of resale homes are down 10% year over year and there is a 2 year inventory of resale homes). Another realtor tried to convince me sales were up (and yes, I called her out on that with the above stats), and tried to convince us that selection was ‘limited’. It will take a lot to get me into a house though, as I’ve been a true ‘Garth-ite’ for over a year….

#21 Joe on 05.20.09 at 6:52 am

I don’t understand why I am told Canada’s money supply is growing at a rate of 12% per year, but in the US with massive stimilus their money supply is only growing at 9%. After all even with a two year deficit of $85B this would only bring us back to debt levels in 1995. This conundrum relates to the “need” for gold as a hedge.

#22 ca on 05.20.09 at 7:04 am

Garth —

Check out Charles Smith’s column today. Great minds think alike.

http://www.oftwominds.com/blog.html

#23 hagbard on 05.20.09 at 7:27 am

I’m convinced. I’m buying more gold.

#24 pbrasseur on 05.20.09 at 7:37 am

Not only prices have not dropped nearly as much in Canada (not at all in my home province of Quebec) but, correct me if I’m wrong, mortgages are typically renewable much sooner in Canada than the US.

So it could be that if many American buyers are making a good deal these days Canadians are buying into an expensive time bomb; this could mean (among other problems) a bigger drop in the RE market at some point in the future. As brutal as was the drop in the US you can now argue that they have adapted to new market and economy conditions, we have not, we still pretent to live in the old world.

Garth is right to say the big house market is going nowhere. There are many good reasons for this:

– Big houses require more energy. Energy prices are going up, even here in cheap electricity Quebec the monopoly hikes its prices regularly to please our cash starved government (the goal is to discourage local consumption which brings little profit in order to export more to more lucrative markets, it’s a good policy but coming rather late…)

– Taxes, including property taxes and fees of all kinds are going up. Governments at all levels are broke and need to compensate for the no longer booming economy and for the rising cost of health care in particular.

– Rapid aging of the massive boomer cohort which is ill prepared for retirement. They own the big houses and they’ve just (or soon will) realize that a big house may not be such a great egg nest after all. They will buy less and soon will start to unload.

– On top of aging and massive retirements the economy is hurting and will be for some time. This of course means people working, less money to buy and more cautiousness.

– As if all this wasn’t enough the possibility of inflation (and higher interest rates) due to the expanded money supply may put the McMansions definitely out of reach for most.

Although the big house market is going to get hit first (as it it on the fringe) it is easy to see that these points all apply to the market as a whole. As far as I’m concerned I have absolutely not doubt the the RE market best days are behind us.

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#26 Future Expatriate on 05.20.09 at 8:13 am

Garth, the answer is simple. Gold paper is NOT gold, although it’s counted as such in the price. If there was a run for physical delivery on the entities supposedly “storing” gold for their customers, the true price would skyrocket, because they don’t have enough in the valuts to back up the paper, because they figure there will never be a run.

This allows them to dump worthless paper at will, to lower the price and then buy back physical gold at a bargain. Over and over and over again. You can watch them do it in the daily charts; they’re not subtle about it at all.

Unfortunately, gold paper sales dumps affect the price of physical metal. They shouldn’t, the two should be completely divested, but they do, and as long as that’s the case, the price can be knocked and held down far from where it should be, at will.

Is this a true reflection of the real value of physical gold? Not anymore than the wet dreams of clueless sellers as to the true value of their McMansions.

Because, just as one day those fantasies are going to come to roost for those clueless sellers, so too there will be a run on the paper gold firms for the physical metal. And it’s coming, because this financial crisis is still in the 1929 stage, not the 1932 stage.

And when that happens, we’ll be having another conversation entirely.

As for government confiscation? They couldn’t afford to.

#27 CalgaryRocks on 05.20.09 at 8:24 am

#25 Molson_cdn. That’s a bit of a commute for us, not to mention that our mtg+taxes on a sfh are less than 1k nowadays. (And we have a dog too)

#28 Grantmi on 05.20.09 at 8:36 am

Two things struck me today in the Vancouver Sun.

1. Scotia Capital is saying.. watch out below.

Darker Days ahead! – http://tinyurl.com/DarkerDays

2. Someone is advertising in the Biz section of Sun auction Condos for $180K that use to sell for $900K .. ready for this ….. in FRIG’N …. COEUR D ALENE, Idaho!!

“Move along….. nothing to see here!!”

#29 canuck99 on 05.20.09 at 8:51 am

‘So many words to defend a non-performing asset. — Garth’

Apples and oranges, Garth.

I’m only pointing out that gold is indeed a perfectly acceptable, and in some instances preferable, form of money.

You seem to want it to be a ‘performing asset’. Since when did cash ever ‘perform’?

When it buys me food, gas, ammo, shelter and love. — Garth

#30 Reg on 05.20.09 at 8:54 am

Seems many are pondering this idea that one can purchase a home for less money than it costs to rent. Be warned, that when interest rates rise over the next few years (which they will), you might find that buying wasn’t as good of a deal as you first thought. It is dangerous to buy when you might be relying on the interest rates to stay down.

#31 smw on 05.20.09 at 9:06 am

#5 Eduardo

True dat. Gold might not have gone to the moon during the past six months, but then again, markets dropped between 33% – 50%. So if everyone else is down 33%, and I’m up two, I beat everyone by 35%.

As a Canadian, you have your currency hedged to oil and gold.

As an American, get ready for inflation.

The gold arguement is as silly as the inflation debate.

Deflation only affected assets, not consumer goods, besides the massive sales, which after those massive sales, lead to massive layoffs…

For example, I talked about this pages ago, I just looked into a Canon zoom lense I bought in January for $650CAN, not on sale. It is now $850CAN? Anything higher end and not mass produced is getting a lot more expensive…

#32 smw on 05.20.09 at 9:12 am

The majority of boomers will never touch gold or silver, again after getting their young fingers burnt during the last bubble 79/80.

However, maybe some of the RE agents can had out some flyers and info sheets on gold to the prospective new home buyers, they haven’t been enlightened yet.

#33 canuck99 on 05.20.09 at 9:32 am

‘When it buys me food, gas, ammo, shelter and love. — Garth’

All of the above can be bought with gold and you know it (although silver, especially old pre-1967 Canadian 80% silver quarters and dimes, would probably be more practical for food and gas).

BTW, when it comes to gas a US 1965 Quarter (90% silver) can still buy you a gallon of premium, just like it did 43 years ago.

Back then I suspect $35 (the price then for an ounce of gold) would have bought you a lot of love. If you put that $35 and a gold eagle under a mattress, how much love would that $35 get you now? And the $900+ gold eagle?

Thanks for baiting the gold bugs, Garth. — It’s been fun.

#34 dbg on 05.20.09 at 9:36 am

#30 Reg

I agree Reg!
You should see the rate books for the eighties and 1990’s……..if rates climb a little in the next few years then we will see the next step down. Instead of a big V it will be a big lopsided W. And RE prices will take a long time to get back to their peak prices in 07/08.

#35 U.S.$fromA$iaComming home= inflation on 05.20.09 at 9:39 am

Doesn’t matter Garth. I am making a living off buying and selling GOLD STOCKS. And yes I gots my BULLION TOO!

GOLD IS DA’ @$%^ today. Have a look at the spot price.

