Plan B

poster1

In case you missed the memo, the recession’s over. Buy a house. Buy a car. Go to Paris. Get a mortgage. Get a line. And stop that damn saving.

Central bankers in Canada and the US are at it again this week, saying the worst has passed, the economy will maybe (probably) likely grow (a little) next year and just to make sure, interest rates will stay low for a long time. In Canada, according to BoC’s head guy, that means 11 more months.

This should tell you something. The best and last hope governments in Canada and the US have of avoiding a deflationary mess is you. Massive stimulus programs may have papered over the banks’ problems, but they’ve failed to staunch the tide of unemployment, to create corporate profits, to open shuttered factories, to increase trade or lure private investment. And the economic diddling is massive – over $23 trillion (all of it borrowed) could be Obama’s tab, according to an estimate this week.

The wad’s blown. Deficits have exploded. We have just borrowed obscene amounts of money from people not born yet. We’ve ensured a few decades of tax increases and inflation along with crappy economic growth. Now it’s up to you, soldier. Just take that hill.

That’s Plan B. Maintain the cost of money so low the suckers can’t keep their hands off it. They’ll borrow and spend enough to create demand for goods, ratchet up prices and rescue us from deflation with inflation. Then, of course, interest rates will fly higher to corral unfettered prices, in a cruel blow to those who borrowed to save the nation, as personal and sales tax rates swell. But, hey, that’s the next prime minister and president’s problem.

Seriously, the US Fed and the Bank of Canada are now in the business of creating consumer spending. They are doing this with absurdly low interest rates, along with shovelling money to financial institutions so they will open the lending spigots. The best solution to the problems caused by a massive run-up in credit, a speculative frenzy in commodity prices and cowboy capitalism by investment bankers is this: More credit, more liquidity to grease prices, more debt and the mother of all bank bailouts.

The dilemma this poses for young couples and growing families is extreme. I hope in two or three decades they look back and at least know who to blame – the generation in power in 2008-9 that went for the easy one.

Hi Garth. Love your blog – wish I’d found it sooner. After owning Toronto real estate for eight years my husband and I, in our 30s, have decided to become renters again. We’ve just accepted an offer for sale on our house that closes in a month and would leave us with $200,000 in pocket. The big question now is what to do with that cash in the short term. We’re a little nervous about tying it up long term because we do want to buy a house again although it might be in another city (i.e., Edmonton or Victoria) as there’s the possibility of a job transfer in our future as well. And, to be honest, we’re fairly risk aversive all around. However, rates on term deposits, etc. suck. What do you think? Our wildly divergent friends are telling us “buy gold!” or “put it in GICs.” Both seem a bit extreme to us – is there a middle ground sans management fees? – Joan

First, congratulations on doing what most people never achieve: Selling your house at its moment of maximum value. These are the days to take tax-free capital gains from real estate, not to become encumbered, and not to believe what central bankers tell you.

Regarding the cash: Tying anything up long-term right now is a bad idea. Today’s rock-bottom rates are teasers only, and will not last. If you still have cash to invest in 18 to 24 months, you’ll find a much greater rate of return available.

Having said that, if you do park the money in a short-term government bonds, high-yield savings account or dividend-paying bank preferreds, then do a portion of it inside a TFSA. The tax-free savings account is best used like an RRSP, sheltering investment assets from taxation rather than as a place to put bank savings. Sadly, though, the two of you can deposit only $10,000 a year.

Your friends who recommend GICs want you to never get ahead and rival their possessions. So ignore them. Your friends who recommend gold desperately want you to lose your capital, for probably the same reason. Dump them. The last things you need are investment certificates paying 2% or pieces of metal whose price changes hourly. Far better is a basket of energy securities, with some nice tech and health care thrown in. And this…

Joan, baby, we are in an age of deflation right now when the economy is precarious and the next decade promises higher taxes and lower real estate values. Society is regorging on borrowed money, armies of people are mindlessly gambling their wealth on the kind of thing you just sold while the real economy fuses. This will bring heartache to the indebted, and opportunity to the liquid. So here’s a radical thought for you: Cash.

You’ll find out what a rare and precious commodity this is, if you ask for it on closing day. In twenties and fifties.

I’ll explain in the car.

128 comments ↓

#1 dondiego on 07.21.09 at 10:34 pm

Your friends who recommend gold desperately want you to lose your capital, for probably the same reason. Dump them.

WOW.

#2 Real Estate Bear on 07.21.09 at 10:34 pm

CMHC – Canada’s Breaking Point
“CMHC indicates in its plan that it will insure $813 billion via a combination of mortgage insurance and mortgage-backed securities (MBS) by the end of 2009. Looking at 2008 and 2007, one can clearly see that CMHC has drastically exeeded their planned figures. 812 billion is more than likely a minimum target. At this rate the Government of Canada will be insuring over $1 trillion in mortgages and loans or 77% of GDP by the end of 2010. That is double what Fannie Mae and Freddie Mac insured on a per capita basis or the equivalent of the entire mortgage debt of the United States on a per capita basis.

Even at the zenith of the US housing bubble, prices peaked around $250,000 US while incomes were around $47,000 US. In Canada, incomes are $44,000 and prices are now at $342,000. If I have evidenced to you at this point how risky our lending has been, how are we so different than America? One might even say that we are much worse.

Thanks to this stimulus in 2007 the market radically changed. Historically high home prices continued to gain steam. High risk borrowers flooded the real estate market. Throughout 2007, the average home buyer who took out a mortgage had only 6% equity in their homes. That’s the national average downpayment for all mortgages including buyers who moved up”

http://americacanada.blogspot.com/

#3 Nostradamus jr. on 07.21.09 at 10:42 pm

Garth is correct…Cash is best… the Loonie is gaining strength vs the U.S. Dollar.

…A concrete bunker would be your second best choice.

best wishes

#4 nonplused on 07.21.09 at 10:42 pm

Guns, gold, and whiskey! Always perennial favorites.

But seriously, it’s a good question. With the way the $hit is hitting the fan it’s hard to say with any certainty that any contractual obligations are going to survive, including dollar ones.

Real estate is usually a good hedge in uncertain times, but through taxation it’s not exactly immune to the long arm of the leviathan. Gold? Taxes. Bonds? Super low rates now and taxes when rates go up.

My grandmother survived world war II. Weird old lady but entertaining. Anyway, her survival recommendations basically amounted to this: Buy 2 of everything you need on sale. So if you need a coffee pot and they are on sale, buy one for the kitchen and one for the storage room. That and a paid for house got her through a lot of years on CPP.

In later years she added another strongly encouraged piece of advice her and my grandfather never did execute themselves: get a government job. Decent pay, job security, and a pension unmatched across the land.

#5 Patel on 07.21.09 at 10:55 pm

Garth,

Another great writeup from you……

As they say in Cricket….a magnificent shot.

#6 Basil Fawlty on 07.21.09 at 10:58 pm

“Your friends who recommend gold desperately want you to lose your capital, ”
Oh this is rich, people who recommend gold to their friends don’t just want to see them lose their capital, they want it desperately? Come on Garth, gold has tripled in the last nine years, who cares if the price moves a little, this happens to many assets. Get a second opinion Joan. If you were my friend I would recommend some in a second.
“over $23 trillion (all of it borrowed) could be Obama’s tab, according to an estimate this week.”
Who is going to lend the US another $10T? It’s not going to happen. The only game left is inflate (quantitative easing) or die.

#7 Brian Poncelet, CFP on 07.21.09 at 11:01 pm

Hi Garth,

I just got my monthly report from Gary Schillings (a paid report from Forbes). In a nutshell he is saying that the US is heading the same way as Japan (stock market poor for 25 years, house prices lower year after year)

An other great report to read is from the federal reserve bank of San Francisco which talks about the similar problems Japan has gone through and now the US seems to as well. What you may notice is was done May 15th 2009. No one reads these reports but the fact that this is a rare report from the Federal Reserve shows that troubles in the US are nowhere near the end.

Here is the link: http://www.frbsf.org/publications/economics/letter/2009/el2009-16.html

Let me know your thoughts.

Brian

#8 joel brico on 07.21.09 at 11:06 pm

I agree – cash is good. I would wait and see if there is another Fall crash/stock sale.

If so .. it maybe a good opportunity for some solid ETFs in the energy sector or other blue chips Garth speaks about.

With all the talk about the recession being over – it makes me think even more likely that another fall crash is coming.

I like Bob Hoye on Howestreet.com – he explains the markets very well.

Garth likes to trash gold – I like it. Making great money with it, but you have to know what you are doing. As Garth says the price changes hourly (best thing about it!) – if you know how to trade it, you can do well. Most buy it in one big chunk – and usually at the top price and sell when it tanks or think of holding it for 30 years. Gold is the lowest risk investment period – it will not go to zero. http://www.gracelandupdates.com is good site to explain the idea.

I suggest 25 gold maple leafs in your safety deposit box for a good plan B.
http://www.bordergold.com

#9 $fromA$ia on 07.22.09 at 12:00 am

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

Garth, This article is Schiff commenting on inflation and how it will show up, then its too late.

Theres a strong possibility that Canada’s bout with inflation proportionally compared to the USA is going to be much worse. The banks here are still mortgage loose lending!!! This is stupidity. The average Canadian (lil’ man) can cause so much damage with a big ticket item such as real estate.

Garth this is going to get very ugly. Conservatives need to be removed from power. They are mindless!!! I realise calling the Conservatives on it is just as unpopular.

#10 $fromA$ia on 07.22.09 at 12:03 am

So Garth, purchasing a home right now is not a good investment decision but if you had to choose between a Vancouver house and Gold which one would you choose? any recommendations other than the Stinkin’ Canadian banks with their dividend trap?

#11 Nostradamus Le Mad Vlad on 07.22.09 at 1:00 am

If Plan B includes “. . . interest rates will stay low for a long time. In Canada, according to BoC’s head guy, that means 11 more months.”, then it has become abundantly clear that Armageddon, in all its’ forms, is ticking ever closer to the Doomsday Clock (or vice-versa).

Here is a pic. of where we are headed shortly:

http://www.boom2bust.com/wp-content/uploads/2008/03/dr-strangelove-bomb.jpg

It was Harper who asked for, and appointed Carney as the BoC head; Carney then told Flaherty to tax I.T.’s. Harper was handed a further term with 19 extra seats, so most Cdns. don’t have the slightest idea of what voting actually entails now.

“. . . the US Fed and the Bank of Canada are now in the business of creating consumer spending.” With widespread unemployment happening worldwide, who is spending and what are they using for money? E.I. or Welfare cheques? Or are they printing their own money, such as some states are looking at doing?

The vast majority of politicians, loan sharks and the like are not altogether pleasant to mess around in the mud with, as they love it.

Unfortunately, they are in the process of dragging countries down with them, because we keep electing them.

Cash is very good. Here’s a site for Joan (and bloggers) to look at re: dividend paying stocks. There should be some good Cdn. sites too. —

http://www.gurufocus.com/news.php?id=60403
——
How far behind are Cdn. cities? —

http://globaleconomicanalysis.blogspot.com/2009/07/philadelphia-is-out-of-cash-pension.html
——
Guess who is now holding the derivatives bag? Doesn’t matter, as it will never be paid back! —

http://emsnews.wordpress.com/2009/07/21/international-bankers-dump-all-derivative-losses-into-publics-lap/
——
Is this Big Brother or what?! —

http://www.dailymail.co.uk/news/article-1201171/Police-given-powers-enter-homes-tear-anti-Olympics-posters-Games.html?ITO=1490#ixzz0LxCUn6UE

#12 kc on 07.22.09 at 1:43 am

Garth, I need to ask this one question… personally buying paper in owning … “Far better is a basket of energy securities, with some nice tech and health care thrown in” … isn’t this just adding to the *stock* bubble that is still teetering on the next pin to vapourize even more wealth?

Where are these price to earnings ratios in this recession? Don’t you think for a minute that holding 200K in Gic’s in short term (6month rolls) is still a safer bet than what may just hit in the coming fall? I feel we are still in for a major sell off in all markets within the next 3-3 1/2 months. At least the cash is safe and still intact, Suggesting people to dump RE and invest in the last ponzi scheme seems a bit counter productive.

cheers

#13 supersocco on 07.22.09 at 2:41 am

Anyone on here live in Japan for the last 20 years? What is our future like? Is it really that bad?

#14 Brad on 07.22.09 at 3:03 am

f course Garth is for the most part, correct in his assessment. The masters of deception are at it again with Bernanke and Mark Carney acting as the ring-leaders. Oh yes, I watched Bernanke give his BS speech courtesy of CNN and just about spit out the water I was drinking. Needless to say, his remarks were met with derisive laughter in my house. Never have I heard such a bunch of comedic nonsense. And of course, like good little sheep, we all fell for it once again…

Then over to the left, we have Bank of Governor Mark Carney standing on his podium, giving a brilliant–and upbeat–speech. Looking as classy and cool as a used-car salesman, he calmly reaffirmed Canadians that the recession would be over soon and would all be singing “Happy Days are Here Again”. Yessiree folks, it’s all gonna turn out OK in the end. We just need confidence, patience, and “trust”…

Bullshit.

The same buggers and morons who didn’t see this crisis coming in the first place are the same ones that are gonna lead us all to the slaughter once again. Nevermind that we apparently learned absolutely nothing in Part 1 of this mess, but like all stories, Part 2 the sequel should prove to be rather interesting. I sometimes wonder who’s really on the pipe? Our “leaders” and other elected officials, or the rest of the population in general who really does seem to believe ANYTHING? Throw a stone and you’ll hit someone who’s guilty. I know where I stand in the whole matter. What about you?

#15 Bailing in B.C. on 07.22.09 at 3:07 am

Oh my God Garth, now you are freaking me out! I don’t post much but is last blog scares me.

Do you mean it, do you really mean cash? Cash with a capital C? Cash cash? Like little pieces of paper?

I have some cash, you know, just in case the rumours of a bank holiday are correct, but that’s enough for a week or two.

Are you really suggesting that Joan puts $200k in the proverbial (or literal) coffee can in the garden?

If you are, and if you’re right: Holy crap, the whole world’s falling apart!

#16 offthewall on 07.22.09 at 3:25 am

Garth,

I think one of the problems people have accepting your thesis on housing is that your are so shoot-from-the-hip on alternative investments. I can’t make head or tails of your advice here.

It is true that everyone’s situation is different, but you don’t clearly state how you would prioritize GICs, stocks/equities, gold and simple cash holdings. Also, you don’t mention bonds anywhere which is strange.

I’ve read Greater Fool and I find it lacking in clarity on the same point. Perhaps you could use bulletpoints?

#17 phil g on 07.22.09 at 5:48 am

UK article:-

http://www.telegraph.co.uk/finance/comment/tom-stevenson/5880282/The-wishful-thinking-about-house-prices-smacks-of-dotcom-delusion.html

#18 David Bakody on 07.22.09 at 6:12 am

Joan:

Garth is bang on with TFSA ….. being able to save 10K a year plus a RRSP in a the area’s Garth mentioned is all that is required and more than 98% of people of this planet are able to do …..so keep it simple and enjoy life. Energy is now priceless so where do y’all think it will be to-morrow? Bon Chance ….. Edmonton & Victoria? …. try Montreal or Halifax with direct flights to Europe and beyond at bargain rates.

#19 steven rowlandson on 07.22.09 at 6:29 am

Hello Garth.
Good work warning of the perils of real estate.
However when it comes to gold and silver you are on the wrong side. All electronic and paper money is worth what is is made of or backed by and thanks to politicians and bankers its value is nothing.
A bar or coin of gold or silver in hand is accepted every where as being valuable and has a long history as money. Gold and silver is money and as such it is ordained of god to be used as money. It is final absolute payment for goods, property and services.
Paper and electronic money is a way of giving nothing
for something. Some would call that a fraud.
When I was young and up to the age of 6 I recieved my allowance in real money AKA silver quarters and 50 cent pieces. After 1967 it was phoney fiat money to this very day. Every Canadian and American with a brain stem has been cheated by bankers and politians who changed the laws and took away the use of gold and silver as money and then sold the coins and bullion
into the market as scrap so that there could be no going back to using real money. That is the big reason why there is nothing between where we are today and total financial, social,moral and political oblivion and destruction.
At the very least the financial and political leadership
ought to be deeply ashamed of themselves .

As for the debt and deficits Garth. Any government that pays down debt and abstains from borrowing has my praise or at least the benefit of the doubt. Otherwise they are worthy of condemnation and not fit to govern.
Any way those are my thoughts on such matters FWIW.

Steven

#20 Squidly77 on 07.22.09 at 7:31 am

Nice article garth.

Those neocons in ottawa, Harper, carney are ruining this country.
Crazy fools buy homes and get into mortgages that I cannot afford. Fools.
Realtors are responsible for this mess.
I wish I did not lose my Alberta Real estate licence.

cash is king but shares in Molson are better.

#21 Munch on 07.22.09 at 7:57 am

mwahahahaha

Nice!

#22 ca on 07.22.09 at 8:02 am

Garth —

In response to Joan, you say “If you still have cash to invest in 18 to 24 months…”

Is this because you expect something will limit the access to money or something else?

#23 Future Expatriate on 07.22.09 at 8:23 am

I just find it fascinating how those who argue against the real estate nuts who say “It can’t happen here” can just as assuredly rail against the dollar crash/hyperinflation folks who say “You’d better believe IT can happen here.”

Really, on the face of it, it doesn’t make sense. One position is based in the absolute non-faith in government to keep propping up a real estate bubble indefinitely, and the other position is based in absolute faith in government to keep propping up an entire paper currency/paper investment bubble SYSTEM, already proven to be a Ponzi scheme of massive historical proportions, indefinitely.

Just doesn’t make sense, does it?

Being in the middle can be a good thing, but only when it makes sense to be there.

It just does not make any sense whatsoever to be in the middle now. You either get it or you don’t.

There’s no getting it half way. Unless you just don’t make sense.

#24 Future Expatriate on 07.22.09 at 8:28 am

To further clarify:

It doesn’t make any sense whatsoever, that a government that cannot prop up a real estate bubble indefinitely, is somehow going to be able to prop up a paper currency/paper investment system that is millions of times larger in magnitude than the housing market.

I don’t see government being able to solve anything; merely only able to make everything worse.

#25 Jonathan on 07.22.09 at 8:34 am

Gold is only good as a hedge on your portfolio against inflation. 5-10% max.

Deflationary pressures are massive right now because people borrowed to much money and without an ever increasing amount of leverage entering the system, prices will collapse.. aka deflate.

So now the governments poored in even more credit to stop deflation.

Once that credit runs out, the deflationary pressures of the future will make today’s look like peanuts.

We could be in for one hell of a deflationary depression the next time credit taps get turned off.

For a Canadian who carries Canadian dollars, I would not buy gold.

For an American who carries American dollars, I would buy gold.

#26 dd on 07.22.09 at 8:43 am

#10 $fromA$ia

…choose between a Vancouver house and Gold which one would you choose….

Read the post … energy and health care.

#27 Dave on 07.22.09 at 8:44 am

TFSA is a great direction to go. If you rely on others to manage your money, I would suggest a collection of index funds (if your time horizon is long).

With the TFSA, you can invest $1,200 each and every month into those index funds (dollar cost averaging). The proceeds are tax free. In 10 years time you’ll have a nice sum of money.

This is what Benjamin Graham, Warren Buffett, and Peter Lynch recommend to do

#28 Downsized and Delighted on 07.22.09 at 8:45 am

You have a young couple with an expected transfer in 2 years or less who want to buy a house at their new location. And they need your advice Garth!

Well of course I agree with your advice, but give me a break – how difficult was that? They’ve already sold (while they can – who knows in two year’s what the market will be?). So advising them not to lose their money is a point well taken.

The truth is, they don’t need your advice Garth. They want you to tell them how smart they are. (isn’t that what everyone on this blog wants from you Garth?)

#29 Devil's Advocate on 07.22.09 at 8:56 am

What to do?

It seems there is little other choice but to sit on cash.

TFSAs (Tax Free Savings Accounts)? What’s the big deal? I mean really; you pay tax on the money you put in there and once in there it grows tax free (for now) but how does it grow? What investments are there which might be worth the while? Yes, I suppose you could sock away $5,000 (or $10,000 a year for couples) building in anticipation of future investment opportunities so you might have say $50,000 at best by the time the air clears and there are such opportunities. Big deal… a lot can happen in five years. I’m not confident enough that the rules regarding the tax haven status of TFSAs will not be tampered with by a cash strapped government of the future that TFSAs will maintain any attraction beyond the pittance of today.

Stock Market? Up down and sideways over this past year. At any rate always has been and always will be a gamble no one should invest more than they are willing to loose in. Every indication is that the indexes are in for a brutal beating in the near future. As far as individual stocks go, while I am sure there are credible financially sound businesses out there the smoke and mirrors of those less scrupulous and more plentiful make them hard to find… energy, health care and pharmaceuticals included.

At any rate a return on investment of 2.5% or even 4.0% seems hardly worth the risk in these uncertain times. It is for this reason alone that interest rates must rise. Interest is simply risk reward and the rewards today are far from adequate against the risks involved.

I would love to find some piece of credible information somewhere that indicated that which Mr. Turner professes is bunk. Every time I seek such information it is lavishly peppered with obvious bias in thought and personal opinion. To quote Aldous Huxley, “Facts do not cease to exist because they are ignored” and in every case those who preach that we are turning the corner seem to be ignoring the facts.