The worlds reserve currency USA is being debased thats why Bullion is up. Gold isn’t rising in value its the reserve currency that is FIAT! OR FAKE><

#36 U.S.$fromA$iaComming home= inflation on 05.20.09 at 9:48 am

“This will make you a true beleiver Dr. Jones.” Quote form E. Indian priest from Indian Jones and the Temple of Doom movie ><.

http://www.europac.net/videoblog.asp?a=watch

#37 Mike B formerly just Mike on 05.20.09 at 10:16 am

As long as interest rates are low people will buy real estate whether they make money or not… Most in the entry level and mid/high level are morons overpaying for things and re invigorating the mortgage market. Realtors tell me people put down 250K on a million plus home and finance the rest. They also tell me that they have contacts who will provide sub prime mortgages NO PROB.
Basically we are putting pretty icing over a rusted dented can and saying all is fine now… go out and buy and get in debt forever. Thanks Mark Carney for encouraging a whole generation of would haves who spend money they simply don’t have. The only industry that I know of that is busy is the RE industry. Alot of lookers and tire kickers… Sellers are not dropping prices to get the buyers in some cases and new listings or relistings are of sub par and junk that didn’t sell over the past few years.. Some are selling but I still sense a bit of a slowdown now that the weather is better.
Regardless people should be buying within their means not reaching for the moon and getting into to hopeless debt.

#38 Rasputin on 05.20.09 at 10:23 am

Re: gold…Put up a chart of any other asset for the past year and you will see that gold did exactly what it was supposed to do. It protected wealth. Also the Canadian dollar was devalued by 25% in the past year. Holders of gold in Canada were not currency raped by the government. As insurance against bad government, gold did exactly what it was supposed to do.

#39 SSS on 05.20.09 at 10:24 am

Anything of physical value will be used as currency if US dollar loses its vlaue.

#40 Niergen on 05.20.09 at 10:47 am

“I don ‘t give a fig how much real estate anyone owns. Just don’t have more than 40% of your net worth in it. If you pass that level, you live with risk. — Garth”

I don’t quite understand this point.

Many people I know buy a house and end up with basically no other asset. Their mortgage payment per month may be less than 40% of income after tax, is this sound ok or they live with risk?
Any thought from anyone?

That is not what I said. If RE (or any otgher single asset) accounts for more than 40% of your net worth, you are at risk. — Garth

#41 Alto de edifice on 05.20.09 at 10:48 am

OOOOOOOOOOH Garthy.

Stick to RE!

U are grossly misleading your followers.

Gold is up huge in real terms! All other asset classes are dropping (RE, Equities, Commods) 30%-60%)
while gold is up 2%? Try up 32%-62% in real terms.

Now, if you bought last winter at 800 u’d be up over 100%.

You are just as emotional about the yellow metal has
the lofty gold bugs are!

Checked the TSX lately, dude? Even oil has gained 40%. Gold is a leading indicator of gilded avarice. — Garth

#42 Alto de edifice on 05.20.09 at 10:56 am

You seem to want it to be a ‘performing asset’. Since when did cash ever ‘perform’?

Japan late 1980’s. Value of CASH +300% return
post Nikkei and real estate crash.

#43 Jay on 05.20.09 at 11:15 am

Check the REAL price of oil lately G?

Oil is priced in USD’s. Go to the recent NYBOT currency charts incl the USD index.

Then get back to us in “real terms”.

http://quotes.ino.com/chart/?s=NYBOT_dx

P.S. Gold up 1.5% today.

#44 Munch on 05.20.09 at 11:28 am

Garth is correct

Gold is the “barbarous relic”

It pays no dividends nor interest

It is not an investment – it is a hedge, at best, or a necklace around your wife’s neck, at worst :o)

IMHO

Munch

#45 PTDBD on 05.20.09 at 11:31 am

The leading indicators of guilted avarice
Are hanging by their fingernails off the precipice
Each looking to the other for an auspice
But seeing only the yawning orifice.

#46 Mathematically Challenged on 05.20.09 at 11:36 am

“Checked the TSX lately… ” — Garth

Dude, I thought you were preparing some squirrel recipe?

What happen to your pending armaggedon?

So is it safe to come out of the A-bomb bunker now, Garth?

Dead cat stew is now replacing yer old squirrel recipe, eh?

I’ve said consistently the market will advance long before the economy does. I’ve also said this could well be a bear market rally, but even so, a strong new base is being established. — Garth

#47 smw on 05.20.09 at 11:40 am

I believe in the power of commodities, thats why this is such a great debate.

To bring a little more balance there are other things to consider.

I bought a tube (25 x 1oz) of the “Olympic” Silver maples in February when:
https://online.kitco.com/sellprice/coins/Silver_olympic.html

The Canadian dollar was at .80USD and silver was at 13.00USD an oz.

1.25 = $16.50CAN I paid an oz.

Dollar is at .86USD and silver is at 14.00USD an oz.

1.15 = $16.10CAN value today an oz.

Problem with gold and everything other commodity is, they’re priced in USD.

Garth’s warnings are warranted, but don’t worry, when the common American realizes what everyone on this board is saying, there will be a big run into all types of gold, whether it be bullion, ETFs, or stocks.

As for not having enough for delivery, well the only down side I see is that if there isn’t enough for delivery, you’ll get your cash back. Little risk unless you really want physical, and if thats the case, go buy it and stick it in your safe.

#48 John Epsilona on 05.20.09 at 11:59 am

Remember, the goal is the die broke.

#49 U.S.$fromA$iaComming home= inflation on 05.20.09 at 11:59 am

Checked the TSX lately, dude? Even oil has gained 40%. Gold is a leading indicator of gilded avarice. — Garth

That’s not nice Garth, What if the world currency changes to cowboy boots and Squirel pelt G strings?

I will agree to one thing I’ll take Guns over Gold in a day of Chaos but your fellow polititions hav done a great job disarming Canadians.

Ad hominem arguments are a sure sign of intellectual failure. — Garth

#50 [email protected]!t on 05.20.09 at 12:13 pm

House sale are booming again.. have you guys seen people camping out in Mississauga last weekend to purchase town houses which up for sale this Friday? And houses around my area (Riverdale) is selling faster than hot cakes.. gone in less than a week.

#51 Calgary37 on 05.20.09 at 12:16 pm

Gold is a Store of Value

The last time that I discussed the subject of Gold was on Feb. 1 when I said the following:

“A number of persons have wondered about buying gold. The only reason that you would want to buy a large bar of gold bullion is to use it for (1) as backing for a new monetary system (2) to melt it down to make gold coins – half-ounce and one-ounce coins for after the collapse.”

“If you have money to invest, then you could try and find some gold coins to buy and take possession of. You will have to pay a premium over the Comex price. The only gold that you should be buying is that which you can touch and feel. No Gold ETFs or Safety Deposit Boxes. You should also purchase a hand gun and learn how to use it.”

On Feb. 10, I posted an article, “How to start up a Survivalist Community”.

I will now expand on these two items.

If I was in a position where I was setting up one or more Survivalist Communities, I would also be laying the groundwork for setting up a new Monetary System.

I would design a future paper currency and then have a large amount of it printed for future use. I would also design a poker chip in various denominations for use as a currency also, and have a large number of these manufactured for future use. These items would be stored in a safe place until they are needed.