Cash is King? Not really but revering it so and sticking it under your mattress or in a coffee can in the back yard seems the safest bet for the fruits of your labour in these uncertain economic times. Did I say “uncertain”? “Uncertain” seems hardly an adequate word for the current situation. I would say a significant economic upheaval is a certainty, how it will unfold is the only “uncertainty”

On gold… Gold is a commodity just as most everything else. Gold have through the ages come to be considered a boarderless currency. Take gold almost anywhere in this world and it has a relatively good value… certainly more than an equal weight in copper wire even though copper wire might have significantly more useful application. Like it or not gold has long been and will long continue to be considered a safe place to store the fruits of one’s labour. That is all currency is; a place to store the fruits of one’s labour that is trustworthy and portable. One looks especially for the safest place to store such accumulated wealth; a place one has the faith in that it will be a safe storage. Fiat currency rests upon this same reliance on faith. We effectively are handing over our accumulated wealth (the fruits of our labour) to our government in return for fiat notes backed by our government such that we might faithfully be able to redeem them for our stored wealth held by them. In ancient times and the relatively recent past when our fiat currencies were backed by gold we might have redeemed those fiat notes for gold.

Why was the gold standard abandon in the first place? Simply put it was too restrictive of the monetary policy agenda government sought to implement. By abandoning the gold standard in which fiat currency was backed by physical gold, albeit more recently fractionally, our governments were free to print as much currency as they wished to throw toward economic stimulus. What happens when you flood any market with an unfettered oversupply? The laws of supply and demand dictate that it’s relative value drops. And so to is it with our fiat currencies. It takes more of those fiat notes, which are now in overwhelmingly plentiful supply to buy those goods and services which have not increased so in availability. This is inflation and it robs you of your accumulated wealth, the fruits of your labour, as that which you stored in that fiat note yesterday becomes worth less today. Effectively you worked for a lower rate of pay then but did not know it.

But today we have deflation, but barely so and the greater forces (government) hate deflation. They can’t manage deflation. Deflation, unlike inflation, depletes government coffers. Governments will do everything in their power to turn deflationary times into inflationary times. “Deflation = bad, inflation = good” they will tell you. The fact is deflation is actually quite good. Deflation is the product of innovation and economies of scale, among other such good things, which afford us opportunity to achieve a better standard of living.

It is said, and I believe it very much, that in such economically challenging times as these that people will seek a currency which has no liability and no boarders. I don’t know about you but to me, GOLD seems to in all probability likely to be that currency.

#30 MarkArgentino on 07.22.09 at 9:30 am

Garth,

I’ve been reading your blog now for about 6 days and after reading your doom and gloom feelings about the future of real estate and the comments which are also generally negative and inline with your predictions, I’m getting down right depressed.

I’m also second guessing to keep our principal residence and investment properties or sell everything at the ‘zenith’ and go rent. What happened to the Canadian dream of ‘owning’ real estate?

If I had $750,000 after selling everything at 3% investment, that’s $21k simple interest return. If I rent the same house I’m in now, it would cost me about $2k per month. If Canadian real estate bombs like the US and Japan in the next 10 years, you’re my hero. If it increases conservatively even 30% over the next 10 years I’m about even. BUT, my tenants will have paid off our 3 investment properties that add $750k to my net worth, so now I’m out 3/4 million $

So which should I choose?

Thanks
Mark

#31 Andrew toronto on 07.22.09 at 9:33 am

Americans Repaying Debt Most Since ‘52 Spurs Savings

For the first time since Harry S. Truman was in the White House, Americans are paying back their debts, a phenomenon that just might help keep interest rates low as the Treasury sells a record $2 trillion of bonds and rising unemployment increases U.S. savings. While the proportion of consumers without jobs rose to 9.5 percent last month, household borrowing fell to 128 percent of the average family’s after-tax income in the first quarter from a record 133 percent a year earlier, according to data compiled by Bloomberg. The total debt of individuals, nonfinancial companies and federal, state and local governments grew at a 4.3 percent pace at the start of the year, down from a peak of 9.9 percent in the fourth quarter of 2005, Goldman Sachs Group Inc. estimated.

“We’ve never seen a pullback like this,” Goldman’s chief U.S. economist, Jan Hatzius, said in an interview from his New York office. “We are seeing an adjustment, and it’s very painful and there’s a lot of collateral damage.”
The 0.7 percent contraction in debt among households and nonfinancial companies from January through March was the first since 1952, when Truman was president and the government began keeping the records, Hatzius said. Consumer credit fell at an annual 1.6 percent rate in May to $2.52 trillion, according to the Federal Reserve. Reduced spending may slow the recovery from the first global recession since World War II because U.S. households generate 17 percent of global gross domestic product, according to Sara Johnson, a managing director at IHS Global Insight in Lexington, Massachusetts.

At the same time, rising unemployment helped lift the U.S. savings rate to 6.9 percent in May, the highest since December 1993. That’s keeping Treasury yields in check because banks are pumping deposits into the bond market instead of making new loans. Bank holdings of Treasuries and debt of mortgage companies Fannie Mae of Washington and McLean, Virginia-based Freddie Mac totaled $1.33 trillion in the week ended July 8, up 16 percent from a year earlier, according to the Fed. Treasury benchmark 3.125 percent notes due in May 2019 yielded 3.61 percent July 20. That was just under the 3.72 percent weighted average year-end forecast of 63 analysts surveyed by Bloomberg and 2 percentage points below the 5.64 percent average rate of the past 20 years.

“The levels of cash on bank balance sheets will keep government-bond yields lower,” Robert McAdie, global co-head of credit strategy Barclays Capital in London, said on a conference call with investors July 16. The U.S. will sell $1.1 trillion of Treasuries by the end of the year, on top of the first half’s $963 billion, Barclays Plc estimates. While the Treasury steps up borrowing, corporations are rushing to lower indebtedness. About 190 U.S. companies, including Dearborn, Michigan- based automaker Ford Motor Co. and Las Vegas casino owner MGM Mirage, raised a record $91 billion in secondary share sales from April through June, according to Bloomberg data. As of mid- June, proceeds from about three-quarters of these sales were used to pay back bonds and loans, the data show.

Of the record $774 billion in corporate-bond offerings this year, about 75 percent were used to refinance existing borrowings, according to Bloomberg data and John Lonski, chief economist at Moody’s Capital Markets Group. Palo Alto, California-based Hewlett-Packard Co., the world’s largest personal-computer maker, and Memphis, Tennessee-based International Paper Co., the biggest manufacturer of office paper and cardboard shipping boxes, both issued bonds in May to repay debt.

“Corporate America is going through debt rehab,” said Lonski, who’s based in New York. “The focus right now is on improving financial health and that probably will be at the expense of capital spending and hiring activity. Nothing will discourage capital spending or encourage cutbacks in staff more than much lower-than-expected sales.” The job reductions are pushing unemployment near 10 percent, a level not seen in 26 years, according to the Labor Department.

http://theautomaticearth.blogspot.com/2009/07/july-21-2009-such-wonder-so-much-to.html

so much for all that stimulas goig towrdas paying of debt

#32 rory on 07.22.09 at 9:37 am

#9 $fromA$ia you said:

“Conservatives need to be removed from power. They are mindless!!! I realise [sic] calling the Conservatives on it is just as unpopular.”

I agree with you, not because they are Cons, but in how they are handling the economy, as in like every other gov’t, and as in very badly.

If we had a viable alternative I would say go and kick them out, unfortunately the Libs would be the same or worse..IMO.

I think we know what we would get with a Lib gov’t, we do not yet know what we would get with a majority Con gov’t …so I am going to take my chances and hope for a Con majority …soon!…fingers crossed …IMO.

#33 Drew on 07.22.09 at 10:26 am

#12 kc on 07.22.09 at 1:43 am

Garth, I need to ask this one question… personally buying paper in owning … “Far better is a basket of energy securities, with some nice tech and health care thrown in” … isn’t this just adding to the *stock* bubble that is still teetering on the next pin to vapourize even more wealth?

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

The way I translate what Garth has been saying is

#1) If you insist on “playing” with securities there are some places that are far safer than others. Energy prices “will” go up, with our aging population health care is a pretty safe bet on being a growth market and tech, well hey, if you must, you must.

#2) It’s safe to say that pretty much anyone with a lick of common sense knows that what is currently going on with real estate is not going to end well.

#3) GIC’s aren’t the best of ideas due to low earning potential, but still safer than mutuals.

#4) Last but not least, Cash is King and at least a safe measure of liquidity is a must.

Thanks, mom. — Garth

#34 D from London, ON on 07.22.09 at 10:41 am

Stop stirring up the gold bugs! It’s cruel to get them whipped up like that, and their posts add clutter to the discussion. Do they email each other with a call to action whenever you make a negative gold comment?

Maybe we could just number all of the arguments for and against gold, and posters could just refer to them by number instead of posting the same long treatise each time. For example, a post saying “Pro-gold argument #7!!!” followed by a counter-post saying “Anti-gold argument #12b, AND #4!!!” and so on.

If it happens, remember I first predicted it here 500 years ago… :-)

#35 Mike B formerly just Mike on 07.22.09 at 10:52 am

FYI… anecdotal of course… but I seem to be getting alot of calls from realtors that I met at open houses and the like …. lots indeed…. some from months and months ago that simply were vapour for the last two months or so..
Perhaps the summer months are slowing sales down but prices are still very high and sellers are digging their heels in and will wait it out for a clear sign.
A realtor friend of mine told me that “sure June numbers were good” but he suspects July numbers will be simply awful .
There could be a bit of a setback in the economy UNLESS of course you own a garbage removal company in Toronto…. then you are busy for sure.

#36 Toronto C9 Renter on 07.22.09 at 10:55 am

to 29 Devil’s Advocate…

Why knock TFSA’s? True the limit is small but tax free is always a good thing. I use them as mini-day trading accounts (except that I never take any earnings out).

Not quite sure what you’re saying on gold, but in any event, gold is a crap shoot like anything else. Might go up, might go down. There’s plenty written to support either view. But for someone with serious cash on the sidelines looking to invest, any more than 10% in gold would be foolhardy in my opinion.

#37 $fromA$ia on 07.22.09 at 10:56 am

RORY,

Any Gov, needs to stop lending tones of money to mortgages. Homes are big ticket items at already inflated prices.

Conservatives (FLAHERTY) are making this worse.

Were not talking deflation here.

Were talking about INFLATION.

This is not good. Polititions need to open their eyes and wake up!

#38 rory on 07.22.09 at 11:05 am

Hey all …just listened to Marc Faber at howestreet.com…he is talking mostly about the US as we all seem to do.

Basically, the politicians are corrupt (+ others) …something I think we suspect (maybe not the majority but enough in power positions to make a difference…IMO).

So are these guys clueless, greedy, over matched, intimidated or is it time to start using that dreaded word – ‘treason’ …and Obama MAY be one of these guys.

Do nothing, no action, surrounded by GS boys Obama …did not the opposition try to make this a campaign issue – besides writing a couple of books Obama had done nothing including not having a real job …kinda starting to show… I am hoping I am very wrong …IMO.

#39 Brett on 07.22.09 at 11:30 am

Garth says hold cash , sure, but only temporarily, CDN monetary inflation is currently 6%, (was around 12-10% 07/08) that means your cash is being degraded in value daily. wait for another round of asset depreciation and then spend that cash on hard assets. Gold is the currency of kings and has an ancient track record of holding its real value, when Garth knocks it by saying it changes in price hourly, he shows his ignorance, it is the fiat currencies which are fluctuating against gold, these so called “store houses of value” are trading like pork bellies. Gold is finite, your dollars are infinite, you MUST hold some hard currency like gold, its an absolute must in these times.

Pieces of rock, which cannot be exchanged for goods, versus pieces of paper, which buy everything. Yeah, that’s finite alright, — Garth

#40 davers on 07.22.09 at 11:36 am

“But, hey, that’s the next prime minister and president’s problem.”

I couldn’t agree more. This is the problem with the electoral system is that governments rarly make decisions that will benifit us 30 years from now, because they will be long retired by then. They really only care about looking good enough now so that they can be re-elected in a couple of years.

#41 View from the south on 07.22.09 at 11:42 am

Canadian Federal Government – the Greatest Fools?

Our government bought 94 acres of worthless, undeveloped industrial land from the City of Windsor. 94 acres for $34,000,000 taxpayer dollars. That’s a little better than $360,000 per acre. The best part is that’s still not enough land for the planned bridge plaza. Now they have to deal with private owners and with the bar set pretty high too.

Nice.

http://www.windsorstar.com/business/Feds+city+border+lands/1811219/story.html

This is all to build a bridge that isn’t even required. The owner of the Ambassador Bridge just a mile away is ready and willing to build a replacement span.

At least now my city (26th in a recent Maclean’s survey) has $34 mil to piss away and we’ll all pay for it later.

http://www2.macleans.ca/2009/07/16/canadas-best-and-worst-run-cities/

#42 betamax on 07.22.09 at 12:01 pm

Don’t you think for a minute that holding 200K in Gic’s in short term (6month rolls) is still a safer bet than what may just hit in the coming fall?

Absolutely. The stock market might yet retest lows, and those meager gains from GICs might end up looking vastly better than losses.

You only lose if you’re dumb enough to sell when markets ‘retest lows.’ — Garth

#43 My_View on 07.22.09 at 12:02 pm

Like anything has changed. Debt is king! The average Joe is not taught in school how to save $ or even do their own taxes, The Government won’t have it any other way, spend my dear boy/girl. No one can tell you how to become rich, maybe suggest but that’s it, every individual has to teach and discipline themselves. Now as far as Canadian R/E, sorry Garth, your prediction of the prime rate being doubled in a year, I don’t see it happening. Also the supply & demand thingy is playing a huge part in this market, not enough supply. And that’s the thing, in the nineties meltdown supply was way up there and so was double digit rates. For now as long as the sellers do not flood the market, the correction will be very mild if any. This recession is getting old and the MSM is spinning something else, look out for innovation and stimulai $ to start flowing. How to get out of this recession; INCREASE PEOPLES WAGES AND REDUCE GOVERNMENT!

#44 Coho on 07.22.09 at 12:04 pm

#24 Future Expatriate,

“I don’t see government being able to solve anything; merely only able to make everything worse.”

Governments themselves are props or “front people” for the hidden controllers. That way, the sheeple think they are electing their representatives to office and thus have a real say in things. The controllers are colour blind. Liberal red, conservative blue matters not to them or us. The differences are marginal and whatever real differences their policies make to you and I, are occasionally allowed to give the ideals of the left and right leaning parties an air of credibility. But, you see, when stuff like this global financial meltdown happens, “conservatives” will spend like drunken sailors…so this Liberal/Conservative theatre is laughable in the face of what the controllers decide will be done or undone to suit their selfish hidden agenda.

Most people are still under the mis-conception that we’re all in this together and have the same interest of a positive outcome out of this mess. But the term “positive” has a different meaning to different groups. Governments are dictated to by ones that do not think like, cannot relate to, nor care about humans and the human condition.

#45 JeffinPickering on 07.22.09 at 12:08 pm

“The tax-free savings account is best used like an RRSP, sheltering investment assets from taxation rather than as a place to put bank savings.”

I need someone to explain and sell me on a TFSA.
Your contribution is limited to $5000K per year (at least this year anyway), and the banks are offering a whopping 1% rate on them, and, you likely already paid tax on the money you put into it (if it came from employment income).
What does it really shelter? Financial assets you have virtually no say in for a pittance rate or return?
Wouldn’t that money be better served pretty much anywhere; like servicing debt or a mortgage? $5K as a lump sum (or set up on a weekly/bi-weekly basis) accelerator to my mortgage does me a whole lot more good that a lousy $50 on money I already paid tax on.
Even when it becomes $10K, or $15, I still don’t get how 1% return on money you already paid tax on is a good investment.
Someone please explain.

I really don’t s

A tax-free savings account is not for saving. It’s for investing. — Garth

#46 queenbee on 07.22.09 at 12:24 pm

Wow!

I thought you posted all comments. I was only stating what you have said in the past. I can only imagine what other comments you choose to ignore. At least the people you target in this blog allow all the ignorant posts your “pack” contribute to their blogs.

Keep up the good work Garth.

This blog is about issues, not me. Stick to the topic. — Garth

#47 bill on 07.22.09 at 12:25 pm

Hi Garth
With the exception of gold I would have to agree that your outlook is accurate.
I bought gold shortly after 911. It was cheap. sold between 600 and 800 and bought into a gold penny stock. Well, they found about 4 million oz and counting so I am waiting for the major to buy us out.
My next step would be to invest the profit in natural gas. Which is cheap like borscht at the moment and looks to stay that way for a bit yet. So what do you think gas ,cash or ?
Fellow readers: please feel free to add your two bits worth…
Bill

#48 Barb ... reader, Calgary on 07.22.09 at 12:45 pm

“Cash. You’ll find out what a rare and precious commodity this is, if you ask for it on closing day. In twenties and fifties. I’ll explain in the car.
— Garth”

………………………

Mr. Garth,

While you and Joan are in the “getaway car”, cash in hand, I hope you will stop to buy her a good Fireproof Safe to keep that cash fully protected.

(Apparently mattresses don’t work.)

#49 Dark Wettler on 07.22.09 at 12:47 pm

‘The last things you need are investment certificates paying 2% or pieces of metal whose price changes hourly. ‘

In case you had not noticed, the little green or red peices of paper we exchange for things change in value by the hour also. Not when we go to buy a carton of milk for example, so most of us don’t experience it on a daily basis, unless you are travelling and exchanging dollars for local curency.

Exactly 50 years ago an ounce of gold was exchangable for 35 US dollars. Today, the market says it is exchangeable for approximately 950 US dollars. And relative to the current US money supply, if the US decided to return to a gold standard (along with returning to unicorn petting zoos), it would require approximately 7000 dollars to exchange for one ounce of gold.

On average, one ounce of gold can be exchanged for the same amount of oil energy now as 50 years ago.

This is how the government steals from us – inflation the hidden taxation. Garth, as any politician, loves fiat currency and hates bullion.

I’m not a pol. Just a guy who likes money and securities that actually have real world value. — Garth

#50 Maureen on 07.22.09 at 12:48 pm

Holding cash seems to be a reasonable alternative from a practical perspective, hiding it in the mattress also has some risks. Just look at those poor souls in Kelowna returning to their homes only to find them burglarized. Just remember to limit the account balance to $100000 per financial instituition so you have CDIC coverage.

Mattress? Are you a voice from the past? — Garth

#51 M from TO on 07.22.09 at 12:54 pm

Hey, this is a great blog with tons of information.

I’m selling all my real estate and retiring!

Thanks
Mitchell

#52 Dark Wettler on 07.22.09 at 1:06 pm

You only lose if you’re dumb enough to sell when markets ‘retest lows.’ — Garth

Yes, much smarter to wait for a recovery. Just like Nortel did after 2000.

And GM. A smart guy like you should not have to be told this, but volatile stocks are a cool place to make money – with a professional trader. Nortel was a goldmine for years after its CEO lied to the Street. — Garth

#53 Kelly McMae on 07.22.09 at 1:08 pm

Scary analogy of linking soldiers to the slaughter for their masters with consumers (serfs) to the gallows for theirs.

Is anyone paying attention to anything beyond American Idol?

#54 VOODOO on 07.22.09 at 1:10 pm

#44 JeffinPickering on 07.22.09 at 12:08 pm
——————————————–
You can open up a TFSA within a trading account such as Tradefreedom and buy/sell stocks with it. Thus if you turn your $5000 into $8,000 through the stock market you do not have to pay capital gains tax on the $3000 you made.

#55 bobtugnnut on 07.22.09 at 1:14 pm

I would love to read peoples opinions on this- Garth says a 15-30% drop is on the books. I am sure the places that went up the highest, will come down the most, of course (Van, Calgary, Edmonton, Regina…) Now, looking to buy in the near future I know that Calgary ( where I need to buy ) has already come down that 15% from the peak and some area much more ( the 30%- like bowness for example- not that I want to live in bowness ) So when is it “ok” to buy in Calgary. I am not going to wait until the bottom in 2015
(predicted on this site http://www.chpc.biz ) to buy….

comments???? thanks all

#56 Dark Wettler on 07.22.09 at 1:16 pm

Those with an interest can find this on YouTube:

(21 July 2009)
During his questioning of Federal Reserve Chairman Ben Shalom Bernanke before the House Financial Services Committee, U.S. congressman Alan Grayson (D), representing Florida’s 8th congressional district (Orlando, Ocala, Eustis), burst out laughing at Bernanke’s hubris.

Grayson’s questioning focused on the Fed’s handouts to FOREIGN central banks in Europe and other countries. These “Central Bank Liquidity Swaps” rose from a total of $24 billion at the end of 2007, to over $553 billion by the end of 2008.

Grayson: “So who got the money?”
Bernanke: “Financial institutions in Europe and other counries.”
Grayson: “Which ones?”
Bernanke: “I don’t know.”
Gryson: “Half a trillion dollars and you don’t know who got the money?”

It gets even better.

3:02 –
Grayson: “Well, look at the next page [in Bernanke’s written report], the very next page has the U.S. dollar nominal exchange rate, which shows a 20 percent increase in the U.S. dollar nominal exchange rate at exactly the same time that you were handing out half a trillion dollars. You think that’s a coincidence?”
Bernanke: “Yes.”
Grayson: “hah-hah-hah-hah!”

#57 Nostradamus jr. on 07.22.09 at 1:24 pm

TDCanada Trust Mtge rep this a.m. said…….

1/
…Buyers of Downtown Vancouver or Burnaby condos have minimum 10% DP…(CMHC of 7% is tacked on top of principal).

Total Monthly’s are equal or cheaper in both locations “THAN RENTING SAME UNITS”.

…All buyers are carefully approved by TDCanada Trust.

2/
Cdn Loonie continues to increase in value vs U.S. Dollar.

3/
Low interest rates will be with us for some time to come.

#58 Alex on 07.22.09 at 1:28 pm

“Pieces of rock, which cannot be exchanged for goods”

Garth, please stop misinforming naive bloggers…this is not funny anymore.