Thus, when TSHTF and there is no longer a functioning financial system or economy, our Survivalist Communities would be in a position to set up our own Financial System and Economy. Every member who had been able to purchase physical gold, silver and other precious metals would deposit their valuables into our new Bank and these valuables would become the backing for our new Monetary System and our new Economy.

Until this new currency is distributed, we would have to use some type of barter system.

Since Garth has a financial background, I am somewhat surprised that he is not working on a similar monetary system for his supporters.

Cheers.

Power to the People. Let the Revolution Begin.

#52 Mike (authentic) on 05.20.09 at 12:30 pm

Gold made 2% YoY

I did 3.4% in a 1yr GIC without the risk :)

Mike

#53 M I K E on 05.20.09 at 12:30 pm

Since I’m a Gold bug :) I’ll make a prediction on here for Garth.

Gold at $1500 – $2000 USD in 12 months.

Cheers

#54 Mike (authentic) on 05.20.09 at 12:34 pm

# 35 U.S.$fromA$iaComming home= inflation “The worlds reserve currency USA is being debased thats why Bullion is up. Gold isn’t rising in value its the reserve currency that is FIAT! OR FAKE”

Then you and other gold bugs should REFUSE to take that fake fiat paper money and insist to pay in pure 24k gold. Make a statement, buy food in gold at Loblaws! Pay in gold at the movies for popcorn! Give gold as a charity donation when people come to your door!

Mike

#55 nonplused on 05.20.09 at 1:01 pm

Gold is a real tangible asset, paper money is a government contract to provide tangible assets. So, if you trust the government to keep its end of the bargain and enforce contracts, paper is fine. At least in the US, the government has begun a process of abrogating private contracts on mass (Chrysler bondholders, mortgage cramdowns, etc.) I do not believe it will be long before they begin abrogating government contracts as well.

Actually, they have been doing it for years. A 96% decline in the purchasing power of the dollar is as close to a complete abrogation of the contract as you can get. It’s like getting 4 cents on the dollar in bankruptcy court.

You can tell gold is a real asset because women love it. Buy your wife a paper necklace and see how she reacts. Tell her you have $4000 of necklace credits at the jewelry store in her name but they are paying 3% interest so you aren’t going to get an actual necklace and see how she reacts. Nothing says I love you like real gold in the hand.

But Garth is correct, it does not produce a return. Having a stack of gold in the basement or a stack of paper money is pretty equivalent with the exception that the government is actively devaluing the paper. Gold is not an investment, it’s a commodity. It’s one way to park wealth but it doesn’t make people rich like Microsoft stocks did. It is a tool for the rich to park wealth they don’t for the moment wish to invest for what ever reason. You can’t get rich owning gold anymore so than wheat or oil. Which some people do but probably not you or me.

The mistake people make is that they forget that cash is a commodity too, and is also not an investment.

I’ve also seen people refer to gold as “portable real estate”, but that description also over inflates gold’s utility because real estate usually has a utilitarian value. The only utilitarian value gold has is that it’s rare and hard to make and everyone agrees what it is (hard to counterfeit). That makes it useful for trade and necklaces but not much else.

Now, if they could figure a way to back the electronic transaction system with gold, say by fixing the price of gold at $1000 an ounce and then selling or buying government stockpiles to maintain that approximate price (and also reining in the money supply so they don’t run out of gold), maybe all would be well. That is in essence how Bretton-Woods worked until 1973 and it worked fine.

#56 Chris in England IG-AZ at the moment on 05.20.09 at 1:05 pm

Fried Eggs and Spam #12: “First, it was coffee and sugar soaring higher. Now, tea. How the Brits (and I) will hate this! — http://tinyurl.com/qbpvzp

I am escaping just in time! A few vacuum packed tins of Earl Grey will be secreted in my shipping container. I’ll be buying them tomorrow before the prices go up – and I won’t put more than 40% of my wealth into it either. Thank goodness for this blog.

#57 Rob in Onterrible on 05.20.09 at 1:09 pm

Well, well. All this talk about a yellow metal. Here’s why I like gold: only 2 people that I know of predicted the big drop in the stock market last year. Gerald Celente and Bob Hoye. Both of them are still making predictions and it isn’t pretty. Oh, and both of them love gold.

Then there is Peter Schiff (just for laughs, try the Youtube video “Peter Schiff was Right”). His predictions are also coming true. For some reason, he also loves gold.

Why is it that the only financial people who got it and continue to get it right are recommending gold?? In fact, the only people who do not love gold are the ones who didn’t see any of the economic pain that is happening now.

No worries, though, now that the crisis is at hand, these same experts know exactly when it will be over. They are telling us not to consider gold. Yeah, like they know.

Gold has functioned as money for 5,000 years. You can take a gold coin anywhere on earth and it is convertible to cash. You can’t do that with most fiat currencies. For example, take the Canadian dollar to Russia and see if you can get it converted to Rubles…

The world’s money is $US, and will be the rest of your life. — Garth

#58 Future Expatriate on 05.20.09 at 1:36 pm

“I’ve said consistently the market will advance long before the economy does. I’ve also said this could well be a bear market rally, but even so, a strong new base is being established. — Garth”

A strong new base all right… to avalanche down another 4000 points from. We’re not near enough out of the 1932 woods yet Garth. Yes, I know they’re trying like hell to inflate another bubble, but Garth; they’re all out of soap.

#59 Future Expatriate on 05.20.09 at 1:44 pm

“The world’s money is $US, and will be the rest of your life. — Garth”

If that’s the case, we are TRULY in for the biggest financial disaster in the history of the planet.

I seen Obama… I seen Geithner.. I seen Bernanke… I seen Paulson, and we in BIG trouble. My bet’s still on the Chinese, and the Chinese bet’s still on gold.

A word of advice: ALWAYS bet on the landlord; NEVER on the tenant. I don’t care how many guns and knives the tenant owns either.

#60 Grumpydawgs on 05.20.09 at 1:45 pm

Bahhhhhhhhhhhhhhhhhh go the sheeple, follow the leader, it’s easy. This same phenomena happened in the real estate recession of the 1990’s. The stock at the very lowest end of the market was moving sideways due to the low intrest rates but the above $400,000 stock took almost 12 years to recover it’s traction and then it took another three years to break even if you had bought at the peak of 1989 through 1991. Talk about deja vu.

The Feds are squawking about the lowest inflation rate in 15 years Bwahahahahahahaha, and if you believe that I’ve got a nice bridge to sell you.

#61 PTDBD on 05.20.09 at 1:51 pm

Hu controls the U.S. Dollar controls the stock market:

http://stockcharts.com/charts/performance/perf.html?$SPTSE,$usd
(Move the bottom slider to change time period)

#62 U.S.$fromA$iaComming home= inflation on 05.20.09 at 1:59 pm

Ad hominem arguments are a sure sign of intellectual failure. — Garth

Guru Garth, you need a turban, curly boots and a flying carpet.

What, more of them? — Garth

#63 smw on 05.20.09 at 2:35 pm

#52 Mike (authentic)

Actually Mike, gold is priced in USD, and you GIC in Canadian, so when the bottom fell out of the markets last fall, and the Canadian and Aussie dollars dropped 20 – 25%, so did your GIC. So your money lost value to the worlds reserve currency, USD. (So did my GIC’s)

Thats why I mentioned above about my silver purchase… People on both sides of this arguement are looking at it one way without empathy for the other.

Munch is right, its a hedge, the one thing nobody calculated was the run into USD’s. I would NEVER recommend to my parents investing in bullion at this late stage of near retirement, now if you had millions like Garth, maybe sticking 20% – 30% of you investment income into bullion and gold stocks might work because you’ve got a large pile of $ and you can sit on investments that start swinging wildly.

If you have my pocket book, you might want to stick with value investing and stay away from manias, which Mike has pointed out on numerous occasions, gold can be a part of.

#64 Devil's Advocate on 05.20.09 at 2:35 pm

“Cycles” and “foundation” are two words people should contemplate as they apply to every aspect of life.

You CAN NOT change the natural order of cycles, postpone them maybe but at cost as we are learning or bound to learn. You CAN build a strong foundation upon which to proceed weathering the storm of inclimate seasons. This applies to finance and society just as it does all else. Seems to me of late that we are preoccupied with paint, trim and facia neglecting the structural strength of what we will depend upon to carry us forward a solid foundation economic, social and otherwise.

“you don’t always need to live by the decisions others make for you. Today, such decisions have brought an unwelcome world. Jobs, homes, assets and people are being devalued. Society is dangerously dependent. Most citizens don’t walk their own path, but many wish they did.” Xurbia.

You’ve been warned.

#65 smw on 05.20.09 at 2:42 pm

#55 nonplused

“It is a tool for the rich to park wealth they don’t for the moment wish to invest for what ever reason. “

Nice post! And that line says it all, the boomers in 1980 say what happened when you were late to get to the gold party, and late to leave. I also think that contributes to why gold has remained relatively stagnant in the last couple years.

The average boomers, whom have/had the majority of the investment wealth, don’t trust it to hold its value, they’ve put their fingers on that stove before.

#66 Ryan on 05.20.09 at 2:52 pm

Rob in Onterrible, here is why Peter Schiff is wrong…

http://globaleconomicanalysis.blogspot.com/2009/01/peter-schiff-was-wrong.html

#67 TorontoBull on 05.20.09 at 3:08 pm

@Garth,
a couple of weeks ago there was a debate on this blog about the shift to consumer saving that is currently happening. Here is the evidence for that:
http://www.theglobeandmail.com/servlet/story/RTGAM.20090520.wsavings0520/BNStory/crashandrecovery/home

#68 McSteve on 05.20.09 at 3:21 pm

Gold/Silver:

Very perplexing issue, indeed.

I keep about 5% of my portolio in physical silver (undervalued and easier to make change – try to make change for a $1,000 bar for a case of beer during a crisis) so I’m not going to completely right off the inflation hedge argument, however everything in moderation.

Consider the following:

1) Inflation is pretty easy to solve – check out the early 1980’s. On a moment’s notice the Bank of Canada could raise the interest rate to 20%. Since day-to-day transactions are in dollars bonds would be highly preferable (who wouldn’t have loved to have put $5,000 away in 20% – 25 year bond?)

2) In an extreme crisis, why would gold be any better for bartering than a bottle of whiskey or a frozen chicken?

3) I would have to think that mining stocks are a better bet than bullion. If I buy gold at $1,000 and it goes to $950 I lose money. I still have to cash in my bar and now I’m stuck with fiat money and no bullion. A mine would still be profitable provided the value of the bullion mined exceeded the cost to mine it – some of the price volatility of the commodity would be reduced.

4) Facing peak oil and increased demand for energy, I like uranium and oil better as an inflation beater. Who doesn’t think we are headed back to $100+ oil in the near future? Exxon probably pays great dividends. Uranium, with all its flaws, is probably the only reliable source of carbon-free energy – 44 plants are being built as we speak. Black gold and yellow cake are probably the bulls of the next cycle.

My strategy 1) pay down debt, 2) eliminate all unnecessary risks to my finances
3) only put in the market what I’m prepared to lose, 4) take the opportunity to go long on energy stocks 5) for my inflation hedge, I’m speculating on some precious metals but keeping a cash reserve. If we ever had a repeat of the 1980’s, you’ll be doubling your money every 3.5 years. If we get deflation – cash is king. No sign of inflation on the horizon quite yet anyway. Seems we are still fighting the spectre of deflation based on the latest BoC numbers.

I think I’ll buy a generator next. For an ounce of gold, I’ll bring it over and run your fridge or furnace motor for a couple of hours.

#69 If you were wearing a baseball cap... on 05.20.09 at 3:24 pm

If you were wearing a baseball cap backwards seven years ago, you might think this is a great deal.

What a great line!
Garth, you kill me!

#70 Barb the proof reader on 05.20.09 at 3:46 pm

Charles,
That’s a great chart site!

#71 Barb the proof reader on 05.20.09 at 3:53 pm

Garth,
That’s a great interview of you, and Elizabeth May as well as Jim Travers, on the Sunday Edition broadcast:
http://podcast.cbc.ca/mp3/sundayedition_20090520_15820.mp3
Very informative.

#72 Barb the proof reader on 05.20.09 at 3:58 pm

“Ah, life without the benefit of experience is just so much simpler” but dam, you eventually figure it out, and it’s too late:
http://tinyurl.com/o4b584

#73 Dave on 05.20.09 at 4:22 pm

Who REALLY would take gold as payment for a car, a house, a postage stamp unless it was stupidly in your favour? Paying in gold would raise a few suspecions I’m sure. You can’t eat gold and if worse came to worse then I sure wouldn’t trade food or gas for gold.

——————————————————-
some of the responses are close to moronic. No one is saying taking payment for a car in gold! When did anyone suggest that? If the cost of living increases (inflation) then apples, oranges, oil, sunflower seeds, gold and just about everything else goes up in value because of the weaker buying power of the dollar. Gold happens to be recognized as a commodity that doesn’t expire and has supply limitations. For capital preservation, people turn to gold. People who are purchasing gold think there’s a possibility that the dollars they’re holding will decrease in value which will drive up the price of everything….including gold. The paper currency would still exist however instead of an apple costing 80 cents it would cost $1.10 and an ounce of gold would cost $1,400 instead of $900. Why is this so difficult for you guys???This is economics 101.

Garth, stick to politics or real estate. You still don’t get it. 99% of goldbugs don’t believe they’ll be trading gold for goods at the nearby supermarket.

And you don’t get it. I have argued exactly this point – gold is not money. It never will be money. It’s metal and, like oil and other commodities, is most useful as a hedge against inflation. Those who see it as a medium of exchange are as nuts as you are disrespectful. — Garth

#74 squidly77 on 05.20.09 at 4:35 pm

everyone enjoying the oil head fake..
http://www.howestreet.com/images/graphsimg/casey_may18.jpg

#75 squidly77 on 05.20.09 at 4:40 pm

experience is what you receive..immediately after you desperately needed it..

#76 Vancouver_Renter on 05.20.09 at 5:02 pm

#66 “Rob in Onterrible, here is why Peter Schiff is wrong…”

I agree. I read Peter Schiff’s “Crash Proof”. He got some things right, but many predictions wrong.

Of all the advice I’ve tracked from books, newsletters, and interviews over the years there is only one person who got it 100% correct. It’s a guy I initially thought was “out to lunch”, but now my investment club subscribes to his very expensive newsletter (amongst many others) and holds his advice in highest regard.