Where in Canada can I buy gas with gold? Food? Houses? Medicine? It is not currency. Stop lying to people. — Garth

#59 Toronto C9 Renter on 07.22.09 at 1:31 pm

to #44 Jeff…

True the banks are marketing TFSA savings account products, but that just helps the banks and does nothing for the investor (i.e. you!). As you point out, 1% is a complete waste of time.

So open a direct trading account that can be designated as a TFSA, open another one for yor wife. Put in your 5k and invest in something that is worthwhile. Perhaps some bank preferred shares, or a gas pipeline income trust, or something with a high risk / reward profile, or anything else for that matter

#60 Ian on 07.22.09 at 1:38 pm

Some applications of the “useless rock” called Silver:

Jewelery
Dentistry
Photography and electronics
Solder and brazing
Mirrors and optics
Nuclear reactors
Catalyst
Currency
Medicine
Medication
Food additive
Clothing
Silversmithery

No wonder Gold and Silver have been outperforming Oil for 100 years

Still can’t buy fod, fuel or ammo with the stuff. – Garth

#61 Marc on 07.22.09 at 1:52 pm

I use my TFSA in my RBC self directed portfolio. My RBC financial planner sucks the big one, so I pulled all money away from here. Lost 35% in Oct. and have got back 7% since. She says I am in too low a risk. How the hell does one lose 35% and be considered low risk?

My TFSA I day trade risky stocks. Just have to keep ahead of the $28 per transaction commission. Currently my TFSA has a 15K balence in cash, and 5K in stocks. Yes I risk my money, and have, but I feel I have a 47% chance to double my money on a spin of a roulette wheel, so am willing to take the spin. Day trading risky stock I feel has a greater chance of doubling my money then roulette, so that is my game of choice.

#62 My_View on 07.22.09 at 1:57 pm

The TFSA is great vehicle for investing, like penny stocks, if they double in value and you cash out, no taxes.

#63 Shifty on 07.22.09 at 2:05 pm

Having a stash of cash for investing is a good idea in this economy. An investor could have almost doubled their money this year on bank stocks alone, unfortunately, my buy level was not reached – next time.

#64 TJ on 07.22.09 at 2:17 pm

TFSA = you can also put in Securities and equities…so…why not shoot in a mix of maybe some junior energy stocks, and other solid health care and pharms? All profits are TAX FREE. When you sell Canadian stocks you also get a tax break on capital gains.

If there is a CGA in the audience answer me this:

The folks at CRA pay 5% interest on tax OVER payments.

This has been a loophole that has saved Canadian Corporations billions. Overpay your taxes to the level that makes sense for you, I would guess maybe your yearly RRSP donation, if possible.

Come tax time = do we get 5% on the overpayment – PLUS – of course, we also get the tax benefits of the RRSP?

Where else do you get a solid 5% now…?

Garth? Blogdogs…? Ideas…?

Oh, and Marc Faber, speaking in Vancouver, he says hyperinflation is the future.

Who to believe?

Here is Dr. Faber – shot yesterday afternoon.

http://tinyurl.com/lpnrvq

#65 steven rowlandson on 07.22.09 at 2:19 pm

A comment on Jonathans posting.
It would be wise for anyone any where to have gold or silver in hand or under ones direct controll because the reserve currency is just fiat with out provable backing and most other currencies are merely backed by paper assets denominated in FRNs Federal Reserve Notes.
It is very unclear as to what backs those notes as the fed has not been audited yet by the US government.
It is also unclear as to whether or not the US still has any gold reserves as it is a secret. Same deal for all banks, trust funds and commodity exchanges.
They publish statistics but won’t play show and tell to prove they have the goods. In the light of that, having the real deal in hand ought to be a matter of critical importance. Sort of a personally controlled alternative to official lies and communism.
Even if you disagree with what I said you ought to consider the advantages. Gold and Silver can’t be worth nothing. Fiat money always fails. And there is the capital gain potential as well as anonymus portability of your wealth. As things destablize that may be of great importance.

Steven

#66 Got A Watch on 07.22.09 at 2:33 pm

You can open a self-directed TSFA at an investment Brokerage (all the Big Banks have them, or online Brokers). Then use the $5K per year per individual to buy stocks or Bonds or even (gasp) gold.

The idea is to invest in higher risk/reward plays, with an eye to expanding the size of your TSFA. Any increase in your balance in the TSFA also grows the tax-free limit, above and beyond the $5K per year individual cash amount you can contribute.

If you do well, in a few years your TSFA would become your primary investing/trading account. Why pay taxes if you don’t have to.

Of course, there is always the danger the Government will change the rules. This is a risk, and there is always risk in investing. If you can’t stand any risk at all, you probably will never make any money in investing. At least until high interest rates return on bank deposits and Bonds. Being afraid to do anything because at some future point the Government MIGHT do something, or not, is a pretty poor way to live, if you ask me.

No risk, no reward. Long term ‘buy’n’hold’/”safe” strategies have proven ineffective over long periods unless you cherry-pick the data points. There is a time to buy, and a time to sell, for everything. Investment advisors tell you “it’s impossible to time the market”, proving only it’s very possible for them to lose vast amounts of your money without even trying hard. Yet if no one “times the market”, there would never be any profit made. ‘Buy low, sell high’, the old cliche, is the simple truth. Yet it is not easy, that is where the rubber meets the road. Good investing practices can be learned, if you apply yourself.

If you don’t take active control of your money, someone else will be happy to help you to have less of it, by them having more of it in their pocket. No one cares about return on your money as much as you do. If they lose all yours, they can find a new client much easier than you can replace your lost capital.

When I hear people say “I don’t understand investing or the market”, what they are saying is “I am too lazy/busy to learn, and can’t be bothered”. Either way, refusing to learn to manage your own money will cost you in the end, and can negate all those years of “work” where you thought you were “saving and investing” for retirement while “others” managed your money for their benefit. Relying on a “Pension Plan”, well, good luck with that.

There is no free ride to riches and an easy retirement, unless your parents left you a pile so big you will never have to worry about money again, no matter how much you spend. For the remaining 99.999%, money is important, it represents your ability to live a full life. Money can’t buy you happiness, but it will go a lot farther than poverty. Most who rail against money don’t have any.

#67 Brett on 07.22.09 at 2:36 pm

garth said…”Pieces of rock, which cannot be exchanged for goods, versus pieces of paper, which buy everything. Yeah, that’s finite alright, — Garth”

you are wrong Garth, gold is the most liquid asset on the planet, there is always a buyer for it, Walmart may not accept it (not yet) but there is always someone who will, (namely central banksters, haa, and their criminal friends) that cannot be said for zimbabwe dollars which is what our fiat currencies all are, it is paper backed by what?–ILLUSION, thats what, the value they hold is just like the illusory value of real estate. Your paper which you say “will buy everything” buys less and less every year, just go to the govs inflation calculator and see to what degree, and thats using fraudulent CPI numbers, using real monetary inflation numbers the truth us even worse.

when the chit hits the fan gold will buy everything, and dollars will be refused, but thats not why we hold gold, not as loose change to buy bubble gum, but as a store of wealth, gold is hoarded, not spent (disposed of) as quickly as possible like weimar zimbabwe dollars.

#68 My_View on 07.22.09 at 2:39 pm

To all Gold bugs, you are all freaking nuts. Garth is right, stop with the fiat currency conspiracy nonsense, not going to happen in our lifetime. USA is still a puppy! Buy gold/silver/diamonds for Jewellery, not investing. Why would I have all my money in something that I have to pay to store? CRAZY!

#69 Mike (Authentic) on 07.22.09 at 2:40 pm

I still have to go back and read all the responses, but I wanted to contribute before I ran out of time.

We are in the same position ourselves. Our 3.4% GIC is up for re-newal on Sept 26, current rates are very low. We won’t touch the stock market (MuFunds or stocks), or gold, or anything risky.

This might help we just got this from our broker:

Canada (T-bills) (rates over 100k)
10/15/2009 0.03%
1/21/2010 0.08%
10/29/2009 0.01%
2/18/2010 0.15%
11/12/2009 0.05%
3/18/2010 0.24%
11/26/2009 0.08%
4/15/2010 0.31%
12/10/2009 0.10%
5/13/2010 0.36%
12/24/2009 0.14%
6/10/2010 0.40%
1/7/2010 0.31%
7/8/2010 0.44%

Commercial Paper (rates over 100k) Indicative rates
30 Days 0.07%
60 Days 0.29%
90 Days 0.36%
180 Days 0.65%
360 Days 0.65%

Banker Acceptance (rates over 100k)
360 days
BMO 0.42% CIBC 0.47%

You will notice the low rates are shocking. A HSBC 1.05% Hisavings account looks great right now.

Garth is right though, rates WILL go up. Hold in Cash now, you will be in the best position to buy later.

Mike

#70 $fromA$ia "Garths Nugget Boy" on 07.22.09 at 2:44 pm

Oooo la la,

Gold topic. Nations store gold to back their currency when they need to. I do as well. I cant trust our governments printing or spending or loan standards.

The only direct exchange for gold is money.

Timing is everything.

There the Guru has spoken.

#71 Mike (Authentic) on 07.22.09 at 2:52 pm

#25 Jonathan : Gold — For a Canadian who carries Canadian dollars, I would not buy gold. For an American who carries American dollars, I would buy gold.”

Great point and one that is very often (by Canadians and non-US$ earners) often overlooked.

With non-US$ earners you have risk with gold prices (+/-), buying and selling with -2% currency exchange (-) and hoping your local currency will keep par with the USD.

Gold is for a very small % of the world’s people. As Garth mentions (and I agree), there is very little personal use of the metal. You can’t buy gas, food, water or shelter with it. And don’t misunderstand those are the MOST important things in life to have.

Mike

#72 David Rockefeller on 07.22.09 at 2:52 pm

Be sure to stock up on colourful pieces of paper issued by your trustworthy govt, not a proven medium of exchange like icky gold and silver.

#73 Dark Wettler on 07.22.09 at 2:58 pm

And GM. A smart guy like you should not have to be told this, but volatile stocks are a cool place to make money – with a professional trader. Nortel was a goldmine for years after its CEO lied to the Street. — Garth

Jeez Garth, I have done better investing in real goldmines rather than trading companies like Nortel. But I only do this for a living. And not out of my mom’s basement in Vernon.

Did she move? — Garth

#74 MenWithHats on 07.22.09 at 3:00 pm

Oh,thank God ! I am now golden . Received an email from Nigerian prince Boomba Halle Seizako .
Fifty million US dollars are on their way to my bank account .
All it cost me was $50,000 US .
Phew ! And I was worried about the economy .

#75 bubbleboombust on 07.22.09 at 3:06 pm

#44 Jeffinpickering

I find the TFSA useful, being self-employed. I put away money every month to pay for taxes at the end of the year and I choose to hold this money in a “high yield” savings account because 1% is better than .01%. Let me tell you, it really burns at the end of the year when I have to report my big $90 in interest on money that I was holding to pay tax! At least a TFSA lets me keep that whole $90. It’s better than a stick in the eye.

Also, interest rates are historically low right now, on both debt and savings. They will go up again to a earth shattering 4% one day, just like they were at in the late ’90s/early 2000s.