In early 2008 he predicted:

1. Commodities would rise into spring/summer.
2. Oil would peak in summer and then plunge. (Almost nobody else was predicting that.)
3. The US$ would fall into mid 2008.

Then in early summer he warned:

1. Sell all your commodities.
2. Sell all your stocks.
3. Sell all your gold shares and gold.
4. Get into US dollars.

Then on August 4, 2008 (I have the mp3 saved) he said (paraphrasing), “Oh this October. It is going to be bad. Very bad. The stock markets are going to repeat the meltdown of 1929.” At the time, I brought this prediction up with a high-up investment guru friend of mine from ScotiaMcleod and my friend said, “That’s CRAZY” and laughed in my face.

Then in September, once things started he said that the markets would bottom in the final days of October and then retest those lows in the 3rd week of November. He was spot on.

At that point, our group subscribed to his newsletter. In the final week of October, he then stated, “Now it is time to go long gold stocks.” Our club all bought in. Since then, most of these stocks have doubled or tripled in value.

He warned, in late 2008, that there would be a great bear market rally out to about May, 2009. By May, the mainstream will be euphoric and optimistic again. He advised buying into everything – stocks, oil, commodities – to benefit from the rally. So far so good.

A few weeks ago he said, “We are waiting for Bernanke to declare the recession will be over later this year. That will be our sign to sell.” We got that a week later.

Recently he reiterated to sell on strength in preparation for the next big crash starting in the 2nd half of 2009. He’s predicting the US dollar will resume its uptrend. Gold stocks will be the premier asset class. The stock market will continue to trend downwards for the next 2+ years.

Who is this guy?

It’s a secret. If someone asks me nicely, I’ll give you his name – but a few of you already know who it is.

#77 Lando on 05.20.09 at 5:20 pm

Well Garth I’m starting to become insecure about preaching about the greaterfool blog to my friends and family. Here in Edmonton it looks like RE prices are going only one direction: UP UP UP. I managed to convince my fiance to rent in April when she really wanted to buy, largely because I had read your book and it seemed to make perfect sense. The trouble is I’m starting to feel like the fool now as all are friends are bragging about how their mortages are less than rent. Should there have been a disclaimer on the book saying this information doesn’t apply to Alberta? Is RE only going down in the “Rust Belt” cities? Should I be patient or jump in whlie interest rates are low. I’d hate to pay the same or more for house two years from now with triple the interest. Is Edmonton really immune to the RE crash? It sure seems like it………….CONFUSED.

#78 timbo on 05.20.09 at 5:31 pm

I just love the gold bugs. trying for another bubble , must be ex-realtor’s. Hope you know when to get out as its a very liquid market or does gold go up forever?

Also love the china angle. China’s manipulated currency to become benchmark. All g20 nations should (sorry,”are”) devaluing currencies in tandom by printing which will reduce debt owed. . When creditors balk (china), close the window and say “sorry broke”.

To think that the very rich,(elite) are going to let the closed China system take over is a laugh. The debt problem has been planned since Reagan and when the last drunk has bought the last beer we will see the reset button pressed and a fresh start created. I think that is called bankruptcy..watch California for the promo to the show.

#79 . . . fried eggs and spam . . . on 05.20.09 at 5:45 pm

#3 squidly77 on 05.19.09 at 11:19 pm — Good link re: Scotiabank. Part of it belongs to the second wave of foreclosures and commercial RE sinking.

This is what is wrong with sheeple — they can never see the forest for the trees. When they do, they expect others to bail ’em out. It’s happened before and will happen again, ‘coz some human natures haven’t learned evolution yet.
——
#20 Bottoms_Up at 6:25 am — “Cheap money is almost irresistable, . . .”.

That’s why numerous suckers are born every second!
——
With the present debate focusing on gold / silver, hedges / rose bushes, deflation and the like, it is good to understand what caused this mess.

So, three links which, co-incidentally, go hand-in-hand-in-hand with each other. The first (scroll down) is a 1:22 video . . .

http://economicedge.blogspot.com/

http://www.youtube.com/watch?v=3_iQZiVD_zA

http://www.dilbert.com/

FWIW, I prefer to hold 20% in silver coins — easier to trade and / or barter. No gold.
——
This is what should happen to almost all of the politicians next election — DON’T GET MAD, GET EVEN! — http://tinyurl.com/qlrcw2 — and — http://tinyurl.com/ohr5fx

#80 Just a Girl on 05.20.09 at 6:03 pm

#77 Lando

Alberta has another problem … stucco that fails in the climate.

From my rental, I can see three condo complexes with serious, unending exterior wall problems. You can imagine what this, plus the unfavourable newspaper coverage, does to those MLS listings.

Then look outward to the urban sprawl, especially from this last boom, and realize there is a vast and endless sea of McMansions, townhouses and condos that are going to quietly mold, rot and fall apart, after a few seasons of expansion and contraction.

Don’t jump in without doing your homework. I moved to Alberta during the last bust. There were empty homes for sale everywhere, some had been empty from developers for 5 years. Not saying that history will repeat itself, but sometimes, history repeats itself :)

#81 Rob in Onterrible on 05.20.09 at 6:04 pm

@ Vancouver_Renter: Oh, you’re killing me. Is it James Dines? Or maybe Deepcaster? OK, last guess. Dr. Marc Faber? I know that Peter Schiff isn’t 100% right all the time but he sure got it closer than say, Jim Cramer of “Mad Money”. Please do pass on that name. See, I’m asking nicely.

#82 . . . fried eggs and spam . . . on 05.20.09 at 6:05 pm

#76 Vancouver_Renter at 5:02 pm — “. . . for the next big crash starting in the 2nd half of 2009.”

That’s about when the proverbial shit hits the fan, but after these brain-dead winter ‘limpix 2010, all the euphoric feel-good thing-a-mee-doodoos, then things get REAL messed up.

Just in time for Cheney to take a run at the US presidency in 2012.

#83 Da HK Kid on 05.20.09 at 6:10 pm

I dont believe the dynamic of flight to safety back into the USD when the stock market begins it retests of lows, is changing anytime soon.

I will state my case once again for those who missed it. The market has been and will continue through its manipulation by both Fed & Treasury (via the world elite) to protect the dollar and giving everyone in the know an opportunity to do all this insider equity trading to boost sediment and consumer spending so we dont run for the doors (at this time).

All of this was meant to remove our fear only and to get us ready for a major long term correction in which things will get alot worse but slowly. Only a few have the nuts to do the cliff jump.

The fundamentals of GOLD as a hedge while notable is not going to work this time. The USD being the global reserve currency with 64% of all paper money being USD is still the reason why the USD will not fall off a cliff.

Yes, at one point my text book economics made sense, say 10-12 months ago but all bets are off. You have to ride the waves of manipulation that yes the gold bugs are wrong with and the sheeple are meant to follow.

If you run with the heard you will be disappointed. Worse, potentially eaten!

#84 travelite on 05.20.09 at 6:15 pm

@#76 Easy: Bob Hoye

Following him the last couple of years has been the best thing I’ve done financially

#85 Nostradamus jr. on 05.20.09 at 6:16 pm

#78 timbo

Timbo, very few people see the reset button coming.