#76 X on 07.22.09 at 3:25 pm

You only lose if you’re dumb enough to sell when markets ‘retest lows.’ — Garth

I do have a concern about retesting those lows. Many companies have had good Q2 numbers, however heavily influencing that is b/c many companies have laid off thousands of workers. Those workers are also consumers. It makes me wonder if Q3 numbers will be as strong, as generally the unemployed do not go on spending sprees.

I am not convinced that the ‘fire’ has been put out yet Mr. Obama. (as much as I wish it were)

#77 jess on 07.22.09 at 3:47 pm

socialize the debt

…”When Congress was debating the bailout of Fannie and Freddie last July, the official estimate from the Congressional Budget Office was that a bailout would most likely cost taxpayers $25 billion, with only a 5% chance of the price tag reaching $100 billion between them…

In addition, both Fannie and Freddie are likely to need billions of dollars more after they report second quarter results in the coming weeks. Experts believe the cost will only continue to rise in the next year.

“We’re assuming they each will cross the $100 billion mark fairly soon. They could be hitting the $200 billion barrier by the end of next year,” said Bose George, mortgage analyst at Keefe, Bruyette & Woods, an investment bank specializing in financial services firms…

Some experts believe that this business (securitization) can become very profitable again, especially if Fannie and Freddie maintain tight underwriting standards from now on.

http://money.cnn.com/2009/07/22/news/companies/fannie_freddie_bailout/index.htm?postversion=2009072215

#78 bill on 07.22.09 at 3:51 pm

Hi Garth;
I think some of us gold bugs are getting on Garths case a wee bit. He has a valid point on the convertability.I personally do not have trouble converting my gold and silver to cash at the vancouver bullion exchange. Time consuming, but I dont mind. I have also traded straight across on certain things.
My father in law was incarcerated during ww2 as an enemy alien [he’s japanese ancestry/born in canada] and he said that in the camps tobbaco and other items were prized more than money.
I think there is probably more than one path to go on here. Just beware of the pitfalls.
Real estate is one way as long as your not buying at the top. Garth thinks its overpriced at this point in time and I and many others agree. Unfortunately many more think it is the way to easy riches.
And in this they will be proved wrong. It is not the time to buy.It is the time to sell.

#79 robert on 07.22.09 at 3:54 pm

Hmm.. a couple of things.. My realtor buddy has been bugging me to buy, “seems like the recession is over and things are moving again”. Down at the Scotia bank wicket the teller tells me there’s a lot of quiet interest in gold “I wouldn’t come in over your lunch hour, it’s going to take you a bit longer than you planned”. Personally, I think people are getting spooked by all the “liquidity” that’s being injected into the market. I had a chat with a realty company owner over a few beers months ago and in a moment of candour he confessed that he fears we are seeing currency devaluation on a massive scale. Property hasn’t appreciated so much as the value of the dollars being used to buy it have been depreciated. What’s a greater fool to do; a)get Madoffed in the market b) hunker down and pinch pennies c)buy into the bricks and mortars shell game? It seems honesty is the most precious commodity and is in desperately short supply lately.

#80 Future Expatriate on 07.22.09 at 4:12 pm

#25 “For a Canadian who carries Canadian dollars, I would not buy gold.

For an American who carries American dollars, I would buy gold.”

Thanks Jonathon… that makes the conflicting advice make a bit more sense.

#81 Future Expatriate on 07.22.09 at 4:23 pm

“Pieces of rock, which cannot be exchanged for goods, versus pieces of paper, which buy everything. — Garth”

Garth… I hate to be the one to break it to you, but Canadian Maple Leafs ARE currency. Coins, as a matter of fact. Worth far more than their face value, too.

When was the last time anyone said that about those pieces of paper you’re pushing?

You know, if the last time anyone paid for anything with a sliver off a gold coin or a gold coin itself was Ancient Rome instead of the West in 1890, you might have an argument. 1890 wasn’t that long ago.

Look, when it comes to simple barter and trade between folks on a local and regional basis, there is nothing at all unwieldy about gold. Even worked fine for centuries on a multi-national basis.

It’s just when you get into the greed of banking and investing and that ancient curse word “usury” and “finance” that you need paper to hide all the hocus pocus of making your money disappear under the aegis of making it “grow.”

It’s time to outlaw money “magic.”

‘1890 wasn’t that long ago.’ That’s your best argument? When Petro-Can takes Maple Leafs, I’ll eat one. — Garth

#82 Future Expatriate on 07.22.09 at 4:26 pm

#43 Coho – Couldn’t agree with you more, right down the line at every point made.

Which is exactly what I meant when I said “governments” can’t solve anything but always make it worse.

Thanks for expounding on what I meant by “governments.”

#83 encanto on 07.22.09 at 4:33 pm

they are not mentioning a bubble within a bubble but:
they are now authorizing the construction of a condo within a condo. These mini’s will range from 220 to 280 square feet for people to rent out to “help with the mortgage or invest the rent”

If you lay out a piece of string in the shape of 280 square feet and walk around in it, it is extremely hard to believe someone would build this. Isn’t it???

#84 Future Expatriate on 07.22.09 at 4:34 pm

“Where in Canada can I buy gas with gold? Food? Houses? Medicine? It is not currency. Stop lying to people. — Garth”

Good Lord, now it’s lying? All you have to do is go to Scotiabank first to “sell” it before you go to the market or doctor. What’s the difference between taking cash out and cashing in a coin or two? Five minutes?

In every fiat currency system, there comes a time when people would rather take slivers of gold coins than worthless paper, and I’m sorry, but we ARE headed down the same path.

“They” haven’t gotten “it” all figured out and controlled now, and “they” never will.

“They” are idiots, liars, and most important of all to realize, the T – H – I – E – V – E – S who created this problem in the first place.

Scotia will not cash out gold without the original purchase receipt, or a weight and purity check, and another other routine requirements. Of course, you have to go there, carrying the metal, line up and hope the guy behind you doesn’t notice the bumps in your pants. Compare that with selling financial securities, and getting the cash – which can be done with a click, a text or a phone call. No comparison, dude. — Garth

#85 Future Expatriate on 07.22.09 at 4:37 pm

#67 – “Why would I have all my money in something that I have to pay to store? CRAZY!”

No, just stupid if you pay people to store it. Most people have freezers.

Who said you couldn’t store it? There’s been a run at the Home Warehouses on safes for more than a year now.

Those folks aren’t having any problems.

Red herrings. Straw men.

#86 Future Expatriate on 07.22.09 at 4:40 pm

“When Petro-Can takes Maple Leafs, I’ll eat one. — Garth”

Thank God for you gold isn’t toxic! You DO realize though that by the time that happened you’d be eating a year’s worth of petrol?

#87 Dave on 07.22.09 at 4:48 pm

You can open up a TFSA within a trading account such as Tradefreedom and buy/sell stocks with it. Thus if you turn your $5000 into $8,000 through the stock market you do not have to pay capital gains tax on the $3000 you made.

———————————————

bingo. Or turn $5,000 into $11,000 in 4 months.

For those unfamiliar with TFSA’s, don’t listen to the naysayers. This once in a lifetime bear market combined with a new tax free product is a great opportunity for people to buy dirt cheap stock and funds without paying taxes on the income at any point.

#88 Dave on 07.22.09 at 5:02 pm

Where in Canada can I buy gas with gold? Food? Houses? Medicine? It is not currency. Stop lying to people. — Garth

——————————————-

where in Canada can we buy food with gas? or gas with food? or houses for gas?

there’s money and the above (including gold) that represent what money can buy. The purpose of gold is capital preservation, just like the purpose of a home is for shelter.

Gold is useful, as are some other commodities, as an inflation hedge. My comment was directed at those people who insist the metal is money. It isn’t. — Garth

#89 bill on 07.22.09 at 5:10 pm

Hi garth
wow you sure stirred up the gold bug nest.
but anyway I go to the vancouver bullion and currency exchange and I have only been in a line up when a bunch of folks were going to visit relatives in taiwan. Otherwise a quick scrutiny of my coins or bars has been sufficient and ‘cash’ was handed over with all speed. one or two minutes max. They seemed more than happy to take my gold for the paper. Kitco has some interesting products if one cares to go to their website.Canadian too.

#90 David on 07.22.09 at 5:24 pm

Gold bugs remind me of the old Trotskyists who subscribed to the maxim of “the worse the better”.
A 5%-10% gold position can make for a sensible insurance financial insurance policy. That position does not have to be in actual physical gold. The are precious metal investment funds and precious metal index funds, Canadian small cap mining companies and so on that can safely fit the bill.
Unloading the house at the right time was a good move. Nothing like swinging for the fence and hitting a homer.

#91 Rick on 07.22.09 at 5:30 pm

You can buy gold at Scotia bank? Can you buy it in Canadian dollars?

Yes & yes. — Garth

#92 Gregor Samsa on 07.22.09 at 5:30 pm

Days like today this blog depresses me. Why do we always need more? Why do we need to invest, watch the stock tickers, worry about gold prices, worry about home prices? Everyone is planning for this utopian retirement, but by the time they get there with all their wads of cash, they will be too freaking old to do anything! I will never understand the preoccupation with retirement. I want to make sure I enjoy my YOUTH. When I’m old, someone can just take out behind the woodshed and shoot me. I will be old and won’t care.

Sounds like a plan. At least you have one. — Garth

#93 FP on 07.22.09 at 5:54 pm

#60 Marc: You pay $28 a trade in your TFSA? You need to check out Questrade.
I agree with everyone that TFSAs are best for trading, not savings. I bought BAC back when it was going for less than $4/share (spec play). Check where BAC is right now. I think that’s a better return than if I had “invested” my money in real estate.
P.S. I also bought AIG back when it was around $2.50. Took my profits when there was a surge in the markets. Wish I had bought more.

#94 Nostradamus jr. on 07.22.09 at 5:54 pm

…Where do I begin with your prognostications Garth?…

>>>We have just borrowed obscene amounts of money from people not born yet. We’ve ensured a few decades of tax increases and inflation along with crappy economic growth.<<<

…Not true….all those 10% DP first time buyers have been borrowing their money today…at cheap rates too.

…The ones buying condos in TO and Vancouver have simply utilized RE rule #101…if they are going to buy an expensive home it will have, Location Location Location.

Garth, for months you have been 30 or 40 various locals of Canada into one boiling pot and predicting +30% value drops.

1/ it has happened anywhere in Canada and 2/ you can't compare the Right coast with the Left one or w/ Central Canada, TO w/ Van nor can you compare regions that surround TO or ones that surround Vancouver.

…You are so preconceived and generalized you are unable to see the forest from the trees.

When you become Prime Minister the citizens will demand Nostradamus jr become your Federal Minister of Finance.

#95 Nostradamus Jr's Analyst on 07.22.09 at 6:20 pm

#31 rory

Stephen “The Penguin” Harper has ZERO chance of getting a majority.

Thank god.

#96 Nostradamus Le Mad Vlad on 07.22.09 at 6:46 pm

Heard this on the radio this p.m.: “It’s so hot I shivered when I got into the fully-heated sauna.”