Course China won’t take ti sitting down,

1/
they’ll detonate Japan into oblivion…payback for WW2

2/
nuke North Korea,,,ok, South Korea too,,,neat and clean

3/
and demolish Russia in order to reclaim Siberia

4/
India and Pakistan will nuke each other

5/
Safest place in the world is…..the Pacific Northwest…Portland, Seattle and Vancouver.

…Yes, I predicted the above nearly 500 years ago too…

#86 john m on 05.20.09 at 6:27 pm

Why is all i wonder these days??? The economy is headed deeper and deeper in the toilet every passing day…easy credit got us to this point,jobs security is a dream,wages are dropping.The Governments solution has been to pump billions of our tax dollars into the banks and no-win private enterprise to create a false economy that is not sustainable..and here the sheeple go driving themselves deeper in debt…scooping up the fantasy bargains and increasing the casualties as the bottom heads lower.????????? beyond my wildest comprehension……is everyone in Canada on pot??-oh yes have a toke and listen to the propaganda and turn the worst day of your life into a good one (but only for a few days). As the old saying goes “you can’t make a silk purse out of a pigs ear” ……time to oil my rifle for the fall squirrel hunt :-)

#87 lgre on 05.20.09 at 6:39 pm

Agreed with Garth on gold

It is nothing more then a hedge instrument and that is all it will ever be. There is a reason why fiat money is running the world..easy to produce and manipulate..

#88 David on 05.20.09 at 6:42 pm

It is not surprising that there are housing zealots proselytizing about the bottom and don’t miss the opportunity of a lifetime. They said similar things during the height of the bubble and all the ensuing agony that followed.
People buying supposedly cheap homes might find that a comparable property can be had much cheaper two years down the road. I remember the old ads for the Brick in Alberta back in the early 80’s, every weekend was a once in a lifetime – this weekend only nothing down spectacle. Same mentality and the same sales pitch at work.
More on this bottom subject.

http://blog.youwalkaway.com/?p=35

#89 lgre on 05.20.09 at 7:00 pm

would of been nice for the boomer 911 blog..great example, although this guy seems to be in better shape due to the value of the property..if he can sell it for the price he is anticipating.

http://www.milliondollarjourney.com/case-study-60-years-old-lots-of-cash-no-portfolio-the-income.htm

“My Father-in-law just turned 60 years old and has no pension and limited cash savings other then this ‘paid-for’ land asset. He only has experience investing in real estate and now that he is ‘retired’ with no fixed income, his priorities have also changed”

#90 Bottoms_Up on 05.20.09 at 7:05 pm

#79 . . . fried eggs and spam . . . on 05.20.09 at 5:45 pm

#20 Bottoms_Up at 6:25 am — “Cheap money is almost irresistable, . . .”.

That’s why numerous suckers are born every second!
———————————————————
Garth, that ‘almost’ in my sentence is due to you, without your blog and guidance no doubt I would have bought already with 5% (debt) down, and 35 year am. In a few years I’d likely be in big trouble…I will continue to rent, and when I buy it will be with 20% down, and the mortgage will not be more than 3x household income…

#91 squidly77 on 05.20.09 at 7:26 pm

lando you should buy buy buy
calgary has close to 12,000 houses for sale and 1 realtor (you know who) thinks that hes gonna run out of homes to sell..too funny
http://www.realtyexecutivesapex.com/search_mls_map_form1.php

oh and lando theres over 11,000 for sale in edmonton
http://polarissells.com/search_mls_map_form1.php

#92 Midas on 05.20.09 at 7:32 pm

“Gold is not bought by poor people hoping to become rich, but by rich people hoping not to become poor.”

#93 Interested on 05.20.09 at 7:40 pm

Dera Vancouver Renter,

Who is this guy?

#94 PeakOil on 05.20.09 at 7:50 pm

Rates can’t climb by much in the future, there is to much debt in the system. People are turning into savers which will produce slow growth, but growth, in future. Gold will go up but so will inflation and with it all hard assets. Inflation will come from devaluation of reserve currency (US Dollar). Central banks will be forced to let inflation run around 5 to 7% for the following two reasons.

First: if they try and raise short-term rates, growth will stop and the deflationary spiral will begin. Central banks don’t want this and will do anything in their power to stop it. So in the future Central Banks will focus on deflation, not inflation.

Second: Inflation due to finite resources. Cheap energy will not exist in the future like it has for the last 27 years. We have finally come to the point of having to pay for the energy deficit we have been living on since the 80’s. Competition for commodities due to growth in the developing world. The western world has to rebuild/redesign it’s current infrastructure to fit into a high cost energy world, thus creating higher competition for existing commodities.

#95 Greater Genius on 05.20.09 at 8:04 pm

“Gold is not bought by poor people hoping to become rich, but by rich people hoping not to become poor.”

#96 Real Estate Deal or No Deal on 05.20.09 at 8:04 pm

I chose to rent.

Like Garth said “Why buy when you can lease it for the same cost?”

Must say, nice digs!

#97 gold bugger on 05.20.09 at 8:36 pm

+300% in 7 years. Name one other asset that has done as well.

Just one.

Waiting.

Still waiting….

Real estate in California, Florida and Nevada. Whoops. — Garth

#98 Basil Fawlty on 05.20.09 at 8:44 pm

“Two per cent. Wow. Stick in a fork. Yer done. ” Oil is down 60% from it’s recent high at $147, yet I have heard little negative talk on oil as an investment. What is it with you and gold Garth? Your anti-gold rants are repeated so often, and the message is always the same, even after someone points out the holes in your analysis.

Oil has a use. Gold is a fetish. — Garth

#99 dd on 05.20.09 at 8:58 pm

#98 Basil Fawlty

“Oil has a use. Gold is a fetish. — Garth”

Every once of gold ever produced is still on this planet. Oil … 83 million barrel are consumed daily.

#100 Bottoms_Up on 05.20.09 at 8:58 pm

http://business.theglobeandmail.com/servlet/story/RTGAM.20090520.wdealerships0520/BNStory/Business/home

~14,000 to lose jobs at GM dealerships across Canada

#101 dd on 05.20.09 at 9:01 pm

#74 squidly77

everyone enjoying the oil head fake..

Short term yes … in two, three years … no.

#102 timbo on 05.20.09 at 9:04 pm

#85, nost, LOL :)

when it all goes down I’ll bring the popcorn and you the nacho’s.The fireworks you say are coming will be better then the OJ Bronco chase to watch on CNN.Too bad most of the outsourcing will be wrecked. I guess we will have to build things ourselfs when asia implodes.

Open the peanuts now because California’s going to be a soap opera for things to come. See if Arnie can get away with laying off everyone to balance the budget or is the print key still usable. Maybe releasing the prisoners will give the wakeup call to the denial crowd.

I would rather be the debtor then the creditor right now. Too big to fail and able to restrict trade at any time. You want your money? Here, take this newly printed green , all our walmarts,…. and get out!

#103 Nostradamus Jr's Analyst on 05.20.09 at 9:09 pm

Only 2% return on gold?

Not too shabby when you look at the rest of the crap out there down 10% – 40%.

#104 Basil Fawlty on 05.20.09 at 9:12 pm

“Oil has a use. Gold is a fetish. — Garth”

Fetish; any object believed by superstitous people to have magical power. Webster’s Dictionary

Damn, and here I was thinking it is the “hitching post of the economic universe” James Dines

Hey, I really like your new book “Sheeple” and would recommend it to everyone. You did good things as an MP.

OK. Now I forgive you. — Garth

#105 Vancouver_Renter on 05.20.09 at 9:21 pm

#84 “Easy: Bob Hoye”

Yes, Bob Hoye is the man. Humble, quiet Bob Hoye. He’s a market historian. Everyone seems to be making predictions based on what SHOULD logically happen. Hoye makes predictions based on what DID happen in parallel situations over the last 500 years, which doesn’t always appear to be logical at first glance.

Will Bob Hoye continue to be correct? I don’t know. But he is the only guy who has been spot on in the last couple years. I’d rather follow his advice than people like Schiff or Puplava and many others, who have got a heck of a lot of things wrong, yet conveniently hide that fact and preach as if they all their predictions were correct.

When Puplava was “backing up the truck” to buy gold shares, Hoye was advising investors to sell based on what happened in the initial stages of the 1929, 1873, 1825, 1772, and 1720 Great Depressions. In all of those deflationary contractions, governments and central banks printed money to prevent markets from imploding, but it didn’t work. And in all those depressions, gold shares bottomed out after the initial crash then turned out to be the best performing asset over many years.

You can hear Bob Hoye speak here every Friday, for free. His newsletter subscription, for institutions, is $10K per year…

http://www.howestreet.com/audiovideo/index.php?pl=/goldradio/index.php/mediaplayer/1205

#106 . . . fried eggs and spam . . . on 05.20.09 at 9:24 pm

Tie these together and see what happens! First is possible hyperinflation, second is extremely very rich people. — http://tinyurl.com/r5rjxa — and — http://tinyurl.com/p2rbw7
——
#83 Da HK Kid at 6:10 pm — “. . . The USD being the global reserve currency with 64% of all paper money being USD is still the reason why the USD will not fall off a cliff.”

Hi Da HK Kid. A different take on the same story, but change is one of the many constants here, so it’s either “Look out above” or “Look out below!” — http://tinyurl.com/q2gg6m
——
Speaking of the elite, check this out. — http://tinyurl.com/of4scl

“London Guardian journalist Charlie Skelton, who began his coverage of the 2009 Bilderberg conference in a jovial and mocking manner, is now warning that the horrendous treatment dished out to him by both police and undercover spies is just a taste of what we can expect in our daily lives if we allow Bilderberg’s agenda, and specifically ID cards and implantable microchips, to be implemented.

“Initially setting out to cover the event in a satirical way, Skelton left Greece yesterday chilled to the bone about how he had been harassed, detained and stalked for days on end by authorities merely for taking photographs of the hotel where Bilderberg members were staying.”
——
Another reason for canned and frozen foods! — http://tinyurl.com/ccwbqk

“(The sun) might (1) revert to the old solar cycles or (2) the sun might go even quieter into a “Dalton Minimum” or a Grand Minima such as the “Maunder Minimum”. It is still a little early to predict which way it will swing. Each of these two possibilities holds a great threat to our nation.

“We are now at a crossroad. Two paths lie before us. Both are marked with a signpost that reads “Danger”! Down one path lies monstrous solar storms. Down the other path lies several decades of crushing cold temperatures and global famine.

“Climate change is primarily driven by nature.”

#107 RJ on 05.20.09 at 9:26 pm

Dude. Did one of your loved ones die in a mining accident? Adjust your chart.

#108 JO on 05.20.09 at 9:47 pm

That gold chart has one sexy inverse head and shoulders pattern (very bullish)..as long as the right shoulder is not taken out, it looks like prices can reach about 1300 in short order.

The bond market will be the epi centre of the next crash phase through 2010. The onlu question is does the US $ go down along with bonds now or later. I think the USD can put up one more major rally before the end comes…

Lets see: Exploding deficits promised by gov’ts for years out, while tax revenues and unemployment are behaving very badly..sounds like the making of a major deflationary crash in bonds to me…so how is gov’t going to fund the deficits ? Printing presses you say !!! Of course, for a while…but why not raid RRSP / TFSA for emergency money ? Think this is silly ? It is a risk, much more so in the US…a banking holiday is declared and the friends in office say something like this:

Mr. Speaker, Canadians are angry. Captialism has failed them. Savings are gone, and people are right to be angry. Canadians expect their gov’t to protect their savings…markets have proven too uncertain for most of us..In light of this, The gov’t of Canada will allow only the safest investments, gov’t of Canada T Bills/Bonds, to be held in all RRSP and other registered plans …in order to make sure Canadians can count on their retirement and other registered savings when needed..and to further ensure the savings are there when needed, an early withdrawal charge of 50 % will be levied to all withdrawals by savers under 55.”

There it is: The confiscation of your retirement savings by a despotic, desperate gov’t. Think it can’t happen in the final hours of this crisis ? When bond markets give our politicians the middle finger and revenue is needed ? Think again.

JO

#109 timbo on 05.20.09 at 9:53 pm

canuck99

I appreciate your cherry picking at dates and at prices for golds increase in value.

Does gold have compound interest or a dividend? Go back and compute your figures to the canadian dollar wrapped in an rrsp that his interest compounding.

Also compute the fees for buying and selling the metal. If you want I will pick gold’s price in 1984 in currency locked in lets say microsoft stock enclosed in a RRSP. I think that might beat gold?

just picking at cherries, Tulips and gold I guess are the new can’t lose fad. I sure wonder how much people are paid to bang gold drums and yell the sky is falling.

#110 JO on 05.20.09 at 9:54 pm

What these moron ploticians need to say is :

Mr. Speaker, Canadians have been destroyed by massive government and central bank intervention in the economy. It has come to a head now, with our sins from the past coming home to roost. Government has allowed the weakest and most vulnerable borrwers to take on the largest debts of their lives through “insurance” programs for home buying, stood by while our central bank lowered rates too low and permitted a massive housing boom to develop, which also allowed Canadians to take on spectacular amounts of other debt. Also, by allowing the banking system to use the government sanctioned counterfeiting operation scheme called fractional reserve lending, the overly optimistic borrowers were able to take on sensational debt loads which should never have happened. Finally, funded through one of the world’s most complicated and excessive taxation systems, the gov’t of Canada has grown too large. For this, and other blunders, the gov’t of Canada has failed the people of Canada, not “free” markets. We are sorry.

JO

#111 RJ on 05.20.09 at 10:00 pm

Here, I’ll help ya-

http://goldmoney.com/en/charts.php?cn=0cad12&ca=1+Year+Gold+Chart+in+CAD

#112 GTA Matt on 05.20.09 at 11:04 pm

#76 Vancouver_Renter
I’ll bite. Who is he?

#113 The Coming Depression on 05.20.09 at 11:11 pm

Garth your embarassing yourself when you talk GOLD ..Saddest part about this whole thing is that you don’t have a clue as to what you’re talking about:
Here is your dollar:
Here is your GOLD:

Stick your dollar where the sun don’t shine. It beat every financial tool the last 10 years and more..

Say, how’s that depressions coming? — Garth

#114 canuck99 on 05.20.09 at 11:48 pm

Dearest Timbo,

I agree with you–gold is not a performing asset. It is, quite literally, money–recognized by governments and central banks the world over, and more importantly by people for thousands of years.