It’s 37C here (48C in cars with windows shut), and three hours to go before it starts cooling down. Maybe!
——
#42 My_View on 07.22.09 at 12:02 pm — “. . . Debt is king! . . .”

#50 M from TO on 07.22.09 at 12:54 pm — “I’m selling all my real estate and retiring!”

Best ideas I’ve seen yet! Sell all RE, rent a condo then take out nillions of lollars in debt (just like GS and JP Morgan), invest all in dividend paying stocks, energy and health shares, bank preferreds, 10% gold, 15% silver, CPP / OAS / GIS and live the Life Of Riley until the cows come home!
——
#61 My_View on 07.22.09 at 1:57 pm — “. . . like penny stocks, if they double in value and you cash out, no taxes.”

Good perspective. Imagine $5,000 invested in Bre-X at $1.00 per share, then selling at $210 / share.

Tidy profit / retirement!

#97 Bob on 07.22.09 at 6:50 pm

we are in deflationary period but government will make sure we are in inflation. If deflation, there will be more money pour into the market.

Also, if we are truly in deflation, gold price wouldn’t triple and stay there. Gold should have crashed like it did in 1980.

#98 bullbear on 07.22.09 at 6:55 pm

#92 FP

If you bought AIG at $2.50 you would’ve lost about 75% of your money as of today. AIG recently underwent a 1-for-20 reverse split.

#99 betamax on 07.22.09 at 7:50 pm

Gold is indeed currency, but there are problems. Two weeks ago, I went to buy a pack of smokes at 7-11 and gave the clerk a $1,000 coin. He was a fellow goldbug and accepted it, but he had less than $20 in change in the till, so unfortunately I also had to buy $991 worth of candy and chips. (Thanks to outrageous over-pricing, it’s not as much stuff as you might think.)

So, the lack of divisibility can be a problem with gold. Fortunately, I remembered another substance which was used as a viable currency long before gold. That’s right, you guessed it: salt. So now I’ve put all my money into salt, which can be easily divided, weighed, and exchanged.

So last weekend, I needed some smokes again so I took a bag of salt to 7-11 and put in on the counter. When the goldbug clerk said “What’s that?”, I told him “It’s $9 worth of salt, and you can weigh it yourself if you don’t believe me.” But he refused to accept the salt, without even weighing it! So I shrieked at him: “It’s as good a currency as gold! If you were a Roman Centurion, you’d take it and be glad to have it!” Then he chased me out of the store with a broom.

So there are some exchange problems to be worked out. Maybe a salt-based TFSA might be the answer….

#100 dd on 07.22.09 at 7:52 pm

#91 Gregor Samsa

…Why do we need to invest, watch the stock tickers, worry about gold prices, worry about home prices…

Hello. It is not about retirement, it about enjoying life. I have a lot of other things I would rather do than work for the MAN. Retirement no. Living life yes.

#101 Dan in Victoria on 07.22.09 at 8:11 pm

Heres a sobering report of what is going to happen in Victorias future.More retirees and less younger people to work .Should be interesting if house prices keep rising, how the heck can these young people afford to live here?Also Canwest has just announced the shut down of Chek TV on August 31.http://www.chtv.com/ch/cheknews/story.html?id=1815264

#102 ESL on 07.22.09 at 8:18 pm

The US is printing money out of thin air and accumulating debt at an alarming rate placing the debt to gdp ratio on track to an alarming 450%. Produce more of anything (fiat currencies) and the value drops – simple economics! So how does one hedge against this massive inflation & a spike in interest rates which will eventually strike all world economies (because their Greenback-centric reserves are about to take a massive drop in value due to overprinting)? You might want to follow the lead of global Central Banks and BRIC nations which are busy diversifying out of Dollars and into alternatives including Gold as a strategic reserve asset. During unsettled economic times it only makes good common sense to set aside 5-10% of your savings into Gold & Silver if only as an insurance policy against the unknown – including the inability of governments to stem the tide of huge job losses. In fact the UK (Gordon Brown) & a growing number of economists are already dropping hints that a second wave economic downturn is headed our way within the next 12 months. Think about this. If an unprecedented $14 Trillion spent or committed so far primarily to save the banks at the average joe’s expense, has failed to reignite world economies & create jobs, then massive rising prices everywhere for everything is a given when the next wave of money printing begins. Besides this Garth’s suggestions to get out of RE are spot on as interest rates are set to rise significantly in the future. Investments in Health care for the aging boomers and in the Tech Sector (eg. to develop new innovative technologies for the energy sector) are also prudent.

#103 John m. on 07.22.09 at 8:27 pm

The Canadian Taxpayers website—–We are now paying over $84,000,000.00 per day in interest on the federal debt ……….isn’t that shocking?—wonder what it will be by this time next year?

#104 taxpayer like you on 07.22.09 at 9:09 pm

29 DA :

“Deflation is the product of innovation and economies of
scale, among other such good things, which afford us
opportunity to achieve a better standard of living.”

Those factors simply shift the supply/demand curves.
They have nothing to do with the money supply.

Think about it. We enjoy a better standard of living than 100 years ago right? Are prices lower than 1909?

Otherwise a good post.

#105 dd on 07.22.09 at 9:36 pm

#101 John m. on 07.22.09 at 8:27 pm
…The Canadian Taxpayers website—–We are now paying over $84,000,000.00 per day in interest on the federal debt …

Back to the early 90’s. All within a couple short years.

#106 dd on 07.22.09 at 9:38 pm

#99 Dan in Victoria on 07.22.09 at 8:11 pm
…how the heck can these young people afford to live here…

They won’t. Most of the young people get up and move to a major city (Calgary). Ever notice the age void between 30 and 50?

#107 Dark Wettler on 07.22.09 at 9:57 pm

‘Jeez Garth, I have done better investing in real goldmines rather than trading companies like Nortel. But I only do this for a living. And not out of my mom’s basement in Vernon.’

Did she move? — Garth

Nah, I did. To your mom’s basement.

#108 Dark Wettler on 07.22.09 at 10:20 pm

Scotia will not cash out gold without the original purchase receipt, or a weight and purity check, and another other routine requirements. Of course, you have to go there, carrying the metal, line up and hope the guy behind you doesn’t notice the bumps in your pants. Compare that with selling financial securities, and getting the cash – which can be done with a click, a text or a phone call. No comparison, dude. — Garth

If you have bumps in your pants from carrying gold bullion then that is quite a bit of gold. Might as well get an eye-patch and a parrot while you are at it.

Just as an aside, there are plenty of private dealers who are happy to take your bullion and don’t care if you have a receipt. They will send it out to assay, and usually confirm in 24 hours. They then pay out in cash.

A broker requires 3 business days to settle the sale of your stock. After your sale has been settled it usually takes 24-48 hours before the money is deposited in your bank account.

Many people prefer to receive cash in hand.

#109 Devil's Advocate on 07.22.09 at 10:23 pm

It appears this blog took a golden twist with my post #29. I want to make it clear that I own no gold, currently. In fact I am proud to say that I have over the course of more than 25 years marriage successfully, well almost, weaned my wife of her want to wear the precious metal fabricated and embedded with stones on her fingers for all her girl friends to gaggle over. I certainly don’t have all the answers and those I do think I have found I am willingly open to critique for I am still, even at my age, learning.

What does catch my interest in gold is that over the past 10 years it has closely mirrored the performance of the real estate market. Most recently gold has gone through some turbulent times after a rapid ascent since 2003, as has the real estate market. What does the future hold for real estate and for gold? I think we all agree that real estate has a troubled future and the rational which supports that hypothesis is overwhelming. Not so with gold though. No one has presented a rational argument against gold, none that I have seen to date anyway. And I have read a good many articles past and present on gold and the abandon gold standard – pro and con.

I am quite bearish on real estate for the next five years. We owned revenue property and sold it mid last year foreseeing a troubled future in its value and the rental market. I believe we will find we sold at the top of the market. Beyond five years I suspect I will once again become bullish on real estate and very probably replace those disposed of properties sometime before then when we perceive the market to have hit its low. For now we have the realized equity from the sale of those properties sitting in cash and that does make me nervous. Why cash? Quite simply I believe that is the safest place for it today. There is just too much uncertainty in the markets. I do believe there will be a shakeout sometime very soon and a logical investment strategy for the interim will disclose itself. I have never been big on the stock market. My investment acumen is dull to say the least. I like long term steady growth. I’m not looking to strike it rich on an insider secret. I have enough, not a lot… enough but I some day do want to retire and want to ensure we have enough to do so in relative comfort. I don’t want to be behind the bar working while I serve drinks to all my friends then living off fat indexed pensions. I’m self employed BTW.

Gold interests me. From all that I have read the argument for seem to be based on rational reason that the emotion of those against. Gold, I suspect, will enjoy a bit of a rally over the next 2 to 4 years. Why the sudden shift from its following the trajectory of real estate as it has for the last 10 years or so? Well quite simply I suspect for all the reasons real estate will tank gold will rally, preservation of wealth being the primary consideration. People like things they can see and touch, hence the move toward bricks and mortar after the Dot-Com bust. People forget though and they are easily seduced into speculative gamble for easy gain. But all things cyclical they will get burned and once again seek refuge in something tangible. Real estate will not present such opportunity when this happens next. Gold might then be poised to fulfill that void rational or not.

I agree with Garth that gold is not likely to become a predominantly accepted form of currency at Canadian Tire but that is not the purpose of holding gold. Gold is not that difficult to exchange for currency in time of need. Yes it involves a few more steps than sticking an ATM card in a slot and receiving the cash but that is not the intended purpose of gold. Gold is an wealth preservation medium that, typically, is beyond the clutches and calamity of government economic malpractice. Yes the holding of physical gold has been outlawed in the past. Why do you think so? Might it be again? Sure it is possible, just as could your RRSP and TFSA savings be taxed at a higher rate just when you need them most.

If someone can logically explain to me why gold will not rally in the midst of the financial shakeout we most expect I will gladly abandon my pursuit of gold as a significant component of my investment strategy. To date I have not found as good argument against gold as for although admittedly the adamant rantings against gold do compel me to pause and wonder. As I said, I am willing to admit I don’t have all the answers – I’m still learning.

Enlighten me…

#110 Future Expatriate on 07.22.09 at 11:03 pm

#83- Well I have to admit being in the US I’ve only dealt with the local coin store, which happens to be next to the bank, and the total in and out of both has always been less than ten minutes. Unless I’m buying.

But then I don’t go at bank rush hour either.

#111 Future Expatriate on 07.22.09 at 11:10 pm

#106 – “If you have bumps in your pants from carrying gold bullion then that is quite a bit of gold.”

Garth WOULD… but DON’T TELL ANYONE!!

Geez… don’t you guys have coin stores? You know, with security bars and scales?

Don’t worry. Around here they’re multiplying faster than payday loanshark in and outs. Coming soon to a mini-mall near you.