That said, money is not an investment vehicle that yields interest or dividends–it’s money, and in my view far superior to physical cash.

p.s. The Bank of Canada report quote covers an almost 140-year time span. If that’s cherry picking then it must be one massive cherry.

#115 canuck99 on 05.20.09 at 11:58 pm

German Firm Plans Gold-Dispensing ATMs To Meet Growing Demand

They’re planning to set up 500 of these machines in parts of Europe this year. It will dispense gram-sized bars plus Krugerrands

http://uk.biz.yahoo.com/19052009/323/german-firm-plans-gold-atms-meet-growing-demand.html

#116 nonplused on 05.21.09 at 12:54 am

#57 Rob in Onterrible

Garth’s response:

The world’s money is $US, and will be the rest of your life. — Garth
Not so unless they back it with missile mounted enrich uranium. No paper currency survives the generation that creates it, none ever has, thus I believe until proven otherwise none will. This one started in 1973.

#65 smw

Thanks.

But gold has not been “Stagnant”. It hasn’t blown through the roof and it won’t, but with some volatility it has maintained purchasing power. Excepting the 80’s bubble, that’s what it will always do. Unless we have another bubble, which is what the true gold bugs are hoping for. But they will forget to sell just like real estate speculators and when it gets to whatever high will be buying and left holding the bag.

Here is what you do folks: set 10 to 20 percent of your savings in gold (or more for the really panicked) in gold every year so you have some that you can exchange for cash when you retire that is still there. It’s not investment or growth. It’s a fall back plan. The safest of all investments, paying no interest because it has no risk (other than commodity risk. But you will want commodities in retirement and it correlates well.)

#77 Lando

They always go up, up and up in the spring. It’s not a bull market until they make new highs. No chance of that.

#78 timbo

You are right to think California is the promo to the show but suddenly wrong if you think it’s a solution.

#92 Midas

Sums it up. Gold is wealth preservation, not creation. You need capital and labor to create wealth, but we are currently destroying both. It’s time to be safe.

#98 Basil Fawlty

Oil has a use. Gold is a fetish. — Garth
Not true. It’s a commodity that cannot be counterfeited. Or printed to excess by the prevailing authorities.

This is where you are off on gold Garth; it cannot be produced by politicians, ad hoc, and is in limited supply. It has always been a store of wealth, by consensus, and probably always will. But it is still a commodity. All money is a commodity. Everything is a commodity. Everything. Commodities in limited supply hold value. Commodities in unlimited supply don’t. Guess which one paper is?

#117 Dave on 05.21.09 at 12:59 am

And you don’t get it. I have argued exactly this point – gold is not money. It never will be money. It’s metal and, like oil and other commodities, is most useful as a hedge against inflation. Those who see it as a medium of exchange are as nuts as you are disrespectful. — Garth

okay, but who the heck is arguing that gold is money? its convertible into money just like anything is. You have this fixation on why it is bad and you’ve singled it out as something horrid and worthless. At the end of the day it’s a commodity that represents capital preservation better than anything I know of. Yeah, I’d rather have apples & oranges in the worst imaginable situation, but apples and oranges will rot and don’t best represent capital preservation. I feel like you’re misleading a lot of the misinformed people that read this site. I’ve done my own due dilligence, but some completely depend on your information. Your personal issues with gold has swayed the opinion of the many people on here who aren’t exposed to the whole financial world.

I’m not being disrespectful, but people need to understand that when there’s inflation you can expect to see prices rise in: beef, copper, rice, nickel, oil, salmon etc. For the record, gold happens to be the best way to preserve your worth when there’s inflation…. Unless you’re okay with keeping dozens of cows in your backyard.

#118 Dave on 05.21.09 at 1:05 am

Who is this guy?

It’s a secret. If someone asks me nicely, I’ll give you his name – but a few of you already know who it is.

————————————————-

okay, who is this guy? are you talking about Schiff? he never said to go into the USD…maybe I misunderstood what you said.

Is this guy’s initials D.C?

#119 canuck99 on 05.21.09 at 8:14 am

[Reuters] German firm plans gold ATMs to meet growing demand

http://uk.biz.yahoo.com/19052009/323/german-firm-plans-gold-atms-meet-growing-demand.html

They’re planning to set up 500 of these machines in parts of Europe this year. It will dispense gram-sized bars plus Krugerrands

#120 Davinci on 05.21.09 at 11:42 am

Garth for a smart man you sure are stupid. Then again we are all like that when it comes to a particular aspect of our lives.

Ok 2% eh?

Well, did you know Garth that all commodities including gold is sold in USD? Did you know we live in Canada? Did you know that a year ago the Canadian dollar was at par? Did you know YTD the increase of gold in Canadian dollars is over 20%?

Yeah didn’t think so. Did you notice that TV and news said there is no inflation yet Food in Canada has gone up by 20% YTD.

Did you also not that exact chart you displayed in a classic long term inverse head and shoulder pattern?
Thus anyone buying gold today will be taken on a wild ride to the upside come this fall.

Hey, Garth since you think gold is not money can you tell central banks that so they can sell all their gold and stop trying to keep the price down.

Thanks

Davinci

#121 conan on 05.21.09 at 3:15 pm

I might consider buying gold to speculate on the price range it seems to be sustaining.

But my buy in is around $750.

The day my local esso will only accept gold as payment for gas is probably the same day gas will cost an ounce of gold/ a liter.

Anyone have gold bug repellent?

#122 The Coming Depression on 05.21.09 at 4:45 pm

Currencies Don’t Float

The US dollar is getting pounded again today but is well within the trading range scenario I suggested at the peak. Nonetheless, I would like to pass on a saying of my friend Clyde Harrison at Brookshire Raw Materials …

“Fiat currencies don’t float. They sink at varying rates”.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

#123 EcoInsurgent on 05.21.09 at 8:54 pm

A friend in Calgary related a story this week that another friend sold their house in the NW on the day of listing. No less than 15 potential buyers there on that first day and two offers, both at listing price. The house sold apparently for about $100,000 less than it would have a year ago. There is still no shortage of fools out there in the marketplace, that’s for sure!

#124 Davinci on 05.23.09 at 11:53 pm

Gold preformed better than 2% if measured in Canadian dollars. Try 20% from the dates of your chart.

#125 Davinci on 05.24.09 at 12:05 am

I have noticed a lot of people hate gold, most because of ignorance.

In my entire life of investing I constantly asked this one question… why can’t I just save money? The answer was because I would get wiped out by inflation.

I though this was not right but did not take the time to find out the answer to why inflation existed.

Today I know why and now I know that I can just save real money, that is gold and silver.

Sure there will be time to get into the market and paper assets so you can increase wealth but, if I am just interested in preserving it and having enough for retirement. There is no other substitute than gold.

I hope to god that gold haters do not have to learn this the hard way, but if you do you deserve it.

#126 Jason on 05.25.09 at 4:01 pm

#76 Vancouver_Renter

I’m very interested in your investment club, how might I join? Meet at the World Resource Conference, perhaps?

#127 Jason on 05.26.09 at 10:27 am

Vancouver_Renter

I’m very interested in joining your investment club. Any chance for a new member?

Please reply to: [email protected]

Everyone else….sorry for the spam. This shall be my third and hopefully final try at contact.