#112 Davinci on 07.23.09 at 12:48 am

I am a recently converted gold bug and at first I was not convinced. I kept reading about it because I wanted to know more. Well now that I do understand what money is I can’t help but be amazed how a thinking rational human can not see that something real is money.

It may be true anything can be money, it’s a human concept. But so is the wheel.

If 90% of the population uses a square for a wheel, I would not be crazy if a used something round because I felt it worked better.

Gold and silver is the best item to use as money. 6000 years of historical success with gold as money and you think it’s wrong? Central banks are wrong?

Talk about living in a world gone mad.

I know there is no convincing a small child with your rude comments to gold bugs. All I can say is when a child refuses to listen to rational thought you must let them do what they want to do and be there for the “I told you so” moment.

I believed in my Fiat money, until someone showed me I was wrong.

Ah! I get it, pride holds you back. You have invested to much in your belief that it defines you and you would be embarrassed if you changed your mind now.

Yes, Yes even I have things that I deep down know I am wrong but I am not willing to admit it.

Yeah, and I would do exactly the same things, harp on truism that support my belief but never comment or debate the facts that prove my belief to be incorrect.

Now you make perfect sense.

Well, that was convincing. Ad hominem arguments prove paucity of substance. — Garth

#113 Future Expatriate on 07.23.09 at 2:57 am

Bernanke may have just uttered the US Federal Reserve’s epitaph…

Half a trillion to foreign central banks

Hopefully.

#114 Mike (Authentic) on 07.23.09 at 7:36 am

#107 Devil’s Advocate “If someone can logically explain to me why gold will not rally in the midst of the financial shakeout we most expect I will gladly abandon my pursuit of gold as a significant component of my investment strategy. To date I have not found as good argument against gold as for although admittedly the adamant rantings against gold do compel me to pause and wonder. As I said, I am willing to admit I don’t have all the answers – I’m still learning.”

Well, I’ll give it a shot. Here goes:

Gold seems to have already rallied and are now as bloated as RE is/was.

See here: http://www.usagold.com/reference/prices/gold-price-history.gif

Tell me you do not see something that looks like RE prices from year 2000+

Do you want to buy gold at the peek? To me, it seems like a “greater fool” thing to do. Now, if gold was $350/oz like it was 1982-2004, then I’d be buying gold, but we are at a “all-time high” per oz.

Hopefully that’s good reasoning for you. :)

Mike

#115 VOODOO on 07.23.09 at 9:06 am

#110 Davinci on 07.23.09 at 12:48 am:

“Gold and silver is the best item to use as money. 6000 years of historical success with gold as money and you think it’s wrong?”
——————————————–
“Strange forms of money of the past and today.

For hundreds of years, the Norwegians used butter and dried cod as currency.

The bubblegum became a form of money in the hands of soldiers in the Second World War.

A cow in ancient Greece could not be carried in the wallet, but worth big money.

Inside today’s prisons cigarettes are a form of trading currency.

In the 12th century the Aztecs from Mexico used seed of cocoa. Rice was used in Japan, almonds in India, reindeer in Siberia, salt in China.”

http://www.finejewelrydesigns.com/pictures-of-money.html
——————————————————
Just because something has been used in the past as a form of currency doesn’t mean today it is the “best item to use as money”. Try buying a car with bubblegum. Do you really think we live in a time where the entire global economy is going to collapse and people are going to fall back to gold? Look at hyperflation in Zimbabwe–they discarded their currency for the Euro!!!

Cash is king.

#116 VOODOO on 07.23.09 at 9:27 am

For all you gold bugs caught up in the gold bubble:

Amount of recent wealth destroyed by downturn and collapsing real estate:

++++++++++++++++++++++++++++++++

Relative amount of currency in system:

+

Amount of currency being created:

+

Hard to see where the hyperinflation and turning to gold will come from !!!!

#117 brett on 07.23.09 at 10:45 am

adjusted for inflation gold is no where near an all time high.
Paul van eeden has fair value for gold at around US$820, but again he relies on official Gov numbers to produce that price. even greenspan said, there is no real way of determining how many dollars are out there. NOBODY KNOWS! will gold fall from here? possibly, and possibly hard, like down to US 650, but the fundamentals support it at US 2000 plus and it will likely get there within 2 years, thats more than double from todays price. anyone want to wager what asset will perform better than that in the next 2 years? oil?- not with world economic output falling. anything else ? perhaps silver or platinum.

#118 brett on 07.23.09 at 12:37 pm

Voodoo#114, dont mistake credit with currency. we are in a credit contraction, but also a currency expansion. the US fed has more then doubled the reserve base, it is not yet inflationary because it is being held by the banks on deposit with the fed. From what i have read the Fed cannot sop up that liquidity in a practical manner, and eventually that $ will be lent out. of course the fed is also monetizing the debt with treasury purchases. this is all inflationary and will support higher gold prices.

By the way current US monetary inflation is running at 12% as measured by TMS (true money supply)

prices are affected by more then just the currency, so dont follow CPI numbers to gauge inflation. prices are prices, inflation is all monetary.

#119 steven rowlandson on 07.23.09 at 1:47 pm

Hello all.
Not long ago I heard that the global money supply was around 150 trillion. Divide that buy 5.5 billion ounces of gold and you get $27,272 an ounce and thats if you include all forms of metallic gold. If you are pickier about quality of gold and decide to include derivatives and other financial assets with the money supply the proper market price would be some what higher.
Existing market prices are so cheap relative to what they should be that even Garth ought to consider loading up the truck if he can find any physical to buy that is.

#120 VOODOO on 07.23.09 at 3:41 pm

#117 steven rowlandson on 07.23.09 at 1:47 pm
—————————————————
But if money becomes devalued or worth nothing, thus forcing the use of gold as currency, then you can’t say 1 ounce of gold is ‘worth’ $27,272. It would be worth 1 ounce of gold. It wouldn’t be worth any amount of worthless ‘paper’.

Gold will never be currency any more than will shares in the Royal Bank. Give it up. — Garth

#121 Mike (Authentic) on 07.23.09 at 4:41 pm

#115 brett “gold is no where near an all time high.
Paul van eeden has fair value for gold at around US$820”

See here: http://www.usagold.com/reference/prices/gold-price-history.gif

This chart DOES adjust the price of gold to inflation.

Mike

#122 steven rowlandson on 07.23.09 at 9:15 pm

Hello Voodoo.
It is not nessesary for any more money to be created for gold to cost more than $27,000.00. All that is needed is for markets to obey the laws of mathematics and for people to face reality. This is something large groups of man kind stead fastly refuse to do. Particularly politicians and banker types.
Quite frankly what ever market you look at you will find people attempting to get something for nothing at the expense of those who own or produce. That is why gold is 948 instead of 27,000. Then again if you wish to has a fully justified 948 an oz gold then you would have to get rid of 98 to 99 percent of all the so called money in the world. Which approach to honest money do you think is better? The current situation isn’t honest so don’t approve of it.

Steven

#123 steven rowlandson on 07.23.09 at 9:26 pm

Garth if gold and silver are made into coins with or without a face value then by definition gold and silver is a currency and certainly is money. I know I used to get my allowance in silver coin and it was and is currency/money. Making gold and silver coin is now the only thing the government does well.

Steven

The coins do not circulate at face value, therefore are not currency. — Garth

#124 Davinci on 07.23.09 at 10:33 pm

Garth said to me: “Well, that was convincing. Ad hominem arguments prove paucity of substance.”

Ouch!
I guess I had that coming.

Listen, I have posted many times on this blog focusing on the real issues. Time and time again you would reply with content that did little to prove that paper is money.

So I will point to the issues with paper and the virtues of gold.
(also a response to VOODOO)

Gold holds it’s value, paper loses value.
Paper can, and will be printed and given to the wealthy, thus making you a slave.
Gold and silver requires someone to work and increase the supply, this is what gives it value as well as it’s rarity.
Paper, along with everything else used as money has failed thousands of times in history and humans end up resorting to gold and silver money ONLY.

That’s the one part I don’t understand, as an analogy to paper money – if everybody dies why do you think you will live forever? lol It doesn’t make sense, if all other items used as money has failed, why do you thing paper money will last forever?

Sure, a ponzi scam will work for a long time if you get enough suckers but it does not mean it was a valid form of investing. Even if you increased your wealth!

If you believe that the currency will collapse one day then that’s a reason not to use it! It’s a ponzi scam.

Thus if you will respond try to respond with a rational explanation as to why paper currency will not collapse?

Thanks
BTW: I wish I had half of your vocabulary. Bravo, I loved the insult even though it stung.

#125 steven rowlandson on 07.24.09 at 6:10 am

Garth just because the world as you know it is using funny money does not make it legit and if you take a silver dime to the bank they will give you a copper nickle dime for it. A canadian dime is a canadian dime, to the bank it matters not what its made of.

I am not a fool as you think I am. I just don’t accept the world as you and I know it as legitimate.
It is a criminal enterprise out to rob and kill good men in the name of power and profit.
When they chip the population to facilitate commerce and identification and to eliminate physical money do you think that system will be honorable and legit even though all participants will burn in hell for it? Those who control the banking computers will have absolute power over every aspect of life. Who lives and who dies would be at their discretion. That is the world the phoney money worshipping bankers and politicians have planned. Is that the kind of world you want to see?
A satanic totalitarian hell?

Your call Garth.

#126 brett on 07.24.09 at 10:47 am

The coins do not circulate at face value, therefore are not currency. — Garth

There is a business owner in the states who pays his employees with circulating US gold coins, over many years he paid out over 100 million, problem is, he paid his employees the face value of the coin, but the real value was much higher, but the employees only reported income at the face value of the coin thus getting the attention of the IRS, so far he has been successful in court. The Gov is arguing against its own stamped value on the coin, perhaps it should also argue about the stamped value on its paper bills too.

So what is face value? It is nothing more than a suggestion!!! there are many places in the world where US dollars do not circulate at face value, and im not just talking about the usual fees for conversions, and in fact some places have stopped excepting them all together, so is the US dollar a currency in those places? yes it still is, but a devalued currency, right or wrong anyone can proclaim what something is worth, the stamped number on a piece of paper is not absolute, unless enforced by dictat.

The future for the current incarnation of the US federal reserve note will be ZERO perceived value, and it will be accepted nowhere. God help the “safe haven” bond holders.

Garth I am accepting your gold for food, fuel, Bank of Canada reserve notes or anything else you want to buy. I will pay you spot gold price, and i can introduce you to many of my friends who will also want in on that action.

#127 brett on 07.24.09 at 11:02 am

#119 mike- the link you provided, the chart does NOT adjust for inflation.

#117-Gold will never be currency any more than will shares in the Royal Bank. Give it up. — Garth

in a doomsday scenario gold will act as money, otherwise you’re right, no one is going to want to trade precious physical gold when a piece of paper is accepted instead. the question is, will paper gold replace paper paper? in other words, will the future currency be backed by gold. I say yes, at least to some degree.

#128 R on 07.25.09 at 11:13 am

The recession is over! Does this mean the banks will accept layoff notices as a down payment on a mortgage, or as an i.o.u. on all other personal debt?